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 worldwide license and development agreement with Meda regarding ONSOLIS^® and revenue generated as a result of its January 2012 agreement with Endo regarding its 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 debt and equity 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 new financing and operating sources during the year ended December 31, 2013 consisted of:

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approximately $19.8 million in net proceeds from secured loan facility from MidCap Financial SBIC, LP, as agent and lender (“MidCap”) (See note 9);

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approximately $2.8 million in research and development reimbursements under the Endo agreement;

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approximately $1.8 million in net royalties under the Meda agreements;

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approximately $0.3 million in contract revenue from licensing and supply agreement (see note 8); and

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approximately $0.4 million from the exercise of stock options and warrants.

Significant new financing and operating 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 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 and operating 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 8);

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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.

On July 5, 2013, the Company, together with Arius One and Arius Two, entered into a $20 million secured loan facility pursuant to a Credit and Security Agreement (the “Credit Agreement”) with MidCap. The Company received net proceeds in the aggregate amount of $19.8 million and is using the loan proceeds for general corporate purposes or other activities permitted under the Credit Agreement. (See note 9).

In November 2013, the Company filed a shelf registration statement which registered up to $75 million of the Company’s securities for potential future issuance, and such registration statement was declared effective on December 18, 2013. Concurrently with the filing of such registration statement, the Company established an “at-the-market” offering program utilizing the universal shelf registration for up to $15 million of common stock. Cantor Fitzgerald & Co. is the placement agent for such offering program. In January 2014, the Company sold 658,489 shares of common stock under such offering program for approximate gross proceeds of $4 million.

On January 23, 2014, the Company announced positive top-line results from its pivotal Phase 3 efficacy study of BEMA^® Buprenorphine in opioid-“naive” subjects. The locking of the database for the opioid naive study has triggered a $10 million milestone payment from Endo per the Company’s licensing agreement. Such payment was received in February, 2014.

In December 2013 and January and February of 2014, a warrant holder exercised an aggregate of 10,000 and 515,000 shares of common stock underlying a warrant for proceeds to the Company of $0.05 million and $2.6 million, respectively.

From January through March 2014, Company employees and directors exercised approximately 0.7 million stock options, which net proceeds to the Company was $2.2 million.

On February 7, 2014, the Company entered into a definitive Securities Purchase Agreement with certain institutional investors relating to a registered direct offering by the Company of 7,500,000 shares of the Company’s common stock, par value $.001 per share. The shares were sold at a price of $8.00 per share, yielding gross offering proceeds of $60 million. The offering price per share was determined based on an approximately 3.1% discount to the closing price of the Common Stock on February 7, 2014.

At December 31, 2013, the Company had cash and cash equivalents of approximately $23.2 million. The Company used $60.1 million of cash from operations during the twelve months ended December 31, 2013. As of December 31, 2013, the Company had stockholders’ (deficit) equity of $(0.8) million, versus $49.8 million at December 31, 2012. 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 2015.

Additional capital may be required to support commercialization activities for BUNAVAIL™, clinical development programs for BEMA^® Buprenorphine (the scale of which is being governed in large part by the requirements of our agreement with Endo), the reformulation project for and anticipated commercial relaunch of ONSOLIS^®, planned development of Clonidine Topical Gel produced for painful diabetic neuropathy and general working capital. Based on product development timelines and agreements with our 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.