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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to

Commission file number: 001-37372

Graphic

Collegium Pharmaceutical, Inc.

(Exact name of registrant as specified in its charter)

Virginia
(State or other jurisdiction of
incorporation or organization)

03-0416362
(I.R.S. Employer
Identification Number)

100 Technology Center Drive
Stoughton, MA
(Address of principal executive offices)

02072
(Zip Code)

(781) 713-3699

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001 per share

COLL

The NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes   No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

  

Accelerated filer

  

Non-accelerated filer

  

Smaller reporting company

Emerging growth company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No 

As of April 30, 2024, there were 32,715,322 shares of Common Stock, $0.001 par value per share, outstanding.

Table of Contents

TABLE OF CONTENTS

PART I—FINANCIAL INFORMATION

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

4

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

32

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

39

Item 4.

Controls and Procedures

39

PART II—OTHER INFORMATION

Item 1.

Legal Proceedings

41

Item 1A.

Risk Factors

41

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

60

Item 3.

Defaults Upon Senior Securities

60

Item 4.

Mine Safety Disclosures

60

Item 5.

Other Information

60

Item 6.

Exhibits

61

Signatures

62

2

Table of Contents

Forward-Looking Statements

Statements made in this quarterly report on Form 10-Q (“Quarterly Report”) that are not statements of historical or current facts, such as those under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements discuss our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. These statements may be preceded by, followed by or include the words “aim,” “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “intend,” “outlook,” “plan,” “potential,” “project,” “projection,” “seek,” “may,” “could,” “would,” “should,” “can,” “can have,” “likely,” the negatives thereof and other words and terms of similar meaning.

Forward-looking statements are inherently subject to risks, uncertainties and assumptions; they are not guarantees of performance. You should not place undue reliance on these statements. We have based these forward-looking statements on our current expectations and projections about future events. Although we believe that our assumptions made in connection with the forward-looking statements are reasonable, we cannot assure you that the assumptions and expectations will prove to be correct.

You should understand that the following important factors could affect our future results and could cause those results or other outcomes to differ materially from those expressed or implied in our forward-looking statements:

our ability to commercialize and grow sales of our products;
our ability to maintain regulatory approval of our products, and any related restrictions, limitations, and/or warnings in the label of an approved product;
the size of the markets for our products, and our ability to service those markets;
the success of competing products that are or become available;
our ability to obtain and maintain reimbursement and third-party payor contracts with favorable terms for our products;
the costs of commercialization activities, including marketing, sales and distribution;
the rate and degree of market acceptance of our products;
changing market conditions for our products;
the outcome of any patent infringement, opioid-related or other litigation that may be brought by or against us;
the outcome of any governmental investigation related to the manufacture, marketing and sale of opioid medications;
the performance of our third-party suppliers and manufacturers;
our ability to secure adequate supplies of active pharmaceutical ingredients for each of our products, manufacture adequate quantities of commercially salable inventory and maintain our supply chain;
our ability to effectively manage our relationships with licensors and to commercialize products that we in-license from third parties;
our ability to attract collaborators with development, regulatory and commercialization expertise;
our ability to obtain funding for our business development;
our ability to comply with the terms of our outstanding indebtedness;
regulatory and legislative developments in the United States, including the adoption of opioid stewardship and similar taxes that may impact our business;
our ability to obtain and maintain sufficient intellectual property protection for our products;
our ability to comply with stringent government regulations relating to the manufacturing and marketing of pharmaceutical products, including U.S. Drug Enforcement Agency (“DEA”) compliance;
our customer concentration, which may adversely affect our financial condition and results of operations;
the accuracy of our estimates regarding expenses, revenue, capital requirements and need for additional financing; and
the other risks, uncertainties and factors discussed under the heading “Risk Factors” in this Quarterly Report on Form 10-Q.

In light of these risks and uncertainties, expected results or other anticipated events or circumstances discussed in this Quarterly Report on Form 10-Q (including the exhibits hereto) might not occur. We undertake no obligation, and specifically decline any obligation, to publicly update or revise any forward-looking statements, even if experience or future developments make it clear that projected results expressed or implied in such statements will not be realized, except as may be required by law.

These and other risks are described under the heading “Risk Factors” in this Quarterly Report on Form 10-Q. Those factors and the other risk factors described therein are not necessarily all of the important factors that could cause actual results or developments to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors also could harm our results. Consequently, there can be no assurance that actual results or developments anticipated by us will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, us. Given these uncertainties, prospective investors are cautioned not to place undue reliance on such forward-looking statements.

3

Table of Contents

PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (Unaudited).

Collegium Pharmaceutical, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

March 31,

December 31,

2024

2023

Assets

 

    

 

    

Current assets

Cash and cash equivalents

$

228,610

$

238,947

Marketable securities

89,438

71,601

Accounts receivable, net

174,693

179,525

Inventory

31,276

32,332

Prepaid expenses and other current assets

 

15,243

 

15,195

Total current assets

 

539,260

 

537,600

Property and equipment, net

 

15,457

 

15,983

Operating lease assets

5,813

6,029

Intangible assets, net

387,191

421,708

Restricted cash

1,047

1,047

Deferred tax assets

30,671

26,259

Other noncurrent assets

954

825

Goodwill

133,857

133,857

Total assets

$

1,114,250

$

1,143,308

Liabilities and shareholders' equity

Current liabilities

Accounts payable

$

6,020

$

8,692

Accrued liabilities

 

38,190

 

37,571

Accrued rebates, returns and discounts

217,880

227,331

Current portion of term notes payable

183,333

183,333

Current portion of operating lease liabilities

1,013

988

Total current liabilities

 

446,436

 

457,915

Term notes payable, net of current portion

177,360

221,713

Convertible senior notes

262,425

262,125

Operating lease liabilities, net of current portion

 

5,860

 

6,124

Total liabilities

 

892,081

 

947,877

Commitments and contingencies (refer to Note 14)

Shareholders’ equity:

Preferred stock, $0.001 par value; authorized shares - 5,000,000

Common stock, $0.001 par value; authorized shares - 100,000,000; 39,029,639 issued and 32,705,747 outstanding shares as of March 31, 2024 and 38,192,441 issued and 31,868,549 outstanding shares as of December 31, 2023

 

39

 

38

Additional paid-in capital

 

565,111

 

565,949

Treasury stock, at cost; 6,323,892 shares as of March 31, 2024 and 6,323,892 shares as of December 31, 2023

(137,381)

(137,381)

Accumulated other comprehensive (loss) income

(124)

14

Accumulated deficit

 

(205,476)

 

(233,189)

Total shareholders’ equity

 

222,169

 

195,431

Total liabilities and shareholders’ equity

$

1,114,250

$

1,143,308

See accompanying notes to the Condensed Consolidated Financial Statements.

4

Table of Contents

Collegium Pharmaceutical, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share amounts)

Three Months Ended March 31,

2024

2023

Product revenues, net

$

144,923

$

144,767

Cost of product revenues

Cost of product revenues (excluding intangible asset amortization)

18,950

29,899

Intangible asset amortization

34,517

37,466

Total cost of product revenues

 

53,467

 

67,365

Gross profit

91,456

77,402

Operating expenses

Selling, general and administrative

 

41,982

 

52,775

Total operating expenses

 

41,982

 

52,775

Income from operations

 

49,474

 

24,627

Interest expense

 

(17,339)

 

(21,427)

Interest income

4,487

2,747

Loss on extinguishment of debt

(23,504)

Income (loss) before income taxes

36,622

(17,557)

Provision for (benefit from) income taxes

8,909

(131)

Net income (loss)

$

27,713

$

(17,426)

Earnings (loss) per share — basic

$

0.86

$

(0.51)

Weighted-average shares — basic

32,326,589

34,319,291

Earnings (loss) per share — diluted

$

0.71

$

(0.51)

Weighted-average shares — diluted

41,438,466

34,319,291

See accompanying notes to the Condensed Consolidated Financial Statements.

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Collegium Pharmaceutical, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

Three Months Ended March 31,

2024

2023

Net income (loss)

$

27,713

$

(17,426)

Other comprehensive loss:

Unrealized losses on marketable securities, net of tax

(138)

Total other comprehensive loss

(138)

Comprehensive income (loss)

$

27,575

$

(17,426)

See accompanying notes to the Condensed Consolidated Financial Statements.

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Collegium Pharmaceutical, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Three Months Ended March 31,

2024

    

2023

Operating activities

Net income (loss)

$

27,713

$

(17,426)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Amortization expense

34,517

37,466

Depreciation expense

917

817

Deferred income taxes

(4,412)

(46)

Stock-based compensation expense

 

7,475

 

6,035

Non-cash lease benefit

(22)

(105)

Non-cash interest expense for amortization of debt discount and issuance costs

 

1,780

 

2,287

Loss on extinguishment of debt

23,504

Net amortization of premiums and discounts on investments

(415)

Changes in operating assets and liabilities:

Accounts receivable

4,832

3,993

Inventory

1,056

13,606

Prepaid expenses and other assets

 

(177)

 

(238)

Accounts payable

 

(2,536)

 

(502)

Accrued liabilities

 

660

 

(12,131)

Accrued rebates, returns and discounts

(9,451)

(29,589)

Net cash provided by operating activities

 

61,937

 

27,671

Investing activities

Purchases of property and equipment

(568)

 

(176)

Purchases of marketable securities

(39,110)

Maturities of marketable securities

21,550

Net cash used in investing activities

 

(18,128)

 

(176)

Financing activities

Proceeds from issuances of common stock from employee stock purchase plan

356

169

Proceeds from the exercise of stock options

 

4,205

 

3,848

Payments made for employee stock tax withholdings

(12,874)

(7,736)

Repayment of term notes

(45,833)

(25,000)

Proceeds from issuances of 2029 Convertible Notes, net of issuance costs of $5,846

235,654

Repurchase of 2026 Convertible Notes, including premium

(138,638)

Net cash (used in) provided by financing activities

 

(54,146)

 

68,297

Net (decrease) increase in cash, cash equivalents and restricted cash

 

(10,337)

 

95,792

Cash, cash equivalents and restricted cash at beginning of period

 

239,994

 

176,235

Cash, cash equivalents and restricted cash at end of period

$

229,657

$

272,027

Reconciliation of cash, cash equivalents and restricted cash to the condensed consolidated balance sheets:

Cash and cash equivalents

$

228,610

$

269,480

Restricted cash

1,047

2,547

Total cash, cash equivalents and restricted cash

$

229,657

$

272,027

Supplemental disclosure of cash flow information

Cash paid for interest

$

17,468

$

19,499

Cash paid for income taxes

$

173

$

743

Supplemental disclosure of non-cash activities

Note issuance costs in accounts payable and accrued liabilities

$

$

434

See accompanying notes to the Condensed Consolidated Financial Statements.

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Collegium Pharmaceutical, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited, in thousands, except share and per share amounts)

1. Nature of Business

Collegium Pharmaceutical, Inc. (the “Company” or “Collegium”) was incorporated in Delaware in April 2002 and then reincorporated in Virginia in July 2014. The Company has its principal operations in Stoughton, Massachusetts. The Company’s mission is to build a leading, diversified specialty pharmaceutical company committed to improving the lives of people living with serious medical conditions. The Company’s portfolio includes Belbuca, Xtampza ER, Nucynta ER and Nucynta IR (collectively the “Nucynta Products”), and Symproic.

The Company’s operations are subject to certain risks and uncertainties. The principal risks include the Company’s ability to continue successfully commercializing products, changing market conditions for products and development of competing products, changing regulatory environment and reimbursement landscape, product-related litigation, manufacture of adequate commercial inventory, inability to secure adequate supplies of active pharmaceutical ingredients, key personnel retention, protection of intellectual property, and patent infringement litigation.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of Collegium Pharmaceutical, Inc. (a Virginia corporation) and its subsidiaries. The consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial reporting and as required by Regulation S-X, Rule 10-01. Accordingly, they do not include all of the information and footnotes required by GAAP for complete consolidated financial statements.

In the opinion of the Company’s management, the accompanying unaudited Condensed Consolidated Financial Statements contain all adjustments (consisting of items of a normal and recurring nature) necessary to fairly present the financial position of the Company as of March 31, 2024, the results of operations for the three months ended March 31, 2024 and 2023, and cash flows for the three months ended March 31, 2024 and 2023. The results of operations for the three months ended March 31, 2024 are not necessarily indicative of the results to be expected for the full year.

The preparation of the Condensed Consolidated Financial Statements in accordance with GAAP requires the Company to make estimates and assumptions that impact the reported amounts of assets, liabilities, revenues, costs and expenses and the disclosure of contingent assets and liabilities in the Company’s consolidated financial statements and accompanying notes. Estimates in the Company’s consolidated financial statements include revenue recognition, including the estimates of product returns, discounts and allowances related to commercial sales of products, estimates related to the fair value of assets acquired and liabilities assumed, including acquired intangible assets and the fair value of inventory acquired, estimates utilized in the ongoing valuation of inventory related to potential unsaleable product, estimates of useful lives with respect to intangible assets, accounting for stock-based compensation, contingencies, impairment of intangible assets and deferred tax valuation allowances. The Company bases estimates and assumptions on historical experience when available and on various factors that it believes to be reasonable under the circumstances. The Company evaluates its estimates and assumptions on an ongoing basis. The Company’s actual results may differ from these estimates under different assumptions or conditions. The consolidated interim financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s most recently filed annual report on Form 10-K for the fiscal year ended December 31, 2023 (the “Annual Report”).

There were no significant changes in the Company’s significant accounting policies from those described in the Company’s Annual Report.

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Subsequent Events

Redemption of 2026 Convertible Notes

On April 11, 2024, the Company announced that it called all $26,350 aggregate principal amount of its outstanding 2.625% convertible senior notes due in 2026 (the “2026 Convertible Notes”) for redemption on June 14, 2024 (the “Redemption Date”).

The redemption price will be equal to 100% of the principal amount of each 2026 Convertible Note called for redemption, plus accrued and unpaid interest on such 2026 Convertible Note to, but excluding, the Redemption Date for such 2026 Convertible Note (the “Redemption Price”). For each $1,000 principal amount of 2026 Convertible Notes, the Redemption Price is equal to approximately $1,008.68.

The sending of the notice of redemption to the holders of the 2026 Convertible Notes constituted a “Make-Whole Fundamental Change” under the Indenture, and therefore the conversion rate was required to be increased in accordance with the terms of the Indenture. The conversion rate reflecting such increase is 36.7815 shares of common stock per $1,000 principal amount of 2026 Convertible Notes. This conversion rate will remain subject to adjustment in accordance with the Indenture from time to time for certain events.

The Company elected to settle all conversions of the 2026 Convertible Notes in cash. The cash paid to the holders to settle the conversions that is in excess of the carrying amount of the 2026 Convertible Notes, along with unamortized debt issuance costs, will be recognized as a loss on extinguishment of debt in the Company’s Condensed Consolidated Statement of Operations in the second quarter of 2024.

Authorized Generic Agreement with Hikma Pharmaceuticals USA Inc.

On April 26, 2024, the Company entered into an Authorized Generic Agreement (the “AG Agreement”) with Hikma Pharmaceuticals USA Inc. (“Hikma”), pursuant to which the Company granted to Hikma certain rights relating to an authorized generic version of the Company’s Nucynta IR product (the “Nucynta IR Authorized Generic”) and the Company’s Nucynta ER product (the “Nucynta ER Authorized Generic” and, collectively, the “Nucynta AG Products”) in the United States.

Under the terms of the AG Agreement, the Company granted Hikma the exclusive right to market the Nucynta AG Products in the United States. Hikma agreed to launch the Nucynta IR Authorized Generic and the Nucynta ER Authorized Generic 30 days prior to loss of exclusivity for each product or earlier under certain circumstances as set forth in the AG Agreement. Hikma will pay the Company a percentage of Net Profits (as defined in the AG Agreement) on sales of the Nucynta AG Products, with the Company’s profit share percentage beginning in the mid-80% range, and declining based on the number of third-party generic equivalents sold for each Nucynta AG Product, if any. During the term of the AG Agreement, the Company will supply Hikma with its requirements of the Nucynta AG Products at Collegium’s fully burdened manufacturing cost and Hikma will purchase the Nucynta AG Products exclusively from the Company. In addition, Hikma agreed that it will not market any generic equivalent of Nucynta IR or Nucynta ER at the same time it is marketing the Nucynta AG Products.

The AG Agreement has an initial term of five years, with automatic one-year renewals unless notice of termination is provided by either party prior to expiration. The AG Agreement may be terminated by either party in the event of uncured material breach by the other party or certain bankruptcy or insolvency events experienced by the other party. In addition, if Hikma elects to launch its own generic equivalent for either (or both) of Nucynta IR or Nucynta ER and terminate the AG Agreement, it must provide one years’ notice prior to doing so, and may only provide such notice on or after the first anniversary of the first Nucynta AG Product launch.

The foregoing description of the AG Agreement does not purport to be complete and is qualified in its entirety by reference to the AG Agreement, which will be filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ending June 30, 2024.

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Accelerated Share Repurchase Program

In May 2024, the Company’s Board of Directors authorized an accelerated share repurchase program to repurchase $35,000 of the Company’s common stock, as part of the $150,000 repurchase program authorized in January 2024.

Recently Adopted Accounting Pronouncements

New accounting pronouncements are issued periodically by the Financial Accounting Standards Board (“FASB”) and are adopted by the Company as required by the specified effective dates.

The Company has not been required to adopt any accounting standards that had a significant impact on its condensed consolidated financial statements during the three months ended March 31, 2024.

Recently Issued Accounting Pronouncements Not Yet Adopted

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280). The amendments in this update expand segment disclosure requirements, including new segment disclosure requirements for entities with a single reportable segment among other disclosure requirements. This update is effective for fiscal years beginning after December 15, 2023 for the Company’s annual report, and interim periods within fiscal years beginning after December 15, 2024. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740). The amendments in this update expand income tax disclosure requirements, including additional information pertaining to the rate reconciliation, income taxes paid, and other disclosures. This update is effective for annual periods beginning after December 15, 2024. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.

Other recent accounting pronouncements issued, but not yet effective, are not expected to be applicable to the Company or have a material effect on the consolidated financial statements upon future adoption.

3. Revenue from Contracts with Customers

The Company’s revenue to date is from sales of the Company’s products, which are primarily sold to wholesalers (“customers”), which in turn sell the product to pharmacies or other outlets for the treatment of patients.

Revenue Recognition

The Company recognizes revenue when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements with a customer, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

The Company expenses incremental costs of obtaining a contract as and when incurred if the expected amortization period of the assets is one year or less.

Performance Obligations

The Company determined that performance obligations are satisfied, and revenue is recognized, when a customer takes control of the Company’s product, which occurs at a point in time. This generally occurs upon delivery of the products to

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customers, at which point the Company recognizes revenue and records accounts receivable. Payment is typically received 30 to 90 days after satisfaction of the Company’s performance obligations.

Transaction Price and Variable Consideration

Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products or services to a customer (“transaction price”). The transaction price for product sales includes variable consideration related to sales deductions, including: (i) rebates and incentives, including managed care rebates, government rebates, co-pay program incentives, and sales incentives and allowances; (ii) product returns, including return estimates; and, (iii) trade allowances and chargebacks, including fees for distribution services, prompt pay discounts, and chargebacks. The Company will estimate the amount of variable consideration that should be included in the transaction price under the expected value method for all sales deductions other than trade allowances, which are estimated under the most likely amount method. These provisions reflect the expected amount of consideration to which the Company is entitled based on the terms of the contract. In addition, the Company made a policy election to exclude from the measurement of the transaction price all taxes that are assessed by a governmental authority that are imposed on revenue-producing transactions.

The Company bases its estimates of variable consideration, which could include estimates of future rebates, returns, and other adjustments, on historical data and other information. Estimates include: (i) timing of the rebates and returns incurred; (ii) pricing adjustments related to rebates and returns; and (iii) the quantity of product that will be rebated or returned in the future. Significant judgment is used in determining the appropriateness of these assumptions at each reporting period.

Rebates and Incentives

Provisions for rebates and incentives are based on the estimated amount of rebates and incentives to be claimed on the related sales. As the Company’s rebates and incentives are based on products dispensed to patients, the Company is required to estimate the expected value of claims at the time of product delivery to wholesalers. Given that wholesalers sell the product to pharmacies, which in turn dispense the product to patients, claims can be submitted significantly after the related sales are recognized. The Company’s estimates of these claims are based on the historical experience of existing or similar programs, including current contractual and statutory requirements, specific known market events and trends, industry data, and estimated distribution channel inventory levels. Accruals and related reserves required for rebates and incentives are adjusted as new information becomes available, including actual claims. If actual results vary, the Company may need to adjust future estimates, which could have an effect on earnings in the period of the adjustment.

Product Returns

Provisions for product returns, including returns for Belbuca, Xtampza, the Nucynta Products, and Symproic, are based on product-level returns rates, including processed as well as unprocessed return claims, in addition to relevant market events and other factors. Estimates of future product returns are made at the time of revenue recognition to determine the amount of consideration to which the Company expects to be entitled (that is, excluding the products expected to be returned). At the end of each reporting period, the Company analyzes trends in returns rates and updates its assessment of variable consideration. To the extent the Company receives amounts in excess of what it expects to be entitled to receive due to a product return, the Company does not recognize revenue when it transfers products to customers but instead recognizes those excess amounts received as a refund liability. The Company updates the measurement of the refund liability at the end of each reporting period for changes in expectations about the amount of refunds with the corresponding adjustments recognized as revenue (or reductions of revenue).

The Company provides the right of return to its customers for an 18-month window beginning six months prior to expiration and up until twelve months after expiration. The Company’s customers short-pay an existing invoice upon notice of a product return claim. Adjustments to the preliminary short-paid claims are processed when the return claim is validated and finalized. The Company’s return policy requires that product is returned and that the return is claimed within the 18-month window.

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Trade Allowances and Chargebacks

Provisions for trade allowances and chargebacks are primarily based on customer-level contractual terms. Accruals and related reserves are adjusted as new information becomes available, which generally consists of actual trade allowances and chargebacks processed relating to sales recognized.

At the end of each reporting period, the Company updates the estimated transaction price (including updating its assessment of whether an estimate of variable consideration is constrained). Variable consideration, including the risk of customer concessions, is included in the transaction price only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty is subsequently resolved.

Significant judgment is required to determine the variable consideration included in the transaction price as described above. Adjustments to the estimated variable consideration included in the transaction price occur when new information indicates that the estimate should be revised. If the value of accepted and processed claims is different than the amount estimated and included in variable consideration, then adjustments would impact product revenues, net and earnings in the period such revisions become known. The amount of variable consideration ultimately received and included in the transaction price may materially differ from the Company’s estimates, resulting in additional adjustments recorded to increase or decrease product revenues, net.

The following tables summarize activity in each of the Company’s product revenue provision and allowance categories for the three months ended March 31, 2024 and 2023:

    

Trade

Rebates and

Product

Allowances and

Incentives (1)

Returns (2)

Chargebacks (3)

Balance as of December 31, 2023

$

149,826

$

77,505

$

20,917

Provision related to current period sales

92,569

9,697

39,013

Changes in estimate related to prior period sales

1,061

1,519

(53)

Credits/payments made

(105,228)

(9,069)

(39,245)

Balance as of March 31, 2024

$

138,228

$

79,652

$

20,632

    

    

Trade

Rebates and

Product

Allowances and

Incentives (1)

Returns (2)

Chargebacks (3)

Balance as of December 31, 2022

$

156,937

$

73,554

$

22,058

Provision related to current period sales

92,871

10,166

34,921

Changes in estimate related to prior period sales

36

571

92

Credits/payments made

(122,852)

(10,381)

(32,563)

Balance as of March 31, 2023

$

126,992

$

73,910

$

24,508

(1)Provisions for rebates and incentives include managed care rebates, government rebates and co-pay program incentives. Provisions for rebates and incentives are deducted from gross revenues at the time revenues are recognized and are included in accrued rebates, returns and discounts in the Company’s consolidated balance sheets.
(2)Provisions for product returns are deducted from gross revenues at the time revenues are recognized and are included in accrued rebates, returns and discounts in the Company’s consolidated balance sheets.
(3)Provisions for trade allowances and chargebacks include fees for distribution service fees, prompt pay discounts, and chargebacks. Trade allowances and chargebacks are deducted from gross revenue at the time revenues are recognized and are recorded as a reduction to accounts receivable in the Company’s consolidated balance sheets.

As of March 31, 2024, the Company did not have any transaction price allocated to remaining performance obligations and any costs to obtain contracts with customers, including pre-contract costs and set up costs, were immaterial.

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Disaggregation of Revenue

The Company discloses disaggregated revenue from contracts with customers into categories that depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. When selecting the type of category to use to disaggregate revenue, the Company considers how information about the Company’s revenue has been presented for other purposes as well as what information is regularly reviewed and used for evaluating financial performance. As such, the Company disaggregates its product revenues, net from contracts with customers by product, as disclosed in the table below.

Three Months Ended March 31,

2024

2023

Belbuca

$

50,663

$

44,212

Xtampza ER

45,813

    

47,869

Nucynta IR

25,960

27,899

Nucynta ER

19,186

21,136

Symproic

3,301

3,651

Total product revenues, net

$

144,923

$

144,767

4. Earnings Per Share

Basic earnings per share is calculated by dividing the net income or loss by the weighted-average number of shares of common stock outstanding during the period, without consideration for potentially dilutive securities. Diluted earnings per share is computed by dividing the net income or loss by the weighted-average number of shares of common stock, plus potentially dilutive securities outstanding for the period, as determined in accordance with the treasury stock, if-converted, or contingently issuable accounting methods, depending on the nature of the security. For purposes of the diluted earnings per share calculation, stock options, restricted stock units (“RSUs”), performance share units (“PSUs”), and shares potentially issuable in connection with the Company’s employee stock purchase plan and convertible senior notes are considered potentially dilutive securities and included to the extent that their addition is not antidilutive.

The following table presents the computations of basic and dilutive earnings per common share:

Three Months Ended March 31,

2024

2023

Numerator:

Net income (loss)

$

27,713

$

(17,426)

Adjustment for interest expense recognized on convertible senior notes

1,622

Net income (loss) - diluted

$

29,335

$

(17,426)

Denominator:

Weighted-average shares outstanding — basic

32,326,589

    

34,319,291

Effect of dilutive securities:

Stock options

468,057

Restricted stock units

1,134,716

Performance share units

Convertible senior notes

7,509,104

Weighted average shares outstanding — diluted

41,438,466

34,319,291

Earnings (loss) per share — basic

$

0.86

$

(0.51)

Earnings (loss) per share — diluted

$

0.71

$

(0.51)

The Company has the option to settle the conversion obligation for its convertible senior notes due in 2026 and 2029 in cash, shares or a combination of the two. On April 11, 2024, the Company announced that it called all $26,350 aggregate principal amount of its 2026 Convertible Notes for redemption on the Redemption Date (refer to Note 2, Summary of Significant Accounting Policies – Subsequent Events), which represented 902,799 shares included in the diluted earnings per share for the three months ended March 31, 2024. The Company uses the if-converted method for the convertible senior notes.

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The following table presents dilutive securities excluded from the calculation of diluted earnings per share:

Three Months Ended March 31,

2024

 

2023

Stock options

1,443,996

Restricted stock units

1,050

2,455,919

Performance share units

511,680

503,880

Employee stock purchase plan

17,320

Convertible senior notes

7,509,104

For PSUs, these securities were excluded from the calculation of diluted earnings per share as the market-based vesting conditions were not met as of the end of the reporting period. All other securities presented in the table above were excluded from the calculation of diluted earnings per share as their inclusion would have had an antidilutive effect.

5. Fair Value of Financial Instruments

Fair value measurements and disclosures describe the fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value, as follows:

Level 1 inputs:

Quoted prices (unadjusted) in active markets for identical assets or liabilities. An active market is defined as a market where transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2 inputs:

Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active.

Level 3 inputs:

Unobservable inputs that reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability.

The Company invests in instruments within defined credit parameters to minimize credit risk while ensuring liquidity.

There were no transfers between Levels 1, 2, and 3 during the three months ended March 31, 2024 and 2023.

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The following table presents the Company’s financial instruments carried at fair value using the lowest level input applicable to each financial instrument as of March 31, 2024 and December 31, 2023:

Significant

Quoted Prices

other

Significant

in active

observable

unobservable

markets

inputs

inputs

    

Total

    

(Level 1)

    

(Level 2)

    

(Level 3)

March 31, 2024

Cash equivalents:

Money market funds

$

69,772

$

69,772

$

$

Marketable securities:

Corporate debt securities

62,501

62,501

U.S. Treasury securities

24,442

24,442

Government-sponsored securities

2,495

2,495

Total assets measured at fair value

$

159,210

$

69,772

$

89,438

$

December 31, 2023

Cash equivalents:

Money market funds

$

77,299

$

77,299

$

$

U.S. Treasury securities

4,729

4,729

Marketable securities:

Corporate debt securities

41,612

41,612

U.S. Treasury securities

25,468

25,468

Government-sponsored securities

4,521

4,521

Total assets measured at fair value

$

153,629

$

77,299

$

76,330

$

The Company’s cash equivalents, which consist of money market funds, are measured at fair value on a recurring basis using quoted market prices. Accordingly, these securities are categorized as Level 1.

Assets and Liabilities Not Carried at Fair Value

The Company’s convertible senior notes fall into the Level 2 category within the fair value level hierarchy. The fair value was determined based on data points other than quoted prices that are observable, either directly or indirectly, such as broker quotes in a non-active market. As of March 31, 2024, the fair value of the Company's 2.625% convertible senior notes due in 2026 was $37,624 and the net carrying value was $26,033. As of March 31, 2024, the fair value of the Company's 2.875% convertible senior notes due in 2029 was $272,798 and the net carrying value was $236,392.

The Company’s term notes fall into the Level 2 category within the fair value level hierarchy and the fair value was determined using quoted prices for similar liabilities in active markets, as well as inputs that are observable for the liability (other than quoted prices), such as interest rates that are observable at commonly quoted intervals. As of March 31, 2024, the carrying amount of the term notes reasonably approximated the estimated fair value.

As of March 31, 2024, and December 31, 2023, the carrying amounts of cash and cash equivalents, accounts receivable, inventory, prepaid expenses and other current assets, accounts payable, accrued liabilities, and accrued rebates, returns and discounts reasonably approximated their estimated fair values.

6. Marketable Securities

Available-for-sale debt securities were classified on the condensed consolidated balance sheets at fair value as follows:

March 31,

December 31,

    

2024

2023

Cash and cash equivalents

$

$

4,729

Marketable securities

89,438

71,601

Total

$

89,438

$

76,330

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The following table summarizes the available-for-sale securities held as of March 31, 2024 and December 31, 2023:

March 31, 2024

Amortized Cost

    

Gross Unrealized Gains

    

Gross Unrealized Losses

Fair Value

Corporate debt securities

$

62,618

$

10

$

(127)

$

62,501

U.S. Treasury securities

24,448

(6)

24,442

Government-sponsored securities

2,496

(1)

2,495

Total

$

89,562

$

10

$

(134)

$

89,438

December 31, 2023

Corporate debt securities

$

41,610

$

47

$

(45)

$

41,612

U.S. Treasury securities

30,189

8

30,197

Government-sponsored securities

4,517

4

4,521

Total

$

76,316

$

59

$

(45)

$

76,330

The following table summarizes the contractual maturities of available-for-sale securities other than investments in money market funds as of March 31, 2024 and December 31, 2023:

March 31,

December 31,

    

2024

2023

Matures within one year

$

60,015

$

61,672

Matures after one year through five years

29,423

14,658

Total

$

89,438

$

76,330

The unrealized losses on the Company’s available-for-sale securities were immaterial as of March 31, 2024 and December 31, 2023. In addition, there were no sales of marketable securities during the three months ended March 31, 2024. Net unrealized holding gains or losses for the period that have been included in accumulated other comprehensive loss were not material to the Company’s condensed consolidated results of operations.

The Company did not record any allowances for credit losses to adjust the fair value of available-for-sale debt securities during the three months ended March 31, 2024. The Company reviews its investments for other-than-temporary impairment whenever the fair value of an investment is less than amortized cost and evidence indicates that an investment’s carrying amount is not recoverable within a reasonable period of time. To determine whether an impairment is other-than-temporary, the Company considers whether it has the ability and intent to hold the investment until a market price recovery and considers whether evidence indicating the cost of the investment is recoverable outweighs evidence to the contrary. The Company generally does not intend to sell any investments prior to recovery of their amortized cost basis for any investment in an unrealized loss position. As such, the Company did not hold any securities with other-than-temporary impairment as of March 31, 2024 and December 31, 2023.

7. Inventory

Inventory as of March 31, 2024 and December 31, 2023 consisted of the following:

March 31,

December 31,

2024

2023

Raw materials

$

9,265

$

10,384

Work in process

8,706

6,740

Finished goods

13,305

15,208

Total inventory

$

31,276

$

32,332

The aggregate charges related to excess and obsolete inventory for the three months ended March 31, 2024 and 2023 were $373 and $906, respectively. These expenses were recorded as a component of cost of product revenues.

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8. Goodwill and Intangible Assets

As of March 31, 2024 and December 31, 2023, the Company’s goodwill balance was $133,857. The Company’s goodwill resulted from the acquisition of BioDelivery Sciences International, Inc. (“BDSI”) on March 22, 2022 (the “BDSI Acquisition”).

The following table sets forth the cost, accumulated amortization, and carrying amount of intangible assets as of March 31, 2024 and December 31, 2023:

March 31, 2024

December 31, 2023

Cost

Accumulated Amortization

Carrying Amount

Cost

Accumulated Amortization

Carrying Amount

Belbuca

$

360,000

$

(152,669)

$

207,331

$

360,000

$

(133,821)

$

226,179

Nucynta Products

521,170

(396,555)

124,615

521,170

(382,710)

138,460

Symproic

70,000

(14,755)

55,245

70,000

(12,931)

57,069

Total intangible assets

$

951,170

$

(563,979)

$

387,191

$

951,170

$

(529,462)

$

421,708

The following table presents amortization expense recognized in cost of product revenues for the three months ended March 31, 2024 and 2023:

Three Months Ended March 31,

2024

 

2023

Belbuca

$

18,848

    

$

18,849

Nucynta Products

13,845

16,796

Symproic

1,824

1,821

Total amortization expense

$

34,517

$

37,466

As of March 31, 2024, the remaining amortization expense expected to be recognized is as follows:

Years ended December 31,

Belbuca

Nucynta Products

Symproic

Total

2024

$

56,545

$

41,539

$

5,461

$

103,545

2025

75,393

55,384

7,285

138,062

2026

75,393

27,692

7,285

110,370

2027

7,285

7,285

2028

7,285

7,285

Thereafter

20,644

20,644

Remaining amortization expense

$

207,331

$

124,615

$

55,245

$

387,191

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9. Accrued Liabilities

Accrued liabilities as of March 31, 2024 and December 31, 2023 consisted of the following:

March 31,

December 31,

2024

 

2023

Accrued income taxes

$

14,077

$

2,136

Accrued royalties

7,141

14,198

Accrued product taxes and fees

 

5,525

5,013

Accrued sales and marketing

1,754

1,198

Accrued incentive compensation

1,519

 

1,375

Accrued audit and legal

1,430

700

Accrued bonuses

1,406

4,987

Accrued inventory

1,338

Accrued payroll and related benefits

968

1,511

Accrued interest

 

944

 

2,853

Accrued other operating costs

2,088

3,600

Total accrued liabilities

$

38,190

$

37,571

10. Term Notes Payable

2022 Term Loan

On March 22, 2022, in connection with the closing of the BDSI Acquisition, the Company entered into an Amended and Restated Loan Agreement by and among the Company, and BioPharma Credit PLC, as collateral agent and lender, and BioPharma Credit Investments V (Master) LP, as lender (collectively “Pharmakon”), as amended (the “2022 Loan Agreement”). The 2022 Loan Agreement provided for a $650,000 secured term loan (the “2022 Term Loan”), the proceeds of which were used to repay the Company’s existing term notes and fund a portion of the consideration to be paid to complete the BDSI Acquisition. The 2022 Loan Agreement was accounted for as a debt modification and transaction fees of $173 were expensed. In connection with the 2022 Loan Agreement, the Company paid loan commitment and other fees to the lender of $19,818, which together with preexisting debt issuance costs and note discounts of $2,049 will be amortized over the term of the loan using the effective interest rate.

The 2022 Term Loan will mature on the 48-month anniversary of the closing of the BDSI Acquisition and is guaranteed by the Company’s material domestic subsidiaries. The 2022 Term Loan is also secured by substantially all of the assets of the Company and its material domestic subsidiaries. Prior to the cessation of LIBOR on June 30, 2023, the 2022 Term Loan bore interest at a rate based on LIBOR (subject to a LIBOR floor of 1.20%), plus a margin of 7.5% per annum. On June 23, 2023, the Company entered into an amendment to the 2022 Loan Agreement to adjust the interest terms of the 2022 Term Loan to transition from LIBOR to SOFR in anticipation of the cessation of LIBOR. Effective July 1, 2023, the 2022 Term Loan bears interest at a rate based on SOFR plus a spread adjustment of 0.26% (subject to a floor of 1.20%), plus a margin of 7.5% per annum. As of March 31, 2024, the contractual interest rate was 13.1%. The Company paid $100,000 in principal payments under the 2022 Term Loan during the first year and the remaining $550,000 balance is required to be paid in equal quarterly installments over the remaining three years.

The 2022 Loan Agreement permits voluntary prepayment at any time, subject to a prepayment premium. The prepayment premium is equal to 2.00% of the principal amount being prepaid prior to the second-year anniversary of the closing date, or 1.00% of the principal amount being prepaid on or after the second-year anniversary of the closing date. The 2022 Loan Agreement also includes a make-whole premium in the event of a voluntary prepayment, a prepayment due to a change in control or acceleration following an Event of Default (as defined in the 2022 Loan Agreement) on or prior to the second-year anniversary of the closing date, in each case in an amount equal to foregone interest from the date of prepayment through the second-year anniversary of the closing date. A change of control also triggers a mandatory prepayment of the 2022 Term Loan.

The 2022 Loan Agreement contains certain covenants and obligations of the parties, including, without limitation, covenants that limit the Company’s ability to incur additional indebtedness or liens, make acquisitions or other investments or dispose of assets outside the ordinary course of business. Failure to comply with these covenants would

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constitute an Event of Default under the 2022 Loan Agreement, notwithstanding the Company’s ability to meet its debt service obligations. The 2022 Loan Agreement also includes various customary remedies for the lenders following an Event of Default, including the acceleration of repayment of outstanding amounts under the 2022 Loan Agreement and execution upon the collateral securing obligations under the 2022 Loan Agreement.

The following table presents the total interest expense recognized related to the 2022 Term Loan during the three months ended March 31, 2024 and 2023.

Three Months Ended March 31,

2024

2023

Contractual interest expense

$

13,651

$

17,655

Amortization of debt issuance costs

1,480

2,024

Total interest expense

$

15,131

$

19,679

As of March 31, 2024, the effective interest rate on the 2022 Term Loan was 14.6%.

As of March 31, 2024, principal repayments under the 2022 Term Loan are as follows:

Years ended December 31,

Principal Payments

2024

$

137,500

2025

183,333

2026

45,834

Total before unamortized discount and issuance costs

$

366,667

Less: unamortized discount and issuance costs

(5,974)

Term notes carrying value

$

360,693

11. Convertible Senior Notes

2026 Convertible Notes

On February 13, 2020, the Company issued 2.625% convertible senior notes due in 2026 (the “2026 Convertible Notes”) in the aggregate principal amount of $143,750, in a public offering registered under the Securities Act of 1933, as amended. The 2026 Convertible Notes were issued in connection with funding the acquisition of the Nucynta Products. Some of the Company’s existing investors participated in the 2026 Convertible Notes offering. In connection with the issuance of the 2026 Convertible Notes, the Company incurred approximately $5,473 of debt issuance costs, which primarily consisted of underwriting, legal and other professional fees.

The 2026 Convertible Notes are senior, unsecured obligations and bear interest at a rate of 2.625% per year payable semi-annually in arrears on February 15 and August 15 of each year, beginning on August 15, 2020. Before August 15, 2025, noteholders will have the right to convert their notes only upon the occurrence of certain events. From and after August 15, 2025, noteholders may convert their notes at any time at their election until the close of business on the scheduled trading day immediately before the maturity date. The Company will settle conversions by paying or delivering, as applicable, cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election. The 2026 Convertible Notes will mature on February 15, 2026, unless earlier repurchased, redeemed or converted. The initial conversion rate is 34.2618 shares of common stock per $1 principal amount of the 2026 Convertible Notes, which represents an initial conversion price of approximately $29.19 per share of common stock. The conversion rate and conversion price are subject to adjustment upon the occurrence of certain events.

Holders of the 2026 Convertible Notes may convert all or any portion of their 2026 Convertible Notes, in multiples of $1 principal amount, at their option only under the following circumstances:

(1)during any calendar quarter commencing after the calendar quarter ending on March 31, 2020, if the last reported sale price per share of the Company’s common stock exceeds 130% of the conversion price for at least 20 trading days during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter;

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(2)during the five consecutive business days immediately after any 10 consecutive trading day period (such 10 consecutive trading day period, the “measurement period”) in which the “trading price” per $1 principal amount of the 2026 Convertible Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price per share of the Company’s common stock on such trading day and the conversion rate on such trading day;
(3)upon the occurrence of certain corporate events or distributions on the Company’s common stock;
(4)if the Company calls the 2026 Convertible Notes for redemption; or
(5)at any time from, and including, August 15, 2025 until the close of business on the scheduled trading day immediately before the maturity date.

As of March 31, 2024, none of the above circumstances had occurred and as such, the 2026 Convertible Notes could not have been converted.

The Company did not have the right to redeem the 2026 Convertible Notes prior to February 15, 2023. On or after February 15, 2023, the Company may redeem the 2026 Convertible Notes, in whole and not in part, at a cash redemption price equal to the principal amount of the 2026 Convertible Notes to be redeemed, plus accrued and unpaid interest, if any, only if the last reported sale price per share of the Company’s common stock exceeds 130% of the conversion price on:

(1)each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the trading day immediately before the date the Company sends the related redemption notice; and
(2)the trading day immediately before the date the Company sends such notice.

Calling the 2026 Convertible Notes for redemption constitutes a make-whole fundamental change, in which case the conversion rate applicable to the conversion of any 2026 Convertible Notes, if converted in connection with the redemption, will be increased in certain circumstances for a specified period of time.

The 2026 Convertible Notes have customary default provisions, including: (i) a default in the payment when due (whether at maturity, upon redemption or repurchase upon fundamental change or otherwise) of the principal of, or the redemption price or fundamental change repurchase price for, any note; (ii) a default for 30 days in the payment when due of interest on any note; (iii) a default in the Company’s obligation to convert a note in accordance with the indenture, if such default is not cured within 3 calendar days after its occurrence; (iv) a default with respect to the Company’s obligations under the indenture related to consolidations, mergers and asset sales; (v) a default in any of the Company’s other obligations or agreements under the indenture that are not cured or waived within 60 days after notice to the Company; (vi) certain payment defaults by the Company or certain subsidiaries with respect to mortgages, agreements or other instruments for indebtedness for money borrowed of at least $20,000 or other defaults by the Company or certain subsidiaries with respect to such indebtedness that result in the acceleration of such indebtedness; (vii) default upon the occurrence of one or more final judgments being rendered against the Company or any of the Company’s significant subsidiaries for the payment of at least $20,000; and (viii) certain events of bankruptcy, insolvency and reorganization with respect to the Company or any of its significant subsidiaries.

Repurchase of a Portion of the 2026 Convertible Notes

Contemporaneously with the offering of the 2029 Convertible Notes (as defined below), the Company entered into separate privately negotiated transactions with certain holders of the 2026 Convertible Notes to repurchase $117,400 aggregate principal amount of the 2026 Convertible Notes for an aggregate of $140,100 of cash, which includes accrued and unpaid interest on the 2026 Convertible Notes to be repurchased. This transaction involved a contemporaneous exchange of cash between the Company and holders of the 2026 Convertible Notes participating in the issuance of the 2029 Convertible Notes. Accordingly, the Company evaluated the transaction for modification or extinguishment accounting in accordance with Accounting Standards Codification Topic 470-50, Debt – Modifications and Extinguishments on a creditor-by-creditor basis depending on whether the exchange was determined to have substantially different terms. The repurchase of the 2026 Convertible Notes and issuance of the 2029 Convertible Notes were deemed to have substantially different terms based on the present value of the cash flows immediately prior to and after the exchange. Therefore, the repurchase of the 2026 Convertible Notes was accounted for as a debt extinguishment. The Company recorded a $23,504 loss on early extinguishment of debt on the condensed consolidated statements of operations during the three months ending March 31, 2023, which includes the recognition of previously deferred

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financing costs of $2,264. The total remaining principal amount outstanding under the 2026 Convertible Notes as of March 31, 2024 was $26,350. On April 11, 2024, the Company announced that it called all $26,350 aggregate principal amount of its 2026 Convertible Notes for redemption on the Redemption Date (refer to Note 2, Summary of Significant Accounting Policies – Subsequent Events).

2029 Convertible Notes

On February 10, 2023, the Company issued 2.875% convertible senior notes due in 2029 (the “2029 Convertible Notes”) in the aggregate principal amount of $241,500, in a private offering to qualified institutional buyers pursuant to Section 4(a)(2) and Rule 144A under the Securities Act of 1933, as amended. The 2029 Convertible Notes were issued to finance the concurrent repurchase of a portion of the 2026 Convertible Notes, and the remainder of the net proceeds may be used for general corporate purposes. In connection with the issuance of the 2029 Convertible Notes, the Company incurred approximately $6,280 of debt issuance costs, which primarily consisted of underwriting, legal and other professional fees.

The 2029 Convertible Notes are senior, unsecured obligations and bear interest at a rate of 2.875% per year payable semi-annually in arrears on February 15 and August 15 of each year, beginning on August 15, 2023. The 2029 Convertible Notes will mature on February 15, 2029, unless earlier repurchased, redeemed or converted. Before November 15, 2028, noteholders will have the right to convert their notes only upon the occurrence of certain events. From and after November 15, 2028, noteholders may convert their notes at any time at their election until the close of business on the scheduled trading day immediately before the maturity date. The Company will settle conversions by paying or delivering, as applicable, cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election. The initial conversion rate is 27.3553 shares of common stock per $1 principal amount of 2029 Convertible Notes, which represents an initial conversion price of approximately $36.56 per share of common stock. The conversion rate and conversion price are subject to adjustment upon the occurrence of certain events.

Holders of the 2029 Convertible Notes may convert all or any portion of their 2029 Convertible Notes, in multiples of $1 principal amount, at their option only under the following circumstances:

(1)during any calendar quarter commencing after the calendar quarter ending on June 30, 2023, if the last reported sale price per share of the Company’s common stock exceeds 130% of the conversion price for at least 20 trading days during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter;
(2)during the five consecutive business days immediately after any 10 consecutive trading day period (such 10 consecutive trading day period, the “measurement period”) in which the “trading price” per $1 principal amount of the 2029 Convertible Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price per share of the Company’s common stock on such trading day and the conversion rate on such trading day;
(3)upon the occurrence of certain corporate events or distributions on the Company’s common stock;
(4)if the Company calls any or all of the 2029 Convertible Notes for redemption, but only with respect to the 2029 Convertible Notes called for redemption; or
(5)at any time from, and including, November 15, 2028 until the close of business on the scheduled trading day immediately before the maturity date.

As of March 31, 2024, none of the above circumstances had occurred and as such, the 2029 Convertible Notes could not have been converted.

The Company may not redeem the 2029 Convertible Notes prior to February 17, 2026. On or after February 17, 2026 and on or before the 40th scheduled trading day before the maturity date, the Company may redeem the 2029 Convertible Notes, in whole or in part, at a cash redemption price equal to the principal amount of the 2029 Convertible Notes to be redeemed, plus accrued and unpaid interest, if any, only if the last reported sale price per share of the Company’s common stock exceeds 130% of the conversion price on:

(1)each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the trading day immediately before the date the Company sends the related redemption notice; and

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(2)the trading day immediately before the date the Company sends such notice.

However, the Company may not redeem less than all of the outstanding 2029 Convertible Notes unless at least $75,000 aggregate principal amount of the 2029 Convertible Notes are outstanding and not called for redemption as of the time the Company sends the related redemption notice.

Calling any 2029 Convertible Note for redemption will constitute a make-whole fundamental change with respect to that 2029 Convertible Note, in which case the conversion rate applicable to the conversion of that 2029 Convertible Note, if it is converted in connection with the redemption, will be increased in certain circumstances for a specified period of time.

The 2029 Convertible Notes have customary default provisions, including: (i) a default in the payment when due (whether at maturity, upon redemption or repurchase upon fundamental change or otherwise) of the principal of, or the redemption price or fundamental change repurchase price for, any note; (ii) a default for 30 days in the payment when due of interest on any note; (iii) a default in the Company’s obligation to convert a note in accordance with the indenture, if such default is not cured within 3 business days after its occurrence; (iv) a default with respect to the Company’s obligations under the indenture related to consolidations, mergers and asset sales; (v) a default in any of the Company’s other obligations or agreements under the indenture that are not cured or waived within 60 days after notice to the Company; (vi) certain payment defaults by the Company or certain subsidiaries with respect to mortgages, agreements or other instruments for indebtedness for money borrowed of at least $30,000 or other defaults by the Company or certain subsidiaries with respect to such indebtedness that result in the acceleration of such indebtedness; (vii) default upon the occurrence of one or more final judgments being rendered against the Company or any of the Company’s significant subsidiaries for the payment of at least $30,000; and (viii) upon the occurrence of certain events of bankruptcy, insolvency and reorganization with respect to the Company or any of its significant subsidiaries.

The 2026 Convertible Notes and 2029 Convertible Notes (together, the “Convertible Notes”) are classified on the condensed consolidated balance sheets as of March 31, 2024 as convertible senior notes.

As of March 31, 2024, the outstanding balance of the Convertible Notes consisted of the following:

2026 Convertible Notes

2029 Convertible Notes

Total Convertible Notes

Principal

$

26,350

$

241,500

$

267,850

Less: unamortized issuance costs

(317)

(5,108)

(5,425)

Net carrying amount

$

26,033

$

236,392

$

262,425

The Company determined the expected life of the 2026 Convertible Notes and 2029 Convertible Notes was equal to the six-year term of each. The effective interest rate on the 2026 Convertible Notes and 2029 Convertible Notes is 3.34% and 3.28%, respectively. As of March 31, 2024, the if-converted value of the 2026 Convertible Notes exceeded the remaining principal amount by approximately $6,267. As of March 31, 2024, the if-converted value of the 2029 Convertible Notes did not exceed the remaining principal amount.

The following table presents the total interest expense recognized related to the Convertible Notes during the three months ended March 31, 2024, and 2023:

Three Months Ended March 31,

2024

2023

Contractual interest expense

$

1,908

$

1,479

Amortization of debt issuance costs