Liquidity and management's plans

9 Months Ended

Sep. 30, 2014

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, commercialization and working capital needs from existing cash, royalty revenue, potential sales revenue from the commercialization of BUNAVAIL™, 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 nine months ended September 30, 2014 consisted of:

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approximately $58.2 million in net proceeds from certain institutional investors related to a definitive securities purchase agreement (see note 9);

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approximately $12.5 million in net proceeds from an “at-the-market” offering program utilizing the Company’s universal shelf registration (see note 9);

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approximately $22.3 million in contract revenue under the Endo agreement (see note 4);

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approximately $12.1 million in research and development reimbursements under the Endo agreement (see note 4);

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approximately $4.6 million from the exercise of stock options; and

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approximately $4.9 million from the exercise of warrants.

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 a secured loan facility from MidCap Financial SBIC, LP, as agent and lender (“MidCap”) (see note 7);

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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 6); and

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

At September 30, 2014, the Company had cash and cash equivalents of approximately $85.8 million. The Company used $10.8 million of cash from operations during the nine months ended September 30, 2014. The Company believes that existing cash as of the date of this Quarterly Report, combined with anticipated revenues associated with the commercialization of BUNAVAIL™ and anticipated regulatory milestone payments from Endo relating to BEMA^® Buprenorphine will be sufficient to fully fund the Company’s planned level of operations through the end of 2015. Included in the Company’s planned level of operations are: (i) commercialization activities for BUNAVAIL™ (ii) support of Endo’s activities with BEMA^® Buprenorphine relating to NDA compilation, submission and review, (iii) the clinical development of Clonidine Topical Gel, (iv) the final regulatory activities required for the resubmission of ONSOLIS^® regulatory package for product reintroduction and (v) funding of general working capital requirements. Additional capital may be required to support these efforts as well as potential new product acquisitions or in-licenses, and the ability to scale up or reduce personnel and associated costs are factors considered by management throughout the product development and commercialization life cycle. However, available capital may be consumed more rapidly than currently anticipated, resulting in the need for additional funding, and there is a risk that additional funding, when and if required, may not be available at commercially favorable terms, if at all.

- Definition

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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