Liquidity and Management's Plans

9 Months Ended

Sep. 30, 2012

Liquidity and Management's Plans [Abstract]

Liquidity and management's plans

2. Liquidity and management’s plans:

Since inception, the Company has financed its operations principally from the sale of equity securities, proceeds from short-term borrowings or convertible notes, funded research arrangements, revenue and cash flow generated as a result of its worldwide license and development agreements with Meda AB (“Meda”) regarding the Company’s ONSOLIS ^® product and revenue and cash flow generated as a result of its January 2012 license and development agreement with Endo Pharmaceuticals Inc. (“Endo”) regarding the Company’s BEMA^® Buprenorphine product candidate. The Company intends to finance its research and development and

commercialization efforts and its working capital needs from existing cash, royalty revenue, new sources of financing, existing and new licensing and commercial partnership agreements and, potentially, through the exercise of outstanding Common Stock options and warrants to purchase Common Stock.

Significant financing and revenue for the nine months ended September 30, 2012 consisted of:

• $45 million in contract revenue from the Endo license agreement (see note 4);

• $2.5 million in deferred contract revenue under the Meda agreements (see note 3);

• approximately $2.0 million from the exercise of stock options; and

• approximately $0.1 million in previously deferred contract revenue.

Significant financing and revenue through December 31, 2011 consisted of:

• approximately $14 million in net proceeds from a private placement offering of Common Stock in March 2011;

• approximately $1 million in net royalties under the Meda agreements;

• approximately $1.7 million from the exercise of Common Stock warrants;

• approximately $0.3 million in contract revenue from licensing and supply agreement (see note 6);

• approximately $0.2 million in research revenues from various contractor agreements; and

• approximately $0.3 million from the exercise of Common Stock options.

In January 2012, the Company received a $30 million, non-refundable payment related to the Company’s definitive license and development agreement with Endo to license, develop, manufacture, market and sell its BEMA^® Buprenorphine product candidate on a worldwide basis. In addition, in May 2012, the Company received an additional $15 million milestone payment from Endo due to its achievement of a certain intellectual property-related milestone. However, this aggregate $45 million in cash is anticipated to be used in its entirety to fund the Company’s clinical research with respect to this product candidate.

In February 2012, the Company’s universal shelf registration statement, pursuant to which it could issue up to $50 million of its securities from time to time and subject to certain conditions, expired. In January 2012, the Company filed a renewal of its shelf registration statement which registered up to $40 million of the Company’s securities for potential future issuance. Such registration statement was declared effective on February 24, 2012 and will expire in February 2015 unless it is renewed prior to such expiration.

At September 30, 2012, the Company had cash and cash equivalents of approximately $31.3 million. The Company generated $19.7 million of cash from operations during the nine months ended September 30, 2012. As of September 30, 2012, the Company had stockholders’ equity of $11.0 million, versus $4.1 million at December 31, 2011.

The Company’s existing cash, even with the aforementioned $30 million up-front license payment and the $15 million milestone payment, together with other expected cash inflows from other milestones and royalties, is anticipated by management to be sufficient to fully fund the Company’s planned operations into the second quarter of 2013. Included in this estimation are costs of between $0.6 million and $0.8 million that the Company expects will be incurred in connection with the reformulation project (described further in Note 3 below) associated with the Company’s Food and Drug Administration (“FDA”)-approved ONSOLIS ^®. Certain planned expenditures are discretionary and could be deferred if the Company is required to do so to fund critical operations.

Accordingly, additional capital will likely be required to support commercialization efforts for ONSOLIS ^® (including commercial launch in Europe which occurred October 2012), clinical development programs for BEMA ^® Buprenorphine (the scale of which is being governed by the requirements of the Company’s agreement with Endo), planned development of the Company’s BEMA^® Buprenorphine/Naloxone product candidate and other potential products or technologies, as well as general working capital. Based on product development timelines and agreements with the Company’s existing development and commercialization partners, the ability to scale up or reduce personnel and associated costs are factors considered throughout the product development life cycle. Available resources may be consumed more rapidly than currently anticipated, resulting in the need for additional funding.

In addition, the worldwide financial and credit crisis that began in 2008 and has fluctuated to the present time has strained investor liquidity and contracted credit markets. During the nine months ending September 30, 2012, the financial and credit crisis did not

directly nor materially impact the Company. However, if this environment continues, fluctuates or worsens, it may make the future cost of raising funds through the debt or equity markets more expensive or make those markets unavailable at a time when the Company requires additional financial investment. If the Company is unable to attract additional funds it may adversely affect its ability to achieve development and commercialization goals, which could have a material and adverse effect on the business, results of operations and financial condition.