0001328143-21-000042.txt : 20210510 0001328143-21-000042.hdr.sgml : 20210510 20210510160203 ACCESSION NUMBER: 0001328143-21-000042 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 68 CONFORMED PERIOD OF REPORT: 20210331 FILED AS OF DATE: 20210510 DATE AS OF CHANGE: 20210510 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Adamas Pharmaceuticals Inc CENTRAL INDEX KEY: 0001328143 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 421560076 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-36399 FILM NUMBER: 21906973 BUSINESS ADDRESS: STREET 1: 1900 POWELL ST., SUITE 1000 CITY: EMERYVILLE STATE: CA ZIP: 94608 BUSINESS PHONE: 510-450-3554 MAIL ADDRESS: STREET 1: 1900 POWELL ST., SUITE 1000 CITY: EMERYVILLE STATE: CA ZIP: 94608 FORMER COMPANY: FORMER CONFORMED NAME: NeuroMolecular Pharmaceuticals Inc DATE OF NAME CHANGE: 20050524 10-Q 1 adms-20210331.htm 10-Q adms-20210331
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
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: 001-36399
ADAMAS PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
Delaware
 
42-1560076
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
1900 Powell Street, Suite 1000, Emeryville, CA, 94608
(Address of principal executive offices) (Zip Code)
(510) 450-3500
(Registrant’s telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $0.001 per share
 
Trading Symbol(s)
ADMS
Name of each exchange on which registered
The Nasdaq Global 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  x   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  x   No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller 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  x
Number of shares outstanding of the issuer’s common stock, par value $0.001 per share, as of April 30, 2021, was 45,408,095.



ADAMAS PHARMACEUTICALS, INC.
QUARTERLY REPORT ON FORM 10-Q
INDEX
 
   Page
 
    
  
  
  
  
  
  
 
 
 
    
 
    
 
 
 
 
 
 
 

2

PART I. FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS
ADAMAS PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands, except share and per share data)
 March 31,
2021
December 31,
2020
Assets  
Current assets  
Cash and cash equivalents$124,831 $71,660 
Available-for-sale securities 11,705 
Accounts receivable, net12,421 8,042 
Inventory7,536 7,294 
Prepaid expenses and other current assets13,316 13,035 
Total current assets158,104 111,736 
Property and equipment, net1,488 1,598 
Operating lease right-of-use assets6,270 6,657 
Available-for-sale securities, non-current2,605  
Intangible assets, net742  
Prepaid expenses and other non-current assets38 38 
Total assets$169,247 $120,029 
Liabilities and stockholders’ equity (deficit)  
Current liabilities  
Accounts payable$2,770 $2,144 
Accrued liabilities20,867 27,164 
Current portion of long-term debt3,580 3,657 
Other current liabilities1,959 1,902 
Total current liabilities29,176 34,867 
Long-term debt126,159 126,307 
Long-term portion of operating lease liabilities5,964 6,453 
Other non-current liabilities2,011 2,378 
Total liabilities163,310 170,005 
Commitments and Contingencies (Note 9)
Stockholders’ equity (deficit)  
Preferred stock, $0.001 par value — 5,000,000 shares authorized, and zero shares issued and outstanding at March 31, 2021 and December 31, 2020
  
Common stock, $0.001 par value — 100,000,000 shares authorized, 45,408,095 and 28,866,956 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively
50 34 
Additional paid-in capital523,748 455,277 
Accumulated other comprehensive loss(1) 
Accumulated deficit(517,860)(505,287)
Total stockholders’ equity (deficit)5,937 (49,976)
Total liabilities and stockholders’ equity (deficit)$169,247 $120,029 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3

ADAMAS PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share data)
 Three Months Ended
 March 31,
 20212020
Revenues:
Product sales$17,978 $14,481 
Royalty revenue1,333  
Total revenues19,311 14,481 
Costs and operating expenses:  
Cost of product sales385 572 
Research and development1,812 2,465 
Selling, general and administrative, net26,639 24,552 
Total costs and operating expenses28,836 27,589 
Loss from operations(9,525)(13,108)
Interest and other income, net384 84 
Interest expense(3,432)(3,624)
Net loss $(12,573)$(16,648)
Net loss per share, basic and diluted$(0.36)$(0.59)
Weighted average shares used in computing net loss per share, basic and diluted35,167 28,030 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4

ADAMAS PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(unaudited)
(in thousands)
 Three Months Ended
 March 31,
 20212020
Net loss$(12,573)$(16,648)
Other comprehensive income (loss)
Unrealized gain (loss) on available-for-sale securities(1)57 
Total other comprehensive income (loss)(1)57 
Comprehensive loss$(12,574)$(16,591)
 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5

ADAMAS PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(unaudited)
(in thousands, except share data)
 Common StockAdditional Paid-In CapitalAccumulated Other Comprehensive IncomeAccumulated DeficitTotal Stockholders’ Deficit
 SharesAmount
Balances at December 31, 201927,964,778 $33 $446,942 $16 $(447,884)$(893)
Exercise of stock options61,766 — 42 — — 42 
Restricted stock units vested131,661 — — — — — 
Other comprehensive income— — — 57 — 57 
Stock-based compensation— — 1,589 — — 1,589 
Net loss— — — — (16,648)(16,648)
Balances at March 31, 202028,158,205 $33 $448,573 $73 $(464,532)$(15,853)

 Common StockAdditional Paid-In CapitalAccumulated Other Comprehensive LossAccumulated DeficitTotal Stockholders’
Equity
(Deficit)
 SharesAmount
Balances at December 31, 202028,866,956 $34 $455,277 $ $(505,287)$(49,976)
Issuance of common stock in conjunction with equity offerings, net of commissions and issuance costs15,710,896 16 66,492 — — 66,508 
Exercise of stock options291,494 — 202 — — 202 
Restricted stock units vested538,749 — — — — — 
Other comprehensive loss— — — (1)— (1)
Stock-based compensation— — 1,777 — — 1,777 
Net loss— — — — (12,573)(12,573)
Balances at March 31, 202145,408,095 $50 $523,748 $(1)$(517,860)$5,937 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6

ADAMAS PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
 Three Months Ended
 March 31,
 20212020
Cash flows from operating activities
Net loss$(12,573)$(16,648)
Adjustments to reconcile net loss to net cash used in operating activities  
Depreciation110 236 
Stock-based compensation1,739 1,481 
Non-cash interest expense201 1,582 
Change in fair value of embedded derivative liability(367)341 
Net accretion of discounts and amortization of premiums of available-for-sale securities(68)(107)
Provision for write-down of inventory 289 
Amortization of intangible assets28  
Changes in assets and liabilities  
Accrued interest of available-for-sale securities50 218 
Accounts receivable, net(4,379)23 
Inventory(78)(234)
Prepaid expenses and other assets476 33 
Operating lease right-of-use assets387 344 
Accounts payable130 (3,298)
Long-term portion of operating lease liabilities(451)(401)
Accrued liabilities and other liabilities(6,268)(1,172)
Net cash used in operating activities(21,063)(17,313)
Cash flows from investing activities  
Purchases of available-for-sale securities(2,500)(33,962)
Maturities of available-for-sale securities11,617 31,000 
Acquisition of OSMOLEX ER(1,327) 
Net cash provided by (used in) investing activities7,790 (2,962)
Cash flows from financing activities  
Proceeds from public offerings, net of offering costs66,668  
Proceeds from issuance of common stock upon exercise of stock options202 42 
Principal payments on long-term debt(426) 
Net cash provided by financing activities66,444 42 
Net increase (decrease) in cash and cash equivalents53,171 (20,233)
Cash and cash equivalents at beginning of period71,660 65,774 
Cash and cash equivalents at end of period$124,831 $45,541 
Supplemental disclosure of noncash activities  
Stock-based compensation capitalized in inventory$38 $108 
Public offering costs in accounts payable and accrued expense$160 $ 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7

ADAMAS PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1.     DESCRIPTION OF BUSINESS
Adamas Pharmaceuticals, Inc. (the “Company”) is a commercial-stage pharmaceutical company focused on growing a portfolio of therapies to address a range of neurological diseases. In August 2017, the U.S. Food and Drug Administration (FDA) approved GOCOVRI® (amantadine) extended release capsules, the first and only FDA-approved medication indicated for the treatment of dyskinesia in patients with Parkinson’s disease receiving levodopa-based therapy, with or without concomitant dopaminergic medications. In February 2021, the FDA approved a second indication for GOCOVRI for use as an adjunctive treatment to levodopa/carbidopa in patients with Parkinson’s disease experiencing OFF episodes. On January 4, 2021, the Company acquired the global rights to OSMOLEX ER® (amantadine) extended release tablets from Osmotica Pharmaceuticals US LLC, a subsidiary of Osmotica Pharmaceuticals plc. In November 2012, the Company granted Forest Laboratories Holdings Limited “Forest”, an indirect wholly-owned subsidiary of Allergan plc (collectively “Allergan”) an exclusive license, with right to sublicense, certain of the Company’s intellectual property rights relating to human therapeutics containing memantine in the United States. In connection with these rights, Allergan markets and sells NAMZARIC® (memantine hydrochloride extended release and donepezil hydrochloride) capsules for the treatment of moderate to severe dementia related to Alzheimer’s disease. In May 2020, the Company became entitled to receive royalties at rates in the low double digits to mid-teens from Allergan for sales of NAMZARIC in the United States.
The Company was incorporated in the State of Delaware on November 15, 2000, and operates as one segment. The Company’s headquarters and operations are located in Emeryville, California.
2.     BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these financial statements do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, these financial statements include all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement of the Company’s condensed consolidated financial statements for the periods presented. The condensed consolidated balance sheet at December 31, 2020 was derived from the audited consolidated financial statements, but does not include all disclosures required by U.S. GAAP.
These interim financial results are not necessarily indicative of results to be expected for the full fiscal year ending December 31, 2021, or any other future period. Readers should read these interim unaudited condensed consolidated financial statements in conjunction with the audited consolidated financial statements and the related notes thereto for the year ended December 31, 2020, included in the Company’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission, or SEC.
The Company’s significant accounting policies are detailed in its Annual Report on Form 10-K for the year ended December 31, 2020. During the three months ended March 31, 2021, other than the business combinations and intangible assets policies described below, the Company’s significant accounting policies have not changed materially from December 31, 2020.
Use of Estimates
The preparation of the accompanying condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses in the condensed consolidated financial statements and the accompanying notes. On an ongoing basis, management evaluates its estimates, including those related to revenue recognition and variable consideration, lease assets and liabilities, clinical trial
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accruals, fair value of assets and liabilities including short-term and long-term classification, embedded derivatives, income taxes, inventory, and stock-based compensation. Management bases its estimates on historical experience and on various other market-specific and relevant assumptions that management believes to be reasonable under the circumstances. Actual results may differ from those estimates.
Risks and Uncertainties
Despite the roll-out of vaccines, the outbreak of the novel Coronavirus (“COVID-19”) is continuing both within the U.S. and globally. The Company is subject to risks and uncertainties as a result of the outbreak of COVID-19. Despite disruptions to the Company’s business operations, the COVID-19 pandemic did not significantly impact GOCOVRI prescription refill rates for the three months ended March 31, 2021, and thus far management has observed no disruptions to its inventory on hand or planned manufacturing schedule. However, new prescription rates have been impacted due to several factors, including: a fluid environment in which office practices are changing frequently including many healthcare providers have temporarily closed their offices or are restricting patient visits; patients are postponing visits to healthcare provider facilities; and the sales force continues to operate in a mix of virtual and live interactions with healthcare providers, adapting to the local environment. While management believes this initial decline and continued impact on new prescriptions to be temporary, the duration and severity is dependent on future developments, including new information that may emerge concerning the actions taken to contain or prevent further spread, all of which are highly uncertain and cannot be predicted with confidence.
As of the date of issuance of these condensed consolidated financial statements, due to the numerous uncertainties surrounding the COVID-19 pandemic, the Company is unable to predict the extent to which the COVID-19 pandemic may materially adversely affect the Company’s future business, financial results, liquidity and cash flows.
Liquidity
Since January 1, 2019, the Company has funded its operations primarily through sales of GOCOVRI, through sales of its common stock, and to a lesser extent through royalties received on net sales of NAMZARIC and sales of OSMOLEX ER. The Company made GOCOVRI available for physician and patient use in the fourth quarter of 2017, with a full commercial launch in January 2018. Prior to the generation of revenue from GOCOVRI, the Company had not generated any commercial revenue from the sale of its products. In November 2019, the Company entered into a sales agreement with Cowen and Company, LLC, pursuant to which it may, from time to time, issue and sell shares of common stock having an aggregate offering value of up to $50.0 million. As of March 31, 2021, the Company had issued 1,553,299 shares of common stock and raised net proceeds of $8.3 million under the sales agreement. In March 2021, the Company completed a follow-on public offering of 14,375,000 shares of common stock, which includes the exercise in full by the underwriters of their option to purchase 1,875,000 shares of common stock, at an offering price of $4.40 per share. Proceeds from the follow-on public offering were approximately $59.3 million, net of underwriting discounts and offering-related transaction costs.
As of March 31, 2021, the Company had $127.4 million of cash, cash equivalents, and investments, which management believes will be sufficient to fund its projected operating requirements for at least 12 months from the issuance of these condensed consolidated financial statements. However, it is possible that the Company will not achieve the progress it expects, because revenues from GOCOVRI may be less than anticipated, especially in light of the current COVID-19 pandemic.
Business Combinations
The Company accounts for business combinations using the acquisition method of accounting, pursuant to ASC Topic 805. This method requires, among other things, that results of operations of acquired companies are included in the Company’s financial results beginning on the respective acquisition date, and that assets acquired and liabilities assumed are recognized separately at their fair value as of the acquisition date. Any excess of the fair value of consideration transferred (the “Purchase Price”) over the fair values of the net assets acquired is recognized as goodwill. The determination of estimated fair value requires the use of significant estimates and assumptions. The fair value of assets acquired and liabilities assumed may be subject to adjustment within the measurement period, which may be up to 12 months from the acquisition date. Transaction costs associated with business combinations are expensed when incurred.
Intangible Assets
Intangible assets acquired in a business combination are stated at initial fair value less accumulated
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amortization. Intangible assets with a definite useful life are amortized on a straight-line basis over the estimated useful life of the related assets and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.
Recent Accounting Pronouncements
Accounting Pronouncements Adopted in 2021
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740)—Simplifying the Accounting for Income Taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and amends existing guidance to improve consistent application. This guidance became effective for the Company on January 1, 2021, and did not have a material impact on its condensed consolidated financial statements.
New Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses of Financial Instruments; in November 2018 the FASB issued a subsequent amendment ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments—Credit Losses; in April 2019 the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments; in May 2019 the FASB issued ASU No. 2019-05, Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief; and in November 2019 the FASB issued ASU No. 2019-11, Codification Improvements to Topic 326, Financial Instruments—Credit Losses. The new guidance changes the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. In November 2019 the FASB issued ASU No. 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842)—Effective Dates, which defers the effective date of ASU 2016-13 for all entities except SEC reporting companies that are not smaller reporting companies. As a smaller reporting company, this guidance is effective for fiscal years beginning after December 15, 2022. Early adoption is permitted. The Company is currently evaluating the timing and effect the new guidance will have on its consolidated financial statements.
3.     FAIR VALUE MEASUREMENTS
In accordance with ASC 820-10, Fair Value Measurements and Disclosures, the Company determines the fair value of financial and non-financial assets and liabilities using the fair value hierarchy, which establishes three levels of inputs that may be used to measure fair value, as follows:
Level 1 inputs, which include quoted prices in active markets for identical assets or liabilities;
Level 2 inputs, which include observable inputs other than Level 1 inputs, such as quoted prices for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability. For available-for-sale securities, the Company reviews trading activity and pricing as of the measurement date. When sufficient quoted pricing for identical securities is not available, the Company uses market pricing and other observable market inputs for similar securities obtained from various third-party data providers. These inputs either represent quoted prices for similar assets in active markets or have been derived from observable market data; and
Level 3 inputs, which include unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the underlying asset or liability. Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies, or similar valuation techniques, as well as significant management judgment or estimation.
The following table represents the fair value hierarchy for the Company’s financial assets and liabilities which require fair value measurement on a recurring basis (in thousands):
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 March 31, 2021
 TotalLevel 1Level 2Level 3
Assets:    
Money market$116,718 $116,718 $ $ 
Corporate debt2,605  2,605  
Total assets measured at fair value$119,323 $116,718 $2,605 $ 
Liabilities:
Embedded derivative liability$2,011 $ $ $2,011 
Total liabilities measured at fair value$2,011 $ $ $2,011 

 December 31, 2020
 TotalLevel 1Level 2Level 3
Assets:    
Money market$48,152 $48,152 $ $ 
Corporate debt6,706  6,706  
U.S. Treasury securities4,999  4,999  
Total assets measured at fair value$59,857 $48,152 $11,705 $ 
Liabilities:
Embedded derivative liability$2,378 $ $ $2,378 
Total liabilities measured at fair value$2,378 $ $ $2,378 
Money market funds are highly liquid investments and are actively traded. The pricing information on these investment instruments are readily available and can be independently validated as of the measurement date. This approach results in the classification of these securities as Level 1 of the fair value hierarchy.
Corporate debt, U.S. Treasury securities, and commercial paper are measured at fair value using Level 2 inputs. The Company reviews trading activity and pricing for these investments as of each measurement date. When sufficient quoted pricing for identical securities is not available, the Company uses market pricing and other observable market inputs for similar securities obtained from various third-party data providers. These inputs represent quoted prices for similar assets in active markets or these inputs have been derived from observable market data. This approach results in the classification of these securities as Level 2 of the fair value hierarchy. In certain cases where there is limited activity or less transparency around inputs to valuation, the related assets or liabilities are classified as Level 3. The Company classified an embedded derivative related to its royalty-backed loan agreement (“Royalty-Backed Loan”) with HealthCare Royalty Partners III, L.P. (“HCR”) as a Level 3 liability.
The fair value of the embedded derivative as a result of a change in control was calculated using a probability-weighted discounted cash flow model. The model used in valuing this embedded derivative requires the use of significant estimates and assumptions including but not limited to: 1) expected cash flows the Company expects to receive on U.S. net sales of GOCOVRI and OSMOLEX ER and on royalties from Allergan on U.S. net sales of NAMZARIC; 2) the Company’s risk adjusted discount rates; and 3) the probability of a change in control occurring during the term of the note based on the percentage of similar companies that were acquired over the previous five year period. Changes in the estimated fair value of the bifurcated embedded derivative are reported as gains or losses in interest and other income, net, in the condensed consolidated statements of operations. In the periods presented, the Company evaluated the embedded derivative value as a result of an event of default and the value as a result of increased costs due to a regulatory change and considered both to have no material value based on current assessment of probability, but could become material in future periods if a specified event of default or regulatory change became more probable than is currently estimated. See “Note 10. Long-Term Debt” for further description.
At March 31, 2021, the embedded derivative related to the Royalty-Backed Loan was the only recurring fair value measurement with Level 3 unobservable inputs. A risk-adjusted discount rate of 16.8% and a probability of a change in control of 3.0% were applied to calculate the value of the embedded derivative. Significant increases (or decreases) in the discount rate, and significant increases (or decreases) in the probability of a change in control would
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result in a significantly higher (or lower) fair value measurement.
The following table sets forth changes in Level 3 liabilities measured at fair value on a recurring basis for the three months ended March 31, 2021 and 2020 (in thousands):
Three Months Ended March 31,
20212020
Beginning balance$2,378 $2,157 
Change in fair value included in interest and other income, net(367)341 
Ending balance$2,011 $2,498 
There were no transfers into or out of Level 3 during the three months ended March 31, 2021 and 2020.
4.     INVESTMENTS 
The Company’s investments consist of corporate debt, U.S. Treasury securities, and commercial paper classified as available-for-sale securities.
The Company limits the amount of investment exposure as to institution, maturity, and investment type. To mitigate credit risk, the Company invests in investment grade corporate debt, U.S. Treasury securities, and commercial paper. Such securities are reported at fair value, with unrealized gains and losses excluded from earnings and shown separately as a component of accumulated other comprehensive income (loss) within stockholders’ equity. Realized gains and losses are reclassified from other comprehensive income (loss) to other income on the condensed consolidated statements of operations when incurred. The Company may pay a premium or receive a discount upon the purchase of available-for-sale securities. Interest earned and gains realized on available-for-sale securities and amortization of discounts received and accretion of premiums paid on the purchase of available-for-sale securities are included in investment income.
The following table is a summary of amortized cost, unrealized gain and loss, and the fair value of available-for-sale securities as of March 31, 2021 and December 31, 2020 (in thousands):
March 31, 2021
 Amortized CostGross Unrealized
Gains
Gross Unrealized
Losses
Fair Value
Investments:    
Corporate debt$2,606 $ $(1)$2,605 
Total$2,606 $ $(1)$2,605 
Reported as:    
Long-term investments$2,606 $ $(1)$2,605 
Total$2,606 $ $(1)$2,605 

December 31, 2020
 Amortized CostGross Unrealized
Gains
Gross Unrealized
Losses
Fair Value
Investments:    
Corporate debt$6,706 $ $ $6,706 
U.S. Treasury securities4,999   4,999 
Total$11,705 $ $ $11,705 
Reported as:    
Short-term investments$11,705 $ $ $11,705 
Total$11,705 $ $ $11,705 
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Long-term investments include accrued interest of $37,000 as of March 31, 2021. Short-term investments include accrued interest of $0.1 million as of December 31, 2020. There were no gross realized gains or losses on investments for the three months ended March 31, 2021 and March 31, 2020. Investments are classified as short-term or long-term depending on the underlying investment’s maturity date. Long-term investments held by the Company have a maturity date range of greater than 12 months and less than 24 months as of March 31, 2021. All investments with unrealized losses at March 31, 2021 have been in a loss position for less than twelve months or the loss is not material and were temporary in nature. The Company does not intend to sell the investments that are in an unrealized loss position before recovery of their amortized cost basis.
5.     INVENTORY
If the Company identifies excess, obsolete, or unsalable product, the Company will write down its inventory to net realizable value in the period it is identified. During the three months ended March 31, 2021 and 2020, the Company recorded a provision for the write-down of inventory to cost of product sales of zero and $0.3 million, respectively. Inventory consists of the following (in thousands):
March 31, 2021December 31, 2020
Raw materials$780 $795 
Work-in-process4,095 4,403 
Finished goods2,661 2,096 
Total inventory$7,536 $7,294 

6.     INTANGIBLE ASSETS, NET
The Company recognized intangible assets in connection with the acquisition of OSMOLEX ER, which is being amortized over its useful life of seven years. See “Note 8. Acquisition of OSMOLEX ER” for further description of the OSMOLEX ER acquisition. Amortization expense is included in cost of product sales in the condensed consolidated statements of operations. Intangible assets, net, consist of the following (in thousands):
 March 31, 2021December 31, 2020
Developed product$770 $ 
Accumulated amortization(28) 
Total intangible assets, net$742 $ 

Amortization expense for the three months ended March 31, 2021 was $28,000. Estimated amortization expense for the remainder of 2021 and for each of the five succeeding years ending December 31 will be as follows (in thousands):
YearAmount
2021 (remainder)$82 
2022110 
2023110 
2024110 
2025110 
2026110 
Thereafter110 
Total amortization expense$742 

7.     LICENSE AGREEMENTS
In November 2012, the Company granted Forest Laboratories Holdings Limited “Forest”, an indirect wholly-owned subsidiary of Allergan plc (collectively “Allergan”) an exclusive license, with right to sublicense, certain of the Company’s intellectual property rights relating to human therapeutics containing memantine in the United States. In
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connection with these rights, Allergan markets and sells NAMZARIC and NAMENDA XR for the treatment of moderate to severe dementia related to Alzheimer’s disease.
Pursuant to the agreement, Allergan made an upfront payment of $65.0 million. The Company earned and received additional cash payments totaling $95.0 million upon achievement by Allergan of certain development and regulatory milestones. Under the agreement, external costs incurred related to the prosecution and litigation of intellectual property rights are reimbursable. Reimbursable external costs are recorded as a reduction to selling, general and administrative, net. For the three months ended March 31, 2021 and 2020, there were no reimbursable external costs for prosecution or litigation of intellectual property rights.
In addition, the Company may earn tiered royalty payments based on net sales of NAMZARIC and NAMENDA XR. Beginning in May 2020, the Company became entitled to receive royalties at rates in the low double digits to mid-teens from Allergan for sales of NAMZARIC in the United States. The Company recognized $1.3 million in NAMZARIC royalty revenue for the three months ended March 31, 2021, and recognized no royalty revenue for the three months ended March 31, 2020. Allergan’s obligation to pay royalties with respect to fixed-dose memantine-donepezil products, including NAMZARIC, continues until the later of (i) 15 years after the commercial launch of the first fixed-dose memantine-donepezil product by Allergan in the United States or (ii) the expiration of the Orange Book listed patents for which Allergan obtained rights from the Company covering such product, but is eliminated in any quarter where there is significant competition from generics. Based on Allergan’s and the Company’s current settlement agreements with the NAMZARIC ANDA filers to date, the earliest date on which any of these agreements grant a license to market a NAMZARIC ANDA filer’s generic version of NAMZARIC is January 1, 2025 (or earlier in certain circumstances). Alternatively, the NAMZARIC ANDA filers with the earliest license date have the option to launch an authorized generic version of NAMZARIC beginning on January 1, 2026 instead of launching their own generic version of NAMZARIC on January 1, 2025. For further discussion of NAMZARIC ANDA filers, see Litigation and Other Legal Proceedings in “Note 9. Commitments and Contingencies.” Beginning in June 2018, the Company was entitled to receive royalties at rates in the low to mid-single digits for sales of NAMENDA XR in the United States. The Company does not expect to receive royalties on net sales of NAMENDA XR, due to the entry of generic versions of NAMENDA XR. Royalties under the license agreement will be recognized when the related sales occur, in accordance with the sales-based royalty exception.
8.     ACQUISITION OF OSMOLEX ER
The Company entered into a purchase agreement (the “Asset Purchase Agreement”) with Osmotica Pharmaceutical US LLC and Vertical Pharmaceuticals LLC (“Osmotica”) on December 1, 2020. The transaction closed on January 4, 2021 and settles all previously disclosed patent disputes. Pursuant to the Asset Purchase Agreement: both parties gave each other mutual releases and agreed to dismiss their respective claims relating to certain patent litigation; the Company acquired the global rights to OSMOLEX ER and existing inventory and the assumption of certain liabilities; and Osmotica will not engage in the U.S. in the development, manufacture, or sale of any product that is a generic version of any dosage strength of OSMOLEX ER for a period of five years from the closing of the Asset Purchase Agreement. At closing, the Company paid $7.3 million, including a $7.5 million base purchase price less $0.2 million for the assumption of certain liabilities. Management determined that the Asset Purchase Agreement was to be accounted for as a multiple element arrangement in which $5.2 million represented a patent litigation settlement, $0.8 million represented compensation to Osmotica for future inventory, and $1.3 million represented the acquisition of OSMOLEX ER. The patent litigation settlement was recorded in selling, general and administrative, net, during the twelve months ended December 31, 2020. Compensation to Osmotica for future inventory was recorded as prepaid expenses and other current assets during the three months ended March 31, 2021. The acquisition of OSMOLEX ER was accounted for as a business combination using the acquisition method of accounting during the three months ended March 31, 2021. The following table summarizes the allocation of the purchase price to the fair values of assets acquired and liabilities assumed as of the acquisition date (in thousands):
January 4, 2021
Prepaid expenses and other current assets$757 
Intangible assets - developed product770 
Accrued liabilities(200)
Total fair value of assets acquired and liabilities assumed$1,327 
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Intangible assets - developed product consists of OSMOLEX ER registered patents and related intellectual property. The intangible assets acquired were recorded at fair value using the multi-period excess earnings method, or MPEEM. The MPEEM, a variation of the income approach, estimates an intangible asset’s fair value based on the incremental after-tax cash flows attributable only to the intangible asset, discounted to present value using a discount rate based on the Company’s weighted average cost of capital.
The Company incurred approximately $0.2 million in acquisition-related expenses, which were recorded in selling, general and administrative, net in the condensed consolidated statements of operations.
The results of operations of OSMOLEX ER have been included in the condensed consolidated statements of operations since the acquisition date of January 4, 2021. Since January 4, 2021 and through March 31, 2021, OSMOLEX ER contributed $0.3 million to the Company’s net product sales. Total earnings contributed by OSMOLEX ER was not separately identifiable and is impracticable to disclose as the operations of OSMOLEX ER were integrated into the operations of the Company from the date of acquisition and not accounted for separately.
Pro forma financial information is not presented as historical financial results of OSMOLEX ER are not significant when compared to the actual results of operations of the Company.
9.     COMMITMENTS AND CONTINGENCIES
Purchase Commitments
The Company has entered into agreements for the supply of active pharmaceutical ingredients with Moehs Ibérica, S.L. and AMSA S.p.A., and the manufacture of commercial supply of GOCOVRI with Catalent Pharma Solutions, LLC. Under the terms of the agreements, the Company will supply the vendors with non-cancelable firm commitment purchase orders. The Company has also entered into other agreements with certain vendors for the provision of services, including services related to data access and packaging, under which the Company is contractually obligated to make certain payments to the vendors.
The Company enters into contracts in the normal course of business that include, among others, arrangements with CROs for clinical trials, vendors for preclinical research, and vendors for manufacturing. These contracts generally provide for termination upon notice, and therefore the Company believes that its obligations under these agreements are not material.
Contingencies
In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for general indemnifications. The Company’s exposure under these agreements is unknown, because it involves claims that may be made against the Company in the future, but have not yet been made. The Company accrues a liability for such matters when it is probable that future expenditures will be made and such expenditures can be reasonably estimated.
Indemnification 
In accordance with the Company’s amended and restated certificate of incorporation and amended and restated bylaws, the Company has indemnification obligations to its officers and directors for certain events or occurrences, subject to certain limits, while they are serving in such capacity. The Company has a directors and officers liability insurance policy that may enable it to recover a portion of any amounts paid for claims. In addition, in the normal course of business, the Company enters into contracts and agreements that may contain a variety of representations and warranties and provide for general indemnifications.
Litigation and Other Legal Proceedings
In November 2012, the Company granted Forest an exclusive license to certain of the Company’s intellectual property rights relating to human therapeutics containing memantine in the United States. Under the terms of that license agreement, Forest has the right to enforce such intellectual property rights which are related to its right to market and sell NAMZARIC and NAMENDA XR for the treatment of moderate to severe dementia related to Alzheimer’s disease. The Company has a right to participate in, but not control, such enforcement actions by Forest.
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In 2018 and as of the issuance date of these condensed consolidated financial statements, multiple generic companies have launched generic versions of NAMENDA XR.
As of the issuance date of these condensed consolidated financial statements, a number of companies have submitted ANDAs including one or more certifications pursuant to 21 U.S.C. § 355(j)(2)(A)(vii)(iv) to the FDA requesting approval to manufacture and market generic versions of NAMZARIC, on which the Company is entitled to receive royalties from Forest beginning in May 2020.
As of the issuance date of these condensed consolidated financial statements, the Company and Forest have settled with all such NAMZARIC ANDA filers, including all first filers on all the available dosage forms of NAMZARIC. Subject to those agreements, the earliest date on which any of these agreements grant a license to market a NAMZARIC ANDA filer’s generic version of NAMZARIC is January 1, 2025 (or earlier in certain circumstances). Alternatively, the NAMZARIC ANDA filers with the earliest date have the option to launch an authorized generic version of NAMZARIC beginning on January 1, 2026 instead of launching their own generic version of NAMZARIC on January 1, 2025. The Company and Forest intend to continue to enforce the patents associated with NAMZARIC.
On July 1, 2020, the Company received a letter dated June 29, 2020, notifying the Company that Zydus Worldwide DMCC (“Zydus Worldwide”) submitted to the FDA an ANDA for Amantadine Extended-Release Capsules, 68.5 mg and 137 mg that contains certifications pursuant to 21 U.S.C. § 355(j)(2)(A)(vii)(IV) with respect to the Company’s U.S. Patent Nos. 8,389,578; 8,741,343; 8,796,337; 8,889,740; 8,895,614; 8,895,615; 8,895,616; 8,895,617; 8,895,618; 9,867,791; 9,867,792; 9,867,793; 9,877,933; and 10,154,971, that these patents are invalid or will not be infringed by the manufacture, use or sale of Zydus Worldwide’s Amantadine Extended-Release Capsules, 68.5 mg and 137 mg. On August 13, 2020, the Company filed a lawsuit against Zydus Worldwide and Zydus Pharmaceuticals (USA), Inc. (collectively “Zydus”) alleging infringement of those patents and U.S. Patent No. 10,646,456 by Zydus in the United States District Court for the District of New Jersey. U.S. Patent No. 10,646,456 was not listed in the Orange Book at the time Zydus Worldwide filed its ANDA, but on or about September 3, 2020, the Company received a letter dated September 2, 2020, notifying the Company that Zydus Worldwide submitted a certifications pursuant to 21 U.S.C. § 355(j)(2)(A)(vii)(IV) with respect to the Company’s U.S. Patent No. 10,646,456 with respect to its ANDA for Amantadine Extended-Release Capsules, 68.5 mg and 137 mg. On January 30, 2021, Adamas Pharma, LLC entered into a definitive agreement (the “Settlement Agreement”) with Zydus pursuant to which the parties agreed to end the lawsuit and dismiss it without prejudice, and the Court dismissed the lawsuit on February 3, 2021. Pursuant to the Settlement Agreement, Adamas Pharma, LLC grants Zydus a license to make, use, sell, offer to sell and import a generic version of GOCOVRI (amantadine) extended release capsules (including for any new indications approved under the GOCOVRI NDA), effective as of March 4, 2030, or earlier in certain circumstances typical for such agreements. The Settlement Agreement contains provisions that may accelerate the license date, including if unit sales of GOCOVRI for the 12-month period ending July 31, 2025 or any subsequent 12-month period decline by a specified percentage below GOCOVRI unit sales for the year ended December 31, 2019. The Company and Adamas Pharma LLC intend to continue to enforce the patents associated with GOCOVRI.
On April 1, 2019, the Company was served with a complaint filed in the United States District Court for the Northern District of California (Case No. 3:18-cv-03018-JCS) against the Company and several Allergan entities alleging violations of Federal and state false claims acts (“FCA”) in connection with the commercialization of NAMENDA XR and NAMZARIC by Allergan. The lawsuit is a qui tam complaint brought by a named individual, Zachary Silbersher, asserting rights of the Federal government and various state governments. The lawsuit was originally filed in May 2018 under seal, and the Company became aware of the lawsuit when it was served. The complaint alleges that patents held by Allergan and the Company covering NAMENDA XR and NAMZARIC were procured through fraud on the United States Patent and Trademark Office and that these patents were asserted against potential generic manufacturers of NAMENDA XR and NAMZARIC to prevent the generic manufacturers from entering the market, thereby wrongfully excluding generic competition resulting in an artificially high price being charged to government payors. The Company’s patents in question were licensed exclusively to Forest. The complaint includes a claim for damages of “potentially more than $2.5 billion dollars,” treble damages “under the federal FCA and most of the State FCAs,” and “statutory penalties that can be assessed for each false claim.” This action is ongoing. The federal and state governments have declined to intervene in this action. To the Company’s knowledge, the individual plaintiff is pursuing the lawsuit in his individual capacity. This case is currently stayed pending the Company and Allergan’s interlocutory appeal of the District Court’s December 11, 2020 order denying the Company’s and Allergan’s motion to dismiss the complaint. The appeal is pending in the United States Court of Appeals for the Ninth Circuit (Case No. 21-80005). The
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Company believes it has strong factual and legal defenses and intends to defend itself vigorously.
On May 13, 2019, a putative class action lawsuit alleging violations of the federal securities laws was filed by Plymouth County Contributory Retirement System against the Company and certain of the Company’s current and former directors and officers in California Superior Court for the County of Alameda (Case No. RG19018715). The lawsuit alleges violations of the Securities Act of 1933 by the Company and certain of the Company’s current and former directors and officers for allegedly making false statements and omissions in the registration statement and prospectus filed by the Company in connection with its January 24, 2018, secondary public offering of common stock. On October 29, 2020, Adamas signed a Memorandum of Understanding to settle this lawsuit for a payment of $7.5 million to eligible settlement class members in resolution of claims asserted against the Company, its officers, directors, and the other defendants. The settlement will be paid by the Company’s Director & Officer liability insurance. The Company and the other defendants continue to deny each of the plaintiff’s claims and deny any liability, but the Company agreed to the settlement solely to resolve the disputes, to avoid the costs and risks of further litigation, and to avoid further distractions to management. This settlement received final approval from the court on April 13, 2021.
On December 10, 2019, another putative class action lawsuit alleging violations of the federal securities laws was filed by Ali Zaidi against the Company and certain of the Company’s current and former directors and officers in federal court in the Northern District of California (Case No. 4:19-cv-08051). This lawsuit alleges violations of the Securities Exchange Act of 1934 by the Company and certain of the Company’s current and former officers. On March 16, 2020, a shareholder derivative lawsuit was filed by Patrick Van Camp in federal court in the Northern District of California (Case No. 4:20-cv-01815) naming the Company and certain of the Company’s current and former directors and officers as defendants. This lawsuit alleges breaches of fiduciary duty and violations of the Securities Exchange Act of 1934 by certain of the Company’s current and former directors and officers. The Company is named as a nominal defendant only. On April 6, 2020, another, virtually identical, shareholder derivative lawsuit was filed by James Druzbik in federal court in the Northern District of California (Case No. 4:20-cv-02320) naming the Company and certain of the Company’s current and former directors and officers as defendants. This lawsuit contains the same allegations, claims, and defendants as the first derivative action. The Company is named as a nominal defendant only. Other similar cases may be filed in the future. In all of these actions, Plaintiffs seek unspecified monetary damages and other relief. These actions are ongoing. The Company believes it has strong factual and legal defenses to all actions and intends to defend itself vigorously.
From time to time, the Company may be party to legal proceedings, investigations, and claims in the ordinary course of its business. Other than the matters described above, the Company is not currently party to any material legal proceedings.
10.     LONG-TERM DEBT
Royalty-Backed Loan Agreement
In May 2017, the Company, through a new wholly-owned subsidiary, Adamas Pharma, LLC, entered into a Royalty-Backed Loan with HCR, whereby the Company initially borrowed $35 million, followed by an additional $65 million received in the fourth quarter 2017 upon FDA’s recognition in the Orange Book of seven-year orphan drug exclusivity, which GOCOVRI earned upon approval on August 24, 2017. On December 1, 2020, the Company entered into an agreement with HCR to amend certain key terms of the Royalty-Backed Loan to be effective upon the closing of the Company’s Asset Purchase Agreement with Osmotica. The Asset Purchase Agreement closed on January 4, 2021, and is described further in “Note 8. Acquisition of OSMOLEX ER.” The amendment of the Royalty-Backed Loan was accounted for prospectively as a debt modification, based on a comparison of the present value of the cash flows under the terms of the debt immediately before and after the amendment, which resulted in a change that was not substantially different.
Principal and interest will be payable quarterly from the proceeds of a 12.5% royalty on U.S. net sales of GOCOVRI and OSMOLEX ER, and up to $15 million of the Company’s annual royalties from Allergan on U.S. net sales of NAMZARIC starting in May 2020, pursuant to the Company’s license agreement with Allergan. The royalty rate on net sales of GOCOVRI will drop to 6.25% after the principal amount of the loan has been repaid in full, until the Company has made total payments of 200% of the funded amounts. The Company may elect to voluntarily prepay the loan at any time, or may be required to prepay subject to specified prepayment trigger events as described below. In the case of the occurrence of a change in control: the amount due will be $175 million, less total payments made to date, if
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such prepayment is made on or prior to December 31, 2022; or $195 million, less total payments to date, if made thereafter. In the case of the occurrence of any event of default the amount due will be 200% of the funded amounts, less total payments made to date. Royalty rates are subject to increase to 22.5% if total principal and interest payments have not reached minimum specified levels at the measurement date of December 2022. Under the terms of the loan, HCR has recourse to Adamas Pharma, LLC, not the Company. The loan agreement matures in March 2027 but as the repayment of the loan amount is contingent upon the sales volumes of GOCOVRI and OSMOLEX ER, and royalties from Allergan, the repayment term may be shortened depending on the actual sales of GOCOVRI and OSMOLEX ER, and actual royalties received from Allergan.
The loans bear interest at an annual rate of 11% on the outstanding principal amount and includes an interest-only period until the interest payment date following the ninth full calendar quarter after the $65 million additional loan received in the fourth quarter 2017. To the extent that royalties were insufficient to pay interest in full during the first nine quarters of the loan, any unpaid portion of the quarterly interest payment was added to the principal amount of the loans. This payment-in-kind period ended in the first quarter of 2020.
In connection with the Royalty-Backed Loan, in 2017 the Company paid HCR a lender expense amount of $0.4 million and incurred additional debt issuance costs totaling $0.8 million. The lender expense and additional debt issuance costs have been recorded as a debt discount. The unamortized debt discount as of the date of the modification is being amortized and recorded as interest expense over the estimated term of the loan using the effective interest method. Issuance costs paid to the lender in connection with the amendment were de minimis. Issuance costs paid to third parties in connection with the amendment were recorded in selling, general and administrative, net, during the twelve months ended December 31, 2020. The Company recorded interest expense, including amortization of the debt discount, related to the Royalty-Backed Loan, of $3.4 million for the three months ended March 31, 2021 and $3.6 million for the three months ended March 31, 2020. Interest expense over the life of the Royalty-Backed Loan includes an annual interest rate of 11% on the outstanding principal, a royalty rate of 6.25% on net sales of GOCOVRI and OSMOLEX ER after the principal amount is paid, and amortization of the debt discount. The effective interest rate, including the amortization of the debt discount, which was changed on a prospective basis in connection with the amendment, was 13.0% as of March 31, 2021.
The assumptions used in determining the expected repayment term of the loan and amortization period of the debt discount require that the Company make estimates that could impact the short and long-term classification of these costs, as well as the period over which these costs will be amortized and the effective interest rate.
The Company may be required to make mandatory prepayments of the borrowings under the Royalty-Backed Loan upon the occurrence of specified prepayment trigger events, including: (1) the occurrence of any event of default or (2) the occurrence of a change in control. Upon the prepayment of all or any of the outstanding principal balance, the Company shall pay, in addition to such prepayment, a prepayment premium. As HCR, as the holder of the loans, may exercise the option to require prepayment by the Company, the prepayment premium is considered to be an embedded derivative which is required to be bifurcated from its host contract and accounted for as a separate financial instrument. The valuation of the embedded derivative is described further in “Note 3. Fair Value Measurements.”
Payment obligations under the Royalty-Backed Loan are as follows (in thousands):
March 31, 2021December 31, 2020
Total repayment obligation$200,000 $200,000 
Less: Interest to be accreted in future periods(45,798)(49,230)
Less: Payments made(24,463)(20,806)
Carrying value of loans payable$129,739 $129,964 
Less: Current portion of long-term debt(3,580)(3,657)
Non-current portion of long-term debt$126,159 $126,307 
The estimated fair value of the long-term debt, as measured using Level 3 inputs, approximates $113.2 million as of March 31, 2021. The estimated fair value was calculated in the same methodology as the valuation of the embedded derivative as described further in “Note 3. Fair Value Measurements.”
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There are no contractual minimum principal payments due until the loan matures in March 2027 as the repayment of the loan amount is contingent upon the sales volumes of GOCOVRI and OSMOLEX ER, and royalties from Allergan on U.S. net sales of NAMZARIC.
Paycheck Protection Program
On April 15, 2020, the Company received proceeds from a loan in the amount of $2.7 million (the “PPP Loan”) from JPMorgan Chase Bank, N.A. (the “Lender”), pursuant to the Small Business Association (“SBA”) Paycheck Protection Program (or “PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). At the time the Company applied for the PPP loan, the Company believed it qualified to receive the funds pursuant to the then published qualification requirements. On April 23, 2020, the SBA, in consultation with the Department of Treasury, issued new guidance regarding qualification requirements for public companies. Based on the Company’s assessment of the new guidance, on April 29, 2020, the Company repaid the principal and interest on the PPP loan.
11.     STOCKHOLDERS’ EQUITY
Common Stock
The amended and restated certificate of incorporation authorizes the Company to issue 100,000,000 shares of common stock. Common stockholders are entitled to dividends as and when declared by the board of directors, subject to the rights of holders of all classes of stock outstanding having priority rights as to dividends. There have been no dividends declared to date. Each share of common stock is entitled to one vote.
Public Offering
In March 2021, the Company completed a follow-on public offering of 14,375,000 shares of common stock, which includes the exercise in full by the underwriters of their option to purchase 1,875,000 shares of common stock, at an offering price of $4.40 per share. Proceeds from the follow-on public offering were approximately $59.3 million, net of underwriting discounts and offering-related transaction costs.
Sales Agreement
In November 2019, the Company entered into a sales agreement (“Sales Agreement”) with Cowen and Company, LLC (“Cowen”), as sales agent, pursuant to which the Company may, from time to time, issue and sell at its option, shares of the Company’s common stock for an aggregate offering price of up to $50.0 million under an at-the-market offering (“ATM Offering”). Sales of the common stock, if any, will be made pursuant to a shelf registration statement that was declared effective by the Securities and Exchange Commission (“SEC”) on December 2, 2019. Cowen is acting as sole sales agent for any sales made under the Sales Agreement and the Company will pay Cowen a commission of up to 3% of the gross proceeds. The Company’s common stock will be sold at prevailing market prices at the time of the sale, and, as a result, prices may vary.
The Company is not obligated to make any sales of shares of common stock under the Sales Agreement. Unless otherwise terminated earlier, the Sales Agreement continues until all shares available under the Sales Agreement have been sold. As of March 31, 2021, 1,553,299 shares have been sold under the Sales Agreement. During the fiscal year ended December 31, 2020, 217,403 shares were sold at an average price of $4.94, for net proceeds of $1.0 million and during the three months ended March 31, 2021, 1,335,896 shares were sold at an average price of $5.57, for net proceeds of $7.2 million.
Shares Reserved for Future Issuance
Shares of the Company’s common stock reserved for future issuance are as follows:
 March 31, 2021December 31, 2020
Common stock awards issued and outstanding7,509,223 7,172,029 
Authorized for future issuance under 2014 Equity Incentive Plan3,439,904 3,518,414 
Authorized for future issuance under 2016 Inducement Plan985,170 469,419 
Employee stock purchase plan1,306,730 1,018,060 
Total13,241,027 12,177,922 
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12.     STOCK-BASED COMPENSATION
Stock Compensation Plans
In January 2021, the common stock available for issuance under the 2014 Equity Incentive Plan (the “2014 Plan”) automatically increased by 4% of the total number of shares of the Company’s capital stock outstanding on December 31, 2020, or 1,154,678 shares.
In February 2021, the Company’s board of directors approved an amendment to the 2016 Inducement Plan (the “Inducement Plan”) to increase the number of shares available for issuance by an additional 450,000.
Employee Stock Purchase Plan
In January 2021, the common stock available for issuance under the 2014 Employee Stock Purchase Plan (the “ESPP”) automatically increased by 1% of the total number of shares of the Company’s capital stock outstanding on December 31, 2020, or 288,670 shares.
Stock-Based Compensation Expense
The following table reflects stock-based compensation expense recognized for the three months ended March 31, 2021 and 2020 (in thousands):
 Three Months Ended March 31,
 20212020
Research and development$107 $86 
Selling, general and administrative1,632 1,395 
Total stock-based compensation expense$1,739 $1,481 
Stock-based compensation of $38,000 was capitalized into inventory for the three months ended March 31, 2021, and $108,000 for the three months ended March 31, 2020. Stock-based compensation capitalized into inventory is recognized as cost of product sales when the related product is sold.
13.     NET LOSS PER SHARE
For all periods presented, there is no difference in the number of shares used to compute basic and diluted shares outstanding due to the Company’s net loss position. The following total outstanding shares of potentially dilutive securities were excluded from the computation of diluted net loss per share for the periods presented, because including them would have been anti-dilutive (in thousands):
Three Months Ended March 31,
 20212020
Options to purchase common stock5,028 5,789 
Restricted stock units2,481 1,664 
Total7,509 7,453 

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ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and related notes included elsewhere in this report, and with the consolidated financial statements and management’s discussion and analysis of our financial condition and results of operations in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on February 23, 2021. This discussion and other parts of this report contain forward-looking statements that involve risk and uncertainties, such as statements of our plans, objectives, expectations and intentions, and the expected impact that the COVID-19 pandemic will continue to have on our business. Our actual results could differ materially from those discussed in these forward-looking statements. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section of this report titled “Risk factors.”
Overview
At Adamas Pharmaceuticals, Inc., our mission is to make everyday life significantly better for people affected by neurological diseases. We are a fully integrated company with commercial and partnered medicines focused on growing a portfolio of therapies to address a range of neurological diseases while supporting our patient community. We combine our proven expertise in discovery, development and commercialization with our passion for improving lives to deliver innovative medicines to reduce the burden of neurological diseases on patients, caregivers, and society. Currently, we are primarily focused on the commercialization of GOCOVRI in the United States. Additionally, we are integrating OSMOLEX ER, which we acquired on January 4, 2021, and are commercializing the product in the United States.
GOCOVRI® (amantadine) extended release capsules is the first and only FDA-approved medicine indicated for the treatment of dyskinesia in patients with Parkinson’s disease receiving levodopa-based therapy, with or without concomitant dopaminergic medications, and as an adjunctive treatment to levodopa/carbidopa in patients with Parkinson’s disease experiencing OFF episodes. GOCOVRI was approved for marketing by the U.S. Food and Drug Administration, or FDA, on August 24, 2017 for its initial indication to treat dyskinesia. On February 1, 2021, we announced we had received marketing authorization from the FDA for a supplemental New Drug Application (sNDA) for GOCOVRI, gaining a second indication for the product as an adjunctive treatment for OFF episodes. The recent update to the label indication makes GOCOVRI the only medicine clinically proven and approved to reduce both OFF and dyskinesia in Parkinson’s patients taking a levodopa-based medication, resulting in a clinically meaningful increase in good ON time. On June 17, 2020, we announced that we had discontinued further development of (ADS-5102) a potential additional indication for GOCOVRI for the treatment of walking impairment in patients with multiple sclerosis (“MSW”).
OSMOLEX ER® (amantadine) extended release tablets, was approved by the FDA on February 16, 2018, for the treatment of Parkinson’s disease and drug-induced extrapyramidal reactions in adult patients. On January 4, 2021, we acquired the global rights to OSMOLEX ER from Osmotica Pharmaceuticals US LLC, a subsidiary of Osmotica Pharmaceuticals plc.
NAMZARIC® (memantine hydrochloride extended release and donepezil hydrochloride) capsules for the treatment of moderate to severe dementia of an Alzheimer’s type, is marketed in the United States by Allergan plc under an exclusive license agreement between us and Forest Laboratories Holdings Limited (“Forest”), an indirect, wholly-owned subsidiary of Allergan plc (collectively, “Allergan”). We began recognizing royalty revenue on net sales of NAMZARIC in May 2020.
Going forward, we intend to expand our product pipeline by acquiring, through license or otherwise, additional candidates for research and development and potential commercialization.
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On December 1, 2020, we entered into a purchase agreement (the “Asset Purchase Agreement”) with Osmotica pursuant to which we acquired the global rights to OSMOLEX ER and existing inventory for $7.5 million and the assumption of certain liabilities. The Asset Purchase Agreement closed on January 4, 2021.
On December 1, 2020, we entered into an agreement with HealthCare Royalty Partners III, L.P. (“HCR”) to amend certain key terms of our royalty-backed loan agreement (“Royalty-Backed Loan”) with HCR, to be effective upon the closing of the Asset Purchase Agreement with Osmotica which subsequently closed on January 4, 2021.
On January 2, 2020, we announced we had granted Sandoz Inc. a license for its generic version of GOCOVRI as of March 4, 2030, which is over 12 years post GOCOVRI launch, or earlier in certain circumstances typical for such agreements. The agreement contains provisions that may accelerate the license date, including if unit sales of GOCOVRI for the 12-month period ending July 31, 2025 or any subsequent 12-month period decline by a specified percentage below GOCOVRI unit sales for the year ended December 31, 2019. On February 1, 2021, we announced we had granted Zydus a license for its generic version of GOCOVRI as of March 4, 2030. The agreement has similar terms as the Sandoz agreement, including the potential license acceleration provision. With these licenses granted to Sandoz and Zydus, the first filer ANDA challenges for GOCOVRI’s two available strengths have now been settled.
Impact of the COVID-19 pandemic on our company
Despite the roll-out of vaccines, the outbreak of the novel Coronavirus (“COVID-19”) is continuing both within the U.S. and globally.
How we are operating in the current COVID-19 shutdown
We are committed to the health and safety of our employees and their families and doing our part to slow the community spread of COVID-19. In mid-March, we implemented a number of actions, including a work-from-home policy for all our employees, allowing for flexible work schedules, and restrictions on in-person meetings. We are very proud of our entire team as we transitioned swiftly to working remotely. We are following the guidelines of the Centers for Disease Control and other federal, state and local authorities and will continue to assess when it is appropriate for our team to return to normal work practices.
Impact on our ability to sell GOCOVRI
We continue to see stable GOCOVRI prescription refill rates due to our continued strong patient persistence, adequate supply of GOCOVRI, and patient access to GOCOVRI through distribution from our specialty pharmacy directly to a patient’s home. However, we have seen that new prescription rates have been impacted due to several factors, including: a fluid environment in which office practices are changing frequently including many healthcare providers have temporarily closed their offices or are restricting patient visits; patients are postponing visits to healthcare provider facilities; and our sales force continues to operate in a mix of virtual and live interactions with healthcare providers, adapting to the local environment. While we believe this initial decline and continued impact on new prescriptions to be temporary, the duration and severity is dependent on future developments, which are highly uncertain and cannot be predicted with confidence.
Impact on our supply chain
Our GOCOVRI supply chain remains robust and thus far we have observed no disruptions to our inventory on hand or our planned manufacturing schedule. In October 2020, the FDA approved our sNDA for AMSA S.p.A. as a secondary supplier of active pharmaceutical ingredient for GOCOVRI. We have an adequate supply of GOCOVRI to address patients’ needs into mid-2022. Based on current information, we believe that our partners in our supply chain have been and will continue to operate during the current COVID-19 outbreak.
Impact on our financial condition and capital resources
The extent of the impact of COVID-19 on our business, financial results, liquidity and cash flows will depend largely on future developments, including new information that may emerge concerning the severity and duration of actions taken to contain or prevent further spread. With already imposed shelter-at-home orders in place, we have observed widespread closure of clinics, and cancellation or rescheduling of patient appointments have been combined with restriction of access to sales representatives in some institutions and a marked increase in telemedicine consultations that may result in further sales reductions. In light of restrictions on travel and in-person meetings, we have also
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experienced cost reductions related to the transition to virtual formats and other travel related costs, in addition to other certain cost management activities. As of March 31, 2021, we had cash, cash equivalents, and investments of $127.4 million.
Financial operations overview
Product sales consist of sales of GOCOVRI, which was approved by the FDA on August 24, 2017, and sales of OSMOLEX ER, for which we acquired the global rights on January 4, 2021. Royalty revenue consists of royalties from Allergan for sales of NAMZARIC in the United States, which we began to recognize in May 2020. We made GOCOVRI available for physician and patient use in the fourth quarter of 2017, with a full commercial launch in January 2018. Prior to the generation of product sales from GOCOVRI, our revenue had been generated primarily from payments under our license agreement with Allergan for non-refundable upfront license payments, milestone payments and reimbursements for research and development expenses for full-time equivalent employees assigned to the license agreement. There are no further milestone payments to be earned under our license agreement with Allergan, and we expect reimbursements for full-time equivalents assigned to the license agreement to be inconsequential in future periods. Beginning in May 2020, we began to recognize tiered royalties from Allergan in the low double digits to mid-teens, as a percent of net sales of NAMZARIC in the United States. Based on recent trends of NAMZARIC net sales, we expect the tiered royalty to be in the low double digits through the term of the agreement, but will be eliminated in any quarter where there is significant competition from generics. Based on Allergan’s and our current settlement agreements with the NAMZARIC ANDA filers to date, the earliest date on which any of these agreements grant a license to market a NAMZARIC ANDA filer’s generic version of NAMZARIC is January 1, 2025 (or earlier in certain circumstances). Alternatively, the NAMZARIC ANDA filers with the earliest license date have the option to launch an authorized generic version of NAMZARIC beginning on January 1, 2026 instead of launching their own generic version of NAMZARIC on January 1, 2025. For further discussion of NAMZARIC ANDA filers, see Litigation and Other Legal Proceedings in “Note 9. Commitments and Contingencies.”
Our investment in research and development activities, including the clinical development of our product candidates, has historically represented a significant portion of our total operating expenses. We have concluded the two-year Phase 3 open-label study of GOCOVRI, suspended investment in the development of ADS-4101, and completed additional analyses of the data from the INROADS trial for ADS-5102 for MSW and will not initiate further Phase 3 development. Our research and development efforts are focused on completing activities for ADS-5102 for MSW, primarily continuing the open-label extension study which will be closed out by the second quarter of 2021. As a result, we do not expect research and development costs to increase for this program from 2020 levels for the foreseeable future, based on this focused strategy.
The process of conducting the necessary clinical research to obtain FDA approval is costly and time consuming. The actual probability of success for each product candidate and clinical program may be affected by a variety of factors, including but not limited to, the quality of the product candidate, early clinical data, investment in the program, competition, manufacturing capability, and commercial viability. Furthermore, in the past we have entered into licensing arrangements with other pharmaceutical companies to develop and commercialize our product candidates, and we may enter into additional licensing arrangements or collaborations in the future. In situations in which third parties have control over the clinical development of a product candidate, the estimated completion dates are largely under the control of such third parties and not under our control. We cannot forecast with any degree of certainty which of our product candidates, if any, will be subject to future licensing or collaboration arrangements or how such arrangements would affect our development plans or capital requirements. As a result of the uncertainties discussed above, we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of any of our product candidates.
Critical accounting policies and significant judgments and estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with United States generally accepted accounting principles, or U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods. We base our estimates on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities
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that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. There have been no significant and material changes in our critical accounting policies from those as reflected in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the year ended December 31, 2020.
Results of operations
Fluctuations in Operating Results
Our results of operations have fluctuated from period to period in the past and are likely to continue to do so in the future. We anticipate that our quarterly and annual results of operations will be impacted for the foreseeable future by several factors, including the impact on our operations as a result of fluctuations in product sales due to variances in the number of paid prescriptions from period to period, conversions from our free drug trial program to paid prescriptions, and fluctuations in our Medicare Part D Coverage Gap liability and the volume of purchases eligible for government mandated discounts and rebates, as well as changes in discount percentages that may be impacted by potential future price increases and other factors. Further, we expect the timing of expenditures related to our commercial activities associated with GOCOVRI to vary from period to period, including those associated with the label revision for GOCOVRI to include OFF episodes, and potential development of additional product candidates. Due to these fluctuations, we believe that the period to period comparisons of our operating results are not necessarily a good indication of our future performance.
Comparison of the three months ended March 31, 2021 and 2020 
Financial results for the period ended March 31, 2021 include OSMOLEX ER’s financial results subsequent to the acquisition closing date of January 4, 2021.
Revenues
The following table summarizes the sources of our revenues, by category (in thousands, except percentages):
 Three Months Ended March 31,Increase
(Decrease)
% Increase
(Decrease)
 20212020
Product sales$17,978 $14,481 $3,497 24 %
Royalty revenue1,333 — 1,333 NM
Total revenues$19,311 $14,481 $4,830 33 %
NM – Not meaningful.
Product sales
Product sales by product were as follows for the periods indicated (in thousands, except percentages):
 Three Months Ended March 31,Increase
(Decrease)
% Increase
(Decrease)
 20212020
GOCOVRI$17,651 $14,481 $3,170 22 %
OSMOLEX ER327 — 327 NM
Product sales$17,978 $14,481 $3,497 24 %

The following table summarizes the approximate number of total GOCOVRI paid prescriptions for the periods indicated:
Three Months Ended March 31,Increase
(Decrease)
% Increase
(Decrease)
20212020
Total GOCOVRI Paid Prescriptions8,735 7,205 1,530 21 %
GOCOVRI product sales increased by $3.2 million, or 22%, to $17.7 million for the three months ended March 31, 2021, from $14.5 million for the three months ended March 31, 2020, due to growth in sales of GOCOVRI since its launch, in addition to a 3% price increase that went into effect in January 2021. The approximate number of total GOCOVRI paid prescriptions increased by 1,530, or 21%, to 8,735 for the three months ended March 31, 2021,
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from 7,205 for the three months March 31, 2020. OSMOLEX ER product sales were $0.3 million for the three months ended March 31, 2021, compared to no sales for the three months ended March 31, 2020 as we acquired OSMOLEX ER at the beginning of January 2021.
Strong GOCOVRI patient persistence of 45%-50% at 12 months continued in the first quarter of 2021. In addition to total paid prescriptions, we monitor new paid prescriptions as a key performance indicator for our business. The following table summarizes the approximate number of total GOCOVRI paid prescriptions and approximate number of new GOCOVRI paid prescriptions for each of the quarterly periods presented:
Three months ended
March 31
2021
December 31
2020
September 30
2020
June 30
2020
March 31
2020
Total GOCOVRI paid prescriptions8,735 8,165 7,785 7,915 7,205 
New GOCOVRI paid prescriptions590 510 430 370 500 
Royalty revenue
Royalty revenue was $1.3 million for the three months ended March 31, 2021. We began recognizing royalty revenue on net sales of NAMZARIC in May 2020 and accordingly had no royalty revenue for the three months ended March 31, 2020.
Cost of product sales
Cost of product sales were as follows (in thousands, except percentages):
 Three Months Ended March 31,Increase
(Decrease)
% Increase
(Decrease)
 20212020
Cost of product sales$385 $572 $(187)(33)%
Cost of product sales decreased by $0.2 million to $0.4 million, or 2% of product sales, for the three months ended March 31, 2021, from $0.6 million, or 4% of product sales, for the three months ended March 31, 2020. Included in cost of product sales for the three months ended March 31, 2021 and March 31, 2020, is a provision for the write-down of inventory of zero and $0.3 million, respectively. Prior to receiving FDA approval in August 2017, we recorded all inventory costs incurred in the manufacture of GOCOVRI to be sold upon commercialization as research and development expense. As of March 31, 2021, substantially all the inventory that was previously expensed to research and development had been sold to customers. We do not expect our cost of product sales of GOCOVRI as a percentage of product sales to exceed 6% for the foreseeable future, excluding potential unknown one-time charges.
Research and development expenses
Research and development expenses were as follows (in thousands, except percentages):
 Three Months Ended March 31,Increase
(Decrease)
% Increase
(Decrease)
 20212020
Research and development expenses$1,812 $2,465 $(653)(26)%
Research and development expenses decreased by $0.7 million, or 26%, to $1.8 million for the three months ended March 31, 2021, from $2.5 million for the three months ended March 31, 2020. The decrease in research and development expenses was mainly attributable to lower clinical activity for the open-label extension study of ADS-5102 for the treatment of walking impairment in patients with multiple sclerosis. We discontinued additional development of this program in June 2020 and the open-label extension study will be closed out by the second quarter of 2021. Included in research and development expenses was stock-based compensation expense, which was $0.1 million for both the three months ended March 31, 2021 and three months ended March 31, 2020.
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Research and development expenses by category were as follows (in thousands):
 Three Months Ended March 31,
 20212020
GOCOVRI(1)
$1,261 $1,985 
Other research and development expenses551 480 
Total research and development expenses$1,812 $2,465 
(1)Includes program costs we incurred for GOCOVRI (formerly referred to as ADS-5102) for the treatment of dyskinesia in patients with Parkinson’s disease, and ADS-5102 (GOCOVRI) for additional potential CNS indications, including for the treatment of walking impairment in patients with multiple sclerosis.
The program-specific expenses summarized in the table above include costs directly attributable to our product candidates. Other research and development expenses include costs for early stage programs and costs not allocated to a specific program. We allocate benefits, stock-based compensation, and indirect costs to our product candidates on a program-specific basis, and we include these costs in the program-specific expenses. We begin to track and report program-specific expenses for early stage programs once they have been nominated and selected for further development and clinical-stage work has commenced.
Selling, general and administrative expenses, net
Selling, general and administrative expenses, net were as follows (in thousands, except percentages):
 Three Months Ended March 31,Increase
(Decrease)
% Increase
(Decrease)
 20212020
Selling, general and administrative expenses, net$26,639 $24,552 $2,087 %
Selling, general and administrative expenses, net, increased by $2.1 million, or 9%, to $26.6 million for the three months ended March 31, 2021, from $24.6 million for the three months ended March 31, 2020. The increase in selling, general and administrative expenses for the three months ended March 31, 2021, was primarily due to: increased costs of approximately $0.7 million in personnel related costs, including stock-based compensation; and increased costs of approximately $1.9 million for GOCOVRI related promotional costs, market research and other external professional services, and costs for the initial promotion of OSMOLEX ER. The increase for the three months ended March 31, 2021 was offset in part by a decrease of approximately $0.5 million mainly related to travel related costs due to travel restrictions as a result of the COVID-19 pandemic. Included in selling, general and administrative expenses was stock-based compensation expense, which was $1.6 million for the three months ended March 31, 2021, compared to $1.4 million for the three months ended March 31, 2020.
Interest and other income, net
Interest and other income, net were as follows (in thousands, except percentages):
 Three Months Ended March 31,Increase
(Decrease)
% Increase
(Decrease)
 20212020
Interest and other income, net
$384 $84 $300 357 %
Interest and other income, net, for the three months ended March 31, 2021 was $0.4 million, compared to $0.1 million for the three months ended March 31, 2020. The increase in interest and other income, net, for the three months ended March 31, 2021, was primarily driven by the change in fair value of the embedded derivative liability related to our Royalty-Backed Loan with HCR.
Interest expense
Interest expense was as follows (in thousands, except percentages):
 Three Months Ended March 31,Increase
(Decrease)
% Increase
(Decrease)
 20212020
Interest expense
$3,432 $3,624 $(192)(5)%
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Interest expense was $3.4 million for the three months ended March 31, 2021, compared to $3.6 million for the three months ended March 31, 2020. The decrease in interest expense for the three months ended March 31, 2021, was mainly related to a lower estimated effective interest rate on our Royalty-Backed Loan with HCR, offset in part by a higher principal balance.
Liquidity and Capital Resources
Our principal sources of liquidity are our cash, cash equivalents, and investments, which totaled $127.4 million and $83.4 million at March 31, 2021 and December 31, 2020, respectively. As of March 31, 2021, we had an accumulated deficit of $517.9 million.
Prior to 2019, we raised an aggregate of approximately $336.6 million in sales of equity securities and entered into a Royalty-Backed Loan with HCR, whereby we borrowed a total of $100.0 million. As of March 31, 2021, the total remaining payment obligation of the Royalty-Backed Loan was $175.5 million. Since January 1, 2019, we have funded our operations primarily through sales of GOCOVRI, through sales of our common stock, and to a lesser extent through royalties received on net sales of NAMZARIC and sales of OSMOLEX ER. In November 2019, we entered into a sales agreement with Cowen and Company, LLC, pursuant to which we may, from time to time, issue and sell shares of common stock having an aggregate offering value of up to $50.0 million. As of March 31, 2021, we had issued 1,553,299 shares of common stock under the sales agreement and raised net proceeds of $8.3 million, including 1,335,896 shares sold at an average price of $5.57, for net proceeds of $7.2 million during the three months ended March 31, 2021. In March 2021, we completed a follow-on public offering of 14,375,000 shares of our common stock, which includes the exercise in full by the underwriters of their option to purchase 1,875,000 shares of common stock, at an offering price of $4.40 per share. Proceeds from the follow-on public offering were approximately $59.3 million, net of underwriting discounts and offering-related transaction costs.
We believe our existing cash, cash equivalents, and investments at March 31, 2021 will be sufficient to fund our projected operating requirements, including continued commercialization of GOCOVRI for the treatment of OFF and dyskinesia in patients with Parkinson’s disease, OSMOLEX ER activities, and operations related to completing activities for ADS-5102 in MSW, for at least 12 months from the issuance of this Quarterly Report on Form 10-Q. However, it is possible that we will not achieve the progress that we expect, because revenues from GOCOVRI may be less than anticipated, especially in light of the current COVID-19 pandemic, and the actual costs and timing of drug development, particularly clinical studies, and regulatory approvals are difficult to predict, subject to substantial risks and delays, and often vary depending on the particular indication and development strategy. The duration and severity of the COVID-19 pandemic is unknown and makes projecting the outcome of future developments highly uncertain and cannot be predicted with confidence. Moreover, the costs associated with commercializing drugs are high and market acceptance is uncertain.
We expect to incur substantial expenses and operating losses for the foreseeable future. We expect to continue significant spending in connection with the continued commercialization of GOCOVRI for the treatment of OFF and dyskinesia in patients with Parkinson’s disease, OSMOLEX ER activities, and potential development of additional product candidates. To continue these activities, we may decide to raise additional funds through a combination of public equity offerings, debt financings, royalty financings, collaborations, strategic alliances, licensing arrangements, asset sales, and other marketing and distribution arrangements. Sufficient additional funding may not be available on acceptable terms, or at all, especially as a result of the economic downturn occurring and expected to continue as a result of the actions taken to contain the spread of COVID-19. If adequate funds are not available in the future, we may need to delay, reduce the scope of, or put on hold our clinical studies, research and development programs, or commercialization efforts.
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The following table summarizes our cash flows for the periods indicated (in thousands):
 Three Months Ended March 31,
 20212020
Net cash (used in) provided by:  
Operating activities$(21,063)$(17,313)
Investing activities7,790 (2,962)
Financing activities66,444 42 
Net increase (decrease) in cash and cash equivalents$53,171 $(20,233)
Net Cash Used In Operating Activities
Net cash used in operating activities was $21.1 million for the three months ended March 31, 2021 and consisted primarily of our net loss of $12.6 million and changes in operating assets and liabilities of $10.1 million, partially offset by non-cash adjustments of $1.6 million. Changes in our operating assets and liabilities consisted primarily of: a decrease of $6.3 million in accrued liabilities and other liabilities primarily due to payment to Osmotica representing a patent litigation settlement and payout of the 2020 annual bonus; and a $4.4 million increase in accounts receivable due to higher unit sales and timing of receivable collections. The non-cash adjustments consisted mainly of stock-based compensation of $1.7 million.
Net Cash Provided By Investing Activities
Net cash provided by investing activities was $7.8 million for the three months ended March 31, 2021, mainly as a result of maturities of available-for-sale securities, net of purchases of $9.1 million, offset in part by the acquisition of OSMOLEX ER of $1.3 million.
Net Cash Provided By Financing Activities
Net cash provided by financing activities was $66.4 million for the three months ended March 31, 2021, as a result of: cash proceeds of $59.3 million, inclusive of $0.2 million of offering costs recorded in accounts payable, related to a follow-on financing; $7.2 million related to the sale of common stock under a controlled equity offering; and $0.2 million related to the exercise of stock options.
Off-balance sheet arrangements
Since our inception, we have not engaged in any off-balance sheet arrangements, including the use of structured finance, special purpose entities, or variable interest entities.
Contractual obligations
Our future non-cancelable contractual obligations were reported in our Annual Report on Form 10-K for the year ended December 31, 2020 that was filed with the SEC on February 23, 2021. There have been no material changes outside the ordinary course of our business to our future non-cancelable contractual obligations during the three months ended March 31, 2021.
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ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
ITEM 4.  CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended, or the Exchange Act, and the rules and regulations thereunder, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As required by Rule 13a-15(b) under the Exchange Act, our management, under the supervision and with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2021. Based on such evaluation, our principal executive officer and principal financial officer have concluded that, as of March 31, 2021, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the three months ended March 31, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1.  LEGAL PROCEEDINGS
For information regarding legal proceedings, refer to Litigation and Other Legal Proceedings in “Note 9. Commitments and Contingencies” in the accompanying “Notes to Condensed Consolidated Financial Statements (unaudited)” in Item 1 of this Quarterly Report on Form 10-Q which information is incorporated by reference here.
ITEM 1A. RISK FACTORS
We have identified the following risks and uncertainties that may have a material adverse effect on our business, financial condition, results of operations, and future growth prospects. Our business could be harmed by any of these risks. The risks and uncertainties described below are not the only ones we face. The trading price of our common stock could decline due to any of these risks, and you may lose all or part of your investment. In assessing these risks, you should also refer to the other information contained in this Quarterly Report on Form 10-Q, including our unaudited condensed consolidated financial statements and related notes.
RISK FACTOR SUMMARY
Investing in our securities involves a high degree of risk. Below is a summary of material factors that make an investment in our securities speculative or risky. Importantly, this summary does not address all of the risks that we face. Additional discussion of the risks summarized in this risk factor summary, as well as other risks that we face,are more fully described below.
The outbreak of the novel Coronavirus (“COVID-19”) has negatively impacted our business, including the commercialization strategy and sales of GOCOVRI® (amantadine) extended release capsules.
Our success depends heavily on the success of GOCOVRI for the treatment of dyskinesia in patients with Parkinson’s disease receiving levodopa-based therapy, with or without concomitant dopaminergic medications, and as an adjunctive treatment to levodopa/carbidopa in patients with Parkinson’s disease experiencing OFF episodes. To the extent GOCOVRI is not commercially successful, our business, financial condition and results of operations will be materially harmed.
If we are unable to recruit and retain qualified personnel and third-party distributors, our business will be substantially harmed.
Failure to successfully obtain coverage and reimbursement for GOCOVRI in the United States, or the availability of coverage and reimbursement only at limited levels, would diminish our ability to generate product revenue.
We face substantial competition in the commercialization of GOCOVRI.
Unforeseen safety issues could emerge with GOCOVRI that could require us to change the prescribing information to add warnings, limit use of the product, and/or result in litigation. Any of these events could have a negative impact on our business.
If manufacturers obtain approval for generic versions of GOCOVRI, or of products with which we compete, our business may suffer.
If we are found to have improperly promoted GOCOVRI, or if physicians misuse it, we may be subject to restrictions on the sale or marketing of GOCOVRI and significant fines, penalties, sanctions and product liability claims, and our image and reputation within the industry and marketplace could be harmed.
GOCOVRI is complex to manufacture, and manufacturing disruptions may occur that could cause us to experience disruptions in the supply of GOCOVRI.
Risks related to the commercialization of GOCOVRI will be substantially the same for OSMOLEX ER® (amantadine) extended release tablets.
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We may in the future seek to acquire additional product candidates, which may subject us to additional risks and expense.
We rely on third-party organizations to manufacture, supply, and distribute GOCOVRI. If one of these organizations fails to perform adequately or fulfill our needs, we may be required to incur significant costs and devote significant efforts to find new third-party vendors and/or face delays in the commercialization and supply of GOCOVRI.
We rely on a single-source third-party contract manufacturing organization for the manufacture and supply of drug product for GOCOVRI.
We rely on third parties to conduct our clinical trials, and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of these trials.
Changes in healthcare law and implementing regulations, including government restrictions on pricing and reimbursement, as well as healthcare policy and other healthcare payer cost-containment initiatives and current societal pressures regarding pharmaceutical product pricing, may negatively impact our ability to generate revenues from or could limit or prevent our products’ commercial success.
We are subject to ongoing regulatory obligations and regulatory review, which may result in significant additional expense and subject us to penalties if we fail to comply with applicable regulatory requirements.
If we fail to comply with healthcare regulations, we could face substantial penalties and our business, operations, and financial condition could be adversely affected.
If we fail to comply with our reporting and payment obligations under the Medicaid Drug Rebate Program or other governmental pricing programs in the United States, we could be subject to additional reimbursement requirements, fines, sanctions and exposure under other laws which could have a material adverse effect on our business, results of operations and financial condition.
If we fail to comply with data protection laws and regulations, we could be subject to government enforcement actions (which could include civil or criminal penalties), private litigation, increased compliance costs and/or adverse publicity, which could negatively affect our operating results and business.
The regulatory approval process is expensive, time consuming, and uncertain and may prevent us from obtaining approvals for the commercialization of some or all of our product candidates.
Our ability to successfully commercialize GOCOVRI and any product candidates may be materially adversely affected if we are unable to obtain and maintain effective intellectual property rights for our products and product candidates.
We may not be able to protect our intellectual property rights throughout the world.
We may become involved in lawsuits or other proceedings to protect or enforce our patents or other intellectual property, which could be expensive, time-consuming, and if unsuccessful could materially harm our business.
Under our license agreement with Allergan, if Allergan fails to successfully commercialize NAMZARIC for any reason or if the license agreement with Allergan is terminated, the royalties we are eligible to receive under our license agreement with Allergan may not occur or may be minimal, and would have a negative impact on our revenue potential and harm our business.
We are the subject of litigation claiming violation of Federal and state false claims acts in connection with the commercialization of NAMENDA XR and NAMZARIC by Allergan, which may have a material and negative impact on our business.
Our operating results may fluctuate significantly, which makes our future operating results difficult to predict and could cause our operating results to fall below expectations.
If we do not have adequate funds to cover all of our development and commercial activities, we may have to raise additional capital or curtail or cease operations.
We have outstanding debt backed by three of our principal assets, GOCOVRI, OSMOLEX ER, and royalties we may receive on NAMZARIC, and failure by us or our royalty subsidiary to fulfill our obligations under the applicable loan agreements may cause the repayment obligations to accelerate.
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Risks related to the COVID-19 pandemic
The outbreak of the novel Coronavirus (“COVID-19”) has negatively impacted our business, including the commercialization strategy and sales of GOCOVRI® (amantadine) extended release capsules.
The outbreak of the novel Coronavirus (“COVID-19”), which is understood to have begun in December 2019, continues to grow both within the U.S. and globally. The World Health Organization has declared the outbreak of COVID-19 to be a pandemic, and the U.S. federal government has declared it a national emergency. Efforts to contain the spread of COVID-19 have intensified and the U.S. has implemented severe travel restrictions, enforced social distancing, shelter-in-place orders and delays or cancellations of physician visits. These circumstances have negatively impacted our business and the commercialization strategy of GOCOVRI, including a fluid environment in which office practices are changing frequently including healthcare providers temporarily closing their offices or restricting patient visits, patients postponing visits to healthcare provider facilities, and depending on the local environment, limiting the ability of our sales force to travel and meet with healthcare providers and resulting in sales and marketing being conducted in a mix of virtual and live interactions. In particular, we have observed an impact in our new prescription rate, which we attribute to the effects of the restrictive actions taken.
We have implemented a work-from-home policy for all our employees, including allowing for flexible work schedules. The effects of our work-from-home policy may negatively impact productivity and disrupt our business.
These disruptions in our operations have negatively impacted, and we expect will continue to negatively impact, our business, operating results and financial condition. The COVID-19 pandemic continues to rapidly evolve. The ultimate cumulative impact of the COVID-19 pandemic on our business operations, the duration and severity of which will depend on future developments, is highly uncertain and cannot be predicted with confidence. We will continue to monitor the situation closely. The COVID-19 pandemic may also exacerbate a number of the risks discussed below.
Risks related to the commercialization of GOCOVRI® (amantadine) extended release capsules
Our success depends heavily on the success of GOCOVRI for the treatment of dyskinesia in patients with Parkinson’s disease receiving levodopa-based therapy, with or without concomitant dopaminergic medications, and as an adjunctive treatment to levodopa/carbidopa in patients with Parkinson’s disease experiencing OFF episodes. To the extent GOCOVRI is not commercially successful, our business, financial condition and results of operations will be materially harmed.
We have invested and continue to invest a significant portion of our efforts and financial resources in the development, approval and commercialization of GOCOVRI for the treatment of dyskinesia in patients with Parkinson’s disease receiving levodopa-based therapy, with or without concomitant dopaminergic medications, and as an adjunctive treatment to levodopa/carbidopa in patients with Parkinson’s disease experiencing OFF episodes. The success of GOCOVRI will depend on numerous factors, including:
GOCOVRI’s efficacy and safety profile;
our success in the marketing, sales, and distribution of GOCOVRI, especially in light of the COVID-19 pandemic;
the duration of the COVID-19 pandemic, the stay-at-home restrictions and access of our staff to clinics to be able to interact with healthcare providers;
acceptance of GOCOVRI by physicians, hospital administrators, patients, third-party payers, and others in the healthcare community;
coverage and adequate reimbursement of GOCOVRI by third-party payers;
willingness and ability of patients to pay out of pocket for GOCOVRI;
successfully establishing and maintaining commercial manufacturing with third parties;
effectively competing with other approved or used medicines and future compounds in development;
continued demonstration of an acceptable safety profile of GOCOVRI; and
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obtaining, maintaining, enforcing, and defending intellectual property rights and claims.
If we are not successful in addressing these issues, or one or more of these factors negatively affect us, we could experience significant delays or an inability to further commercialize GOCOVRI, which would materially harm our business.
If we are unable to recruit and retain qualified personnel and third-party distributors, our business will be substantially harmed.
Competition for biotechnology and pharmaceutical employees, sales personnel and other key personnel is intense. We have experienced and may in the future experience difficulty attracting and retaining qualified candidates to fill open positions and may be required to expend significant financial resources in our employee recruitment and retention efforts. We are required to expend significant time and resources to market, sell, and distribute GOCOVRI to neurologists and movement disorder specialists in a credible, persuasive, and compliant manner consistent with applicable laws. Our business could be harmed if we are unable to recruit, employ, appropriately train, and retain experienced sales professionals to successfully execute our commercialization strategies and tactics, including educating potential customers about the benefits and risks of GOCOVRI and its proper administration.
Moreover, there is no guarantee that the strategies, tactics and marketing messages, or the distribution and reimbursement capabilities that we have established will be successful. Specifically, for distribution of GOCOVRI, we are heavily dependent on third-party logistics, pharmacy and distribution partners. If they are unable to perform effectively, including due to the impact of the COVID-19 pandemic on their operations, or if they do not provide efficient distribution of the medicine to patients, our business will suffer.
Failure to successfully obtain coverage and reimbursement for GOCOVRI in the United States, or the availability of coverage and reimbursement only at limited levels, would diminish our ability to generate product revenue.
Our ability to commercialize GOCOVRI successfully in the United States will depend in part on the extent to which we obtain and maintain coverage and reimbursement for GOCOVRI from third-party payers, including government health administration authorities, such as those that administer the Medicare and Medicaid programs, and private health insurers. Patients who are prescribed medicine for the treatment of their conditions generally rely on third-party payers to reimburse all or part of the costs associated with their prescription drugs. Coverage and adequate reimbursement from both governmental healthcare programs, such as Medicare and Medicaid, and commercial payers are critical to GOCOVRI’s commercial success since they ensure patients have affordable access to the drug. Coverage and reimbursement decisions may depend upon clinical and economic standards that disfavor newer drug products when more established or cheaper therapeutic alternatives are already available or subsequently become available. For example, even though other versions of amantadine are not approved for dyskinesia, some payers have asked physicians if patients have had prior experience with such versions or required that physicians actually prescribe such versions prior to providing access to GOCOVRI. For some patients, coverage and reimbursement may not be available for GOCOVRI, or the patient’s out of pocket cost may be unaffordable.
Even if we obtain coverage for GOCOVRI, the level of coverage might not be adequate or may require co-payments or co-insurance payments that patients find unacceptably high. Coverage and reimbursement determinations by third-party payers can impact the demand for GOCOVRI and therefore our revenues. Patients may choose not to use GOCOVRI if coverage is not provided or the payer’s determined out of pocket cost for the patient is unaffordable for the patient. If coverage and reimbursement are not available or are available only to limited levels making the drug unaffordable to patients, our business could be harmed.
Our inability to obtain and maintain coverage and adequate reimbursement rates from both government-funded and private third-party payers for GOCOVRI could have a material adverse effect on our operating results, and our overall financial condition.
We face substantial competition in the commercialization of GOCOVRI.
The commercialization of pharmaceutical products is highly competitive and we face substantial competition with respect to GOCOVRI. For example, although GOCOVRI is the first and only FDA-approved medicine for the treatment of dyskinesia in patients with Parkinson’s disease receiving levodopa-based therapy, with or without concomitant dopaminergic medications, and as an adjunctive treatment to levodopa/carbidopa in patients with
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Parkinson’s disease experiencing OFF episodes, we face competition from various branded and generic drugs approved for the treatment of Parkinson’s disease that physicians either have historically used or may use in an attempt to manage dyskinesia. If approved, we will also face competition from investigational drugs in late-stage development for the treatment of Parkinson’s disease, and may also face competition from drugs currently in development for dyskinesia in Parkinson’s disease or for Parkinson’s disease from a number of pharmaceutical companies.
Many of our competitors, including a number of large pharmaceutical companies that compete directly with us, have significantly greater financial resources commercializing approved products than we do. Also, many of our competitors are large pharmaceutical companies that will have a greater ability to reduce prices for their competing drugs in an effort to gain market share and undermine the value proposition that we might otherwise be able to offer to payers.
Unforeseen safety issues could emerge with GOCOVRI that could require us to change the prescribing information to add warnings, limit use of the product, and/or result in litigation. Any of these events could have a negative impact on our business.
Discovery of unforeseen safety problems or increased focus on a known problem could impact our ability to commercialize GOCOVRI and could result in restrictions on its permissible uses, including withdrawal of the medicine from the market.
If we or others identify additional undesirable side effects caused by GOCOVRI after approval:
regulatory authorities may require the addition of labeling statements, specific warnings, contraindications, or field alerts to physicians and pharmacies;
regulatory authorities may withdraw their approval of the product and require us to take our approved drugs off the market;
we may be required to change the way the product is administered, conduct additional clinical trials, change the labeling of the product, or implement a Risk Evaluation and Mitigation Strategy, or REMS;
we may have limitations on how we promote our drugs;
third-party payers may limit coverage or reimbursement for GOCOVRI;
sales of GOCOVRI may decrease significantly;
we may be subject to litigation or product liability claims; and
our reputation may suffer.
Any of these events could prevent us from achieving or maintaining market acceptance of GOCOVRI and could substantially increase our commercialization costs and expenses, which in turn could delay or prevent us from generating significant revenue from its sale.
Further, GOCOVRI may also be affected by the safety and tolerability of its parent drug or drugs with similar mechanisms of action. Although amantadine, which is a component of GOCOVRI, has been used in patients for many years, problems identified with other approved amantadine products or amantadine products being studied in clinical trials could result in increased regulatory scrutiny of our products and/or adversely affect the commercialization of GOCOVRI. 
If a safety issue emerges post-approval, we may become subject to costly product liability litigation by our customers, their patients or payers. Product liability claims could divert management’s attention from our core business, be expensive to defend, and result in sizable damage awards against us that may not be covered by insurance. If we cannot successfully defend ourselves against claims that GOCOVRI caused injuries, we will incur substantial liabilities.
We currently hold $15.0 million in product liability insurance coverage, which may not be adequate to cover all liabilities that we may incur. Insurance coverage is increasingly expensive. We may not be able to obtain insurance coverage at a reasonable cost or in amounts adequate to satisfy any liability or associated costs that may arise in the future. These events could harm our business and results of operations and cause our stock price to decline. 
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If manufacturers obtain approval for generic versions of GOCOVRI, or of products with which we compete, our business may suffer.
Under the U.S. Food, Drug and Cosmetic Act, or FDCA, the FDA can approve an Abbreviated New Drug Application, or ANDA, for a generic version of a branded drug without the ANDA applicant undertaking the clinical testing necessary to obtain approval to market a new drug. Generally, in place of such clinical studies, an ANDA applicant usually needs only to submit data demonstrating that its product has the same active ingredient(s), strength, dosage form, route of administration and that it is bioequivalent to the branded product. We have recently settled an ANDA litigation with a generic filer. See Litigation and Other Legal Proceedings in “Note 9. Commitments and Contingencies” in the accompanying “Notes to Condensed Consolidated Financial Statements (unaudited)” in Item 1 of this Quarterly Report on Form 10-Q for more information. However, other filers could submit an ANDA to the FDA requesting permission to manufacture and market another generic version of GOCOVRI, which could result in our expending significant time and incurring significant expenses in challenging the submissions. Further, if one or more of these filers is successful, the introduction of a generic version of GOCOVRI could harm our business and results of operations and cause our stock price to decline.
If we are found to have improperly promoted GOCOVRI, or if physicians misuse it, we may be subject to restrictions on the sale or marketing of GOCOVRI and significant fines, penalties, sanctions and product liability claims, and our image and reputation within the industry and marketplace could be harmed.
The FDA and other regulatory agencies, including regulatory authorities outside the United States, strictly regulate the marketing and promotional claims that are made about drug products, such as GOCOVRI. In particular, promotion of a product must be consistent with its labeling approved by the FDA or by regulatory agencies in other countries. For example, in the case of GOCOVRI, for the treatment of dyskinesia in patients with Parkinson’s disease receiving levodopa-based therapy, with or without concomitant dopaminergic medications, and as an adjunctive treatment to levodopa/carbidopa in patients with Parkinson’s disease experiencing OFF episodes, we cannot prevent physicians from prescribing GOCOVRI for indications or uses that are inconsistent with the approved label based on the physician’s professional medical judgment. If, however, we are found to have promoted such unapproved uses prior to the FDA’s approval for an additional indication, we may, among other consequences, receive untitled or warning letters and become subject to significant liability, which would materially harm our business. Both the U.S. federal government and foreign regulatory authorities have levied significant civil and criminal fines against companies and individuals for alleged improper promotion and have entered into settlement agreements with pharmaceutical companies to limit inappropriate promotional activities. If we become the target of such an investigation or prosecution based on our marketing and promotional practices, we could face similar sanctions, which would materially harm our business. In addition, management’s attention could be diverted from our business operations, significant legal expenses could be incurred, and our reputation could be damaged.
Physicians prescribing of our products for unapproved uses may also subject us to product liability claims, to the extent such uses lead to adverse events, side effects, or injury.
GOCOVRI is complex to manufacture, and manufacturing disruptions may occur that could cause us to experience disruptions in the supply of GOCOVRI.
GOCOVRI is a high-dose, extended release amantadine, specifically designed to be taken once-daily at bedtime to provide an initial lag, then a slow rise in amantadine concentration during the night, and high levels of amantadine in the morning that gradually fall throughout the day into the evening. The manufacture of extended release versions of drugs is more complex than the manufacture of the immediate release versions of drugs. Notwithstanding the fact that we have validated our process, manufacturing disruptions may occur, including disruptions related to the impact or uncertainties of the duration of the COVID-19 pandemic. Such problems may prevent the production of lots that meet the specifications required for sale of the product and may be difficult and expensive to resolve. Although we have an adequate supply of GOCOVRI to address patient needs into mid-2022 and have not observed disruptions in our supply chain to date as a result of COVID-19, there is no guarantee that we will not experience interruption of, or delays in receiving, supply due to staffing shortages, production slowdowns or stoppages and disruptions in delivery systems in the future. If any such issues were to arise with respect to GOCOVRI, our business, financial results, or stock price could be adversely affected.
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Risks related to the commercialization of GOCOVRI will be substantially the same for OSMOLEX ER® (amantadine) extended release tablets.
We rely on a single supplier of OSMOLEX ER, and if that supplier is unable to supply OSMOLEX ER, or is unable to supply OSMOLEX ER in sufficient quantities, we may not be able to meet demand for OSMOLEX ER which could impair our investment in OSMOLEX ER.
We obtained the global rights to sell OSMOLEX ER on January 4, 2021, and began selling product through select specialty pharmacies and distributors. We have entered into a supply agreement with Osmotica Pharmaceutical US LLC (“Osmotica”), a subsidiary of Osmotica Pharmaceuticals plc, in which Osmotica will be the sole manufacturer of OSMOLEX ER. If Osmotica is unable to supply sufficient quantities of OSMOLEX ER to meet market demand, we may be unable to realize on our investment in OSMOLEX ER, which could have an adverse effect on our financial results and condition.
We have just begun to market OSMOLEX ER, and are subject to the same commercialization and regulatory risks regarding OSMOLEX ER as we have with respect to the commercialization and regulatory compliance for GOCOVRI.
We have just begun to market OSMOLEX ER, and we are subject to the same commercialization and post-approval regulatory risks with respect to OSMOLEX ER as we have with respect to the commercialization and regulatory compliance for GOCOVRI. Further, although our commercial team has experience with the marketing and sale of GOCOVRI, it has only begun to market and sell OSMOLEX ER, and we may encounter unexpected difficulties in marketing and selling OSMOLEX ER.
Risks related to clinical development of potential future product candidates
If we resume development of ADS-4101, or seek to develop additional product candidates that we may develop or acquire, we will face regulatory and development risks.
Although we have placed the development program for ADS-4101 (lacosamide) modified release capsules for the treatment of partial onset seizures in patients with epilepsy on hold, if we determine to resume development of ADS-4101, or develop or acquire other potential product candidates and seek to develop them, we will face regulatory and other development risks. There are risks associated with pursuing clinical trials for potential future product candidates, as we may experience numerous unforeseen events during, or as a result, of clinical studies that could harm our ability to commercialize such products or to receive regulatory approval, including that:
clinical studies may produce negative or inconclusive results or raise significant safety concerns, and we may decide, or regulators may require us, to conduct additional clinical studies or abandon product development programs;
even if clinical studies demonstrate statistically significant efficacy and acceptable safety, the FDA or similar authorities outside the United States may not consider the results of our studies to be sufficient for approval or we may not receive approval in a timely manner, especially in light of the COVID-19 pandemic;
our clinical sites and clinical investigators may fail to comply with, or inconsistently apply, the trial protocols, regulatory requirements including Good Clinical Practices, contractual obligations, and the rating assessments;
our third-party vendors, including our Contract Research Organizations, or CROs, and contract manufacturing organizations, or CMOs, may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all;
we might have to suspend or terminate clinical studies for various reasons, including a finding that our products have unanticipated serious side effects or other unexpected characteristics or that the patients are being exposed to unacceptable health risks;
regulators or institutional review boards may require that we or our investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements;
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the supply or quality of materials necessary to conduct clinical studies may be insufficient or inadequate, especially in light of the COVID-19 pandemic;
our new product discovery or research program may not be successful or warrant clinical development;
we may be unable to successfully complete the development program in a timely manner, especially in light of the COVID-19 pandemic;
we may be unsuccessful commercializing our products, if approved, including marketing, sales, and distribution of the product independently or in partnership with another company;
we may fail to gain acceptance by the medical community and patients of the approved product;
we may be unable to obtain coverage and adequate reimbursement by third-party payers;
patients may be unwilling or unable to pay out of pocket for the products;
we may be unable to effectively compete with other approved or used medicines and future compounds in development;
we may be unable to continue demonstration of an acceptable safety profile following approval; and
we may be unable to obtain, maintain, enforce, and defend intellectual property rights and claims.
If we are forced to delay or abandon development of our products, especially in light of the COVID-19 pandemic, our business, results of operations, and financial condition will be materially and adversely harmed.
We may expend our limited resources to pursue a particular product or indication and fail to capitalize on products or indications that may be more profitable or for which there is a greater likelihood of success.
Because we have limited financial and managerial resources, we may choose to focus on research programs and products for specific indications. As a result, we may forego or delay pursuit of opportunities with our product candidate or other indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our investment in current and future research and development programs and product candidates for specific indications may not yield any commercially viable products for us or future partners. For example, we discontinued the development of ADS-5102 for the treatment of walking impairment in patients with multiple sclerosis in June 2020 following a comprehensive evaluation of the INROADS Phase 3 data, including evaluating the ongoing, open label extension study, and engaging with the FDA, the revised product profile and potential path to submission.
If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing, or other royalty arrangements in cases in which it would have been advantageous for us to retain sole development and commercialization rights.
We may in the future seek to acquire additional product candidates, which may subject us to additional risks and expense.
In the future, in seeking to diversify our product candidate portfolio we may seek to identify and acquire or in-license novel product candidates. We may fail to identify and acquire or in-license product candidates, including for reasons discussed in these risk factors, and also:
the process by which we identify and decide to acquire product candidates may not be successful;
the competition to acquire or in-license promising product candidates is fierce and many of our competitors are large, multinational pharmaceutical, biotechnology and medical device companies with considerably more financial, development and commercialization resources and experience than we have;
potential product candidates may, upon further study during or after the acquisition process, fail to demonstrate clinical efficacy, be shown to have harmful side effects or other characteristics that indicate that they are unlikely to be products that will receive marketing approval or achieve market acceptance; and