30000000
10000000
1
52403027
20000000
10000000
88199000
52381638
52366147
75000000
0.0895
5.39
2633424
15491
0.001
5000000
0.001
3174102
1581000
45000
1770000
382000
2000
29587000
2256000
53000
14512000
-213724000
14512000
10038000
49847000
734000
82469000
263563000
737000
122000
7075000
8000000
32622000
900000
63459000
2715000
3948000
18025
2704000
674000
5718000
580000
82469000
40300000
2550000
3031000
3984000
78000
47000
71744000
1296000
0.035
55000000
23000
1629000
0.02
10.12
4191569
20000000
348000
1360000
34000
178000
3798000
2093155
2000
2093155
-213724000
52381638
53000
-47000
263563000
900000
800000
3.12
284
10256000
411000
23176000
51603070
51587579
75000000
0.0895
4.32
15491
0.001
5000000
0.001
3196100
2303000
841000
1685000
770000
2000
29201000
4173000
52000
14429000
-205531000
14429000
9072000
54396000
700000
89311000
259920000
945000
231000
6772000
8000000
34915000
100000
70472000
2715000
3890000
2882000
761000
5575000
544000
89311000
1828000
3141000
4226000
157000
47000
78323000
523000
0.005
14000
1094000
6.08
2849076
344000
1354000
9000
110000
3758000
2139000
2000
2139000
-205531000
51603070
52000
-47000
259920000
700000
19800000
6000
59700000
3
0.0845
-0.11
611000
-0.11
10700000
44305288
-555000
11284000
73000
713000
-4825000
954000
1200000
23000
20690000
2000000
842000
-4644000
-4644000
432000
-262000
11000
-66000
19251000
14623000
4628000
161000
243000
65023000
726000
65254000
-842000
62037000
2560000
-1255000
2575000
1147000
82000
8452000
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
</p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="100%" border="0">
<tr>
<td valign="top" width="4%" align="left"><b>4.</b></td>
<td valign="top" align="left"><b>Accounts payable and accrued
liabilities:</b></td>
</tr>
</table>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-TOP: 6pt">
The following table represents the components of accounts payable
and accrued liabilities as of:</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
</p>
<br class="Apple-interchange-newline" />
<table style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="76%" align="center" border="0">
<tr>
<td width="76%"></td>
<td valign="bottom" width="6%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="6%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: 'Times New Roman'">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" align="center"><b>March 31,<br />
2015</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" align="center"><b>December 31,<br />
2014</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Accounts payable</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">10,038</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">9,072</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Accrued price adjustments</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1,629</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1,094</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Accrued rebates</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">122</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">231</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Accrued chargebacks</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">23</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">14</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Accrued compensation and benefits</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">737</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">945</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Accrued royalties</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">382</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">770</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Accrued other</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1,581</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">2,303</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'">
<td style="WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 13px 'Times New Roman'; WIDOWS: 1; LETTER-SPACING: normal; BACKGROUND-COLOR: rgb(255,255,255); TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px" valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Total accounts payable and accrued expenses</p>
</td>
<td style="WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 13px 'Times New Roman'; WIDOWS: 1; LETTER-SPACING: normal; BACKGROUND-COLOR: rgb(255,255,255); TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px" valign="bottom"></td>
<td style="WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 13px 'Times New Roman'; WIDOWS: 1; LETTER-SPACING: normal; BACKGROUND-COLOR: rgb(255,255,255); TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px" valign="bottom">$</td>
<td style="WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 13px 'Times New Roman'; WIDOWS: 1; LETTER-SPACING: normal; BACKGROUND-COLOR: rgb(255,255,255); TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px" valign="bottom" align="right">14,512</td>
<td style="TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 13px 'Times New Roman'; WIDOWS: 1; LETTER-SPACING: normal; BACKGROUND-COLOR: rgb(255,255,255); TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px" valign="bottom" nowrap="nowrap">  </td>
<td style="WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 13px 'Times New Roman'; WIDOWS: 1; LETTER-SPACING: normal; BACKGROUND-COLOR: rgb(255,255,255); TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px" valign="bottom"></td>
<td style="WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 13px 'Times New Roman'; WIDOWS: 1; LETTER-SPACING: normal; BACKGROUND-COLOR: rgb(255,255,255); TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px" valign="bottom">$</td>
<td style="WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 13px 'Times New Roman'; WIDOWS: 1; LETTER-SPACING: normal; BACKGROUND-COLOR: rgb(255,255,255); TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px" valign="bottom" align="right">14,429</td>
</tr>
</table>
</div>
<div>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; BORDER-COLLAPSE: collapse; TEXT-TRANSFORM: none; WORD-SPACING: 0px; WIDOWS: 1; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px" cellspacing="0" cellpadding="0" width="100%" border="0">
<tr>
<td valign="top" width="4%" align="left"><b>10.</b></td>
<td valign="top" align="left"><b>Commitments and
contingencies:</b></td>
</tr>
</table>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<i>Litigation Related To ONSOLIS<sup style="FONT-SIZE: 11px; VERTICAL-ALIGN: top">®</sup></i></p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
In March 2012, the Company announced that the New Jersey Federal
Court granted a stay of further litigation in the patent
infringement lawsuit previously filed by MonoSol Rx, LLC
(“MonoSol”) against the Company and its
ONSOLIS<sup style="FONT-SIZE: 11px; VERTICAL-ALIGN: top">®</sup> commercial partners. The
court ordered that the case would be stayed pending resolution by
the United States Patent and Trademark Office (“USPTO”)
of reexamination proceedings and follows the recent rejection by
the USPTO of all claims in all three patents asserted by MonoSol
against the Company and its commercial partners for
ONSOLIS<sup style="FONT-SIZE: 11px; VERTICAL-ALIGN: top">®</sup>.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
Based on the Company’s original assertion that its
proprietary manufacturing process for ONSOLIS<sup style="FONT-SIZE: 11px; VERTICAL-ALIGN: top">®</sup> does not infringe on patents
held by MonoSol, and the denial and subsequent narrowing of the
claims on the two reissued patents MonoSol has asserted against the
Company while the third has had all claims rejected by the USPTO,
the Company remains very confident in its original stated position
regarding this matter. Thus far, the Company has proven that the
“original” ’292 and ’891 patents in light
of their reissuance with fewer and narrower claims were indeed
invalid and the third and final patent, the ’588 patent, was
invalid as well with all its claims cancelled.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
Given the outcomes of the ‘292, ‘891 and ‘588
reexamination proceedings, at a January 22, 2015 status
meeting, the Court decided to lift the stay and grant the
Company’s request for the case to proceed on an expedited
basis with a Motion for Summary Judgment to dismiss the action. In
doing so, the Judge denied MonoSol’s request for full
litigation proceedings (including, for example, discovery and claim
construction proceedings). The Company filed its motion for summary
judgment on March 13, 2015 and briefing took place during
March. The Court indicated it would rule on the Company’s
summary judgment motion without an oral hearing. The Company
expects a decision within the first half of 2015. Based upon the
outcome from reexaminations and the Court’s grant of the
Company’s request for the proceedings to move directly to a
motion for summary judgment, the Company believes it will prevail
and the case will be dismissed. However, if this does not occur and
the case proceeds to trial, the Company will continue to defend
this case vigorously and seek a dismissal at trial. Ultimately,
whether now with the motion for summary judgment proceedings or
later with trial proceedings, the Company anticipates that
MonoSol’s claims against the Company will be rejected.</p>
<p style="MARGIN-BOTTOM: 0px; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 1px 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 18px; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
 </p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 0pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<i>Litigation Related To BUNAVAIL<sup style="FONT-SIZE: 11px; VERTICAL-ALIGN: top">TM</sup></i></p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
On October 29, 2013, Reckitt Benckiser, Inc. RB
Pharmaceuticals Limited, and MonoSol RX, LLC (collectively, the
“RB Plaintiffs”) filed an action against the Company
relating to the Company’s BUNAVAIL™ product in the
United States District Court for the Eastern District of North
Carolina for alleged patent infringement. BUNAVAIL™ is a
proposed treatment for opioid dependence. The RB Plaintiffs claim
that the formulation for BUNAVAIL™, which has never been
disclosed publicly, infringes its patent (United States Patent
No. 8,475,832). The Company strongly refutes as without merit
the RB Plaintiffs’ assertion of patent infringement and will
vigorously defend the lawsuit.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
On September 20, 2014, based upon the Company’s position
and belief that its BUNAVAIL<sup style="FONT-SIZE: 11px; VERTICAL-ALIGN: top">®</sup> product does not infringe any
patents owned by the RB Plaintiffs, the Company proactively filed a
declaratory judgment action in the United States District Court for
the Eastern District of North Carolina, requesting the Court to
make a determination that its BUNAVAIL<sup style="FONT-SIZE: 11px; VERTICAL-ALIGN: top">®</sup> product does not infringe the
RB Plaintiffs’ ‘832 Patent, US Patent
No. 7,897,080 (‘080 Patent) and US Patent
No. 8,652,378 (‘378 Patent). With the declaratory
judgment, there is an automatic stay in proceedings. The RB
Plaintiffs may request that the stay be lifted, but they have the
burden of showing that the stay should be lifted. For the
‘832 Patent, the January 15, 2014 IPR was instituted and
all challenged claims were rejected for both anticipation and
obviousness. For the ‘080 Patent, all claims have been
rejected in an inter partes reexamination and the rejection of all
claims as invalid over the prior art has been affirmed on appeal by
the PTAB in a decision dated March 27, 2015. For the
‘378 Patent, an IPR was filed on June 1, 2014, but an
IPR was not instituted. However, in issuing its November 5,
2014 decision not to institute the IPR, the PTAB construed the
claims of the ‘378 Patent narrowly. As in prior litigation
proceedings, the Company believes these IPR and the reexamination
filings will provide support for maintaining the stay until the IPR
and reexamination proceedings conclude. Indeed, given the
PTAB’s narrow construction of the claims of the ‘378
Patent, the Company filed a motion to withdraw the ‘378
Patent from the case on December 12, 2014. In addition, the
Company also filed a joint motion to continue the stay (with RB
Plaintiffs) in the proceedings on the same day. Both the motion to
withdraw the ‘378 Patent from the proceedings and motion to
continue the stay were granted.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
On September 22, 2014, the RB Plaintiffs filed an action
against the Company (and the Company’s commercial partner)
relating to the Company’s BUNAVAIL<sup style="FONT-SIZE: 11px; VERTICAL-ALIGN: top">®</sup> product in the United States
District Court for the District of New Jersey for alleged patent
infringement. The RB Plaintiffs claim that BUNAVAIL<sup style="FONT-SIZE: 11px; VERTICAL-ALIGN: top">®</sup>, whose
formulation and manufacturing processes have never been disclosed
publicly, infringes its patent (U.S. Patent No. 8,765,167)
(‘167 Patent). As with prior actions by the RB Plaintiffs,
the Company believes this is another anticompetitive attempt by the
RB Plaintiffs to distract the Company’s efforts from
commercializing BUNAVAIL<sup style="FONT-SIZE: 11px; VERTICAL-ALIGN: top">®</sup>. The Company
strongly refutes as without merit the RB Plaintiffs’
assertion of patent infringement and will vigorously defend the
lawsuit. In this regard, on October 28, 2014, the Company
filed multiple IPR requests on the ’167 Patent demonstrating
that certain claims of such patent were anticipated by or obvious
in the light of prior art references, including prior art
references not previously considered by the USPTO, and thus,
invalid. On December 12, 2014, the Company filed a motion to
transfer the case from New Jersey to North Carolina and a motion to
dismiss the case against the Company’s commercial partner. An
oral hearing on these motions was set for March 2, 2015,
however, the Court has decided to move forward without an oral
hearing and the Company is awaiting their decision. The Court can
still ultimately decide to hold an oral hearing on a later
date.</p>
</div>
<div>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; BORDER-COLLAPSE: collapse; TEXT-TRANSFORM: none; WORD-SPACING: 0px; WIDOWS: 1; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px" cellspacing="0" cellpadding="0" width="100%" border="0">
<tr>
<td valign="top" width="4%" align="left"><b>8.</b></td>
<td valign="top" align="left"><b>Note Payable:</b></td>
</tr>
</table>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
On July 5, 2013, the Company entered into a $20 million
secured loan facility (the “Loan” or “Credit
Agreement”) with MidCap Financial SBIC, LP
(“MidCap”). The Company received net proceeds in the
aggregate amount of $19.8 million and used the Loan proceeds for
general corporate purposes or other activities of the Company
permitted under the Credit Agreement.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
The Loan has a term of 36 months with interest only payments until
February 1, 2014. The interest rate is 8.45% plus a LIBOR
floor of 0.5% (total of 8.95% at March 31, 2015 and
December 31, 2014). The Company paid to MidCap a closing fee
of 0.5% of the aggregate Loan amount. Upon repayment in full of the
Loan, the Company is obligated to make a final payment fee
equal to 3.5% of the aggregate Loan amount. The 3.5% exit fee has
been recorded as deferred loan costs, the current portion of which
is included in prepaid expenses and other current assets and the
long-term portion in other assets. The liability associated with
the exit fee has been recorded in other long-term liability in the
accompanying condensed consolidated balance sheets. The deferred
loan costs associated with this exit fee are amortized to interest
expense over the three year life of the loan. In addition, the
Company may prepay all or any portion of the Loan at any time
subject to a prepayment premium of 3% of the Loan amount
prepaid in each year thereafter the first year.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
The obligations of the Company under the Credit Agreement are
secured by a first priority lien in favor of MidCap on
substantially all of the Company’s existing and subsequently
acquired assets, but excluding certain intellectual property and
general intangible assets (but not any proceeds thereof). The
obligations of the Company under the Loan Agreement are also
secured by a first priority lien on the equity interests in the
Company’s subsidiaries.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
The Company is subject to affirmative covenants including, but not
limited to, the obligations to: (i) maintain good standing and
governmental authorizations, (ii) provide certain information
and notices to MidCap, (iii) deliver monthly and annual
financial statements to MidCap, (iv) maintain insurance,
(v) discharge all taxes, (vi) protect their intellectual
property and (vii) generally protect the collateral granted to
MidCap.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
The Company is also subject to negative covenants including, but
not limited to, that without the prior consent of Midcap, the
Company may not: (i) enter into a merger or consolidation or
certain change of control events, (ii) incur liens on the
collateral, (iii) incur additional indebtedness,
(iii) dispose of any property, (iv) amend material
agreements or organizational documents, (v) change their
jurisdictions of organization or their organizational structures or
types, (vi) declare or pay dividends (other than dividends
payable solely in Common Stock), (vii) make certain
investments or acquisitions, or (viii) enter into certain
transactions with affiliates, in each case subject to certain
exceptions provided for in the Credit Agreement, including
exceptions that allow the Company to acquire additional products
and to enter into licenses and similar agreements provided certain
conditions are met.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
The balance of the Loan as of March 31, 2015 is $10.3 million,
and is recorded in the accompanying condensed consolidated balance
sheet, net of unamortized discount of $0.4 million.</p>
</div>
P3Y
-0.16
<div>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 18pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<i>Inventory</i></p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
Inventories are stated at the lower of cost or market value with
costs determined on the first-in, first-out method. Inventory
consists of raw materials, work in process and finished goods. Raw
materials include active pharmaceutical ingredient
(“API”) for a product to be manufactured, work in
process includes the bulk inventory of laminate prior to being
packaged for sale, and finished goods include pharmaceutical
products ready for commercial sale.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
On a quarterly basis, the Company analyzes its inventory levels and
records allowances for inventory that has become obsolete,
inventory that has a cost basis in excess of the expected net
realizable value and inventory that is in excess of expected demand
based upon projected product sales. There were no allowances
recorded at March 31, 2015.</p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 18pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<i>Deferred revenue</i></p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
Consistent with the Company’s revenue recognition policy,
deferred revenue represents cash received in advance for licensing
fees, consulting, research and development services, related supply
agreements and product sales. Such payments are reflected as
deferred revenue until recognized under the Company’s revenue
recognition policy. Deferred revenue is classified as current if
management believes the Company will be able to recognize the
deferred amount as revenue within twelve months of the balance
sheet date.</p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
Restricted stock activity during the three months ended
March 31, 2015 was as follows:</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 12pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 0pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; BORDER-COLLAPSE: collapse; TEXT-TRANSFORM: none; WORD-SPACING: 0px; WIDOWS: 1; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px" cellspacing="0" cellpadding="0" width="76%" align="center" border="0">
<tr>
<td width="74%"></td>
<td valign="bottom" width="6%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="6%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: 'Times New Roman'">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" align="center"><b>Number of<br />
Restricted<br />
Shares</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" align="center"><b>Weighted<br />
Average Fair<br />
Market Value<br />
Per RSU</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Outstanding at January 1, 2015</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">2,849,076</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">6.08</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Granted in 2015:</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 3em; TEXT-INDENT: -1em">
Executive officers</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">2,102,615</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">14.63</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 3em; TEXT-INDENT: -1em">
Directors</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Vested</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(694,269</td>
<td valign="bottom" nowrap="nowrap">) </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">14.39</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Forfeitures</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(65,853</td>
<td valign="bottom" nowrap="nowrap">) </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">11.69</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Outstanding at March 31, 2015</p>
</td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">4,191,569</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">10.12</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 3px double"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 3px double"> </p>
</td>
<td> </td>
</tr>
</table>
<br class="Apple-interchange-newline" /></div>
<div>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
The weighted average for key assumptions used in determining the
fair value of options granted during the three months ended
March 31, 2015 follows:</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 12pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 0pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; BORDER-COLLAPSE: collapse; TEXT-TRANSFORM: none; WORD-SPACING: 0px; WIDOWS: 1; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px" cellspacing="0" cellpadding="0" width="68%" align="center" border="0">
<tr>
<td width="89%"></td>
<td valign="bottom" width="5%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Expected price volatility</p>
</td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">73.29</td>
<td valign="bottom" nowrap="nowrap">% </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Risk-free interest rate</p>
</td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1.37</td>
<td valign="bottom" nowrap="nowrap">% </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Weighted average expected life in years</p>
</td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">6 years</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Dividend yield</p>
</td>
<td valign="bottom"></td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
</table>
<br class="Apple-interchange-newline" /></div>
3.41
10-Q
BIODELIVERY SCIENCES INTERNATIONAL INC
BDSI
<div>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
The following table represents the components of inventory as
of:</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 12pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 0pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; BORDER-COLLAPSE: collapse; TEXT-TRANSFORM: none; WORD-SPACING: 0px; WIDOWS: 1; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px" cellspacing="0" cellpadding="0" width="76%" align="center" border="0">
<tr>
<td width="76%"></td>
<td valign="bottom" width="7%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="7%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: 'Times New Roman'">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" align="center"><b>March 31,<br />
2015</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" align="center"><b>December 31,<br />
2014</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Raw materials & supplies</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">580</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">544</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Work-in-process</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1,296</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">523</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Finished goods</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">674</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">761</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Total inventories</p>
</td>
<td valign="bottom"></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">2,550</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">1,828</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 3px double"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 3px double"> </p>
</td>
<td> </td>
</tr>
</table>
<br class="Apple-interchange-newline" /></div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
Option activity during the three months ended March 31, 2015
was as follows:</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
</p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="84%" align="center" border="0"><!-- Begin Table Head -->
<tr>
<td width="69%"></td>
<td valign="bottom" width="5%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="5%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="5%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" align="center"><b>Number of<br />
Shares</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" align="center"><b>Weighted<br />
Average<br />
Exercise<br />
Price<br />
Per Share</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" align="center"><b>Aggregate<br />
Intrinsic<br />
Value</b></td>
<td valign="bottom"> </td>
</tr>
<!-- End Table Head --><!-- Begin Table Body -->
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Outstanding at January 1, 2015</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">3,196,100</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">4.32</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Granted in 2015:</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; TEXT-INDENT: -1em">
Officers and Directors</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; TEXT-INDENT: -1em">
Others</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">87,693</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">13.17</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Exercised</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(38,454</td>
<td valign="bottom" nowrap="nowrap">) </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">3.41</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Forfeitures</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(71,237</td>
<td valign="bottom" nowrap="nowrap">) </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">10.22</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Outstanding at March 31, 2015</p>
</td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">3,174,102</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">5.39</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">18,025</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 3px double"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 3px double"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 3px double"> </p>
</td>
</tr>
</table>
</div>
Accelerated Filer
<div>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 18pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<i>Cost of Sales</i></p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
The cost of sales attributable to the production of
BUNAVAIL<sup style="FONT-SIZE: 11px; VERTICAL-ALIGN: top">®</sup> includes raw materials,
production costs at our two contract manufacturing sites, quality
testing directly related to the product, and depreciation on
equipment that we have purchased to produce BUNAVAIL<sup style="FONT-SIZE: 11px; VERTICAL-ALIGN: top">®</sup>. It also
includes any batches not meeting specifications and raw material
yield loss. Yield losses and batches not meeting
specifications are expensed as incurred. Cost of sales is
recognized as actual product is sold through to the end user.
During the three months ended March 31, 2015, the Company
wrote down $0.2 million of inventory to lower of cost or market,
which is recorded as cost of sales in the accompanying condensed
consolidated statement of operations.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
The cost of sales attributable to the production of
ONSOLIS<sup style="FONT-SIZE: 11px; VERTICAL-ALIGN: top">®</sup> and BREAKYL™ includes
all costs related to creating the product at the
Company’s contract manufacturing locations in the U.S. and
Germany. The Company’s contract manufacturers bill the
Company for the final product, which includes materials, direct
labor costs, and certain overhead costs as outlined in applicable
supply agreements. Cost of sales also includes royalty expenses
that the Company owes to third parties.</p>
</div>
<div>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; BORDER-COLLAPSE: collapse; TEXT-TRANSFORM: none; WORD-SPACING: 0px; WIDOWS: 1; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px" cellspacing="0" cellpadding="0" width="100%" border="0">
<tr>
<td valign="top" width="4%" align="left"><b>3.</b></td>
<td valign="top" align="left"><b>Inventory:</b></td>
</tr>
</table>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
The following table represents the components of inventory as
of:</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 12pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 0pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; BORDER-COLLAPSE: collapse; TEXT-TRANSFORM: none; WORD-SPACING: 0px; WIDOWS: 1; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px" cellspacing="0" cellpadding="0" width="76%" align="center" border="0">
<tr>
<td width="76%"></td>
<td valign="bottom" width="7%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="7%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: 'Times New Roman'">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" align="center"><b>March 31,<br />
2015</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" align="center"><b>December 31,<br />
2014</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Raw materials & supplies</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">580</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">544</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Work-in-process</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1,296</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">523</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Finished goods</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">674</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">761</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Total inventories</p>
</td>
<td valign="bottom"></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">2,550</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">1,828</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 3px double"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 3px double"> </p>
</td>
<td> </td>
</tr>
</table>
</div>
-5005000
<div>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; BORDER-COLLAPSE: collapse; TEXT-TRANSFORM: none; WORD-SPACING: 0px; WIDOWS: 1; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px" cellspacing="0" cellpadding="0" width="100%" border="0">
<tr>
<td valign="top" width="4%" align="left"><b>1.</b></td>
<td valign="top" align="left"><b>Organization, basis of
presentation and summary of significant policies:</b></td>
</tr>
</table>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<i>Overview</i></p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
BioDelivery Sciences International Inc., together with its
subsidiaries (collectively, the “Company” or
“BDSI”) is a specialty pharmaceutical company that is
leveraging its novel and proprietary patented drug delivery
technologies to develop and commercialize, either on its own or in
partnerships with third parties, new applications of proven
therapeutics. The Company is focusing on developing products
to meet unmet patient needs in the areas of pain management and
addiction.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
The accompanying unaudited consolidated financial statements
include all adjustments (consisting of normal and recurring
adjustments) necessary for a fair presentation of these financial
statements. The consolidated balance sheet at December 31,
2014 has been derived from the Company’s audited consolidated
financial statements included in its annual report on Form 10-K for
the year ended December 31, 2014. Certain footnote disclosures
normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States
(“GAAP”) have been condensed or omitted pursuant to the
Securities and Exchange Commission (“SEC”) rules and
regulations. It is suggested that these condensed consolidated
financial statements be read in conjunction with the consolidated
financial statements and notes thereto included in the
Company’s annual report on <font style="WHITE-SPACE: nowrap">Form 10-K</font> for the year ended
December 31, 2014.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
Operating results for the three month period ended March 31,
2015 are not necessarily indicative of results for the full year or
any other future periods.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
As used herein, the Company’s common stock, par value $.001
per share, is referred to as the “Common Stock”.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 18pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<i>Use of estimates in financial statements</i></p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
The preparation of the accompanying condensed consolidated
financial statements requires management to make certain estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at
the date of the consolidated financial statements, and the reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates and
assumptions.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 18pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<i>Inventory</i></p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
Inventories are stated at the lower of cost or market value with
costs determined on the first-in, first-out method. Inventory
consists of raw materials, work in process and finished goods. Raw
materials include active pharmaceutical ingredient
(“API”) for a product to be manufactured, work in
process includes the bulk inventory of laminate prior to being
packaged for sale, and finished goods include pharmaceutical
products ready for commercial sale.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
On a quarterly basis, the Company analyzes its inventory levels and
records allowances for inventory that has become obsolete,
inventory that has a cost basis in excess of the expected net
realizable value and inventory that is in excess of expected demand
based upon projected product sales. There were no allowances
recorded at March 31, 2015.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 18pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<i>Deferred revenue</i></p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
Consistent with the Company’s revenue recognition policy,
deferred revenue represents cash received in advance for licensing
fees, consulting, research and development services, related supply
agreements and product sales. Such payments are reflected as
deferred revenue until recognized under the Company’s revenue
recognition policy. Deferred revenue is classified as current if
management believes the Company will be able to recognize the
deferred amount as revenue within twelve months of the balance
sheet date.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 18pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<i>Revenue recognition</i></p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<i>Product Sales</i>- The Company recognizes revenue from its
product sales upon transfer of title, which occurs when product is
received by its customers. The Company sells its products primarily
to large national wholesalers, which have the right to return the
products they purchase. The Company is required to reasonably
estimate the amount of future returns at the time of revenue
recognition. The Company recognizes product sales net of estimated
allowances for rebates, price adjustments, chargebacks, prompt
payment and other discounts. When the Company cannot reasonably
estimate the amount of future product returns, it defers revenues
until the risk of product return has been substantially
eliminated.</p>
<p style="MARGIN-BOTTOM: 0px; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 1px 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 12px; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
 </p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 0pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
As of March 31, 2015 and December 31, 2014, the Company
had $1.0 million and $0.8 million of deferred revenue related to
sales to wholesalers for which future returns could not be
reasonably estimated at the time of sale. Deferred revenue is
recognized when the product is sold to the end user, based upon
prescriptions filled. To estimate product sold to end users, the
Company relies on third-party information, including prescription
data and information obtained from significant distributors with
respect to their inventory levels and sales to customers. Deferred
revenue is recorded net of estimated allowances for rebates, price
adjustments, chargebacks, prompt payment and other discounts.
Estimated allowances are recorded and classified as accrued
liabilities in the accompanying balance sheets as of March 31,
2015 and December 31, 2014 (Note 4).</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<i>Product Returns</i>- Consistent with industry practice, the
Company offers contractual return rights that allow its customers
to return the products within an 18-month period that begins six
months prior to and ends twelve months subsequent to expiration of
the products. The Company does not believe it has sufficient
experience with BUNAVAIL<sup style="FONT-SIZE: 11px; VERTICAL-ALIGN: top">®</sup> to estimate its returns at
time of exfactory sales. When the Company cannot reasonably
estimate the amount of future product returns, it records revenues
when the risk of product return has been substantially eliminated
which is at the time the product is sold to the end user.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<i>Rebates-</i> The
liability for government program rebates is calculated based on
historical and current rebate redemption and utilization rates
contractually submitted by each program’s administrator.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<i>Price Adjustments and Chargebacks</i>- The Company’s
estimates of price adjustments and chargebacks are based on its
estimated mix of sales to various third-party payers, which are
entitled either contractually or statutorily to discounts from the
Company’s listed prices of its products. In the event that
the sales mix to third-party payers is different from the
Company’s estimates, the Company may be required to pay
higher or lower total price adjustments and/or chargebacks than it
had estimated and such differences may be significant.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
The Company, from time to time, offers certain promotional
product-related incentives to its customers. These programs include
certain product incentives to pharmacy customers and other sales
stocking allowances. The Company has voucher programs for
BUNAVAIL<sup style="FONT-SIZE: 11px; VERTICAL-ALIGN: top">®</sup> whereby the Company offers a
point-of-sale subsidy to retail consumers. The Company estimates
its liabilities for these voucher programs based on the historical
redemption rates for similar completed programs used by other
pharmaceutical companies as reported to the Company by a
third-party claims processing organization and actual redemption
rates for the Company’s completed programs. The Company
accounts for the costs of these special promotional programs as
price adjustments, which are a reduction of gross revenue.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<i>Prompt Payment Discounts</i>- The Company typically offers its
wholesale customers a prompt payment discount of 2% as an incentive
to remit payments within the first 30 to 37 days after the invoice
date depending on the customer and the products purchased.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 18pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<i>Deferred Cost of Sales</i></p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
The Company defers its cost of sales in connection with
BUNAVAIL<sup style="FONT-SIZE: 11px; VERTICAL-ALIGN: top">®</sup> sales at time of ex-factory
sales. These costs are recognized when the product is sold to the
end user. The Company had $0.9 million and $0.7 million of deferred
costs of sales at March 31, 2015 and December 31, 2014,
respectively, which are included in other current assets in the
accompanying condensed consolidated balance sheets.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 18pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<i>Cost of Sales</i></p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
The cost of sales attributable to the production of
BUNAVAIL<sup style="FONT-SIZE: 11px; VERTICAL-ALIGN: top">®</sup> includes raw materials,
production costs at our two contract manufacturing sites, quality
testing directly related to the product, and depreciation on
equipment that we have purchased to produce BUNAVAIL<sup style="FONT-SIZE: 11px; VERTICAL-ALIGN: top">®</sup>. It also
includes any batches not meeting specifications and raw material
yield loss. Yield losses and batches not meeting
specifications are expensed as incurred. Cost of sales is
recognized as actual product is sold through to the end user.
During the three months ended March 31, 2015, the Company
wrote down $0.2 million of inventory to lower of cost or market,
which is recorded as cost of sales in the accompanying condensed
consolidated statement of operations.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
The cost of sales attributable to the production of
ONSOLIS<sup style="FONT-SIZE: 11px; VERTICAL-ALIGN: top">®</sup> and BREAKYL™ includes
all costs related to creating the product at the
Company’s contract manufacturing locations in the U.S. and
Germany. The Company’s contract manufacturers bill the
Company for the final product, which includes materials, direct
labor costs, and certain overhead costs as outlined in applicable
supply agreements. Cost of sales also includes royalty expenses
that the Company owes to third parties.</p>
<p style="MARGIN-BOTTOM: 0px; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 1px 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 18px; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
 </p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 0pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<i>Recent accounting pronouncements</i></p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
In May 2014, the Financial Accounting Standards Board issued
Accounting Standards Update 2014-09, “Revenue from Contracts
with Customers,” which supersedes the revenue recognition
requirements of Accounting Standards Codification
(“ASC”) Topic 605, “Revenue Recognition”
and most industry-specific guidance on revenue recognition
throughout the ASC. The new standard is principles-based and
provides a five step model to determine when and how revenue is
recognized. The core principle of the new standard is that revenue
should be recognized when a company transfers promised goods or
services to customers in an amount that reflects the consideration
to which the Company expects to be entitled in exchange for those
goods or services. The new standard also requires disclosure of
qualitative and quantitative information surrounding the amount,
nature, timing and uncertainty of revenues and cash flows arising
from contracts with customers. The new standard will be effective
for the Company in the first quarter of the year ending
December 31, 2017 and can be applied either retrospectively to
all periods presented or as a cumulative-effect adjustment as of
the date of adoption. Early adoption is not permitted. The Company
is currently evaluating the impact of adoption of the new standard
on its consolidated financial statements.</p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 18pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<i>Revenue recognition</i></p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<i>Product Sales</i>- The Company recognizes revenue from its
product sales upon transfer of title, which occurs when product is
received by its customers. The Company sells its products primarily
to large national wholesalers, which have the right to return the
products they purchase. The Company is required to reasonably
estimate the amount of future returns at the time of revenue
recognition. The Company recognizes product sales net of estimated
allowances for rebates, price adjustments, chargebacks, prompt
payment and other discounts. When the Company cannot reasonably
estimate the amount of future product returns, it defers revenues
until the risk of product return has been substantially
eliminated.</p>
<p style="MARGIN-BOTTOM: 0px; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 1px 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 12px; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
 </p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 0pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
As of March 31, 2015 and December 31, 2014, the Company
had $1.0 million and $0.8 million of deferred revenue related to
sales to wholesalers for which future returns could not be
reasonably estimated at the time of sale. Deferred revenue is
recognized when the product is sold to the end user, based upon
prescriptions filled. To estimate product sold to end users, the
Company relies on third-party information, including prescription
data and information obtained from significant distributors with
respect to their inventory levels and sales to customers. Deferred
revenue is recorded net of estimated allowances for rebates, price
adjustments, chargebacks, prompt payment and other discounts.
Estimated allowances are recorded and classified as accrued
liabilities in the accompanying balance sheets as of March 31,
2015 and December 31, 2014 (Note 4).</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<i>Product Returns</i>- Consistent with industry practice, the
Company offers contractual return rights that allow its customers
to return the products within an 18-month period that begins six
months prior to and ends twelve months subsequent to expiration of
the products. The Company does not believe it has sufficient
experience with BUNAVAIL<sup style="FONT-SIZE: 11px; VERTICAL-ALIGN: top">®</sup> to estimate its returns at
time of exfactory sales. When the Company cannot reasonably
estimate the amount of future product returns, it records revenues
when the risk of product return has been substantially eliminated
which is at the time the product is sold to the end user.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<i>Rebates-</i> The
liability for government program rebates is calculated based on
historical and current rebate redemption and utilization rates
contractually submitted by each program’s administrator.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<i>Price Adjustments and Chargebacks</i>- The Company’s
estimates of price adjustments and chargebacks are based on its
estimated mix of sales to various third-party payers, which are
entitled either contractually or statutorily to discounts from the
Company’s listed prices of its products. In the event that
the sales mix to third-party payers is different from the
Company’s estimates, the Company may be required to pay
higher or lower total price adjustments and/or chargebacks than it
had estimated and such differences may be significant.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
The Company, from time to time, offers certain promotional
product-related incentives to its customers. These programs include
certain product incentives to pharmacy customers and other sales
stocking allowances. The Company has voucher programs for
BUNAVAIL<sup style="FONT-SIZE: 11px; VERTICAL-ALIGN: top">®</sup> whereby the Company offers a
point-of-sale subsidy to retail consumers. The Company estimates
its liabilities for these voucher programs based on the historical
redemption rates for similar completed programs used by other
pharmaceutical companies as reported to the Company by a
third-party claims processing organization and actual redemption
rates for the Company’s completed programs. The Company
accounts for the costs of these special promotional programs as
price adjustments, which are a reduction of gross revenue.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<i>Prompt Payment Discounts</i>- The Company typically offers its
wholesale customers a prompt payment discount of 2% as an incentive
to remit payments within the first 30 to 37 days after the invoice
date depending on the customer and the products purchased.</p>
</div>
0.00
P6Y
71237
<div>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
The following table represents the components of accounts payable
and accrued liabilities as of:</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 12pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 0pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; BORDER-COLLAPSE: collapse; TEXT-TRANSFORM: none; WORD-SPACING: 0px; WIDOWS: 1; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px" cellspacing="0" cellpadding="0" width="76%" align="center" border="0">
<tr>
<td width="76%"></td>
<td valign="bottom" width="6%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="6%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: 'Times New Roman'">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" align="center"><b>March 31,<br />
2015</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" align="center"><b>December 31,<br />
2014</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Accounts payable</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">10,038</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">9,072</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Accrued price adjustments</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1,629</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1,094</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Accrued rebates</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">122</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">231</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Accrued chargebacks</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">23</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">14</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Accrued compensation and benefits</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">737</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">945</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Accrued royalties</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">382</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">770</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Accrued other</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1,581</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">2,303</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Total accounts payable and accrued expenses</p>
</td>
<td valign="bottom"></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">14,512</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">14,429</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
</table>
</div>
P3Y
0.0137
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<i>Use of estimates in financial statements</i></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
The preparation of the accompanying condensed consolidated
financial statements requires management to make certain estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at
the date of the consolidated financial statements, and the reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates and
assumptions.</p>
</div>
2015-03-31
10.22
<div>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="100%" border="0">
<tr>
<td valign="top" width="4%" align="left"><b>9.</b></td>
<td valign="top" align="left"><b>Stockholders’
Equity:</b></td>
</tr>
</table>
<!-- xbrl,body -->
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
<i>Stock-based compensation</i></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
During the three months ended March 31, 2015, a total of
87,693 options to purchase Common Stock with an aggregate fair
market value of approximately $0.8 million were granted to Company
employees. The options granted have a term of 10 years from the
grant date and vest ratably over a three year period. The fair
value of each option is amortized as compensation expense evenly
through the vesting period. During the three months ended
March 31, 2015, stock-based compensation expense was recorded
as $0.8 million in research and development and $2.7 million in
selling, general and administrative, in the accompanying 2015
condensed consolidated statement of operations. The fair value of
each option award is estimated on the grant date using the
Black-Scholes valuation model that uses assumptions for expected
volatility, expected dividends, expected term, and the risk-free
interest rate. Expected volatilities are based on implied
volatilities from historical volatility of the Common Stock, and
other factors estimated over the expected term of the options. The
expected term of options granted is derived using the
“simplified method” which computes expected term as the
average of the sum of the vesting term plus contract term. The
risk-free rate is based on the U.S. Treasury yield curve in effect
at the time of grant for the period of the expected term. The
weighted average for key assumptions used in determining the fair
value of options granted during the three months ended
March 31, 2015 follows:</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="68%" align="center" border="0"><!-- Begin Table Head -->
<tr>
<td width="89%"></td>
<td valign="bottom" width="5%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<!-- End Table Head --><!-- Begin Table Body -->
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Expected price volatility</p>
</td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">73.29</td>
<td valign="bottom" nowrap="nowrap">% </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Risk-free interest rate</p>
</td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1.37</td>
<td valign="bottom" nowrap="nowrap">% </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Weighted average expected life in years</p>
</td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">6 years</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Dividend yield</p>
</td>
<td valign="bottom"></td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<!-- End Table Body --></table>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
Option activity during the three months ended March 31, 2015
was as follows:</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="84%" align="center" border="0"><!-- Begin Table Head -->
<tr>
<td width="69%"></td>
<td valign="bottom" width="5%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="5%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="5%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" align="center"><b>Number of<br />
Shares</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" align="center"><b>Weighted<br />
Average<br />
Exercise<br />
Price<br />
Per Share</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" align="center"><b>Aggregate<br />
Intrinsic<br />
Value</b></td>
<td valign="bottom"> </td>
</tr>
<!-- End Table Head --><!-- Begin Table Body -->
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Outstanding at January 1, 2015</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">3,196,100</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">4.32</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Granted in 2015:</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; TEXT-INDENT: -1em">
Officers and Directors</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; TEXT-INDENT: -1em">
Others</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">87,693</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">13.17</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Exercised</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(38,454</td>
<td valign="bottom" nowrap="nowrap">) </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">3.41</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Forfeitures</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(71,237</td>
<td valign="bottom" nowrap="nowrap">) </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">10.22</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Outstanding at March 31, 2015</p>
</td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">3,174,102</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">5.39</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">18,025</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 3px double"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 3px double"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 3px double"> </p>
</td>
<td> </td>
</tr>
<!-- End Table Body --></table>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
As of March 31, 2015, options exercisable totaled 2,633,424.
There was approximately $40.3 million of unrecognized compensation
cost related to non-vested share-based compensation awards,
including options and restricted stock units (“RSUs”)
granted. These costs will be expensed through 2018.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<i>Warrants</i></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
The Company has granted warrants to purchase shares of Common
Stock. Warrants may be granted to affiliates in connection with
certain agreements. Warrants outstanding at March 31, 2015
totaled 284, with an exercise price of $3.12 per share.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<i>Earnings Per Share</i></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
During the three months ended March 31, 2015 and 2014,
outstanding stock options, RSUs, warrants and convertible preferred
stock of 9.4 million and 10.7 million, respectively, were
not included in the computation of diluted earnings per share,
because to do so would have had an antidilutive effect.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<i>Recovery of Stockholder Short Swing Profit</i></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
In February 2015, an executive officer of the Company paid a
total of approximately $0.006 million to the Company, representing
the disgorgement of short swing profits under
Section 16(b) under the Exchange Act. The amount was
recorded as additional paid-in capital.</p>
<p style="MARGIN-BOTTOM: 0px; FONT-SIZE: 1px; MARGIN-TOP: 18px">
 </p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 0pt">
<i>Restricted Stock Units</i></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
During the three months ended March 31, 2015, approximately
2.1 million RSUs were granted to members of the
Company’s senior management, with a fair market value of
approximately $30.8 million. The fair value of restricted units is
determined using quoted market prices of the Common Stock and the
number of shares expected to vest. These RSUs were issued under the
Company’s 2011 Equity Incentive Plan, as amended, and vest in
equal installments over three years.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
Restricted stock activity during the three months ended
March 31, 2015 was as follows:</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="76%" align="center" border="0"><!-- Begin Table Head -->
<tr>
<td width="74%"></td>
<td valign="bottom" width="6%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="6%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" align="center"><b>Number of<br />
Restricted<br />
Shares</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" align="center"><b>Weighted<br />
Average Fair<br />
Market Value<br />
Per RSU</b></td>
<td valign="bottom"> </td>
</tr>
<!-- End Table Head --><!-- Begin Table Body -->
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Outstanding at January 1, 2015</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">2,849,076</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">6.08</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Granted in 2015:</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; TEXT-INDENT: -1em">
Executive officers</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">2,102,615</td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">14.63</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; TEXT-INDENT: -1em">
Directors</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap"> </td>
<td valign="bottom" nowrap="nowrap" align="right">
—  </td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Vested</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(694,269</td>
<td valign="bottom" nowrap="nowrap">) </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">14.39</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Forfeitures</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(65,853</td>
<td valign="bottom" nowrap="nowrap">) </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">11.69</td>
<td valign="bottom" nowrap="nowrap"> </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Outstanding at March 31, 2015</p>
</td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">4,191,569</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">10.12</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 3px double"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 3px double"> </p>
</td>
<td> </td>
</tr>
<!-- End Table Body --></table>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 18pt; MARGIN-TOP: 0pt">
 </p>
</div>
false
--12-31
2015
<div>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 18pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<i>Deferred Cost of Sales</i></p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
The Company defers its cost of sales in connection with
BUNAVAIL<sup style="FONT-SIZE: 11px; VERTICAL-ALIGN: top">®</sup> sales at time of ex-factory
sales. These costs are recognized when the product is sold to the
end user. The Company had $0.9 million and $0.7 million of deferred
costs of sales at March 31, 2015 and December 31, 2014,
respectively, which are included in other current assets in the
accompanying condensed consolidated balance sheets.</p>
</div>
-0.16
P3Y
0001103021
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<i>Recent accounting pronouncements</i></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
In May 2014, the Financial Accounting Standards Board issued
Accounting Standards Update 2014-09, “Revenue from Contracts
with Customers,” which supersedes the revenue recognition
requirements of Accounting Standards Codification
(“ASC”) Topic 605, “Revenue Recognition”
and most industry-specific guidance on revenue recognition
throughout the ASC. The new standard is principles-based and
provides a five step model to determine when and how revenue is
recognized. The core principle of the new standard is that revenue
should be recognized when a company transfers promised goods or
services to customers in an amount that reflects the consideration
to which the Company expects to be entitled in exchange for those
goods or services. The new standard also requires disclosure of
qualitative and quantitative information surrounding the amount,
nature, timing and uncertainty of revenues and cash flows arising
from contracts with customers. The new standard will be effective
for the Company in the first quarter of the year ending
December 31, 2017 and can be applied either retrospectively to
all periods presented or as a cumulative-effect adjustment as of
the date of adoption. Early adoption is not permitted. The Company
is currently evaluating the impact of adoption of the new standard
on its consolidated financial statements.</p>
</div>
<div>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; BORDER-COLLAPSE: collapse; TEXT-TRANSFORM: none; WORD-SPACING: 0px; WIDOWS: 1; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px" cellspacing="0" cellpadding="0" width="100%" border="0">
<tr>
<td valign="top" width="4%" align="left"><b>5.</b></td>
<td valign="top" align="left"><b>Property and Equipment:</b></td>
</tr>
</table>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
Property and equipment, summarized by major category, consist of
the following as of:</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 12pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 0pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; BORDER-COLLAPSE: collapse; TEXT-TRANSFORM: none; WORD-SPACING: 0px; WIDOWS: 1; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px" cellspacing="0" cellpadding="0" width="76%" align="center" border="0">
<tr>
<td width="76%"></td>
<td valign="bottom" width="7%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="7%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: 'Times New Roman'">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" align="center"><b>March 31,<br />
2015</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" align="center"><b>December 31,<br />
2014</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Idle equipment</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">3,798</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">3,758</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Machinery & equipment</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1,360</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1,354</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Computer equipment & software</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">348</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">344</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Office furniture & equipment</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">178</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">110</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Leasehold improvements</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">34</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">9</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 3em; TEXT-INDENT: -1em">
Total</p>
</td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">5,718</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">5,575</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Less accumulated depreciations</p>
</td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(1,770</td>
<td valign="bottom" nowrap="nowrap">) </td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(1,685</td>
<td valign="bottom" nowrap="nowrap">) </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Total property, plant & equipment, net</p>
</td>
<td valign="bottom"></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">3,948</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">3,890</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 3px double"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 3px double"> </p>
</td>
<td> </td>
</tr>
</table>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
Depreciation expense for the periods ended March 31, 2015 and
March 31, 2014, was approximately $0.09 million and $0.1
million, respectively.</p>
</div>
0.7329
Q1
9400000
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
</p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; BORDER-COLLAPSE: collapse; TEXT-TRANSFORM: none; WORD-SPACING: 0px; WIDOWS: 1; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px" cellspacing="0" cellpadding="0" width="100%" border="0">
<tr>
<td valign="top" width="4%" align="left"><b>2.</b></td>
<td valign="top" align="left"><b>Liquidity and management’s
plans:</b></td>
</tr>
</table>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
At March 31, 2015, the Company had cash and cash equivalents
of approximately $63.5 million. The Company used $5 million of cash
from operations during the three months ended March 31, 2015
and had stockholders’ equity of $49.8 million, versus $54.4
million at December 31, 2014. The Company has sufficient cash
to manage the business into early 2016, although this assumes that
the Company does not accelerate the development of other
opportunities available to the Company or otherwise face unexpected
events, costs or contingencies, any of which could affect the
Company’s cash requirements.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
Additional capital will likely be required to support the
Company’s ongoing commercialization activities for
BUNAVAIL<sup style="FONT-SIZE: 11px; VERTICAL-ALIGN: top">®</sup>, the
reformulation project for and anticipated commercial relaunch of
ONSOLIS<sup style="FONT-SIZE: 11px; VERTICAL-ALIGN: top">®</sup>, the
development of Clonidine Topical Gel and Buprenorphine Depot
Injection or other products which may be acquired or licensed by
the Company, and general working capital requirements. 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,
potentially resulting in the need for additional funding. Readers
are cautioned that additional funding, capital or loans (including,
without limitation, milestone or other payments from
commercialization agreements) may be unavailable on favorable
terms, if at all.</p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
Property and equipment, summarized by major category, consist of
the following as of:</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 12pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 0pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; BORDER-COLLAPSE: collapse; TEXT-TRANSFORM: none; WORD-SPACING: 0px; WIDOWS: 1; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px" cellspacing="0" cellpadding="0" width="76%" align="center" border="0">
<tr>
<td width="76%"></td>
<td valign="bottom" width="7%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="7%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: 'Times New Roman'">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" align="center"><b>March 31,<br />
2015</b></td>
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="2" align="center"><b>December 31,<br />
2014</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Idle equipment</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">3,798</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">3,758</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Machinery & equipment</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1,360</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">1,354</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Computer equipment & software</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">348</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">344</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Office furniture & equipment</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">178</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">110</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Leasehold improvements</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">34</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom">  </td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">9</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 3em; TEXT-INDENT: -1em">
Total</p>
</td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">5,718</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">5,575</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Less accumulated depreciations</p>
</td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(1,770</td>
<td valign="bottom" nowrap="nowrap">) </td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(1,685</td>
<td valign="bottom" nowrap="nowrap">) </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 1px solid"> </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Total property, plant & equipment, net</p>
</td>
<td valign="bottom"></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">3,948</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">3,890</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 3px double"> </p>
</td>
<td> </td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: rgb(0,0,0) 3px double"> </p>
</td>
<td> </td>
</tr>
</table>
</div>
38454
51908844
-420000
11408000
3507000
677000
-177000
722000
131000
-7800000
194000
400000
27000
13054000
2001000
144000
-8193000
-8193000
269000
-109000
6000
85000
-499000
19730000
6549000
13181000
162000
242000
-7013000
1124000
-1864000
200000
-144000
131000
127000
3507000
6000
10000000
P18M
0
P10Y
30800000
<div>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; BORDER-COLLAPSE: collapse; TEXT-TRANSFORM: none; WORD-SPACING: 0px; WIDOWS: 1; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px" cellspacing="0" cellpadding="0" width="100%" border="0">
<tr>
<td valign="top" width="4%" align="left"><b>7.</b></td>
<td valign="top" align="left"><b>License Obligations:</b></td>
</tr>
</table>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<b><i>Arcion License Agreement</i></b></p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
On March 26, 2013, the Company entered into a license
agreement with Arcion Therapeutics, Inc. (the “Arcion
Agreement”) pursuant to which Arcion granted to the Company
an exclusive commercial world-wide license, with rights of
sublicense, under certain patent and other intellectual property
rights related to in-process research and development to develop,
manufacture, market, and sell gel products containing clonidine (or
a derivative thereof) for the treatment of painful diabetic
neuropathy (“PDN”) and other indications (the
“Arcion Products”).</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
Pursuant to the Arcion Agreement, the Company is responsible for
using commercially reasonable efforts to develop and commercialize
Arcion Products, including the use of such efforts to conduct
certain clinical trials within certain time frames.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
The Company is required to make the following payments to
Arcion:</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 6pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 0pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; BORDER-COLLAPSE: collapse; TEXT-TRANSFORM: none; WORD-SPACING: 0px; WIDOWS: 1; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px" cellspacing="0" cellpadding="0" width="100%" border="0">
<tr>
<td width="5%"> </td>
<td valign="top" width="2%" align="left">•</td>
<td valign="top" width="1%"> </td>
<td valign="top" align="left">$2.5 million upon filing and
acceptance by the FDA of an NDA with respect to an Arcion Product
payable, at the Company’s option, in cash or unregistered
shares of Common Stock (with such shares being subject to a nine
month lock-up and certain limitations on sale thereafter); and</td>
</tr>
</table>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 6pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 0pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; BORDER-COLLAPSE: collapse; TEXT-TRANSFORM: none; WORD-SPACING: 0px; WIDOWS: 1; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px" cellspacing="0" cellpadding="0" width="100%" border="0">
<tr>
<td width="5%"> </td>
<td valign="top" width="2%" align="left">•</td>
<td valign="top" width="1%"> </td>
<td valign="top" align="left">up to a potential $60 million in cash
payments upon achieving certain pre-determined sales thresholds in
the U.S., none of which occur prior to achieving at least $200
million in U.S. net sales.</td>
</tr>
</table>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
In addition, the Company shall pay Arcion $35 million in cash on
initial FDA approval of an Arcion Product, unless: (i) the
Company does not receive at least $70 million in FDA
approval-related milestone payments from its US sublicensees (if
any sublicenses are involved) with respect to the Arcion Product,
in which case the Company shall pay Arcion a prorated amount
between $17.5 million and $35 million based on the total amount of
such milestone payments received by the Company and its affiliates
from its sublicenses (if any sublicenses are involved); or
(ii) the FDA requires or recommends the performance of a
capsaicin challenge test (to see if C-fiber function is present in
the skin by determining if subjects experience pain, and to
determine pain intensity if present) as a precondition or precursor
to the prescribing of the Arcion Product (as a condition of
approval, a labeling requirement, or otherwise), in which case such
milestone shall be reduced to $17.5 million, but the first and
second sales threshold payments described above shall each be
increased by $8 million.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
All milestone payments due to Arcion under the Arcion Agreement are
payable only once each.</p>
<p style="MARGIN-BOTTOM: 0px; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 1px 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 12px; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
 </p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 0pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
In addition to the milestones set forth above, the Company will pay
royalties to Arcion based upon sales of Arcion Products by the
Company, its affiliate and sub-licensees (if any), all as defined
in the Arcion Agreement.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
In addition, in the event the amount due upon FDA approval of the
Arcion Product in the U.S. is less than $35 million for any reason
other than an FDA requirement or recommendation of a capsaicin
challenge test, as described above, the Company shall pay Arcion a
portion of any milestone payments received by the Company and its
affiliates from their sublicensees on the basis of any events
occurring in the U.S. following FDA approval but prior to (and
including) first commercial sale of an Arcion Product in the U.S.,
and certain of the payments to Arcion referred to above shall also
be subject to upward adjustment (with such upward adjustments
payable in the form of cash or unregistered shares of the
Company’s Common Stock, as elected solely by the Company),
until such time as the sum of all such additional payments and
upward adjustments (including the value of any issuances of stock,
if elected by the Company) and the initial amount paid on the
initial FDA approval totals $35 million.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
The term of the Arcion Agreement continues, on a country-by-country
and product-by-product basis, until the earlier of (i) the
expiration of the royalty term for a particular Arcion Product in a
particular country or (ii) the effective date of termination
by either party pursuant to customary termination provisions. The
royalty term for any given country is the later of (i) the
first date there are no valid claims against any Arcion patent,
(ii) expiration of patent exclusivity or (iii) tenth
anniversary of the first commercial sale.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
On March 30, 2015, the Company announced that the primary
efficacy endpoint in the Company’s Phase 3 clinical study of
Clonidine Topical Gel for PDN compared to placebo for the treatment
of PDN did not meet statistical significance. Certain
secondary endpoints showed statistically significant improvement
over the placebo. In addition, a strong safety profile for the
product was observed. Based on the Company’s ongoing
analysis, the Company believes that the data from this study
supports continued development of this product. The Company’s
analysis showed an unusually high placebo response in the cohort of
patients that entered the trial following its previously announced
interim analysis of the study. Generally speaking, the Company
believes there may be study design features that might be able to
mitigate this response in all patients that would enter a
subsequent study of Clonidine Topical Gel, and the Company is
presently considering these features as it evaluates the potential
for additional study of this product candidate. The Company is
therefore currently in the process of determining what the next
steps in the development pathway should be and whether its decision
may require FDA consultation. One possibility is that the Company
would do a small scale study that takes into account the design
features that the Company believes could mitigate the placebo
response the Company saw in its initial Phase 3 trial. If the
Company decides to pursue this type of study or any next study, it
would not likely occur before fourth quarter of 2015.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 18pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<b><i>Evonik Development and Exclusive License Option
Agreement:</i></b></p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
On October 27, 2014, the Company entered into a definitive
Development and Exclusive License Option Agreement (the
“Development Agreement”) with Evonik Corporation,
(“Evonik”) to develop and commercialize an injectable,
extended release, microparticle formulation of buprenorphine for
the treatment of opioid dependence (the “Product”).
Under the Development Agreement, the Company also has the right to
pursue development of the Product for pain management.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
Under the Development Agreement, Evonik has also granted to the
Company two exclusive options to acquire exclusive worldwide
licenses, with rights of sublicense, to certain patents and other
intellectual property rights of Evonik to develop and commercialize
certain products containing buprenorphine. If such options are
exercised, such licenses would be memorialized in the License
Agreement (as defined below).</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
Pursuant to the Development Agreement, Evonik is responsible for
using commercially reasonable efforts to develop a formulation for
the Product in accordance with a work plan mutually agreed upon by
the parties (the “Project”). Should the Project proceed
past the Product formulation stage, Evonik also has the right to
manufacture clinical and commercial supplies of Product, such
manufacturing arrangement to be negotiated by the Parties in good
faith in a formal License and Supply Agreement(s) (the
“License Agreement”), with such License Agreement
covering Evonik’s intellectual property rights to be entered
into between the parties if certain conditions are met and terms
are mutually agreed upon.</p>
<p style="MARGIN-BOTTOM: 0px; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 1px 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 12px; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
 </p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 0pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
Should Evonik and Company enter into the License Agreement
following the attainment of a Phase 1 ready formulation for one or
both of the opioid dependence or pain management indications, the
Company would pay Evonik certain non-refundable, non-creditable
one-time payment in conjunction with certain future regulatory
filings and approvals and royalties on net sales of Product.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
The Development Agreement contains customary termination
provisions, and the Company may additionally terminate the
Development Agreement at any time after the completion of certain
enumerated tasks as provided in the Development Agreement, for any
reason or no reason, by providing written notice of termination to
Evonik. Upon termination of the Development Agreement, Evonik will
be paid any amounts owed to Evonik in accordance with the Estimated
Budget for work that has been performed under the Development
Agreement through the effective date of termination, including any
reasonable, documented, non-cancelable third party costs and any
reasonable, documented wind-down costs reasonably incurred by
Evonik in connection with the Project. Should Company terminate for
reasons other than for a material, uncured breach by Evonik or
Evonik’s bankruptcy, Evonik shall have the right to use any
and all data and intellectual property generated under the Project
for any purpose.</p>
</div>
14400000
0.035
0.03
P36M
0.50
15000000
P10Y
2018
775000
0.005
P6M
4
30000000
2020
8000000
15600000
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
<i>Overview</i></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
BioDelivery Sciences International Inc., together with its
subsidiaries (collectively, the “Company” or
“BDSI”) is a specialty pharmaceutical company that is
leveraging its novel and proprietary patented drug delivery
technologies to develop and commercialize, either on its own or in
partnerships with third parties, new applications of proven
therapeutics. The Company is focusing on developing products
to meet unmet patient needs in the areas of pain management and
addiction.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
The accompanying unaudited consolidated financial statements
include all adjustments (consisting of normal and recurring
adjustments) necessary for a fair presentation of these financial
statements. The consolidated balance sheet at December 31,
2014 has been derived from the Company’s audited consolidated
financial statements included in its annual report on Form 10-K for
the year ended December 31, 2014. Certain footnote disclosures
normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States
(“GAAP”) have been condensed or omitted pursuant to the
Securities and Exchange Commission (“SEC”) rules and
regulations. It is suggested that these condensed consolidated
financial statements be read in conjunction with the consolidated
financial statements and notes thereto included in the
Company’s annual report on Form 10-K for the year ended
December 31, 2014.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
Operating results for the three month period ended March 31,
2015 are not necessarily indicative of results for the full year or
any other future periods.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt">
As used herein, the Company’s common stock, par value $.001
per share, is referred to as the “Common Stock”.</p>
</div>
50000000
<div>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; BORDER-COLLAPSE: collapse; TEXT-TRANSFORM: none; WORD-SPACING: 0px; WIDOWS: 1; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px" cellspacing="0" cellpadding="0" width="100%" border="0">
<tr>
<td valign="top" width="4%" align="left"><b>6.</b></td>
<td valign="top" align="left"><b>License and Development
Agreements:</b></td>
</tr>
</table>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
The Company periodically enters into license and development
agreements to develop and commercialize its products. The
arrangements typically are multi-deliverable arrangements that are
funded through upfront payments, milestone payments, royalties and
other forms of payment to the Company. The Company’s most
significant license and development agreements are as follows:</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 18pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<b><i>Meda License, Development and Supply Agreements</i></b></p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
In August 2006 and September 2007, the Company entered into certain
agreements with Meda AB (“Meda”), a Swedish company to
develop and commercialize the Company’s ONSOLIS<sup style="FONT-SIZE: 11px; VERTICAL-ALIGN: top">®</sup> product, a drug treatment for
breakthrough cancer pain delivered utilizing the Company’s
BEMA<sup style="FONT-SIZE: 11px; VERTICAL-ALIGN: top">®</sup> technology. The agreements
relate to the United States, Mexico and Canada (“Meda U.S.
Agreements”) and to certain countries in Europe (“Meda
EU Agreements”). They carry license terms that commenced on
the date of first commercial sale in each respective territory and
end on the earlier of the entrance of a generic product to the
market or upon expiration of the patents, which begin to expire in
2020.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
On March 12, 2012, the Company announced the postponement of
the U.S. re-launch of ONSOLIS<sup style="FONT-SIZE: 11px; VERTICAL-ALIGN: top">®</sup> following the initiation of
the class-wide Risk Evaluation and Mitigation Strategy
(“REMS”) until the product formulation could be
modified to address two appearance-related issues. Such
appearance-related issues involved the formation of microscopic
crystals and a fading of the color in the mucoadhesive layer,
raised by the FDA during an inspection of the Company’s North
American manufacturing partner for ONSOLIS<sup style="FONT-SIZE: 11px; VERTICAL-ALIGN: top">®</sup>, Aveva Drug
Delivery Systems, Inc. (“Aveva”). While the appearance
issues do not affect the product’s underlying integrity,
safety or performance, the FDA believes that the fading of the
color in particular may potentially confuse patients, necessitating
a modification of the product and its specification before it can
be manufactured and distributed. The source of microcrystal
formation and the potential for fading of the color in the
mucoadhesive layer of ONSOLIS<sup style="FONT-SIZE: 11px; VERTICAL-ALIGN: top">®</sup> was found to be specific to a
buffer used in its formulation. The Company modified the
formulation and as of the date of this report has 12 months of
stability data on the reformulated product that shows no signs of
microcrystal formation or color changes.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
The Company determined that, upon inception of both the U.S. and EU
Meda arrangements, all deliverables were considered one combined
unit of accounting. As such, all cash payments from Meda that were
related to these deliverables were initially recorded as deferred
revenue. Upon commencement of the license term (date of first
commercial sale in each territory), the license and certain
deliverables associated with research and development services were
delivered to Meda. The first commercial sale in the U.S. occurred
in October 2009. As a result, $59.7 million of the aggregate
milestones and services revenue was recognized as revenue in fiscal
year 2009. On January 27, 2015, the Company announced that it
had entered into an assignment and revenue sharing agreement with
Meda to return to the Company the marketing authorization for
ONSOLIS<sup style="FONT-SIZE: 11px; VERTICAL-ALIGN: top">®</sup> for the U.S. and the right to
seek marketing authorizations for ONSOLIS<sup style="FONT-SIZE: 11px; VERTICAL-ALIGN: top">®</sup> in Canada and Mexico.
Following return of the US marketing authorization from Meda, the
Company submitted a prior approval supplement for the new
formulation to the FDA in March 2015 that provided responses to
earlier questions and requests. The FDA’s review of the
application may take up to 6 months; therefore, it is possible to
have a decision before the end of 2015. In connection with the
return of the U.S. marketing authorization by Meda to the Company
in January 2015, the remaining U.S. related deferred revenue of
$1.0 million was recorded as contract revenue during the three
months ended March 31, 2015.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 18pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<b><i>Endo License and Development Agreement</i></b></p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
In January 2012, the Company entered into a License and Development
Agreement with Endo Health Solutions, Inc. (“Endo”)
pursuant to which the Company granted Endo an exclusive commercial
world-wide license to develop, manufacture, market and sell the
Company’s BELBUCA™ product and to complete U.S.
development of such product candidate for purposes of seeking FDA
approval (the “Endo Agreement”). BELBUCA™ is for
the management of pain severe enough to require daily,
around-the-clock, long-term opioid treatment and for which
alternative treatment options are inadequate.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
Pursuant to the Endo Agreement, Endo has obtained all rights
necessary to complete the clinical and commercial development of
BELBUCA™ and to sell the product worldwide. Although Endo has
obtained all such necessary rights, the Company has agreed under
the Endo Agreement to be responsible for the completion of certain
clinical trials regarding BELBUCA™ (and providing clinical
trial materials for such trials) necessary to submit a New Drug
Application (“NDA”) to the FDA in order to obtain
approval of BELBUCA™ in the U.S.). The Company is responsible
for development activities through the filing of the NDA in the
U.S., while Endo is responsible for the development following the
NDA submission as well as the manufacturing, distribution,
marketing and sales of BELBUCA™ on a worldwide basis. In
addition, Endo is responsible for all filings required in order to
obtain regulatory approval of BELBUCA™.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
Pursuant to the Endo Agreement, the Company has received (or is
expected to receive upon satisfaction of applicable conditions) the
following payments (some portion(s) of which will be utilized by
the Company to support its development obligations under the Endo
Agreement with respect to BELBUCA™):</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 6pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 0pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; BORDER-COLLAPSE: collapse; TEXT-TRANSFORM: none; WORD-SPACING: 0px; WIDOWS: 1; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px" cellspacing="0" cellpadding="0" width="100%" border="0">
<tr>
<td width="5%"> </td>
<td valign="top" width="2%" align="left">•</td>
<td valign="top" width="1%"> </td>
<td valign="top" align="left">$30 million non-refundable upfront
license fee (earned in January 2012);</td>
</tr>
</table>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 6pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 0pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; BORDER-COLLAPSE: collapse; TEXT-TRANSFORM: none; WORD-SPACING: 0px; WIDOWS: 1; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px" cellspacing="0" cellpadding="0" width="100%" border="0">
<tr>
<td width="5%"> </td>
<td valign="top" width="2%" align="left">•</td>
<td valign="top" width="1%"> </td>
<td valign="top" align="left">$15 million for enhancement of
intellectual property rights (earned in May 2012);</td>
</tr>
</table>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 6pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 0pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; BORDER-COLLAPSE: collapse; TEXT-TRANSFORM: none; WORD-SPACING: 0px; WIDOWS: 1; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px" cellspacing="0" cellpadding="0" width="100%" border="0">
<tr>
<td width="5%"> </td>
<td valign="top" width="2%" align="left">•</td>
<td valign="top" width="1%"> </td>
<td valign="top" align="left">$20 million for full enrollment in
two clinical trials ($10 million earned in January 2014 and $10
million earned in June 2014);</td>
</tr>
</table>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 6pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 0pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; BORDER-COLLAPSE: collapse; TEXT-TRANSFORM: none; WORD-SPACING: 0px; WIDOWS: 1; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px" cellspacing="0" cellpadding="0" width="100%" border="0">
<tr>
<td width="5%"> </td>
<td valign="top" width="2%" align="left">•</td>
<td valign="top" width="1%"> </td>
<td valign="top" align="left">$10 million upon FDA acceptance of
filing NDA (earned in February 2015);</td>
</tr>
</table>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 6pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 0pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; BORDER-COLLAPSE: collapse; TEXT-TRANSFORM: none; WORD-SPACING: 0px; WIDOWS: 1; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px" cellspacing="0" cellpadding="0" width="100%" border="0">
<tr>
<td width="5%"> </td>
<td valign="top" width="2%" align="left">•</td>
<td valign="top" width="1%"> </td>
<td valign="top" align="left">$50 million upon regulatory
approval;</td>
</tr>
</table>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 6pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 0pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; BORDER-COLLAPSE: collapse; TEXT-TRANSFORM: none; WORD-SPACING: 0px; WIDOWS: 1; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px" cellspacing="0" cellpadding="0" width="100%" border="0">
<tr>
<td width="5%"> </td>
<td valign="top" width="2%" align="left">•</td>
<td valign="top" width="1%"> </td>
<td valign="top" align="left">up to an aggregate of $55 million
based on the achievement of four separate post-approval sales
thresholds; and</td>
</tr>
</table>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 6pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 0pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; BORDER-COLLAPSE: collapse; TEXT-TRANSFORM: none; WORD-SPACING: 0px; WIDOWS: 1; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px" cellspacing="0" cellpadding="0" width="100%" border="0">
<tr>
<td width="5%"> </td>
<td valign="top" width="2%" align="left">•</td>
<td valign="top" width="1%"> </td>
<td valign="top" align="left">sales-based royalties in a particular
percentage range on U.S. sales of BELBUCA™, and royalties in
a lesser range on sales outside the United States, subject to
certain restrictions and adjustments.</td>
</tr>
</table>
<p style="MARGIN-BOTTOM: 0px; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 1px 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 12px; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
 </p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 0pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
The Company has assessed its arrangement with Endo and the
Company’s deliverables thereunder at inception to determine:
(i) the separate units of accounting for revenue recognition
purposes, (ii) which payments should be allocated to which of
those units of accounting and (iii) the appropriate revenue
recognition pattern or trigger for each of those payments. The
assessment requires subjective analysis and requires management to
make judgments, estimates and assumptions about whether
deliverables within multiple-element arrangements are separable
and, if so, to determine the amount of arrangement consideration to
be allocated to each unit of accounting.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
At the inception of the Endo arrangement, the Company determined
that the Endo Agreement was a multi-deliverable arrangement with
three deliverables: (1) the license rights related to
BELBUCA™, (2) services related to obtaining enhanced
intellectual property rights through the issuance of a particular
patent and (3) clinical development services. The Company
concluded that the license delivered to Endo at the inception of
the Endo Agreement has stand-alone value. It was also determined
that there was a fourth deliverable, the provision of clinical
trial material (“CTM”). The amounts involved are,
however, immaterial and delivered in essentially the same time
frame as the clinical development services. Accordingly, the
Company did not separately account for the CTM deliverable, but
considers it part of the clinical development services
deliverable.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
The initial non-refundable $30 million license fee was allocated to
each of the three deliverables based upon their relative selling
prices using best estimates. The analysis of the best estimate of
the selling price of the deliverables was based on the income
approach, the Company’s negotiations with Endo and other
factors, and was further based on management’s estimates and
assumptions which included consideration of how a market
participant would use the license, estimated market opportunity and
market share, the Company’s estimates of what contract
research organizations would charge for clinical development
services, the costs of clinical trial materials and other factors.
Also considered were entity specific assumptions regarding the
results of clinical trials, the likelihood of FDA approval of the
subject product and the likelihood of commercialization based in
part on the Company’s prior agreements with the
BEMA<sup style="FONT-SIZE: 11px; VERTICAL-ALIGN: top">®</sup> technology.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
Based on this analysis, $15.6 million of the up-front license fee
was allocated to the license (which was estimated to have a value
significantly in excess of $30 million), and $14.4 million
to clinical development services (which is inclusive of the
cost of CTM). Although the intellectual property component was
considered a separate deliverable, no distinct amount of the
up-front payment was assigned to this deliverable because the
Company determined the deliverable to be perfunctory. The amount
allocated to the license was recognized as revenue in fiscal year
2012. The portion of the upfront license fee allocated to the
clinical development services deliverable of $14.4 million is being
recognized as those services are performed. The Company
estimated that such clinical development services will extend into
the first half of 2015. Such services were completed by March 2015
and resulted in the recognition of the remaining deferred revenue
balance of $0.4 million during the three months ended March, 31,
2015 as compared to $1.2 million for the comparable period in the
prior year.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
The Company concluded that each of the performance based milestones
are substantive and, therefore, revenue has and will be recognized
when milestones are earned.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
The term of the Endo Agreement shall last, on a country-by-country
basis, until the later of: (i) 10 years from the date of the
first commercial sale of BELBUCA™ in a particular country or
(ii) the date on which the last valid claim of the
Company’s patents covering BELBUCA™ in a particular
country has expired or been invalidated. The Endo Agreement shall
be subject to termination by Endo, at any time, upon a specific
timeframe of prior written notice to the Company and under certain
other conditions by either party as specified in the Endo
Agreement.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
The remaining milestone payments are expected to be recognized as
revenue as they are achieved, except that one milestone is
contingently refundable for a period of time. Revenue related to
such contingently refundable milestone is expected to be recognized
as refund provisions, as defined in the agreement, expire. Sale
threshold payments and sales-based royalties will be recognized as
they accrue under the terms of the Endo Agreement.</p>
<p style="MARGIN-BOTTOM: 0px; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 1px 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 12px; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
 </p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 0pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
The Company is reimbursed by Endo for certain contractor costs when
these costs go beyond set thresholds as outlined in the Endo
Agreement. Endo reimburses the Company for this spending at cost
and the Company receives no mark-up or profit. The gross amount of
these reimbursed research and development costs are reported as
research and development reimbursement revenue in the accompanying
consolidated statements of operations. The Company acts as a
principal, has discretion to choose suppliers, bears credit risk
and may perform part of the services required in the transactions.
Therefore, these reimbursements are treated as revenue to the
Company. The actual expenses creating the reimbursements are
reflected as research and development expense.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
Beginning in March 2014, total reimbursable contractor costs
exceeded a set threshold, at which point all such expenses are to
be borne at a rate of 50% by Endo and 50% by the Company. Endo has
continued to reimburse the Company for 100% of such costs, with 50%
thereof to be taken as a credit against potential future milestones
associated with achievement of certain regulatory events. During
the three months ended March 31, 2015, the Company received
$0.8 million of such prepayments, which have been recorded as
deferred revenue, current in the accompanying condensed
consolidated balance sheet. During the three months ended
March 31, 2015, the Company recognized $0.8 million of
reimbursable expenses related to its Endo agreement, which and is
recorded as research and development reimbursement revenue on the
accompanying 2015 condensed consolidated statement of
operations.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; WIDOWS: 1; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
On December 23, 2014, the Company, along with Endo, announced
the submission of a NDA for BELBUCA™ to the FDA, which was
accepted February 23, 2015.</p>
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