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Liquidity and Management's Plans

12 Months Ended

Dec. 31, 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 and revenue generated as a result of its agreements with Meda regarding ONSOLIS^® and Endo regarding its BEMA^® Buprenorphine product. 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, licensing and commercial partnership agreements and, potentially, through the exercise of outstanding Common Stock options and warrants to purchase Common Stock.

Significant financing sources during the year ended December 31, 2012 consisted of:

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approximately $45 million in upfront and milestone payments from the Endo license agreement (see note 6);

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approximately $38.4 million in net proceeds from a registered direct offering of Common Stock and newly designated Series A Non-Voting Convertible Preferred Stock, par value $.001 per share (the “Series A Preferred”) in November 2012;

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approximately $17.5 million in previously deferred contract revenue from the Meda license agreement. (see note 5);

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approximately $2.1 million from the exercise of stock options; and

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approximately $0.9 million from the exercise of Common Stock warrants.

Significant financing sources during the year ended December 31, 2011 consisted of:

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

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approximately $1 million in net royalties;

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

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approximately $0.3 million in contract revenue from licensing and supply agreement (see note 7);

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

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

Significant financing sources during the year ended December 31, 2010 consisted of:

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approximately $9.7 million in net proceeds from registered direct offering of Common Stock and warrants in April 2010;

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approximately $1 million in net royalties;

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approximately $0.7 million in research revenues from various contractor agreements;

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approximately $0.5 million in contract revenue from licensing and supply agreement (see note 7);

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approximately $0.2 million in sponsored research revenue from the U.S. Government’s Qualifying Therapeutic Discovery Project (see note 9); and

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approximately $0.1 million from the exercise of Common Stock options.

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, and such registration statement was declared effective on February 24, 2012.

On December 3, 2012, the Company closed a registered direct offering, issuance and sale of shares of Common Stock and Series A Preferred. The final amount of securities issued in the offering was an aggregate of (i) 6,791,887 shares of Common Stock and (ii) 2,709,300 shares of Series A Preferred. The net proceeds of the sale of Common Stock and Series A Preferred to the Company, after deducting placement agent fees, the corporate finance fee and estimated offering expenses paid by the Company, was approximately $38.4 million.

At December 31, 2012, the Company had cash and cash equivalents of approximately $63.2 million. The Company generated $12.2 million of cash from operations during the twelve months ended December 31, 2012. As of December 31, 2012, the Company had stockholders’ equity of $49.8 million, versus $4.1 million at December 31, 2011. The Company’s existing cash, together with other expected cash inflows from other milestones and royalties, are anticipated by management to be sufficient to fully fund the Company’s operations through the second quarter of 2014 at the planned level. 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 of 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 ^®, clinical development programs for BEMA^® Buprenorphine (the scale of which is being governed in large part by the requirements of the Company’s agreement with Endo), planned development and potential commercialization of BEMA^® Buprenorphine/Naloxone (BNX), potential acquisitions of other products or technologies and general working capital. Based on product development timelines and agreements with the Company’s development 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 year ending December 31, 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.

Disclosure of accounting policy for reporting when there is a substantial doubt about an entity's ability to continue as a going concern for a reasonable period of time (generally a year from the balance sheet date). Disclose: (a) pertinent conditions and events giving rise to the assessment of substantial doubt about the entity's ability to continue as a going concern for a reasonable period of time, (b) the possible effects of such conditions and events, (c) management's evaluation of the significance of those conditions and events and any mitigating factors, (d) possible discontinuance of operations, (e) management's plans (including relevant prospective financial information), and (f) information about the recoverability or classification of recorded asset amounts or the amounts or classification of liabilities. If management's plans alleviate the substantial doubt about the entity's ability to continue as a going concern, disclosure of the principal conditions and events that initially raised the substantial doubt about the entity's ability to continue as a going concern would be expected to be considered. Disclose whether operations for the current or prior years generated sufficient cash to cover current obligations, whether waivers were obtained from creditors relating to the company's default under the provisions of debt agreements and possible effects of such conditions and events, such as: whether there is a possible need to obtain additional financing (debt or equity) or to liquidate certain holdings to offset future cash flow deficiencies. Disclose appropriate parent company information when parent is dependent upon remittances from subsidiaries to satisfy its obligations.

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