S-1/A 1 a2230774zs-1a.htm S-1/A

Use these links to rapidly review the document
TABLE OF CONTENTS
INDEX TO FINANCIAL STATEMENTS

Table of Contents

As filed with the Securities and Exchange Commission on January 27, 2017.

Registration No. 333-215398


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



Amendment No. 3
to
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933



Braeburn Pharmaceuticals, Inc.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)
  2834
(Primary Standard Industrial
Classification Code Number)
  46-1031785
(I.R.S. Employer
Identification Number)

47 Hulfish Street, Suite 441
Princeton, NJ 08542
(609) 751-5375
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)



Behshad Sheldon, President and Chief Executive Officer
Braeburn Pharmaceuticals, Inc.
47 Hulfish Street, Suite 441
Princeton, NJ 08542
(609) 751-5375
(Name, address, including zip code, and telephone number, including
area code, of agent for service)



Copies to:

Mitchell S. Bloom, Esq.
John M. Mutkoski, Esq.
Laurie A. Burlingame, Esq.
Goodwin Procter LLP
100 Northern Avenue
Boston, MA 02210
(617) 570-1000

 

Deanna L. Kirkpatrick, Esq.
Davis Polk & Wardwell LLP
450 Lexington Avenue
New York, NY 10017
(212) 450-4000



Approximate date of commencement of proposed sale to public:
As soon as practicable after this Registration Statement is declared effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box.    o

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

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

Large accelerated filer o   Accelerated filer o   Non-accelerated filer ý
(Do not check if a
smaller reporting company)
  Smaller reporting company o

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

   


Table of Contents

PRELIMINARY PROSPECTUS (Subject to completion) January 27, 2017

The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

7,692,308 shares

LOGO

Common stock

This is an initial public offering of shares of our common stock. We are selling 7,692,308 shares of our common stock. Prior to this offering, there has been no public market for our common stock. We have applied to list our common stock on The NASDAQ Global Market under the symbol "BBRX." We expect that the initial public offering price for our common stock will be between $18.00 and $21.00 per share.

We are an "emerging growth company" under applicable Securities and Exchange Commission rules and will be subject to reduced public company reporting requirements for this prospectus and future filings. See "Prospectus Summary—Implications of being an emerging growth company."

Following this offering, Apple Tree Partners IV, L.P. and its affiliates, or Apple Tree, will control a majority of the voting power of our common stock and we will be a "controlled company" within the meaning of the NASDAQ listing standards.

Apple Tree has indicated an interest in purchasing an aggregate of approximately $50 million of shares of our common stock at the initial public offering price. However, because indications of interest are not binding agreements or commitments to purchase, the underwriters may sell more, less or no shares in this offering to Apple Tree, or Apple Tree may determine to purchase more, less or no shares in this offering.

Apple Tree has agreed to purchase $40 million of our common stock in a separate private placement concurrent with the completion of this offering at a price per share equal to the initial public offering price. The sale of such shares will not be registered under the Securities Act of 1933, as amended. The closing of this offering is not conditioned upon the closing of such concurrent private placement.

Our business and investment in our common stock involve significant risks. These risks are described under the caption "Risk Factors" beginning on page 14 of this prospectus.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed on the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

 
  Per share
  Total
 

Initial public offering price

  $     $    

Underwriting discounts and commissions(1)

 
$
 
$
 

Proceeds, before expenses, to Braeburn Pharmaceuticals

 
$
 
$
 

(1)    We have agreed to reimburse the underwriters for certain FINRA-related expenses. We refer you to "Underwriting" beginning on page 183 for additional information regarding total underwriting compensation.

The underwriters may also purchase up to an additional 1,153,846 shares from us at the initial public offering price, less the underwriting discount, within 30 days from the date of this prospectus.

The underwriters expect to deliver the shares of common stock to investors on or about                  , 2017.

J.P. Morgan   BofA Merrill Lynch

Deutsche Bank Securities

Canaccord Genuity

                           , 2017


Table of Contents

Table of contents



You should rely only on the information contained in this prospectus or in any free writing prospectus prepared by us or on our behalf. We have not, and the underwriters have not, authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdictions where the offer and sale is not permitted. You should assume that the information appearing in this prospectus is accurate only as of the date on the cover page of this prospectus. Our business, financial condition, results of operations and prospects may have changed since such date.

Through and including                         , 2017 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

Information contained on our website is not a part of this prospectus. Neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about, and to observe any restrictions relating to, this offering and the distribution of this prospectus outside of the United States.

i


Table of Contents

 

Prospectus summary

This summary highlights information contained elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision. Before investing in our common stock, you should carefully read this entire prospectus, including our consolidated financial statements and the related notes included elsewhere in this prospectus. You should also consider, among other things, the matters described under "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations," in each case appearing elsewhere in this prospectus. Unless otherwise stated, all references to "us," "our," "Braeburn," "we," the "Company" and similar designations refer to Braeburn Pharmaceuticals, Inc.

Overview

We are a commercial-stage pharmaceutical company focused on the development and commercialization of novel long-acting medications for serious disorders of the central nervous system, or CNS. Our proprietary implantable and injectable delivery mechanisms provide differentiated solutions for chronic diseases with high unmet medical needs. Our specialty CNS focus is on fast-growing therapeutic areas recognized as serious public health crises, where long-acting technologies offer important benefits such as increased medication compliance, improved patient convenience, reduced risk of abuse and relapse and reduced public health and societal costs.

Our lead therapeutic area is opioid addiction, which affects 2.6 million people in the United States across all socioeconomic groups. A 2016 survey from the Kaiser Family Foundation indicates that nearly half of all Americans know someone who suffers from opioid addiction. We have one approved product, Probuphine, a six-month buprenorphine implant for the maintenance treatment of opioid addiction, which was approved by the Food and Drug Administration, or FDA, on May 26, 2016. In November 2016, we reported positive top-line results from a Phase 3 trial of weekly and monthly CAM2038, an injectable formulation of buprenorphine, for opioid addiction. CAM2038 achieved non-inferiority compared to oral daily buprenorphine based on the primary endpoint and superiority to oral daily buprenorphine based on a secondary endpoint. Our other therapeutic areas of focus are pain, schizophrenia and spasticity, which refers to feelings of stiffness and a wide range of involuntary muscle spasms. We have four additional late-stage product candidates in our pipeline across our different therapeutic areas, as well as two earlier-stage product candidates.

We believe that long-acting medications for specialty CNS conditions are not just a matter of convenience, but are an essential tool for the effective treatment of these diseases. These are chronic CNS conditions requiring constant vigilance, where the consequences of suboptimal treatment compliance can range from severe to life-threatening. For our therapeutic areas of focus, we are developing weekly, monthly and six-month dosage formulations. We believe that our medications will allow healthcare providers to treat patients throughout the continuum of care, providing personalized drug delivery that is optimized to help patients progress from treatment initiation through long-term maintenance.

As of January 1, 2017, we have 97 employees in the United States; 61 are field-based employees engaged in sales, physician training and other marketing support functions, nine are engaged in positions directly related to sales and marketing, 13 are engaged in positions related to clinical development, product development, regulatory and operations and 14 are engaged in positions related to general and administrative. To date, our post-approval commercialization efforts for Probuphine have been focused on a medical affairs driven introduction, including training healthcare providers to prescribe and implant Probuphine, working with payors to ensure comprehensive reimbursement and implementing our new

1


Table of Contents

specialty pharmacy distribution model. We are planning a full-scale commercial launch of Probuphine with our new fully-deployed field force in the first quarter of 2017, which we intend to further expand if and when we launch CAM2038.

Recent developments

Although our audited consolidated financial statements for the year ended December 31, 2016 are not yet available, we estimate that our cash and cash equivalents were approximately $30.5 million as of December 31, 2016. The foregoing selected, unaudited preliminary financial information has been prepared in good faith based on our internal reporting. The results presented above are preliminary estimates and are not final and remain subject to revision based on the completion of the accounting and financial reporting processes necessary to finalize our audited consolidated financial statements as of and for the year ended December 31, 2016. In addition, Apple Tree has agreed to purchase $40 million of our common stock in a separate private placement concurrent with the completion of this offering at a price per share equal to the initial public offering price.

Our markets

Opioid addiction is a public health epidemic with 12.5 million people misusing opioid pain relievers and over 800,000 people using heroin in the United States in 2015. In 2013, prescription opioid abuse accounted for approximately an estimated $80 billion in U.S. health and social costs. Despite the extreme high social costs and large patient population of opioid addiction, less than half of the estimated 2.6 million people diagnosed with opioid addiction in the United States receive medication.

Our other target markets include pain and schizophrenia, both of which we believe represent high unmet medical needs and market potential. According to the National Institute on Drug Abuse, or NIDA, over 100 million people suffer from chronic pain in the United States, with 23 million adults reporting a significant level of daily pain. The total annual incremental cost of health care due to chronic pain in 2010 was up to $635 billion in the United States.

Schizophrenia affects up to 1% of the U.S population, or approximately 2.4 million individuals, and accounts for 20% of all hospital bed-days in the United States. It is one of the leading causes of disability in the United States, and in 2013, cost the United States approximately $156 billion in direct and indirect expenses.

Opioid addiction: the problem and inherent limitations of current treatments

The U.S. government has declared opioid abuse an unprecedented public health epidemic, with more than 60% of drug overdose deaths involving an opioid. The epidemic is driven by opioid medications prescribed for pain. Between 2000 and 2014, nearly half a million Americans died from drug overdoses and the number of overdose deaths related to opioids quadrupled, closely tracking the increase in prescriptions dispensed for opioids. In 2015, healthcare providers wrote approximately 228 million prescriptions for opioids, more than the number of American adults. On a daily basis, more than 650,000 opioid prescriptions are dispensed, 3,900 people begin to abuse or misuse prescription opioids, and 580 people begin to use heroin. Every day approximately 2,000 people are hospitalized and 78 people die from overdose involving opioids, resulting in approximately 30,000 opioid overdose deaths per year.

The current standard of care for outpatient treatment of opioid addiction is oral daily buprenorphine, which generally should be life-long therapy because opioid addiction is typically a chronic life-long

2


Table of Contents

condition. Although oral daily buprenorphine is an effective treatment for opioid addiction, the burden of daily medication coupled with the inconvenience of the commonly prescribed sublingual formulation contributes to low patient compliance and suboptimal medical outcomes. While relapse can have dire consequences, on average patients take medications only 33% of the time that they need it. Each day a patient is off medication, the odds of relapse increase significantly, and consequently a patient is in significant danger of potential overdose and death. Additionally, buprenorphine is a synthetic opiate and therefore, when dispensed to patients for self-administration, is susceptible to diversion, or selling on the street, misuse, abuse and accidental pediatric exposure.

Opioid addiction: our solutions

We intend to address the limitations of current treatment approaches for opioid addiction by replacing oral daily medications, including sublingual formulations, with a suite of complementary long-acting implantable and injectable medications. Our solutions are designed to establish a continuum of care for patients, providing personalized drug delivery that is optimized to help patients progress from treatment initiation through long-term maintenance. We believe that our product portfolio addresses several limitations of the current treatment pathway in opioid addiction as described below:

Enhanced medication compliance and clinical outcomes.  Our long-acting treatments will provide patients and healthcare providers with increased confidence that patients have received their required dose of medication, thereby leading to more successful clinical outcomes.

Improved quality of life for patients.  Our long-acting treatments will relieve the burden of daily medication and daily reminders of the disease, as well as reduce the stigma of opioid addiction for patients and their caregivers.

Improved social outcomes.   Chronic abuse of opioids can lead to impaired judgment, decision-making, learning, memory and behavior control, making it difficult for addicted patients to carry out normal daily activities. By reducing the risk of relapse and abuse, our long-acting treatments will help patients take care of their families, fulfill their passions and lead more productive and rewarding lives.

Help manage a public health epidemic.  Because our products are physician-administered, our long-acting treatments could help reduce the risk of drug abuse, addiction, overdose and life-threatening accidental pediatric exposure.

Opioid addiction: our products

Our marketed product, Probuphine, was approved by the U.S. Food and Drug Administration, or FDA, in May 2016, and is the first and only implantable formulation of buprenorphine for the maintenance treatment of opioid addiction. Probuphine is administered by a healthcare provider who inserts four implants, each smaller than a one-inch matchstick, sub-dermally into the patient's upper arm during a short in-office procedure usually lasting less than 15 minutes. After insertion, Probuphine delivers buprenorphine continuously for six months. Thereafter, the implants can be removed and replaced with new Probuphine implants.

Our lead clinical product candidates, weekly and monthly CAM2038, are subcutaneous injectable formulations of buprenorphine for the treatment of opioid addiction. We believe weekly and monthly CAM2038 will expand our target patient population, including not only patients who have been successfully treated with buprenorphine but also patients new to buprenorphine therapy. In November 2016, we reported positive top-line results from a Phase 3 trial of weekly and monthly CAM2038 for opioid addiction.

3


Table of Contents

CAM2038 achieved non-inferiority compared to oral daily buprenorphine based on the primary endpoint and superiority to oral daily buprenorphine based on a secondary endpoint. Based on the successful results from this pivotal Phase 3 trial, we are working to submit a New Drug Application, or NDA, for weekly and monthly CAM2038 in the first half of 2017. The FDA has granted fast track designation for weekly and monthly CAM2038 for the treatment of opioid addiction.

Probuphine and CAM2038 have the potential to transform and enhance the continuum of care for opioid addiction, as compared to current clinical practice which is limited to the use of oral daily buprenorphine. We believe a weekly buprenorphine injection would be an attractive option for beginning buprenorphine treatment where weekly medical visits to adjust dose is common practice. We believe a monthly injection would be an attractive option for early-stage maintenance treatment where a transition to monthly visits after finding a stable dose is common practice. For longer-term maintenance treatment, we believe a six-month implant would be an attractive option.

Opioid addiction: Enhanced continuum of care aligned with clinical practice

GRAPHIC

Additional product candidates

We believe pain, schizophrenia and spasticity can also be more effectively managed using long-acting implantable or injectable medications which will provide enhanced compliance, improved clinical outcomes and improved quality of life for patients.

Our investigational pipeline includes:

CAM2038 and Probuphine.  Because buprenorphine has also been approved for the treatment of chronic pain, we believe our long-acting medications, weekly and monthly CAM2038 and Probuphine, have the potential to provide a suite of therapeutic products across the continuum of care for pain. We believe our long-acting medications, if approved, will provide continuous around-the-clock therapy, resulting in improved pain relief, increased convenience and enhanced quality of life. Furthermore, we believe our long-acting pain medications can help address the root causes of the opioid abuse epidemic because they are implanted or injected directly by a healthcare provider, and therefore are not susceptible to the diversion and misuse that occurs with self-administered oral daily opioids.

BB0817.  An implant that offers continuous, six-month delivery of risperidone, the most commonly prescribed medication for the treatment of schizophrenia. We believe BB0817 has the potential for unique positioning in the schizophrenia market with a treatment duration that at least doubles that of currently-marketed injectables, which range from two weeks to three months. BB0817 is currently in Phase 3 development.

4


Table of Contents

BB0417.  A subcutaneous injectable formulation that offers three to five days of buprenorphine and granisetron, a widely used drug to treat nausea and vomiting, for the potential treatment of acute post-operative pain, nausea and vomiting. We believe that BB0417 has the potential to improve the well-being of post-operative patients and reduce the need for other medications including oral opioid painkillers, which are taken home and self-administered by the patient. BB0417 is currently in Phase 1 development.

BB1216.  An implant that offers continuous, six-month delivery of tizanidine, a commonly prescribed muscle relaxant, for the treatment of moderate to severe spasticity. We believe that BB1216 may provide enhanced clinical outcomes with fewer side effects as compared to oral medications and will be more convenient for patients. We also believe that BB1216 will be an attractive alternative to surgical implantation of an intrathecal baclofen pump, as the surgical procedure to implant BB1216 is simpler and safer. BB1216 is currently in animal testing of the formulation, and if this testing is successful, we expect that it will advance directly to Phase 3 development.

Our competitive strengths

Focus on large and underserved specialty CNS markets.    Opioid addiction is widely recognized as an unprecedented public health epidemic in the United States, and is a multi-billion dollar market experiencing double-digit growth. Pain and schizophrenia are also fast-growing, multi-billion dollar markets.

Differentiated products addressing high unmet medical needs.    Our products utilize proprietary long-acting delivery mechanisms to enhance compliance and lower treatment stigma and to reduce the potential for medication diversion and abuse. As a result, we believe our products will lead to better clinical and social outcomes.

Mitigated clinical and regulatory risk.    Our current products apply novel delivery mechanisms to existing FDA-approved therapeutic molecules, and therefore may be able to use the FDA's section 505(b)(2) approval pathway.

Long duration cashflows from products with high barriers to entry.    Our products are covered by a range of intellectual property, trade secrets and know-how and are subject to a range of complex clinical and regulatory requirements. In addition, our supply chain is difficult to replicate as it involves the handling of controlled substances, which involves the need for special permits and licenses, and involves several single source suppliers.

Platform for organic growth and expansion.    Our product development expertise, and the commercial and manufacturing infrastructure investments we are making, can be leveraged across our diversified product portfolio and for future business development efforts.

Proven, experienced management team.    Our management team has an established track record of developing successful clinical and commercial organizations, including multiple blockbuster pharmaceutical brands.

Our growth strategies

Our objective is for our novel long-acting medications to become the standard of care for specialty CNS disorders. We believe that our medications will allow healthcare providers to treat patients through the continuum of care, providing personalized drug delivery that is optimized to help patients progress from

5


Table of Contents

treatment initiation through long-term maintenance. Key elements of our strategy to achieve our objective are to:

Grow sales of our recently approved product Probuphine for opioid addiction.  To date, we have trained and certified approximately 2,500 healthcare providers to prescribe and implant Probuphine, and over 70 payors have indicated that they intend to cover Probuphine. We are planning a full-scale commercial launch of Probuphine with our new fully-deployed field force of approximately 60 representatives in the first quarter of 2017, which we intend to further expand if and when we launch CAM2038.

Advance our lead product candidates, weekly and monthly CAM2038 for opioid addiction, and the rest of our specialty CNS pipeline, to establish a diversified portfolio of commercial products. If weekly and monthly CAM2038 are approved, we will market a comprehensive suite of opioid addiction products that we believe will allow healthcare providers to treat patients throughout the continuum of care from treatment initiation through long-term maintenance.

Leverage differentiated product profiles to establish leadership positions in underserved markets. We intend to establish our products as new standards of care in the therapeutic markets in which we operate. In both opioid addiction and pain, we have the potential to be the only company that offers a comprehensive portfolio of long-acting medications including once weekly, once monthly, and six-month formulations.

Expand our markets by addressing unmet needs and providing access to innovative therapies.  By addressing currently unmet medical needs, we believe our portfolio will allow healthcare providers to expand the population of patients they are able to effectively treat.

Pursue additional product development opportunities via targeted business development.  We believe we will become the partner of choice for development and commercialization in specialty CNS which will provide opportunities to expand our pipeline of long-acting product candidates. We believe that the concentrated and targeted nature of the specialty CNS sector will allow us to benefit from meaningful operating leverage as we further expand our product portfolio.

6


Table of Contents

Our portfolio

The table below summarizes our product portfolio:

 
   
   
   
   
   
Product
  Indication
  Substance
  Form
  Phase of
Development

  Braeburn
Commercialization
Rights

Probuphine   Opioid addiction   Buprenorphine   6-month implant   Marketed(1)   United States, Canada(2)
CAM2038 Weekly   Opioid addiction   Buprenorphine   Weekly injectable   Phase 3   North America; Asia option rights(3)
CAM2038 Monthly   Opioid addiction   Buprenorphine   Monthly injectable   Phase 3   North America; Asia option rights(3)
CAM2038 Weekly   Chronic pain   Buprenorphine   Weekly injectable   Phase 3   North America; Asia option rights(3)
CAM2038 Monthly   Chronic pain   Buprenorphine   Monthly injectable   Phase 3   North America; Asia option rights(3)
Probuphine   Chronic pain   Buprenorphine   6-month implant   Phase 3   United States, Canada(2)
BB0817   Schizophrenia   Risperidone   6-month implant   Phase 3   Worldwide
BB0417   Acute post-operative pain   Buprenorphine and Granisetron   3 to 5 day injectable   Phase 1   North America; Asia option rights(3)
BB1216   Spasticity   Tizanidine   6-month implant   Clinic ready(4)   Worldwide

(1)    The FDA has required that we conduct four post-approval clinical trials to assess the insertion, localization and removal related serious adverse events of Probuphine, the risk of the QT interval in the heart's electrical cycle during treatment with Probuphine, the effect of scarring or inflammation related to a prior implant on the safety of re-implantation / re-insertion, the potential for implant migration, and the bioavailability of Probuphine into the same insertion site, and the safety, feasibility and pharmacokinetics of Probuphine implantation at alternate body sites.

(2)    We have exclusively sub-licensed commercialization rights in Canada to Knight Therapeutics, Inc.

(3)    We have option rights for China, Japan, South Korea and Taiwan.

(4)   If current formulation and testing are successful, we expect BB1216 will advance directly to Phase 3 development.

Risk associated with our business

Our business is subject to many risks and uncertainties of which you should be aware before you decide to invest in our common stock. These risks and additional risks are discussed more fully under "Risk Factors" in this prospectus. Some of these risks include:

We are largely dependent on the commercial success of products in our lead therapeutic area of opioid addiction, and if we are unable to successfully commercialize our product and product candidates, if approved, in this area, our business, financial condition, results of operations and prospects will be materially adversely affected.

If Probuphine or any other product candidate for which we receive regulatory approval does not achieve broad market acceptance by physicians, patients or others in the medical community or coverage by third-party payors, our revenues may be adversely affected and our business may suffer.

If the FDA does not conclude that our product candidates satisfy the requirements for the section 505(b)(2) regulatory approval pathway, or if the requirements under section 505(b)(2) are not as we expect, the approval pathway for our product candidates will likely take significantly longer, cost significantly more and entail significantly greater complications and risks than anticipated, and in either case may not be successful.

7


Table of Contents

We obtain some of our raw materials, components and finished goods from a single source or a limited group of suppliers. The partial or complete loss of one of these suppliers could cause significant production delays, an inability to meet customer demand and a substantial loss in revenue.

We rely on third parties to provide services in connection with the manufacture and distribution of our products, and these third parties may not perform satisfactorily. If we or our contract manufacturers fail to establish commercial manufacturing operations in compliance with regulatory requirements we may not be able to initiate commercial operations or produce sufficient quantities of our products to meet commercial requirements.

Our clinical trials may fail to demonstrate acceptable levels of safety and efficacy for our product candidates such as Probuphine for the treatment of pain, or any of our other product candidates such as CAM2038, BB0417 and BB0817, which could prevent or significantly delay their regulatory approval.

We rely on third parties to conduct our nonclinical studies and clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize our product candidates and our business could be substantially harmed.

Our product candidates are subject to extensive regulation, and we cannot give any assurance that any of our product candidates will receive regulatory approval or be successfully commercialized.

We have never generated net income from operations or positive cash flow from operations and are dependent upon external sources of financing to fund our business and development.

Our success depends in part on our ability to obtain, maintain, protect and defend our intellectual property, which is difficult and costly, and we may not be able to ensure that we will be able to do so.

Our reliance on third parties requires us to share our trade secrets, which increases the possibility that a competitor or other third party will discover our trade secrets or that our trade secrets will be misappropriated or disclosed.

Apple Tree Partners IV, L.P. and its affiliates, or Apple Tree, will continue to own a majority of our common stock after this offering and will be able to control or exercise significant influence over matters subject to stockholder approval.

Concurrent private placement

Apple Tree has agreed to purchase $40 million of our common stock in a concurrent private placement with the completion of this offering at a price per share equal to the initial public offering price. The sale of such shares will not be registered under the Securities Act of 1933, as amended, or the Securities Act. The closing of this offering is not conditioned upon the closing of such concurrent private placement.

Corporate history and information

We were incorporated in Delaware in September 2012 under the name AT Pharmaceuticals, Inc. and subsequently changed our name to Braeburn Pharmaceuticals, Inc. in December 2012. We were a wholly-owned subsidiary of Braeburn Pharmaceuticals BVBA SPRL, or Braeburn BVBA, a wholly-owned portfolio company of Apple Tree, until November 2015, when Braeburn BVBA was voluntarily dissolved. As a result, we became a wholly-owned portfolio company of Apple Tree. Our principal executive offices are located at 47 Hulfish Street, Suite 441, Princeton, New Jersey 08542 and our telephone number is (609) 751-5375.

8


Table of Contents

Our website address is www.braeburnpharmaceuticals.com. The information contained on, or accessible through, our website does not constitute part of this prospectus. We have included our website address in this prospectus solely as an inactive textual reference.

Implications of being an emerging growth company

As a company with less than $1.0 billion in revenue during our last fiscal year, we qualify as an "emerging growth company" as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and we may remain an emerging growth company for up to five years. For so long as we remain an emerging growth company, we are permitted and intend to rely on exemptions from certain disclosure and other requirements that are applicable to other public companies that are not emerging growth companies. In particular, in this prospectus, we have provided only two years of audited financial statements and have not included all of the executive compensation related information that would be required if we were not an emerging growth company. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock. We may take advantage of the exemptions provided by the JOBS Act for up to five years or such earlier time that we are no longer an emerging growth company. The JOBS Act also provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. We have irrevocably elected not to avail ourselves of this exemption and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. We will remain an emerging growth company until the earlier of: (i) the last day of the fiscal year in which we have total annual gross revenues of $1 billion or more; (ii) the last day of the fiscal year following the fifth anniversary of the date of the completion of this offering; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC, which means the first day of the year following the first year in which the market value of our common stock that is held by non-affiliates exceeds $700 million as of June 30.

The Braeburn name and logo are our trademarks. This prospectus also includes trademarks, trade names and service marks of other persons, including those which have been licensed to us for certain uses. All other trademarks, trade names and service marks appearing in this prospectus are the property of their respective owners.

9


Table of Contents

 

The offering

Common stock offered by us   7,692,308 shares

Common stock to be sold by us to Apple Tree in the concurrent private placement

 

$40 million (or 2,051,282 shares based on an assumed initial public offering price of $19.50, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus).

Common stock to be outstanding immediately after this offering and the concurrent private placement

 

29,506,794 shares (30,660,640 shares if the underwriters exercise in full their option to purchase additional shares in full)

Underwriters' option to purchase additional shares from us

 

1,153,846 shares

Use of proceeds

 

We estimate that the net proceeds from the sale of shares of common stock will be approximately $137.2 million, or $158.2 million if the underwriters exercise in full their option to purchase additional shares, based upon an assumed initial public offering price of $19.50 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

 

We currently intend to use the net proceeds from this offering for commercialization of Probuphine, advancement of product candidates in clinical development and for working capital and other general corporate purposes. See "Use of Proceeds" for additional information.

Risk factors

 

You should carefully read "Risk Factors" in this prospectus for a discussion of factors that you should consider before deciding to invest in our common stock.

Reserved Share Program

 

At our request, the underwriters have reserved for sale, at the initial public offering price, up to 5% of the shares offered by this prospectus for sale to some of our directors, officers, employees, business associates and related persons. If these persons purchase reserved shares it will reduce the number of shares available for sale to the general public. Any reserved shares that are not so purchased will be offered by the underwriters to the general public on the same terms as the other shares offered by this prospectus.

Proposed trading symbol

 

"BBRX"

As of January 1, 2017, there were no shares of our common stock outstanding. Therefore, the number of shares of common stock to be outstanding after this offering and the concurrent private placement is

10


Table of Contents

based on 19,763,204 shares of our common stock issuable upon the conversion of all outstanding shares of our convertible preferred stock, which Apple Tree has elected to convert to common stock upon the closing of this offering. The number of shares of our common stock to be outstanding after this offering excludes:

1,100,000 shares of common stock reserved for future issuance under our 2017 Stock Option and Incentive Plan, plus annual increases thereunder, as described in the section "Executive Compensation—Stock Option Plans—2017 Stock Option and Incentive Plan," which will become effective on the date immediately prior to the date on which the registration statement of which this prospectus is part is declared effective;

1,013,417 shares of common stock reserved for future issuance under our 2015 Equity Incentive Plan as of January 1, 2017, after giving effect to the reverse stock split and taking into account awards that have been granted as described below;

738,553 shares of our common stock issuable upon the exercise of outstanding options as of January 1, 2017 at a weighted average exercise price of $10.20 per share; and

2,692,474 shares of our common stock issuable upon vesting of restricted stock units outstanding as of January 1, 2017.

Unless otherwise indicated, all information in this prospectus reflects or assumes the following:

the filing and effectiveness of our amended and restated certificate of incorporation and the adoption of our amended and restated bylaws, which will occur immediately prior to the completion of this offering;

a 1-for-2.7 reverse split of our common stock and a proportional adjustment to the existing conversion ratio of our convertible preferred stock effected on January 25, 2017;

no shares issued upon vesting of restricted stock units or upon exercise of stock options after January 1, 2017;

no exercise by the underwriters of their option to purchase up to an additional 1,153,846 shares of common stock in this offering; and

no shares purchased by Apple Tree in the offering, for which it has indicated a non-binding indication of interest in purchasing an aggregate of approximately $50 million of the shares of our common stock at the initial public offering price.

11


Table of Contents

 

Summary financial data

You should read the following summary financial data together with our consolidated financial statements and the related notes appearing at the end of this prospectus and the "Selected Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections of this prospectus. We derived the statement of operations data for the years ended December 31, 2014 and 2015 from our audited consolidated financial statements included elsewhere in this prospectus. The statements of operations data for the nine months ended September 30, 2016 and 2015 and the balance sheet data as of September 30, 2016 have been derived from our unaudited consolidated financial statements appearing at the end of this prospectus and have been prepared on the same basis as the audited consolidated financial statements. Our historical results are not necessarily indicative of results that should be expected in the future and results of interim periods are not necessarily indicative of results for the entire year.

 
  Year ended December 31,   Nine months ended September 30,  
 
  2014
  2015
  2015
  2016
 

    (in thousands)  

    (unaudited)  

Statement of Operations Data:

                         

Revenue

  $   $ 25   $   $ 42  

Cost of sales

                44  

Gross profit

        25         (2 )

Expenses:

                         

Research and development

    37,195     31,374     16,345     50,933  

Selling, general and administrative

    3,076     6,964     4,031     27,095  

Total expenses

    40,271     38,338     20,376     78,028  

Loss from operations

    (40,271 )   (38,313 )   (20,376 )   (78,030 )

Other income / (expense), net

    (185 )   (650 )   (646 )   1,214  

Loss before income tax expense / (benefit)

    (40,456 )   (38,963 )   (21,022 )   (76,816 )

Income tax expense / (benefit)

        1,600     1,602      

Net loss

  $ (40,456 ) $ (40,563 ) $ (22,624 ) $ (76,816 )

Other comprehensive income / (loss)

                         

Unrealized gain / (loss) during period, net of tax benefit of $18 and $0 for the year ended December 31, 2015 and 2014 and $0 and $0 for the nine months ended September 30, 2016 and 2015, respectively          

    (925 )   2,140     1,635     (28 )

Comprehensive loss

  $ (41,381 ) $ (38,423 ) $ (20,989 ) $ (76,844 )

12


Table of Contents


 
  As of September 30, 2016  
 
  Actual
  Pro forma(1)
  Pro forma as
adjusted(2)(3)

 

    (in thousands)  

    (unaudited)  

Balance Sheet Data:

                   

Cash and cash equivalents(4)

  $ 23,528   $ 23,528   $ 200,769  

Prepaid expenses and other current assets

    5,912     5,912     5,912  

Investment in Titan Pharmaceuticals

             

Property and equipment, net

    11,407     11,407     11,407  

Intangible assets, net

    14,342     14,342     14,342  

Other non-current assets

    1,613     1,613     1,613  

Total assets

    56,802     56,802     234,043  

Accounts payable, accrued expenses, and other current liabilities

    18,469     18,469     18,469  

Financing obligation and other long-term liabilities

    4,660     4,660     4,660  

Total liabilities

    23,129     23,129     23,129  

Common shares

        2     3  

Preferred shares

    22          

Additional paid-in-capital

    233,572     238,133     415,373  

Accumulated deficit

    (199,921 )   (204,462 )   (204,462 )

Total liabilities and shareholders' equity / (deficit)

  $ 56,802   $ 56,802   $ 234,043  

(1)    Pro forma balance sheet data gives effect to (i) the conversion of all outstanding shares of our convertible preferred stock into an aggregate of 16,503,945 shares of common stock, par value $0.0001, upon the completion of this offering, and (ii) the issuance of 991,110 shares of common stock related to restricted stock units that were both service-based vested and liquidity-based vested as of the completion of this offering.

(2)    Pro forma as adjusted basis gives effect to (i) the conversion of all outstanding shares of our convertible preferred stock and issuance of shares of common stock related to restricted stock units as noted in (1) above, (ii) the sale of 7,692,308 shares of our common stock offered in this offering, based on the assumed initial public offering price of $19.50 per share, which is the midpoint of the estimated price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us and (iii) the sale of $40 million of our common stock in a concurrent private placement to Apple Tree based on the assumed initial public offering price of $19.50 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus.

(3)    A $1.00 increase or decrease in the assumed initial public offering price of $19.50 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase or decrease each of cash and cash equivalents, additional paid-in capital, total stockholders' deficit (equity) and total capitalization on a pro forma as adjusted basis by approximately $7.2 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. An increase or decrease of one million shares in the number of shares offered by us would increase or decrease each of cash and cash equivalents, additional paid-in capital, total stockholders' deficit (equity) and total capitalization on a pro forma as adjusted basis by approximately $18.1 million, assuming no change in the assumed initial public offering price of $19.50 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. A one million share increase in the number of shares offered by us together with a concomitant $1.00 increase in the assumed initial public offering price of $19.50 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase each of cash and cash equivalents, total stockholders' equity and total capitalization by $26.2 million after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Conversely, a one million share decrease in the number of shares offered by us together with a concomitant $1.00 decrease in the assumed initial public offering price of $19.50 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would decrease each of cash and cash equivalents, total stockholders' equity and total capitalization by $24.4 million after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

(4)   Does not include the $22 million capital contribution from Apple Tree in October 2016 or the $22 million capital contribution from Apple Tree in December 2016.

13


Table of Contents

Risk factors

An investment in shares of our common stock involves a high degree of risk. You should carefully consider the risks described below, together with the other information appearing elsewhere in this prospectus, including our consolidated financial statements and related notes, before deciding to invest in our common stock. The occurrence of any of the following risks could have a material adverse effect on our business, financial condition, results of operations and prospects. In these circumstances, the market price of our common stock could decline, and you may lose all or part of your investment. Additional risks that we currently do not know about may also impair our business. Certain statements below are forward-looking statements. See "Special Note Regarding Forward-Looking Statements" in this prospectus.

Risks related to the commercialization of our product and product candidates

We are largely dependent on the commercial success of products in our lead therapeutic area of opioid addiction, and if we are unable to successfully commercialize our product and product candidates, if approved, in this area, our business, financial condition, results of operations and prospects will be materially adversely affected.

Our lead therapeutic area of focus is opioid addiction, where we seek to address the limitations of current treatment approaches by replacing oral daily medications with a suite of complementary long-acting implantable and injectable medications. The commercial success of these products depends on several factors, including:

our ability to successfully launch products and educate prescribers and patients on the applicable product's efficacy and safety;

our ability to train and certify healthcare providers to insert and remove implants of Probuphine in accordance with the Probuphine Risk Evaluation and Mitigation Strategy, or REMS;

the perceived and actual advantages of our approved product, Probuphine, and our product candidates, including CAM2038, if approved, over current treatment options;

the willingness of healthcare providers to prescribe, and the target patient population to try novel products;

the competitiveness of our pricing;

the willingness of healthcare providers to accept alternative reimbursement models, such as the "buy-and-bill" system, where prescribers are required to buy Probuphine inventory themselves and then bill patients or payors following the procedure, or the specialty pharmacy distribution model, where a specialty pharmacy carries inventory and ships it to healthcare providers as requested and prescribed, and directly handles the subsequent billing and payment process with payors. We expect that a majority of our sales of Probuphine will be through the specialty pharmacy distribution model, and the remainder will be sold through the "buy-and-bill" system;

our ability to establish and maintain adequate levels of coverage for our approved product, Probuphine, from commercial health plans and government health programs, which we refer to collectively as third-party payors, particularly in light of the availability of other branded and generic competitive products;

the willingness for patients to pay out-of-pocket in the absence of third-party coverage and the success of patient assistance programs; and

our ability to promote products through marketing and sales activities and any other arrangements.

14


Table of Contents

The estimates of the number of patients with the disease of opioid addiction, or the prospective patients who may be treated with our approved products, may be inaccurate. In addition, patients may be unwilling to pay for or try our products over the current treatment options. Furthermore, the number of healthcare providers who are eligible to prescribe Probuphine is limited as the U.S. Department of Health and Human Services, or HHS, places a limit on the number of patients who may be treated with buprenorphine at up to 275 patients per qualified provider. If we are unable to successfully commercialize Probuphine and the other product candidates in our opioid addiction portfolio, if approved, or if the market opportunity is less than we expected, as a result of marketing factors or labeling restrictions, we may be unable to generate revenues, and our business, financial condition and results of operation will be materially adversely affected.

If Probuphine or any other product candidate for which we receive regulatory approval does not achieve broad market acceptance by physicians, patients or others in the medical community or coverage by third-party payors, our revenues may be adversely affected and our business may suffer.

The commercial success of Probuphine or any other product candidate for which we obtain marketing approval from the U.S. Food and Drug Administration, or FDA, or other regulatory authorities will depend upon the acceptance of these products by physicians, patients, healthcare payors and the medical community. Coverage and reimbursement of any of our approved products by third-party payors is also necessary for commercial success. Our long-acting implantable and injectable medications may not be widely or rapidly accepted by physicians as the payment and reimbursement model differs from some of the existing treatment options for opioid addiction. For example, the current standard of care for outpatient treatment of opioid addiction is oral daily buprenorphine, which typically requires frequent patient visits and a per visit fee, which the patient may pay directly to the healthcare provider in cash. Reimbursement for injectable and implantable drug products that require administration by a healthcare provider require drug codes as well as a separate procedure code for the insertion and removal procedures and less frequent office visits. Physicians may prefer more frequent patient visits and the accompanying reimbursement and payment model, which oftentimes includes cash payments, and our product and product candidates may not gain market acceptance as a result. Furthermore, CAM2038 is a long-acting injectable medication, and healthcare providers may be hesitant to prescribe CAM2038, if approved, because an injectable cannot be withdrawn if adverse events occur. The degree of market acceptance of long-acting injectables and implantables, including Probuphine and any product candidate for which we may receive regulatory approval, will depend on a number of factors, including:

acceptance by physicians and patients of the product as a safe and effective treatment, including the willingness of patients to try a long-acting injectable or implantable product and the willingness of physicians to prescribe a long-acting injectable or implantable product which they may consider more difficult to monitor or to be trained and certified in accordance with a REMS program, such as the Probuphine REMS;

any negative publicity or political action related to our or our competitors' products;

the relative convenience and ease of administration of our product compared to the products offered by others;

the prevalence and severity of adverse side effects associated with our product;

limitations or warnings contained in the product's FDA-approved labeling;

the clinical indications for which the product is approved;

15


Table of Contents

in the case of Probuphine and product candidates that are controlled substances, the U.S. Drug Enforcement Administration, or DEA, scheduling classification;

availability and perceived advantages of alternative treatments;

the effectiveness of our or any current or future collaborators' sales, marketing and distribution strategies;

patient awareness of our therapies;

pricing and cost effectiveness;

our ability to obtain sufficient third-party payor coverage and reimbursement, as well as the ease of use and transparency of such processes and systems once in place; and

the willingness of patients to pay out of pocket in the absence of third-party payor coverage.

Our efforts to educate the medical community and third-party payors on the benefits of Probuphine or any of our other product candidates for which we obtain marketing approval from the FDA or other regulatory authorities in order to gain broad market acceptance may require significant resources and may never be successful. If our products do not achieve an adequate level of acceptance by physicians, third-party payors, pharmacists, and patients, we may not generate sufficient revenue from these products, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

The insurance coverage and reimbursement status of newly-approved products is uncertain. If we are unable to achieve and maintain adequate levels of coverage and reimbursement for Probuphine or any of our other product candidates for which we may receive regulatory approval on reasonable pricing terms, their commercial success may be severely limited.

Successful sales of our products depend on the availability of adequate coverage and reimbursement from third-party payors, as well as the ease of use and transparency of such processes and systems once in place. Patients who are prescribed medicine for the treatment of their conditions generally rely on third-party payors to reimburse all or part of the costs associated with their prescription drugs. Adequate coverage and reimbursement from governmental healthcare programs, such as Medicare and Medicaid, and commercial payors are critical to new product acceptance. Coverage decisions may depend upon clinical and economic standards that disfavor new drug products such as ours when more established or lower cost therapeutic alternatives are already available or subsequently become available. Decisions regarding the extent of coverage and amount of reimbursement to be provided for products and product candidates that we develop will be made on a plan-by-plan basis. As a result, the coverage determination process is often a time-consuming and costly process that may require us to provide scientific and clinical support for the use of our products to each payor separately, with no assurance that coverage and adequate reimbursement will be applied consistently or obtained.

Reimbursement for injectable and implantable drug products that require administration by a healthcare provider generally requires a drug code, and separate reimbursement codes are required for the injection, insertion and removal procedures, as applicable. We have obtained a drug code for Probuphine, but our application for a procedure code was recently denied. However, we are pursuing multiple strategies to try to obtain G-codes and a permanent CPT code for the procedures in early 2017. The miscellaneous code 17999 can be used in the interim. See "Business—Reimbursement" for further detail on our strategies to obtain G-codes. The lack of a drug code or procedure code that covers our product or describes the procedures performed using our products, or a change to an existing code that describes such procedures,

16


Table of Contents

may adversely affect reimbursement for our products and these procedures, including lower reimbursement rates, denials and delays in reimbursement if pre-authorization is required.

Even if coverage is approved, the resulting reimbursement payment rates might not be adequate or may require co-payments that patients find unacceptably high. Patients are unlikely to use our products unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of our products.

In addition, the market for our products may depend on access to third-party payors' drug formularies, or lists of medications for which third-party payors provide coverage and reimbursement. The industry competition to be included in such formularies often leads to downward pricing pressures on pharmaceutical companies. Also, third-party payors may refuse to include a particular branded drug in their formularies or otherwise restrict patient access to a branded drug when a less costly generic equivalent or other alternative is available.

In addition, regional healthcare authorities and individual hospitals are increasingly using competitive bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other healthcare programs. This can reduce demand for our products or put pressure on our product pricing, which could negatively affect our business, results of operations, financial condition and prospects.

Third-party payors, whether governmental or commercial, are developing increasingly sophisticated methods of controlling healthcare costs. In addition, in the United States, no uniform policy of coverage and reimbursement for drug products exists among third-party payors. Therefore, coverage and reimbursement for drug products can differ significantly from payor to payor.

Further, we believe that future coverage and reimbursement will likely be subject to increased restrictions both in the United States and in international markets. Third-party coverage and reimbursement for Probuphine or any of our product candidates for which we may receive regulatory approval may not be available or adequate in either the United States or international markets, which could have a material adverse effect on our business, results of operations, financial condition and prospects.

The Probuphine REMS may slow our sales and marketing efforts, which could impact our sales revenue.

There is currently a REMS program in place for Probuphine as required by the FDA, which is called the Probuphine REMS program. The program was implemented in May 2016 and is designed to mitigate the risk of complications of migration, protrusion, expulsion and nerve damage associated with the insertion and removal of Probuphine and the risks of accidental overdose, misuse and abuse. The Probuphine REMS program requires training and certification of healthcare providers who prescribe and implant Probuphine and provide patient counseling. Probuphine distribution is restricted to healthcare providers who have completed training and received certification under the Probuphine REMS program. Healthcare providers may be unwilling to undergo training and certification in order to be able to prescribe or implant Probuphine due to time constraints or concerns with the product. Should this occur, our ability (or the ability of potential future commercial partners) to generate revenue from sales of Probuphine, could be materially compromised, could have a material adverse effect on our business, results of operations, financial condition and prospects. In addition, if a patient suffers an injury during the insertion and removal of Probuphine, it may give rise to liability against us by patients, clinicians or others or result in non-compliance with the Probuphine REMS program. Non-compliance with the Probuphine REMS program may bring serious consequences to us, including warning letters from the FDA, fines, criminal charges and other prohibitions and exclusions as well as reputational damage.

17


Table of Contents

If the market opportunities for Probuphine, CAM2038 or any other product candidates for which we may receive regulatory approval are smaller than we believe they are, our product revenues may be adversely affected and our business may suffer.

We currently focus our research, product development and commercialization efforts on treatments for serious CNS disorders through the use of implantable and injectable medications. Our understanding of both the number of people who have these disorders, as well as the subset of people with these disorders who have the potential to benefit from treatment with our products, is based on estimates in published literature. These estimates may prove to be incorrect and new studies may reduce the estimated incidence or prevalence of these disorders. The number of patients in the United States and elsewhere may turn out to be lower than expected, may not be otherwise amenable to treatment with any of our product or product candidates for which we receive regulatory approval for such indications or patients may become increasingly difficult to identify and access, all of which would adversely affect our business, financial condition, results of operations and prospects.

Further, there are several factors that could contribute to making the actual number of patients who receive our potential products less than the potentially addressable market. Our efforts to educate physicians, patients, third-party payors and others in the medical community on the benefits of our products, if and when approved, may require significant resources and may never be successful. In addition, our buprenorphine-based product and product candidates are subject to HHS regulations limiting the number of patients that qualified physicians can treat with buprenorphine to 275 patients, which rules may be subject to change. Moreover, to be eligible for treatment with Probuphine, a patient must first have achieved sustained clinical stability on a dose of no more than 8 mg of oral buprenorphine. Accordingly, the number of opioid addiction patients who may realize the benefits of Probuphine will be limited by the number of patients who achieve clinical stability on 8mg/day or less of oral buprenorphine and any discontinued use of oral buprenorphine prior to or after achieving clinical stability. This may prove difficult as, on average, opioid addiction patients take medication only 33% of the time that they need it.

Guidelines and recommendations published by various organizations can reduce the use of our products, if approved.

Government agencies promulgate regulations and guidelines directly applicable to us and to our product and product candidates. In addition, professional societies, practice management groups, private health and science foundations and organizations involved in various diseases from time to time may also publish guidelines or recommendations to the healthcare and patient communities. Recommendations of government agencies or these other groups or organizations may relate to such matters as usage, dosage, route of administration and use of concomitant therapies. For example, the Centers for Disease Control and Prevention, or CDC, has issued new guidelines about the use of opioid pain killers for chronic pain that caution healthcare providers to be selective in prescribing opioids, to start with low doses, to weigh risks and benefits when using opioids for chronic pain and to use doses equivalent to 90 mg/day or more of morphine only after a careful risk assessment. Recommendations or guidelines suggesting the reduced use of our products or the use of competitive or alternative products as the standard of care to be followed by patients and healthcare providers could result in decreased use of our products.

We may be subject to enforcement action if we engage in improper marketing or promotion of our products.

Our promotional materials and training methods must comply with the Federal Food, Drug and Cosmetic Act, or the FDCA, and FDA regulations and other applicable laws and regulations, including the prohibition of the promotion of unapproved, or "off-label", use. Companies may not promote drugs for off-label use, which include uses that are not described in the product's labeling and that differ from those approved by

18


Table of Contents

the FDA. Physicians may prescribe drug products for off-label uses and such off-label uses are common across some medical specialties. Although the FDA and other regulatory agencies do not regulate a physician's choice of treatments, the FDCA and FDA regulations restrict communications on the subject of off-label uses of drug products by pharmaceutical companies. The Office of Inspector General of the Department of Health and Human Services, or OIG, the FDA, and the Department of Justice, or DOJ, all actively enforce laws and regulations prohibiting promotion of off-label use and the promotion of products for which marketing approval has not been obtained.

Other federal, state and foreign regulatory agencies, including the U.S. Federal Trade Commission, have issued guidelines and regulations that govern how we promote our products, including how we use endorsements and testimonials.

If we are found to be out of compliance with the requirements and restrictions described above, and we are investigated for or found to have improperly promoted off-label use, we may be subject to significant liability, including civil and administrative remedies as well as criminal sanctions, and the off-label use of our products may increase the risk of product liability claims. In addition, management's attention could be diverted from our business operations and our reputation could be damaged.

A fast track designation by the FDA may not actually lead to a faster development or regulatory review or approval process.

We have been granted fast track designation for CAM2038 for the treatment of opioid addiction and may seek fast track designation for product candidates in the future. The FDA has broad discretion on whether to grant this designation or not, and even if we believe a particular product candidate is eligible for this designation, we cannot assure you that the FDA would decide to grant it. For example, the FDA denied our application for fast track designation for CAM2038 for the treatment of chronic pain and for BB0817 for the treatment of schizophrenia. Moreover, we may not experience a faster development process, review or approval compared to conventional FDA procedures for CAM2038 for the treatment of opioid addiction, or any other product candidates for which we seek a fast track designation. The fast track designation does not guarantee priority review, and the FDA may withdraw fast track designation if it believes that the designation is no longer supported by data from our clinical development program.

If the FDA does not conclude that our product candidates satisfy the requirements for the section 505(b)(2) regulatory approval pathway, or if the requirements under section 505(b)(2) are not as we expect, the approval pathway for our product candidates will likely take significantly longer, cost significantly more and entail significantly greater complications and risks than anticipated, and in either case may not be successful.

We intend to seek FDA approval through the section 505(b)(2) regulatory pathway for our current product candidates. Our product candidates, as well as Probuphine for opioid addiction, are drug/device combination products that will be regulated under the drug provisions of the FDCA, enabling us to submit NDAs for approval of our product candidates. The Drug Price Competition and Patent Term Restoration Act of 1984, also known as the Hatch-Waxman Amendments, added section 505(b)(2) to the FDCA. Section 505(b)(2) permits the filing of a New Drug Application, or NDA, where at least some of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference.

We may need to conduct additional clinical trials, provide additional data and information and meet additional standards for regulatory approval under the section 505(b)(2) regulatory pathway. The FDA may then approve the new formulation for all or only some of the indications sought by us. If any of this were to occur, the time and financial resources required to obtain FDA approval for our product candidates, and

19


Table of Contents

complications and risks associated with the approval of our product candidates, would likely substantially increase. We may need to obtain additional funding, which could result in significant dilution to the ownership interests of our then existing stockholders to the extent we issue equity securities or convertible debt. We cannot assure you that we would be able to obtain such additional financing on terms acceptable to us, if at all. Moreover, inability to perform one or more additional clinical trials, provide additional data and information or meet additional standards to support the change from the approved product under the section 505(b)(2) regulatory pathway could result in competitive products reaching the market before our product candidates, which could impact our competitive position and prospects. We cannot assure you that our product candidates will receive the requisite approvals for commercialization, or that a competitor would not obtain approval first, including subsequent market exclusivity from the FDA, which could result in a delay in potential approval of our product candidates.

In addition, notwithstanding the approval of a number of products by the FDA under section 505(b)(2) over the last few years, some pharmaceutical companies and others have objected to the FDA's interpretation of section 505(b)(2). If the FDA's interpretation of section 505(b)(2) is successfully challenged, the FDA may be required to change its section 505(b)(2) policies and practices, which could delay or even prevent the FDA from approving any NDA that we submit under section 505(b)(2).

Negative publicity and political action regarding our product and product candidates could delay or impair our ability to market our products, present significant distractions to our management and result in the incurrence of significant costs.

Products used for certain indications, including those for the treatment of opioid addiction and pain, are from time to time subject to negative publicity and political influences, including relating to illegal use, overdoses, abuse, diversion, serious injury and death. We market and develop long-acting injectable and implant formulations of our products as opposed to oral daily medications. Any concerns raised by the FDA or other governmental bodies at the federal, state or local level for injectable or implant formulations of products for specialty CNS conditions, or the use of opioid therapies to treat opioid addiction or pain may make it more difficult for us to obtain regulatory approval and commercialize our product and product candidates. Public perception relating to our buprenorphine-based product and product candidates may also be influenced by claims that treating opioid addiction or pain with buprenorphine may result in addiction to buprenorphine.

Negative publicity, political influences and actions by our competitors could negatively affect our ability to market Probuphine and any product candidate for which we receive marketing approval. Furthermore, negative publicity and political action could also cause a diversion of our management's time and attention, cause us to incur additional significant costs with respect to litigation, marketing or otherwise, and could also result in an increased number of product liability claims, whether or not these claims have a valid basis.

We face intense competition, including from generic products, and if our competitors market and/or develop treatments for opioid addiction, chronic pain or schizophrenia that are marketed more effectively, approved more quickly or demonstrated to be safer or more effective than Probuphine or our product candidates, our commercial opportunities will be reduced or eliminated.

The pharmaceutical industry is characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary therapeutics. We face competition from a number of sources, some of which may target the same indications as our product or product candidates, including large pharmaceutical companies, smaller pharmaceutical companies, biotechnology companies, academic institutions, government agencies and private and public research institutions, many of which have greater

20


Table of Contents

financial resources, sales and marketing capabilities, including larger, well-established sales forces, manufacturing capabilities, experience in obtaining regulatory approvals for product candidates and other resources than we do.

The commercial opportunity for Probuphine and our product candidates could be significantly harmed if competitors are able to develop alternative formulations and/or drug delivery technologies outside the scope of our capabilities. Our principal competition in the opioid addiction market comes from manufacturers of oral buprenorphine products, including Indivior PLC, which markets the Suboxone and Subutex brands. Additionally, we anticipate that our primary competitors for CAM2038 and Probuphine, if approved for pain, will be manufacturers of opioid analgesics such as oxycodone that are available at doses equivalent to 80 mg per day of morphine, or lower doses depending on CAM2038's dosing flexibility. Also, we expect our primary competitor for BB0817, if approved by FDA, to be the manufacturer of long-acting injectable formulations of risperidone. Compared to us, many of our potential competitors have substantially greater:

capital resources;
research and development resources and experience, including personnel and technology;
drug development, clinical trial and regulatory resources and experience;
sales and marketing resources and experience;
manufacturing and distribution resources and experience;
name recognition; and
resources, experience and expertise in prosecution and enforcement of intellectual property rights.

As a result of these factors, our competitors may obtain regulatory approval of their product candidates more rapidly than we are able to or may obtain patent protection or other intellectual property rights, which may limit or block us from developing or commercializing our products, if approved. Our competitors may also develop, acquire or license products that are more effective, more useful, better tolerated, subject to fewer or less severe side effects, more widely prescribed or accepted or less costly than ours and may also be more successful than we are in manufacturing and marketing their products. In addition, state pharmacy laws may permit pharmacists to substitute generic products for branded products if the products are therapeutic equivalents, or may permit pharmacists and pharmacy benefit managers to seek prescriber authorization to substitute generics in place of our products, which could significantly diminish demand for Probuphine or other product candidates for which we receive marketing approval. If we are unable to compete effectively with the marketed therapeutics of our competitors or if such competitors are successful in developing products that compete with Probuphine or any of our product candidates that are approved, our business, results of operations, financial condition and prospects may be materially adversely affected.

We may engage in strategic transactions that could impact our liquidity, increase our expenses and present significant distractions to our management.

From time to time we may consider strategic transactions, such as asset purchases and out-licensing or in-licensing of products, product candidates or technologies. For example, in December 2012, we entered into a License Agreement with Titan Pharmaceuticals, Inc., or Titan, pursuant to which Titan granted us an exclusive right and license to commercialize Probuphine in the United States and its territories, including Puerto Rico and Canada. Additional potential transactions that we may consider include a variety of different business arrangements, including spin-offs, strategic partnerships, joint ventures, restructurings, divestitures, business combinations and investments. Any such transaction may require us to incur non-recurring or other charges, may increase our near and long-term expenditures and may pose significant integration challenges or disrupt our management or business, which could adversely affect our

21


Table of Contents

operations, solvency and financial results. For example, these transactions may entail numerous operational and financial risks, including:

exposure to unknown and contingent liabilities;

disruption of our business and diversion of our management's time and attention in order to develop acquired products, product candidates or technologies;

incurrence of substantial debt or dilutive issuances of equity securities to pay for acquisitions;

higher than expected acquisition and integration costs;

the timing and likelihood of payment of milestones or royalties;

write-downs of assets or goodwill or impairment charges;

increased operating expenditures, including additional research, development and sales and marketing expenses;

increased amortization expenses;

difficulty and cost in combining the operations and personnel of any acquired businesses with our operations and personnel; and

impairment of relationships with key suppliers or customers of any acquired businesses due to changes in management and ownership.

Accordingly, although there can be no assurance that we will undertake or successfully complete any additional transactions of the nature described above or that we will achieve an economic benefit that justifies such transactions, any additional transactions that we do complete could have a material adverse effect on our business, results of operations, financial condition and prospects.

We may not be able to enter into strategic transactions on a timely basis or on acceptable terms, which may impact our development and commercialization plans.

We have relied, and expect to continue to rely, on strategic collaborations and licensing agreements with third parties for the development and commercialization of our products. Our ability to reach definitive agreements with strategic partners depends on a number of factors, including the design or results of clinical trials, the likelihood of approval by the FDA or similar regulatory authorities outside the United States, the potential market for the subject product candidate, the costs and complexities of manufacturing and delivering such products to patients, the potential of competing drugs and the existence of uncertainty with respect to ownership of the technology. The terms of any additional strategic transaction that we may establish may not be favorable to us, and the contracts governing such strategic transaction may be subject to differing interpretations exposing us to potential litigation. We may also be restricted under existing collaboration or licensing arrangements from entering into future agreements on certain terms with potential strategic partners. We may not be able to negotiate additional strategic transactions on a timely basis, on acceptable terms, or at all. If we are unable to negotiate and enter into new collaboration and license agreements, we may have to curtail the development of the product candidate for which we are seeking to collaborate, reduce or delay its development program, delay its potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or commercialization activities at our own expense. If we elect to increase our expenditures to fund development or commercialization activities on our own, we may need to obtain additional capital,

22


Table of Contents

which may not be available to us on acceptable terms or at all. If we do not have sufficient funds, we may not be able to further develop our products or bring them to market and generate product revenue.

We obtain some of our raw materials, components and finished goods from a single source or a limited group of suppliers. The partial or complete loss of one of these suppliers could cause significant production delays, an inability to meet customer demand and a substantial loss in revenue.

We use a number of single-source suppliers for certain of our raw materials, components and finished goods, including:

the suppliers of the active ingredients for Probuphine and CAM2038;

the supplier of the finished Probuphine implants; and

the manufacturer of the Probuphine applicator.

We do not currently have a supplier of ethylene-vinyl acetate, or EVA, for our use for manufacture of Probuphine. Our prior supplier of EVA discontinued manufacturing and we are in the process of qualifying a new EVA manufacturer. In addition, the vendor that currently sterilizes the Probuphine implants has indicated that it will no longer sterilize Schedule III controlled substances, including Probuphine. See the risk factor below entitled, "Probuphine is a controlled substance subject to DEA regulations and failure to comply with these regulations, or the cost of compliance with these regulations, may adversely affect our business." While we are in the process of qualifying another sterilization vendor and will also be transitioning to a new sterilization process, we cannot guarantee that such qualification or transition will be successful. Our use of these and other single-source suppliers of raw materials, components and finished goods exposes us to several risks, including disruptions in supply, price increases, late deliveries and an inability to meet customer demand. This could lead to customer dissatisfaction, damage to our reputation or customers switching to competitive products. Any interruption in supply could be particularly damaging to our ability to develop and commercialize Probuphine, CAM2038 or any of our other product candidates.

Finding alternative sources for these raw materials, components and finished goods would be difficult and in many cases entail a significant amount of time, disruption and cost. Any disruption in supply from any single-source supplier or manufacturing location could lead to supply delays or interruptions which would damage our business, financial condition, results of operations and prospects.

We rely on third parties to provide services in connection with the manufacture and distribution of our products, and these third parties may not perform satisfactorily. If we or our contract manufacturers fail to establish commercial manufacturing operations in compliance with regulatory requirements we may not be able to initiate commercial operations or produce sufficient quantities of our products to meet commercial requirements.

We rely on third parties for the timely supply of specified raw materials, equipment, contract manufacturing, formulation or packaging services, product distribution services, customer service activities and product returns processing. For example, we work with various third parties for the manufacture and distribution of Probuphine. Currently, we contract with Titan for clinical and commercial supply of Probuphine. In turn, Titan has contracted with DPT Laboratories, Ltd., or DPT, for the manufacture of Probuphine. DPT's manufacture of Probuphine depends on delivery to DPT of the active ingredient buprenorphine hydrochloride and milled EVA, which Titan currently sources from Teva and Southwest Research Institute, respectively. Meanwhile, we purchase Probuphine applicators directly from its manufacturer, Manan. Probuphine and Probuphine applicators are packaged and labeled by Sharp Corporation, or Sharp, and we purchase finished commercial Probuphine kits directly from Sharp. Furthermore, we rely on our exclusive specialty pharmacy distributor, Avella of Dear Valley, Inc., to purchase and distribute Probuphine. We expect that a majority of our sales of Probuphine will be through this specialty pharmacy distribution model, with the remainder through the "buy-and-bill" system.

23


Table of Contents

Our reliance on third parties for the activities described above will reduce our control over these activities but will not relieve us of our responsibility to ensure compliance with all required regulations. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or manufacture our product and product candidates in accordance with regulatory requirements, or proprietary specifications, or adhere to asceptic product processing best practices, or if there are disagreements between us and these third parties, we may not be able to meet customer demand for our approved product and may not be able to complete, or may be delayed in completing, the clinical trials required for approval of our product candidates, or may not be able to obtain regulatory approval of our product candidates due to deficiencies at these third parties which could materially adversely affect our business, financial condition, results of operations and prospects. For example, in September 2016, the European Medicines Agency, or EMA, announced its recommendation that non-critical medicines manufactured at Pharmaceutics International, Inc., or Pii, the contract manufacturer of CAM2038 for our clinical trials, should no longer be available in the EU due to good manufacturing practice issues related to the risk of cross-contamination and quality assurance systems deficiencies. If we use Pii as the manufacturer of commercial supply of CAM2038 and Pii is unable to comply with regulatory requirements, regulatory authorities may not approve our marketing applications for CAM2038. If our exclusive specialty pharmaceutical distributor does not obtain required medical benefits contracts for Probuphine, it may cause delays in the shipment and distribution of Probuphine. Under certain circumstances, third parties may terminate their relationship with us, and in such instances, we may need to locate an appropriate replacement third-party relationship, which may not be readily available or on acceptable terms.

If we are unable to successfully build out, equip, validate and maintain a commercial manufacturing facility in compliance with regulatory requirements, or if we fail to establish and maintain relationships with contract manufacturers for approved products, our timelines for the implementation of our manufacturing processes could be delayed and our business could be adversely affected.

Prior to implementing the manufacturing processes for our approved products at our own facility, which we do not expect to occur prior to the second half of 2018, or the facility of a contract manufacturer, we will be required to:

demonstrate that the disposable components and sterilization and packaging methods used in the manufacturing process are suitable for use in manufacturing in accordance with current good manufacturing practice, or cGMP;

build and validate processing equipment that complies with cGMP;

equip a commercial manufacturing facility to accommodate the automated manufacturing process;

perform process testing with final equipment and disposable components to demonstrate that the methods are suitable for use in cGMP manufacturing; and

demonstrate consistency and repeatability of the manufacturing processes in the production of such products to fully validate the manufacturing and control process using the actual cGMP processing equipment.

We and our contract manufacturers will need regulatory approval to use our manufacturing processes or the contract manufacturer's manufacturing processes for commercial purposes. If we or any of our contract manufacturers are unable to successfully implement the processes required and demonstrate that the qualifications for cGMP compliance have been met, the filing for regulatory approval of the commercial use of our manufacturing processes or our contract manufacturer's manufacturing processes may be delayed or

24


Table of Contents

denied and we may not be able to initiate commercial manufacturing of our products. In such event, our commercial manufacturing costs will be higher than anticipated and we may not be able to manufacture sufficient product to meet our expected commercial requirements.

We have commenced the build-out of a new facility to manufacture Probuphine, CAM2038 and our other product candidates, if approved, on a commercial scale. We do not have experience in manufacturing products on a commercial scale and we have limited resources for such build-out. If, due to our lack of manufacturing experience and resources, we cannot manufacture our products on a commercial scale successfully or manufacture sufficient product to meet our expected commercial requirements, our business may be materially harmed.

We currently contract with third parties for the manufacture of Probuphine, CAM2038 and our other product candidates. We plan to continue contracting with third parties in the future but are also in the early stages of building our own manufacturing facility in North Carolina, initially as a secondary source and potentially as the primary source of all finished clinical and commercial drug products. Although our personnel have experience in managing on-site and contract manufacturing and quality control, to bring our own manufacturing facility on line we will need to build out our own internal capacity. We do not have experience in manufacturing products on a commercial scale or using automated processes and we have limited personnel to devote to the build-out of the new facility. In addition, because we are aware of only one company that has manufactured Probuphine for commercial sale and one company that has manufactured CAM2038 for clinical use, there are limited precedents from which we can learn. If we do not receive regulatory approval for our other product candidates, our costs for the construction and maintenance of the manufacturing facility may exceed revenue derived from the sale of products manufactured at such facility. If we do not have sufficient revenues to cover the costs of the manufacturing facility, we may need to shut down the facility at a loss or borrow or raise funds to maintain the facility until sufficient revenues can be generated. We may encounter difficulties, such as those previously encountered by Pii related to cross-contamination and quality assurance deficiencies, in the manufacture of our products due to our limited manufacturing experience and resources. These difficulties could delay the build-out and equipping of a commercial manufacturing facility and regulatory approval of the manufacture of our products, increase our costs or cause production delays or result in us not manufacturing sufficient product to meet our expected commercial requirements, any of which could damage our reputation and hurt our profitability. If we are unable to successfully increase our manufacturing capacity to commercial scale, our business may be materially adversely affected.

We may experience manufacturing problems or delays that could limit our growth or adversely affect our operating results.

Our products and product candidates are manufactured using complex processes, sophisticated equipment and strict adherence to specifications and quality systems procedures. Several factors could cause production interruptions, including equipment malfunctions, facility contamination, raw material shortages or contamination, natural disasters, disruption in utility services, human error or disruptions in our or our suppliers' operations. Identifying and resolving the cause of any such manufacturing issues could require substantial time and resources. We do not have any existing back-up facilities in place or plans for such back-up facilities for the manufacturing of any of our product or product candidates in the event that our or our contract manufacturers' processes are interrupted. If we are unable to keep up with demand for our products by successfully manufacturing and shipping in a timely manner, our revenue could be impaired, market acceptance for our products could be adversely affected and our customers might instead purchase our competitors' products.

25


Table of Contents

Our product candidates are subject to extensive regulation, and we cannot give any assurance that any of our product candidates will receive regulatory approval or be successfully commercialized.

The research, testing, manufacturing, labeling, approval, sale, marketing and distribution of drug products, among other things, are subject to extensive regulation by the FDA and other regulatory authorities in the United States. We are not permitted to market any of our product candidates in the United States unless and until we receive regulatory approval from the FDA. We cannot provide any assurance that we will ever obtain regulatory approval for any of our product candidates, or that any such product candidates will be successfully commercialized, even if we receive regulatory approval.

Under the policies agreed to by the FDA under the Prescription Drug User Fee Act, or PDUFA, as renewed in 2012 by the Food and Drug Administration Safety and Innovation Act, or FDASIA, the FDA is subject to a two-tiered system of review times for new drugs: standard review and priority review. For drugs subject to standard review that do not contain a new molecular entity, the FDA has a goal to complete its review of NDA and respond to the applicant within ten months from the date of receipt of an NDA while the time frame for drugs subject to priority review is six months. The review process and the PDUFA target action date may be extended if the FDA requests or the NDA sponsor otherwise provides additional information or clarification regarding information already provided in the submission. The FDA's review goals are subject to change, and the duration of the FDA's review may depend on the number and type of other NDAs that are submitted to the FDA around the same time period.

The FDA may also refer applications for novel products or products which present difficult questions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved. Although the FDA is not bound by the recommendation of an advisory committee, the matters discussed at the advisory committee meeting, and in particular any concerns regarding safety, could limit our ability to successfully commercialize our product candidates subject to advisory committee review.

As part of its review of an NDA, the FDA may inspect the facility or facilities where the drug candidate is manufactured. After the FDA's evaluations of the NDA and the clinical and manufacturing procedures and facilities, the FDA will issue an action letter, which will be either an approval letter, authorizing commercial marketing of the drug for a specified indication, a denial or a Complete Response Letter containing the conditions that must be met in order to secure approval of the NDA. For example, in connection with Probuphine for opioid addiction, we received a Complete Response Letter from the FDA in April 2013, indicating that further conditions needed to be met. These conditions may include deficiencies identified in connection with the FDA's evaluation of the NDA submission or the clinical and manufacturing procedures and facilities. Until any such conditions or deficiencies have been resolved, the FDA may refuse to approve the NDA. If and when those conditions have been met to the FDA's satisfaction, the FDA will issue an approval letter. The FDA has substantial discretion in the drug approval process, including the ability to delay, limit or deny approval of a product candidate for many reasons. For example:

the FDA may not deem a product candidate safe and effective;

the FDA may not find the data from nonclinical studies and clinical trials sufficient to support approval;

the FDA may require additional nonclinical studies or clinical trials;

the FDA may find deficiencies with our or any of our third-party manufacturers' processes and facilities; or

the FDA may change its approval policies or adopt new regulations.

26


Table of Contents

Any of our product candidates may not be approved even if they achieve their specified endpoints in clinical trials. The FDA may disagree with our trial design and our interpretation of data from clinical trials, or may change the requirements for approval even after it has reviewed and commented on the design for our clinical trials. For our product candidates, weekly and monthly CAM2038 for opioid addiction, the FDA has stated that it has concerns that interpretation of our Phase 3 trial findings to support a finding of efficacy may be limited as a consequence of certain elements of the study design that were employed in conducting the trial. For weekly and monthly CAM2038 for pain, the FDA noted that our formulation may not be well suited to a broader pain population and may instead only be relevant in a very narrow pain population requiring very large and consistent doses due to the possible lack of effectiveness of rescue opioids and the fact that our trial design employ high doses and large steps for dosing increments and given the potential safety concerns of the high dose.

In addition, for BB0817 for the treatment of schizophrenia, the FDA may not agree with our approach of demonstrating effectiveness of BB017 by bridging to the pharmacokinetics of oral risperidone, and therefore may require that we conduct a Phase 3 pivotal trial. The FDA may also approve a product candidate for fewer or more limited indications than we request, or may grant approval contingent on the performance of costly post-approval clinical trials. In addition, the FDA may not approve the labeling claims that we believe are necessary or desirable for the successful commercialization of our product candidates. Approval may be contingent on a REMS, which limits the labeling, distribution or promotion of a drug product.

If we are unable to obtain regulatory approval for any product candidates on the timeline we anticipate, we may not be able to execute our business strategy effectively and our ability to generate future revenues may be limited.

Our clinical trials may fail to demonstrate acceptable levels of safety and efficacy for our product candidates such as Probuphine for the treatment of pain, or any of our other product candidates such as CAM2038, BB0417 and BB0817, which could prevent or significantly delay their regulatory approval.

Probuphine and CAM2038 for the treatment of pain, BB0417 for the treatment of acute post-operative pain, nausea and vomiting, CAM2038 for the treatment of opioid addiction, BB0817 for the treatment of schizophrenia and any of our other product candidates are prone to the risks of failure inherent in drug development. Before obtaining U.S. regulatory approval for the commercial sale of any of our product candidates, we must gather substantial evidence from well-controlled clinical trials that demonstrate to the satisfaction of the FDA that the product candidate is safe and effective, and similar regulatory approvals would be necessary to commercialize our product candidates in other countries.

In light of widely publicized events concerning the safety risk of certain drug products, regulatory authorities, members of Congress, the Government Accountability Office, medical professionals and the general public have raised concerns about potential drug safety issues. These events have resulted in the withdrawal of drug products, revisions to drug labeling that further limit use of the drug products and establishment of risk management programs that may, for instance, restrict distribution of drug products after approval.

The increased attention to drug safety issues may result in a more cautious approach by the FDA in its review of our clinical trials. Data from clinical trials may receive greater scrutiny with respect to safety, which may make the FDA or other regulatory authorities more likely to terminate clinical trials before completion, or require longer or additional clinical trials that may result in a delay or failure in obtaining approval or approval for a more limited indication than originally sought. For example, in our safety and efficacy study of Probuphine in adult patients with opioid addiction who were stabilized on 8 mg/day or

27


Table of Contents

less of sublingual buprenorphine, our primary efficacy analysis demonstrated that the proportion of responders was 96.4% in the Probuphine arm and 87.6% in the sublingual buprenorphine arm, which satisfied a test of non-inferiority of Probuphine to sublingual buprenorphine. Various sensitivity analyses of the primary endpoint also demonstrated non-inferiority of Probuphine to sublingual buprenorphine.

However, the Probuphine label reflects more conservative efficacy analyses employed by the FDA, which resulted in substantially lower proportions of responders in both arms. Although our pre-specified primary endpoint in the trial was the proportion of responders with a responder defined as at least four out of six months negative for evidence of illicit opioid use, the FDA compared the response rates between the treatment arms for maintaining no evidence of illicit opioid use throughout the entire six-month treatment period. The FDA also used more conservative methods in evaluating urine toxicology, whereby a single missing urine sample disqualified a patient as a potential responder. Finally, while supplemental use was permitted in both treatment arms, the FDA determined that any use of supplemental buprenorphine by subjects in the Probuphine treatment arm to disqualify a patient as a potential responder, while patients in the sublingual buprenorphine were considered responders even if they received supplemental buprenorphine. The FDA considered this difference in treatment to be appropriate since, in real-world settings, titration is anticipated with sublingual buprenorphine treatment whereas the FDA thought supplemental use among Probuphine patients could mean the dose was inadequate.

A number of companies in the biotechnology and pharmaceutical industries have suffered significant setbacks in advanced clinical trials, even after promising results in earlier trials. If Probuphine for the treatment of chronic pain or any of our other product candidates are not shown to be safe and effective in clinical trials or as a result of disagreements in trial interpretation between us and the FDA, the programs could be delayed or terminated, which could have a material adverse effect on our business, results of operations, financial condition and prospects.

Delays in the commencement or completion of clinical trials for Probuphine, CAM2038, BB0417, BB0817 or any of our other product candidates could result in increased costs to us and delay or limit our ability to pursue regulatory approval for, or generate revenues from, such product candidates, if approved.

Clinical trials are very expensive, time consuming and difficult to design and implement. We cannot guarantee that any clinical trials will be conducted as planned or completed on schedule, if at all. A failure of one or more clinical trials can occur at any stage of testing. Delays in the commencement or completion of clinical testing for any of our product candidates could significantly affect our product development costs and business plan.

The commencement and completion of clinical trials can be delayed for a number of reasons, including delays related to:

obtaining regulatory authorization to commence a clinical trial;

reaching agreement on acceptable terms with prospective clinical research organizations, or CROs, clinical investigators and trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs, clinical investigators and trial sites;

failure to perform in accordance with FDA good clinical practices, or GCP, or applicable regulatory guidelines;

manufacturing or obtaining sufficient quantities of a product candidate for use in clinical trials;

28


Table of Contents

obtaining Institutional Review Board, or IRB, or ethics committee approval to initiate and conduct a clinical trial at a prospective site;

identifying, recruiting and training suitable clinical investigators;

identifying, recruiting and enrolling subjects to participate in clinical trials for a variety of reasons, including competition from other clinical trial programs for the treatment of similar indications;

retaining patients who have initiated a clinical trial but may be prone to withdraw due to side effects from the therapy, lack of efficacy, personal issues or for any other reason they choose, or who are lost to further follow-up;

severe or unexpected drug-related side effects experienced by patients in a clinical trial;

occurrence of serious adverse events associated with the product candidate that are viewed to outweigh its potential benefits;

delays in validating any endpoints utilized in a clinical trial;

disagreements with the FDA with respect to our clinical trial design and our interpretation of data from clinical trials, or changes by the FDA of the requirements for approval even after it has reviewed and commented on the design for our clinical trials;

reports from nonclinical or clinical testing of other CNS therapies that raise safety or efficacy concerns;

uncertainty regarding proper dosing; and

scheduling conflicts with participating clinicians and clinical institutions.

In addition, if a significant number of patients fail to stay enrolled in any of our current or future clinical trials of Probuphine, CAM2038, BB0417, BB0817 or any of our other product candidates and such failure is not adequately accounted for in our trial design and enrollment assumptions, our clinical development program could be delayed as such trials may be deemed failures. Clinical trials may also be delayed or repeated as a result of ambiguous or negative interim results or unforeseen complications in testing. For example, in the ongoing clinical trial of BB0817, we have observed extrusion or expulsion of the implant in some of our patients, which could lead us, or the FDA, to halt the trial to make product improvements. In addition, a clinical trial may be suspended or terminated by us, the FDA, the IRB or ethics committee overseeing the clinical trial at issue, any of our clinical trial sites with respect to that site, or other regulatory authorities due to a number of factors, including:

inability to design appropriate clinical trial protocols;

inability by us, our employees, our CROs or their employees to conduct the clinical trial in accordance with all applicable FDA, DEA or other regulatory requirements or our clinical protocols;

inspection of the clinical trial operations or trial sites by the FDA or other regulatory authorities resulting in the imposition of a clinical hold;

discovery of serious or unexpected toxicities or side effects experienced by study participants or other unforeseen safety issues;

lack of adequate funding to continue the clinical trial, including the incurrence of unforeseen costs due to enrollment delays, requirements to conduct additional trials and studies and increased expenses associated with the services of our CROs and other third parties;

29


Table of Contents

lack of effectiveness of any product candidate during clinical trials;

slower than expected rates of patient recruitment and enrollment rates in clinical trials;

inability of our CROs or other third-party contractors to comply with all contractual requirements or to perform their services in a timely or acceptable manner;

inability or unwillingness of medical investigators to follow our clinical protocols; and

unfavorable results from on-going clinical trials and nonclinical studies.

Additionally, changes in applicable regulatory requirements and guidance may occur and we may need to amend clinical trial protocols to reflect these changes. Amendments may require us to resubmit our clinical trial protocols to IRBs for reexamination, which may impact the costs, timing or successful completion of a clinical trial. If we experience delays in completion of, or if we terminate, any of our clinical trials, the commercial prospects for Probuphine, CAM2038, BB0417, BB0817 and our other product candidates may be harmed, which may have a material adverse effect on our business, results of operations, financial condition and prospects.

Our product candidates may cause adverse events that could delay or prevent their regulatory approval, limit the commercial profile of an approved label or result in significant negative consequences following marketing approval, if any.

Adverse events caused by our product candidates could cause us or regulatory authorities to interrupt, delay or halt nonclinical studies and clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other regulatory authorities. Some serious adverse events, or SAEs, have been observed in our clinical trials of our product candidates, but typically have not been found to specifically relate to the drug or the administration procedure. For example in our Phase 3 trial of Probuphine for opioid addiction, there were two SAEs in the Probuphine arm, convulsion and bipolar I disorder, but none of the SAEs occurred at the implant site or were related to the Probuphine or implant insertion/removal. In addition, there were a total of 18 patients who experienced one or more SAEs in the Phase 3 trial of CAM2038 for opioid addiction, with 13 patients in the sublingual buprenorphine group and five patients in the CAM2038 group experiencing at least one SAE. The reported SAEs in the sublingual buprenorphine group were haemophilia, abscess limb, acute hepatitis C, cellulitis, localised infection, osteomyelitis, pneumonia, sepsis, subcutaneous abscess, accidental overdose, intentional overdose, seizure, bipolar disorder, substance-induced mood disorder, suicidal ideation, and chronic obstructive pulmonary disease and in the CAM2038 group, the SAEs were vomiting, non-cardiac chest pain, road traffic accident, abortion spontaneous, and suicidal ideation. There was only one SAE that was possibly related to the drug, which was vomiting in the CAM2038 group. The rest of the SAEs in the Phase 3 trial of CAM2038 for opioid addiction were unrelated to the treatment drug. To make the determination of relatedness, the principal investigator used progress notes, laboratory results, hospital admissions/discharge notes, death certificate, and imaging results, in each case, as applicable. The principal investigator determines the relatedness to the treatment drug and procedure as not related, unlikely, possibly, probably and definitely related. We have the right to review all the relatedness determinations and question the results. For the SAEs for the Phase 3 trial of CAM2038 for opioid addiction, we did not question any of the relatedness determinations.

Further, clinical trials by their nature utilize a sample of the potential patient population. With a limited number of patients and limited duration of exposure, rare and severe side effects of our product candidates may only be uncovered with a significantly larger number of patients exposed to the product candidate. If our product candidates receive marketing approval and we or others identify undesirable side

30


Table of Contents

effects caused by such product candidates (or any other similar products) after such approval, a number of potentially significant negative consequences could result, including:

regulatory authorities may withdraw or limit their approval of such product candidates;

regulatory authorities may require the addition of labeling statements, such as a "boxed" warning or a contraindication;

we may be required to change the way such product candidates are distributed or administered, conduct additional clinical trials or change the labeling of the product candidates;

we may be subject to regulatory investigations and government enforcement actions;

we may decide to remove such product candidates from the marketplace;

we could be sued and held liable for injury caused to individuals exposed to or taking our product candidates; and

our reputation may suffer.

Any of these events could prevent us from achieving or maintaining market acceptance of our product or product candidates and could significantly harm our business, prospects, financial condition and results of operations.

Even if we receive marketing approval for our product candidates, we may still face future development and regulatory difficulties.

Even if we receive marketing approval for our product candidates, regulatory authorities may still impose significant restrictions on our product candidates, indicated uses or marketing or impose ongoing requirements for potentially costly post-approval studies. For example, as a condition of the marketing approval for Probuphine, the FDA has required that we conduct four post-approval clinical trials to assess potential safety risks associated with the insertion and removal of Probuphine, potential prolongation of the QT interval in the heart's electrical cycle during treatment with Probuphine and the potential for repeat administration of Probuphine into the same insertion site. The FDA has established a schedule for carrying out the required studies, subject to post-approval negotiations.

Our product candidates will also be subject to ongoing FDA requirements governing the labeling, packaging, storage and promotion of the product and record keeping and submission of safety and other post-market information. The FDA has significant post-marketing authority, including, for example, the authority to require labeling changes based on new safety information and to require post-marketing studies or clinical trials to evaluate serious safety risks related to the use of a drug.

The FDA also has the authority to require, as part of an NDA or post-approval, the submission of a REMS. For example, the FDA has required a REMS program to be put in place for Probuphine as discussed in the risk factor entitled, "The Probuphine REMS may slow our sales and marketing efforts, which could impact our sales revenue." Any REMS required by the FDA may lead to increased costs to assure compliance with new post-approval regulatory requirements and potential requirements or restrictions on the sale of approved products, all of which could lead to lower sales volume and revenue.

Manufacturers of drug products and their facilities are subject to continual review and periodic inspections by the FDA and other regulatory authorities for compliance with cGMPs and other regulations. If we or a regulatory agency discover problems with our product candidates, such as adverse events of unanticipated severity or frequency, or problems with the facility where our product candidates are manufactured, a

31


Table of Contents

regulatory agency may impose restrictions on our product candidates, the manufacturer or us, including requiring withdrawal of our product candidates from the market or suspension of manufacturing. If we, our product candidates or the manufacturing facilities for our product candidates fail to comply with applicable regulatory requirements, a regulatory agency may, among other things:

issue warning letters or untitled letters;

seek an injunction or impose civil or criminal penalties or monetary fines;

suspend or withdraw regulatory approval;

suspend any ongoing clinical trials;

refuse to approve pending applications or supplements to applications submitted by us;

restrict the marketing or manufacturing of the product;

suspend or impose restrictions on operations, including costly new manufacturing requirements; or

seize or detain products, refuse to permit the import or export of products or request that we initiate a product recall.

We rely on third parties to conduct our nonclinical studies and clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize our product candidates and our business could be substantially harmed.

We rely heavily on medical institutions, clinical investigators, contract laboratories and other third parties, such as CROs for the conduct and execution of our nonclinical studies and clinical trials and control only certain aspects of their activities. As a result, we have less direct control over the conduct, timing and completion of these studies and clinical trials and the management of data developed through such studies and clinical trials than would be the case if we were relying entirely upon our own staff. Communicating with outside parties can also be challenging, potentially leading to mistakes as well as difficulties in coordinating activities.

Nevertheless, we are responsible for ensuring that each of our nonclinical studies and clinical trials is conducted in accordance with the applicable protocol and regulatory requirements. We and our third-party contractors such as CROs are required to comply with applicable requirements such as Good Clinical Practice, or GCP, and Good Laboratory Practice, or GLP. The FDA enforces these GCP and GLP requirements, as applicable, through periodic inspections of trial sponsors, principal investigators and trial and research sites. If we, our CROs or other third-party contractors fail to comply with applicable GLP or GCP, requirements, the data generated in our nonclinical studies and/or clinical trials may be deemed unreliable and the FDA may require us to perform additional studies or trials before approving our marketing applications. We cannot assure you that, upon inspection, the FDA and similar foreign regulators will determine that any of our nonclinical studies or clinical trials comply or complied with GLP or GCP standards. In addition, our clinical trials must be conducted with product produced under cGMP requirements, and require a large number of test subjects. Our inability to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process.

If any of our relationships with these third-party contractors or CROs terminate, we may not be able to enter into arrangements with alternative third-party contractors or CROs on commercially reasonable terms, or at all. Additionally, if CROs do not successfully carry out their contractual duties or obligations or

32


Table of Contents

meet expected deadlines for our clinical trials, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for other reasons, our clinical trials may be extended, delayed or terminated and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates. As a result, our results of operations and the commercial prospects for our product candidates would be harmed, our costs could increase and our ability to generate additional revenues could be delayed.

Switching or adding additional CROs can involve substantial cost and require extensive management time and focus. In addition, there is a natural transition period when a new CRO commences work. As a result, delays may occur, which can materially impact our ability to meet our desired clinical development timelines. Though we carefully manage our relationships with our CROs, there can be no assurance that we will not encounter similar challenges or delays in the future or that these delays or challenges will not have a material adverse impact on our business, results of operations, financial condition and prospects.

If we are unable to attract and retain key personnel, we may not be able to manage our business effectively or develop our product candidates or commercialize our products.

Our success depends on our continued ability to attract, retain and motivate highly qualified management and key clinical development, regulatory, sales and marketing and other personnel. As of January 1, 2017, we have 97 employees in the United States; 61 are field-based employees engaged in sales, physician training and other marketing support functions, nine are engaged in positions directly related to sales and marketing, 13 are engaged in positions related to clinical development, product development, regulatory and operations and 14 are engaged in positions related to general and administrative. In order to execute on our business plan, we will need to expand our employee base. If we are not able to expand and retain our expanded employee base, we may not be able to effectively manage our business or be successful in commercializing our products.

We are highly dependent on the development, regulatory, commercial and financial expertise of our senior management team. We may not be able to attract or retain qualified management and scientific and clinical personnel in the future due to the intense competition for qualified personnel among biotechnology, pharmaceutical and other businesses. Our industry has experienced a high rate of turnover of management personnel in recent years. If we are not able to attract, retain and motivate necessary personnel to accomplish our business objectives, we may experience constraints that will significantly impede the achievement of our development and commercialization objectives, our ability to raise additional capital, our ability to implement our business strategy and our ability to maintain effective internal controls for financial reporting and disclosure controls and procedures as required by the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act. The loss of the services of any members of our senior management team, especially our Chief Executive Officer and President, Behshad Sheldon, could negatively impact the development and commercialization of Probuphine or any of our product candidates that may receive marketing approval. Further, if we lose any members of our senior management team, we may not be able to find suitable replacements, and our business may be harmed as a result.

Although we have employment agreements with each of our executive officers, these agreements are terminable by them at will at any time with or without notice and, therefore, do not provide any assurance that we will be able to retain their services. We do not maintain "key man" insurance policies on the lives of our senior management team or the lives of any of our other employees. In addition, we have clinical advisors who assist us in formulating our clinical strategies. These advisors are not our employees and may have commitments to, or consulting or advisory contracts with, other entities that may limit their availability to us, or may have arrangements with other companies to assist in the development of products that may compete with ours. If we are unable to attract and retain key personnel, our business, results of operations, financial condition and prospects will be adversely affected.

33


Table of Contents

Our inability to successfully acquire, develop and market additional product candidates or approved products would impair our ability to grow our business.

We may in-license, acquire, develop and/or market additional products and product candidates for the treatment of serious disorders of the CNS. Because our internal research and development capabilities are limited, we may be dependent upon other pharmaceutical and biotechnology companies, academic scientists and other researchers to sell or license products or technology to us. The success of this strategy depends partly upon our ability to identify and select promising pharmaceutical product candidates and products, negotiate licensing or acquisition agreements with their current owners and finance these arrangements.

The process of proposing, negotiating and implementing a license or acquisition of a product candidate or approved product is lengthy and complex. Other companies, including some with substantially greater financial, marketing, sales and other resources, may compete with us for the license or acquisition of product candidates and approved products. We have limited resources to identify and execute the acquisition or in-licensing of third-party products, businesses and technologies and integrate them into our current infrastructure. Moreover, we may devote resources to potential acquisitions or licensing opportunities that are never completed, or we may fail to realize the anticipated benefits of such efforts.

Further, any product candidate that we acquire may require additional development efforts prior to commercial sale, including nonclinical or clinical testing and approval by the FDA and applicable foreign regulatory authorities. All product candidates are prone to risks of failure typical of pharmaceutical product development, including the possibility that a product candidate will not be shown to be sufficiently safe and effective for approval by regulatory authorities. In addition, we cannot provide assurance that any products that we develop or approved products that we acquire will be manufactured or sold profitably or achieve market acceptance.

Our computer systems, or those of our collaborators or contractors, may fail or suffer security breaches, which could result in a disruption of our business and operations.

Our internal computer systems and those of our current and any future partners, contractors and consultants are vulnerable to damage from cyber-attacks, computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. System failures, accidents or security breaches can cause interruptions in our operations, and can result in a material disruption of our commercialization activities, drug development programs and our business operations. The loss of clinical trial data from completed or future clinical trials could result in delays in our regulatory approval and post-market study compliance efforts and significantly increase our costs to recover or reproduce the data. Similarly, we rely on a large number of third parties to supply components for and manufacture our products and product candidates, and conduct clinical trials, and similar events relating to their computer systems could also have a material adverse effect on our business. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the commercialization of any of our other product candidates could be delayed.

We face potential product liability exposure and product liability lawsuits could cause us to incur substantial liabilities and could limit commercialization of any products or product candidates.

The commercial use of our product and clinical use of our product and product candidates expose us to the risk of product liability claims. This risk exists even if a product is approved for commercial sale by the FDA and manufactured in facilities regulated by the FDA or an applicable foreign regulatory authority. Our product and product candidates are designed to affect important bodily functions and processes. Any side

34


Table of Contents

effects, manufacturing defects, misuse or abuse associated with our product candidates could result in injury to a patient or even death. In addition, a liability claim may be brought against us even if our product or product candidates merely appear to have caused an injury.

Product liability claims may be brought against us by consumers, health care providers, pharmaceutical companies or others selling or otherwise coming into contact with our product or product candidates, among others. If we cannot successfully defend ourselves against product liability claims we will incur substantial liabilities. In addition, regardless of merit or eventual outcome, product liability claims may result in:

the inability to commercialize our product or product candidates, if approved;
decreased demand for our product or, if approved, product candidates;
impairment of our business reputation;
product recall or withdrawal from the market;
withdrawal of clinical trial participants;
costs of related litigation;
distraction of management's attention from our primary business;
substantial monetary awards to patients or other claimants; or
loss of revenues.

Currently, we maintain insurance coverage against commercial products and clinical trial liability in an amount of up to $10 million. We believe that our clinical trial insurance is sufficient to cover our needs. A successful product liability claim or series of claims brought against us could cause our stock price to decline and, if judgments exceed our insurance coverage, could decrease our cash and have a material adverse effect on our business, results of operations, financial condition and prospects.

Even if we obtain FDA approval for our product candidates in the United States, we may never pursue or receive regulatory approval or commercialize our product candidates outside of the United States, which could limit our market opportunities and adversely affect our business.

If we elect to market our product candidates outside of the United States, we, or any potential partner, must obtain separate regulatory approvals and comply with numerous and varying regulatory requirements of other countries regarding safety and efficacy and governing, among other things, clinical trials and commercial sales, pricing and distribution of our products. The time required to obtain approval in other countries might differ from and be longer than that required to obtain FDA approval. The regulatory approval process in other countries may include all of the risks detailed in these "Risk Factors" regarding FDA approval in the United States, as well as other risks. For example, in the European Economic Area (comprised of 27 European Union, or EU, member states plus Iceland, Liechtenstein and Norway), we can take advantage of the hybrid application pathway of the EU Centralized Procedure, which is similar to the FDA's 505(b)(2) pathway. Hybrid applications may rely in part on the results of nonclinical tests and clinical trials contained in the authorization dossier of the reference product, but must be supplemented with additional data. In territories where data is not freely available, we or our partners may not have the ability to commercialize our products without negotiating rights from third parties to refer to their clinical data in our regulatory applications, which could require the expenditure of significant additional funds. We, or any potential partner, may be unable to obtain rights to the necessary clinical data and may be required to develop our own proprietary safety and effectiveness dossiers.

Regulatory approval in one country does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory process in others. Inability to obtain regulatory approval in other countries or any delay or setback in obtaining such

35


Table of Contents

approval could have the same adverse effects detailed in these "Risk Factors" regarding FDA approval in the United States. In addition, we, or any potential partner, may be subject to fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution if we are unable to comply with applicable foreign regulatory requirements.

Our business involves the use of hazardous and highly regulated materials and we and our third-party manufacturers and suppliers must comply with environmental laws and regulations, which can be expensive and restrict how we do business, and can result in significant fines, penalties or liabilities.

Our research and development activities and our third-party manufacturers' and suppliers' activities involve the controlled storage, use and disposal of hazardous materials owned by us, including the components of our product and product candidates and other hazardous compounds. We and our manufacturers and suppliers are subject to various environmental laws and regulations, including those governing the use, manufacture, storage, handling, release and disposal of, and exposure to, these hazardous materials. Such laws and regulations have generally become more stringent over time. In some cases, these hazardous materials and various wastes resulting from their use are stored at our and our manufacturers' facilities pending use and disposal. We cannot completely eliminate the risk of contamination, which could cause an interruption of our commercialization efforts, research and development efforts and business operations, injury to our employees and others, environmental damage resulting in costly clean-up and liabilities under applicable environmental laws and regulations. We cannot guarantee that we or our third-party manufacturers will be in compliance with such laws and regulations or eliminate the risk of contamination or injury from these materials. In such an event, we may be liable for any resulting fines, penalties and other damages and such liability could exceed our resources. We do not currently carry biological or hazardous waste insurance coverage.

Risks related to our financial position and capital requirements

We have never generated net income from operations or positive cash flow from operations and are dependent upon external sources of financing to fund our business and development.

We have financed our operations primarily through the proceeds from the issuance of our common stock and preferred stock. For the years ended December 31, 2015 and 2014, we incurred net losses of $40.6 million and $40.5 million, respectively, and our cash used in operating activities was $49.3 million and $50.4 million, respectively, and for the nine months ended September 30, 2016 and 2015, we incurred net losses of $76.8 million and $22.6 million, respectively, and our cash used in operating activities was $70.2 million and $30.9 million, respectively. As of September 30, 2016 and December 31, 2015, we had accumulated deficits of $199.9 million and $123.1 million, respectively. These losses and negative cash flow from operations have had a material adverse effect on our stockholders' equity and working capital.

We expect to continue to incur net losses and negative cash flow from operating activities for at least the next two years primarily as a result of the expenses incurred as we:

commercialize Probuphine;

continue product candidate development activities;

build-out our new manufacturing facility;

seek to identify additional product candidates;

initiate nonclinical studies and clinical trials for any product candidates we identify and choose to develop;

36


Table of Contents

seek regulatory approval for any of our product candidates that successfully complete clinical trials;

hire additional clinical, operational, financial, quality control and scientific personnel;

establish a sales, marketing and commercialization infrastructure for any products that obtain regulatory approval; and

operate as a public company.

As a result, we may remain dependent upon external sources of financing to fund our business and the development and commercialization of our approved product and product candidates. To the extent we need to raise additional capital in the future, we cannot ensure that debt or equity financing will be available to us in amounts, at times or on terms that will be acceptable to us, or at all. Any shortfall in our cash resources could require that we delay or abandon certain development and commercialization activities and could otherwise have a material adverse effect on our business, results of operations, financial condition and prospects.

To become and remain profitable, we must develop and eventually commercialize product candidates with significant market potential. This will require us to be successful in a range of challenging activities, and we may never succeed in any or all of these activities and, even if we do, we may never generate revenues that are significant or large enough to achieve profitability. See "Risks Related to the Commercialization of our Product and Product Candidates".

Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would decrease the value of our company and could impair our ability to raise capital, maintain our research and development efforts, expand our business or continue our operations. A decline in the value of our company also could cause you to lose all or part of your investment.

Our limited operating history makes it difficult to evaluate our business to date and to assess our future viability.

We commenced our operations in 2012 as an affiliate company of Braeburn Pharmaceuticals BVBA SPRL, a private company with limited liability organized under the laws of Belgium. Our operations to date have been limited to organizing and staffing our company, scaling up manufacturing operations with our third-party contract manufacturers, building a sales and marketing organization, conducting product development activities for Probuphine and our product candidates and in-licensing rights to Probuphine and our product candidates. Consequently, any predictions about our future performance may not be as accurate as they would be if we had a longer history of developing and commercializing pharmaceutical products.

We are an early stage growth company with concentrated resources, and a small management team utilizing nascent systems and procedures with limited operating experience, and as a result, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors.

Our recurring losses from operations have raised substantial doubt regarding our ability to continue as a going concern.

Our recurring losses from operations raise substantial doubt about our ability to continue as a going concern, and as a result, our independent registered public accounting firm included an explanatory paragraph in its report on our consolidated financial statements as of and for the years ended December 31, 2015 and 2014 with respect to this uncertainty. Our ability to continue as a going concern

37


Table of Contents

could materially limit our ability to raise additional funds through the issuance of new debt or equity securities or otherwise. Future reports on our consolidated financial statements may include an explanatory paragraph with respect to our ability to continue as a going concern. We are an early commercial stage company and have not generated significant revenues or been profitable since inception, and it is possible we will never achieve profitability. Of our product candidates, only Probuphine has received governmental approval. None of our other product candidates can be marketed until governmental approvals have been obtained. Accordingly, Probuphine is the only current source of revenues to sustain our present activities, and no other revenues will likely be available until, and unless, our other product candidates are approved by the FDA, EMA or comparable regulatory agencies in other countries and successfully marketed, either by us or a partner, an outcome which may not occur. If we successfully complete this offering and concurrent private placement based upon our currently expected level of operating expenditures, we expect to be able to fund our operations for at least the next 12 months. This period could be shortened if there are any significant increases in planned spending on development programs or more rapid progress of development programs than anticipated. There is no assurance that other financing will be available when needed to allow us to continue as a going concern. The perception that we may not be able to continue as a going concern may cause others to choose not to deal with us due to concerns about our ability to meet our contractual obligations.

Our results of operations and liquidity needs could be materially negatively affected by market fluctuations and economic downturn.

Our results of operations and liquidity could be materially negatively affected by economic conditions generally, both in the United States and elsewhere around the world. Domestic and international equity and debt markets have experienced and may continue to experience heightened volatility and turmoil based on domestic and international economic conditions and concerns. In the event these economic conditions and concerns continue or worsen and the markets continue to remain volatile, our results of operations and liquidity could be adversely affected by those factors in many ways, including making it more difficult for us to raise funds if necessary, and our stock price may decline. In addition, we maintain significant amounts of cash and cash equivalents at one or more financial institutions that are not federally insured. If economic instability continues, we cannot provide assurance that we will not experience losses on these investments.

A weak or declining economy could also strain our suppliers, possibly resulting in supply disruption. Any of the foregoing could harm our business and we cannot anticipate all of the ways in which the current economic climate and financial market conditions could adversely impact our business.

Raising additional funds by issuing securities may cause dilution to existing stockholders and raising funds through lending and licensing arrangements may restrict our operations or require us to relinquish proprietary rights.

We may need to raise additional funds through public or private equity offerings, debt financings, receivables or royalty financings or corporate collaboration and licensing arrangements. To the extent that we raise additional capital by issuing equity securities or convertible debt, your ownership interest in us will be diluted.

The incurrence of indebtedness could result in increased fixed payment obligations and we may be required to agree to certain restrictive covenants therein, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely affect our ability to conduct our business.

38


Table of Contents

If we raise additional funds through collaboration, licensing or other similar arrangements, it may be necessary to relinquish potentially valuable rights to our current product or product candidates or proprietary technologies, or grant licenses on terms that are not favorable to us. If adequate funds are not available, our ability to achieve profitability or to respond to competitive pressures would be significantly limited and we may be required to delay, significantly curtail or eliminate the commercialization and development of our product or product candidates.

Our ability to use net operating losses and research and development credits to reduce future taxes may be subject to certain limitations.

As of December 31, 2015, we had federal and state net operating loss, or NOLs, carryforwards of $29.7 million and $29.7 million, respectively, which begin to expire in various amounts in 2033. As of December 31, 2015, we also had federal research and development tax credit carryforwards of $0.6 million, which begin to expire in 2035. These NOLs and tax credit carryforwards could expire unused and be unavailable to offset future income tax liabilities. In addition, in general, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, a corporation that undergoes an "ownership change" is subject to limitations on its ability to utilize its pre-change NOLs or tax credits to offset future taxable income or taxes. For these purposes, an ownership change generally occurs where the aggregate stock ownership of one or more stockholders or groups of stockholders who owns at least 5% of a corporation's stock increases its ownership by more than 50 percentage points over its lowest ownership percentage within a specified testing period. Our existing NOLs or credits may be subject to limitations arising from previous ownership changes, and if we undergo an ownership change in connection with this offering, our ability to utilize NOLs or credits could be further limited by Sections 382 and 383 of the Code. In addition, future changes in our stock ownership, many of which are outside of our control, could result in an ownership change under Sections 382 and 383 of the Code. Our NOLs or credits may also be impaired under state law. Accordingly, we may not be able to utilize a material portion of our NOLs or credits. Furthermore, our ability to utilize our NOLs or credits is conditioned upon our attaining profitability and generating U. S. federal and state taxable income. As described above under "Risk Factors—Risks Related to our Financial Position," we have incurred significant net losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future; and therefore, we do not know whether or when we will generate the U.S. federal or state taxable income necessary to utilize our NOL or credit carryforwards.

Risks related to regulation of our product and product candidates

Probuphine is a controlled substance subject to DEA regulations and failure to comply with these regulations, or the cost of compliance with these regulations, may adversely affect our business.

Probuphine contains buprenorphine, a regulated Schedule III "controlled substance" under the CSA, which establishes, among other things, certain registration, production quotas, security, recordkeeping, reporting, import, export and other requirements administered by the DEA. The DEA regulates controlled substances as Schedule I, II, III, IV or V substances. Schedule I substances by definition have no established medicinal use and may not be marketed or sold in the United States. A pharmaceutical product may be listed as Schedule II, III, IV or V, with Schedule II substances considered to present the highest risk of abuse and Schedule V substances the lowest relative risk of abuse among such substances. Our failure to comply with DEA requirements could result in the loss of our ability to supply Probuphine, significant restrictions on Probuphine, civil penalties or criminal prosecution.

The DEA, and some states, also conduct periodic inspections of registered establishments that handle controlled substances. Facilities that conduct research, manufacture, store, distribute, import or export

39


Table of Contents

controlled substances must be registered to perform these activities and have the security, control and inventory mechanisms required by the DEA to prevent drug loss and diversion. Failure to maintain compliance, particularly non-compliance resulting in loss or diversion, can result in regulatory action that could have a material adverse effect on our business, results of operations, financial condition and prospects. The DEA may seek civil penalties, refuse to renew necessary registrations or initiate proceedings to revoke those registrations. In certain circumstances, violations could lead to criminal proceedings.

Individual states also have controlled substances laws. Though state controlled substances laws often mirror federal law, because the states are separate jurisdictions, they may separately schedule drugs, as well. While some states automatically schedule a drug when the DEA does so, in other states there has to be rulemaking or a legislative action. State scheduling may delay commercial sale of any controlled substance drug product for which we obtain federal regulatory approval and adverse scheduling could have a material adverse effect on the commercial attractiveness of such product. We or our partners must also obtain separate state registrations in order to be able to obtain, handle, and distribute controlled substances for clinical trials or commercial sale, and failure to meet applicable regulatory requirements could lead to enforcement and sanctions from the states in addition to those from the DEA or otherwise arising under federal law.

Our products may not be prescribed and dispensed in the manner permitted by the U.S. Drug Addiction Treatment Act of 2000, or DATA 2000.

In the United States, the DEA classifies controlled substances into five schedules. DATA 2000 permits physicians who meet certain requirements to treat opioid addiction with Schedule III, IV and V narcotic medications that have been specifically approved by the FDA for that indication. Physicians who qualify for a waiver under DATA 2000 by meeting various conditions (including with regard to training and acceptance of limits on the number of patients who can be treated under the waiver) may prescribe and diagnose such medications in settings (for example, their own offices) other than those traditionally associated with opioid addiction treatment, such as methadone clinics.

If buprenorphine is in the future viewed as having a greater potential for abuse than is reflected by its current classification, it may be reclassified as a Schedule II substance, in which case our current and future products which contain buprenorphine would no longer qualify under DATA 2000 and would have to be prescribed and dispensed in the same way as other Schedule II substances approved for the treatment of opioid addiction, such as methadone, which would significantly limit the settings and circumstances in which these products can be prescribed, and therefore have a material adverse effect on sales of our products containing buprenorphine. In addition, increased incidence of misapplication by prescribing physicians, including overriding government-imposed restrictions on patient limits per physician, could result in more stringent requirements. Such developments could have a material adverse effect on our business, results of operations and financial condition.

Healthcare reform measures and changes in policies, funding, staffing and leadership at the FDA and other agencies could hinder or prevent the commercial success of Probuphine and any of our other product candidates that may be approved by the FDA.

In the United States, there have been a number of legislative and regulatory changes to the healthcare system in ways that could affect our future results of operations and the future results of operations of our customers. For example, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 established a new Part D prescription drug benefit, which became effective January 1, 2006. Under the prescription drug benefit, Medicare beneficiaries can obtain prescription drug coverage from private sector plans that are permitted to limit the number of prescription drugs that are covered in each therapeutic

40


Table of Contents

category and class on their formularies. If Probuphine or any of our other product candidates that are approved by the FDA are not widely included on the formularies of these plans, our ability to market our products to the Medicare population could suffer.

Furthermore, there have been and continue to be a number of initiatives at the federal and state levels that seek to reduce healthcare costs. In March 2010, the Patient Protection and Affordable Health Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively the ACA, was signed into law, which includes measures to significantly change the way health care is financed by both governmental and private insurers. Among the provisions of the ACA of greatest importance to the pharmaceutical industry are the following:

a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected;

an annual, nondeductible fee on any entity that manufactures or imports certain branded prescription drugs and biologic products, apportioned among these entities according to their market share in certain government healthcare programs;

an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program to 23.1% and 13% of the average manufacturer price for most branded and generic drugs, respectively;

a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer's outpatient drugs to be covered under Medicare Part D;

extension of manufacturers' Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations;

expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional individuals beginning in April 2010 and by adding new mandatory eligibility categories for certain individuals with income at or below 133% of the Federal Poverty Level beginning in 2014, thereby potentially increasing both the volume of sales and manufacturers' Medicaid rebate liability;

expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program;

new requirements to report certain financial arrangements with physicians and teaching hospitals, including reporting any "transfer of value" made or distributed to physicians and teaching hospitals and reporting any investment interests held by physicians and their immediate family members during each calendar year. Manufacturers were required to begin data collection on August 1, 2013 and report such data to the Centers for Medicare & Medicaid Services, or CMS, by the 90th day of each subsequent calendar year;

a new requirement to annually report drug samples that manufacturers and distributors provide to physicians, effective April 1, 2012;

a licensure framework for follow-on biologic products;

41


Table of Contents

a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research;

creation of the Independent Payment Advisory Board which, beginning in 2014, has authority to recommend certain changes to the Medicare program that could result in reduced payments for prescription drugs and those recommendations could have the effect of law even if Congress does not act on the recommendations; and

establishment of a Center for Medicare Innovation at CMS to test innovative payment and service delivery models to lower Medicare and Medicaid spending.

Other legislative changes have also been proposed and adopted in the United States since the ACA was enacted. On August 2, 2011, the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation's automatic reduction to several government programs. This includes aggregate reductions to Medicare payments to providers of 2% per fiscal year, which went into effect on April 1, 2013, and, due to subsequent legislative amendments to the statute, will remain in effect through 2024 unless additional Congressional action is taken. On January 2, 2013, President Obama signed into law the American Taxpayer Relief Act of 2012 which, among other things, further reduced Medicare payments to several providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. These new laws may result in additional reductions in Medicare and other health care funding, which could have a material adverse effect on our customers and accordingly, our financial operations.

Given recent federal and state government initiatives directed at lowering the total cost of healthcare, Congress and state legislatures will likely continue to focus on healthcare reform, the cost of prescription drugs and the reform of the Medicare and Medicaid programs. While we cannot predict the full outcome of any such legislation, it may result in decreased reimbursement for prescription drugs, which may further exacerbate industry-wide pressure to reduce prescription drug prices. This could harm our ability to market our products and generate revenues. In addition, legislation has been introduced in Congress that, if enacted, would permit more widespread importation or re-importation of pharmaceutical products from foreign countries into the United States, including from countries where the products are sold at lower prices than in the United States. Such legislation, or similar regulatory changes, could lead to a decision to decrease our prices to better compete, which, in turn, could adversely affect our business, results of operations, financial condition and prospects. Alternatively, in response to legislation such as this, we might elect not to seek approval for or market our products in foreign jurisdictions in order to minimize the risk of re-importation, which could also reduce the revenue we generate from our product sales. It is also possible that other legislative proposals having similar effects will be adopted.

Furthermore, regulatory authorities' assessment of the data and results required to demonstrate safety and efficacy can change over time and can be affected by many factors, such as the emergence of new information, including on other products, changing policies and agency funding, staffing and leadership. We cannot be sure whether future changes to the regulatory environment will be favorable or unfavorable to our business prospects. For example, average review times at the FDA for marketing approval applications have fluctuated over the last ten years, and we cannot predict the review time for any of our submissions with any regulatory authorities. In addition, review times can be affected by a variety of factors, including budget and funding levels and statutory, regulatory and policy changes.

42


Table of Contents

If we do not comply with federal and state healthcare laws, including fraud and abuse and health information privacy and security laws, we could face substantial penalties and our business, results of operations, financial condition and prospects could be adversely affected.

As a specialty pharmaceutical company, even though we do not and will not control referrals of healthcare services or bill directly to Medicare, Medicaid or other third-party payors, certain federal and state healthcare laws and regulations pertaining to fraud and abuse and patients' rights are applicable to our business. We could be subject to healthcare fraud and abuse and patient privacy regulation by both the federal government and the states in which we conduct our business. The laws that may affect our ability to operate include:

the federal Anti-Kickback Statute, which prohibits, among other things, soliciting, receiving, offering or paying remuneration, directly or indirectly, to induce, or in return for, the purchase or recommendation of an item or service reimbursable under a federal healthcare program, such as the Medicare and Medicaid programs;

federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payors that are false or fraudulent, and which may apply to entities like us which provide coding and billing advice to customers;

the Health Insurance Portability and Accountability Act or HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, and its implementing regulations, which impose certain requirements relating to the privacy, security and transmission of individually identifiable health information;

federal "sunshine" requirements that require drug manufacturers to report and disclose any "transfer of value" made or distributed to physicians and teaching hospitals, and any investment or ownership interests held by such physicians and their immediate family members. Manufacturers are required to report data to the government by the 90th day of each calendar year; and

state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers, and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.

Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available under the U.S. federal Anti-Kickback Statute, it is possible that some of our business activities could be subject to challenge under one or more of such laws. In addition, recent health care reform legislation has strengthened these laws. For example, the ACA, among other things, amends the intent requirement of the federal anti-kickback and criminal healthcare fraud statutes. A person or entity no longer needs to have actual knowledge of these statutes or specific intent to violate it. Moreover, the ACA provides that the government may assert that a claim including items or services resulting from a violation of the federal anti-kickback statute constitutes a false or fraudulent claim for purposes of the False Claims Act.

In addition, there has been a recent trend of increased federal and state regulation of payments made to physicians, including the tracking and reporting of gifts, compensation and other remuneration to physicians. Certain states mandate implementation of commercial compliance programs to ensure compliance with these laws and impose restrictions on drug manufacturer marketing practices and tracking

43


Table of Contents

and reporting of gifts, compensation and other remuneration to physicians. The shifting commercial compliance environment and the need to build and maintain robust and expandable systems to comply with multiple jurisdictions with different compliance and/or reporting requirements increases the possibility that a healthcare company may be found out of compliance of one or more of the requirements.

Moreover, the FDA provides guidelines with respect to appropriate promotion and continuing medical and health education activities. Although we endeavor to follow these guidelines, the FDA or the Office of the Inspector General of the U.S. Department of Health and Human Services may disagree, and we may be subject to significant liability, including civil and administrative remedies as well as criminal sanctions. In addition, management's attention could be diverted and our reputation could be damaged.

To the extent that any product we make is sold in a foreign country, we may be subject to similar foreign laws and regulations. If we or our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, exclusion from participation in U.S. federal or state health care programs, and the curtailment or restructuring of our operations. Any penalties, damages, fines, curtailment or restructuring of our operations could materially adversely affect our ability to operate our business and our financial results. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management's attention from the operation of our business. Moreover, achieving and sustaining compliance with applicable federal and state privacy, security and fraud laws may prove costly.

The FDA may determine that our NDA for CAM2038 for opioid addiction or any other NDA that we submit is not sufficiently complete to permit a substantive review.

Based on the results of the Phase 3 clinical trial for CAM2038 for opioid addiction, we intend to submit an NDA to the FDA for weekly and monthly CAM2038 for opioid addiction in the first half of 2017. Within 60 days of the agency's receipt of our NDA, the FDA will make a threshold determination of whether the NDA is sufficiently complete to permit a substantive review. This 60 day review is referred to as the filing review. If the NDA is sufficiently complete, the FDA will file the NDA. If the agency refuses to file the NDA, it will notify us and state the reason(s) for the refusal. The FDA may refuse to file our NDA for various reasons, including but not limited to, if

the NDA is incomplete because it does not on its face contain the information required under the FDCA or the FDA's regulations;

the NDA does not contain a statement that each preclinical laboratory study was conducted in compliance with the GLP requirements, or for each study not so conducted, a brief statement of the reason for the noncompliance;

the NDA does not contain a statement that each clinical trial was conducted in compliance with the FDA's institutional review board, or IRB, regulations or was not subject to those regulations, and the agency's informed consent regulations or a brief statement of the reason for noncompliance; and

the drug is a duplicate of a listed drug approved before receipt of the NDA and is eligible for approval under an Abbreviated New Drug Application, or ANDA, for generic drugs.

44


Table of Contents

In its procedures, the FDA has stated that it could find a section 505(b)(2) NDA incomplete and refuse to file it if the NDA:

fails to include appropriate literature or a listed drug citation to support the safety or efficacy of the drug product;

fails to include data necessary to support any aspects of the proposed drug that represent modifications to the listed drug(s) relied upon;

fails to provide a bridge, e.g., via comparative bioavailability data, between the proposed drug product and the listed drug product to demonstrate that such reliance is scientifically justified;

uses an unapproved drug as a reference product for a bioequivalence study; and

fails to provide a patent certification or statement as required by the FDA's regulations where the 505(b)(2) NDA relies on one or more listed drugs.

Additionally, the FDA will refuse to file our NDA if an approved drug with the same active moiety is entitled to five years of exclusivity, unless the exclusivity period has elapsed or unless four years of the five year period have elapsed and our NDA contains a certification of patent invalidity or non-infringement.

If the FDA refuses to file our NDA, we may amend the NDA and resubmit it. In such a case, the FDA will again review the NDA and determine whether it may be filed. There can be no assurance that the FDA will file our NDA. If the agency refuses to file our NDA, we will need to address the deficiencies cited by the FDA, which could substantially delay the review process.

Our employees, principal investigators, consultants and commercial partners may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements and insider trading.

We are exposed to the risk of fraud or other misconduct by our employees, principal investigators, consultants and commercial partners. Misconduct by these parties could include intentional failures to comply with FDA regulations or the regulations applicable in other jurisdictions, provide accurate information to the FDA and other regulatory authorities, comply with healthcare fraud and abuse laws and regulations in the United States and abroad, report financial information or data accurately or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Such misconduct also could involve the improper use of information obtained in the course of clinical trials or interactions with the FDA or other regulatory authorities, which could result in regulatory sanctions and cause serious harm to our reputation. It is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from government investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. If any such actions are instituted against us and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, financial condition, results of operations and prospects, including the imposition of significant fines or other sanctions.

45


Table of Contents

Our future growth may depend, in part, on our ability to penetrate foreign markets, where we would be subject to additional regulatory burdens and other risks and uncertainties.

Our future profitability may depend, in part, on our ability to commercialize our product candidates in foreign markets for which we may rely on collaboration with third parties. If we commercialize our product candidates in foreign markets, we would be subject to additional risks and uncertainties, including:

our customers' ability to obtain reimbursement for our product candidates in foreign markets;

our inability to directly control commercial activities because we are relying on third parties;

the burden of complying with complex and changing foreign regulatory, tax, accounting and legal requirements;

different medical practices and customs in foreign countries affecting acceptance in the marketplace;

import or export licensing requirements;

longer accounts receivable collection times;

language barriers for technical training;

reduced or no protection of intellectual property rights in some foreign countries;

the existence of additional potentially relevant third party intellectual property rights;

foreign currency exchange rate fluctuations; and

the interpretation of contractual provisions governed by foreign laws in the event of a contract dispute.

Foreign sales of our product candidates could also be adversely affected by the imposition of governmental controls, political and economic instability, trade restrictions and changes in tariffs.

Import/export regulations and tariffs may change and increase our costs.

We are subject to risks associated with the regulations relating to the import and export of products and materials. We cannot predict whether the import and/or export of our products will be adversely affected by changes in, or enactment of, new quotas, duties, taxes or other charges or restrictions imposed by any country in the future. Any of these factors could adversely affect our business, results of operations, financial condition and prospects.

Risks related to intellectual property

Our success depends in part on our ability to obtain, maintain, protect and defend our intellectual property, which is difficult and costly, and we may not be able to ensure that we will be able to do so.

Our commercial success depends in large part on obtaining and maintaining patent, trademark and trade secret protection of our product, Probuphine, our current product candidates and any future product candidates, and their respective components, formulations, methods used to manufacture them and methods of treatment, as well as successfully defending our patents and other intellectual property rights against third-party challenges. Our ability to stop unauthorized third parties from making, using, selling, offering to sell or importing Probuphine or our product candidates is dependent upon the extent to which we have rights under valid and enforceable patents, trade secrets and other similar intellectual property that cover these activities.

46


Table of Contents

We in-license certain intellectual property for Probuphine from Titan and for CAM2038 and BB0417 from Camurus AB, or Camurus, and we may in-license other intellectual property in the future. We rely on these licensors to file and prosecute patent applications and maintain patents and otherwise protect certain of the intellectual property we license from them. We have not had and do not have primary control over these activities or any other intellectual property that may be related to our in-licensed intellectual property. Therefore, we cannot be certain that these patents and patent applications will be prosecuted, maintained, defended and enforced in a manner consistent with the best interests of our business. If our licensors fail to maintain, prosecute, enforce or defend such patents or patent applications or otherwise lose rights to those patents or patent applications, the rights we have licensed may be reduced or eliminated and our right to develop and commercialize Probuphine, CAM2038, BB0417 and other product candidates that are the subject of such licensed rights could be materially adversely affected.

The patent positions of pharmaceutical, biopharmaceutical and medical device companies can be highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved. No consistent policy regarding the breadth of claims allowed in patents in these fields has emerged to date in the United States. There have been recent changes regarding how patent laws are interpreted, and both the U.S. Patent and Trademark Office, or PTO, and Congress have recently made significant changes to the patent system. For example, on September 16, 2011, the Leahy-Smith America Invents Act, or the AIA, was signed into law, which made several significant changes to patent law in the United States. The AIA includes provisions that switched the United States from a "first-to-invent" system to a "first-to-file" system, allow third-party submission of prior art to the PTO during patent prosecution and set forth additional procedures to attack the validity of a patent by PTO-administered post-grant proceedings. Many of the substantive changes to patent law associated with the AIA, and in particular, the first-to-file provisions, only became effective on March 16, 2013. Accordingly it is not clear what, if any, impact the AIA will have on the operation of our business. In addition, there have been three recent U.S. Supreme Court decisions that now show a trend of the Supreme Court, which is distinctly negative on patents. The trend of these decisions along with resulting changes in patentability requirements being implemented by the PTO could make it increasingly difficult and expensive for us and our licensors to obtain and maintain patents on our products and product candidates. We cannot accurately predict future changes in the interpretation of patent laws or changes to patent laws and those changes may materially affect the scope, validity and enforceability of our patents, our ability to obtain patents and/or the patents and applications of our collaborators and licensors. The patent situation in these fields outside the United States is even more uncertain. Changes in either the patent laws or in interpretations of patent laws in the United States and other countries may diminish the value of our intellectual property, narrow the scope of our patent protection or eliminate our patent protection. Accordingly, we cannot predict the breadth of claims that may be allowed or enforced with respect to the patents we own or to which we have a license or to what extent those claims will be held to be valid and enforceable, nor can we predict the same with respect to any third-party patents that may relate to our products or product candidates.

The degree of protection for our intellectual property is uncertain because legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep our competitive advantage. Even if our owned or in-licensed patent applications issue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors or other third parties from competing with us or otherwise provide us with any competitive advantage. For example:

we or our licensors, as the case may be, may not be able to detect infringement of our owned or in-licensed patents, which may be especially difficult with respect to patents directed to manufacturing processes or formulations;

47


Table of Contents

we or our licensors, as the case may be, might not have been the first to make the inventions covered by our owned or in-licensed issued patents or pending patent applications;

we or our licensors, as the case may be, might not have been the first to file patent applications for these inventions;

our competitors or other third parties may independently develop similar or alternative technologies to, or duplicate any of, our technologies;

it is possible that our pending patent applications will not result in issued patents;

it is possible that our owned or in-licensed U.S. patents or patent applications are or will not be Orange-Book eligible;

it is possible that there are prior public disclosures that could invalidate our or our licensors' patents, as the case may be, or parts of our or their patents of which we or they are not aware;

it is possible that others, such as our competitors, may circumvent our owned or in-licensed patents;

it is possible that there are unpublished patent applications maintained in secrecy that may later issue with claims covering our products or product candidates or products similar to ours;

the claims of our owned or in-licensed issued patents or patent applications, if and when issued, may not cover our products or our product candidates;

our owned or in-licensed issued patents may not provide us with any competitive advantages, may be narrowed in scope, or may be held invalid or unenforceable as a result of challenges by third parties in litigation, administrative proceedings or other intellectual property related disputes;

we may not develop additional proprietary technologies for which we can obtain patent protection; or

the patents of others may have an adverse effect on our business.

The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability and our patents may be challenged in the courts or patent offices in the United States and abroad. Such challenge may result in loss of exclusivity or in patent claims being narrowed, invalidated or held unenforceable, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of our technology and products. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. In addition, because our product and product candidates contain previously-approved active ingredients, such as buprenorphine, risperidone, tizanidine or granesitron, such product and product candidates are not eligible for any patent term extension. Moreover, some of our owned and in-licensed patents and patent applications may in the future be co-owned with third parties. If we are unable to obtain an exclusive license to any such third party co-owners' interest in such patents or patent applications, such co-owners may be able to license their rights to other third parties, including our competitors, and our competitors could market competing products and technology. In addition, we may need the cooperation of any such co-owners of our patents in order to enforce such patents against third parties, and such cooperation may not be provided to us. If any of our owned or in-licensed patents are found to be invalid or unenforceable, or if we are otherwise unable to obtain and maintain adequate intellectual property rights, it could have a material adverse impact on our business, financial conditions, results of operations and prospects, including our ability to commercialize or license our products.

48


Table of Contents

Furthermore, our owned and in-licensed patents may be subject to a reservation of rights by one or more third parties. For example, the research resulting in certain of our in-licensed patent rights and technology for Probuphine was funded in part by the U.S. government. As a result, the U.S. government has certain rights to such patent rights and technology, which include march-in rights. When new technologies are developed with government funding, the government generally obtains certain rights in any resulting patents, including a non-exclusive license authorizing the government to use the invention or to have others use the invention on its behalf. Accordingly, Titan has granted the U.S. government a non-exclusive, nontransferable, irrevocable, paid-up license to practice or have practiced for or on behalf of the United States, the invention described in the patents and patent applications relating to Probuphine. If the U.S. government decides to exercise these rights, it is not required to engage us as its contractor in connection with doing so. The government's rights may also permit it to disclose our confidential information to third parties and to exercise march-in rights to use or allow third parties to use our licensed technology. The government can exercise its march-in rights if it determines that action is necessary because we fail to achieve practical application of the government-funded technology, or because action is necessary to alleviate health or safety needs, to meet requirements of federal regulations, or to give preference to U.S. industry. In addition, our rights in such inventions may be subject to certain requirements to manufacture products embodying such inventions in the United States. Any exercise by the government of any of the foregoing rights or by any third party of its reserved rights could have a material adverse effect on our competitive position, business, financial condition, results of operations, and prospects.

We also may rely on trade secrets and confidentiality agreements to protect our technology, products and proprietary know-how, especially where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to protect, we may be required to share our trade secrets with third party licensors, collaborators, consultants, contractors or other advisors and we have limited control over the protection of trade secrets used by such third parties. Although we use reasonable efforts to protect our trade secrets, including by entering into confidentiality agreements, our employees, consultants, contractors, outside scientific collaborators and other advisors may unintentionally or willfully disclose our trade secrets and proprietary information to competitors and we may not have adequate remedies for any such disclosure. Enforcing a claim that a third party illegally obtained and is using any of our trade secrets is expensive and time consuming, and the outcome is unpredictable. In addition, trade secret laws in the United States vary, and some United States courts as well as courts outside the United States are sometimes less willing or unwilling to protect trade secrets. Moreover, our competitors may independently develop equivalent knowledge, methods and know-how. If our trade secrets or confidential or proprietary information is divulged to or acquired by third parties, including our competitors, our competitive position in the marketplace, business, financial condition and results of operations and prospects may be materially adversely affected and our ability to successfully penetrate our target markets and generate revenues from Probuphine and our product candidates, if approved by the FDA or other regulatory authorities, could be materially adversely affected.

Our proprietary position depends upon patents that are formulation or method-of-use patents, which may not prevent a competitor or other third party from using the same product candidate for another use.

Composition-of-matter patents on the active pharmaceutical ingredient, or API, in prescription drug products are generally considered to be the strongest form of intellectual property protection for drug products because such patents provide protection without regard to any particular method of use or manufacture or formulation of the API used. We do not currently have any claims in our owned or in-licensed issued patents or pending patent applications that cover the composition-of-matter of

49


Table of Contents

Probuphine or our product candidates and cannot be certain that claims in any future patent applications will cover the composition-of-matter of our current or future product candidates.

Method-of-use patents protect the use of a product for the specified method and formulation patents cover formulations of the API. These types of patents do not prevent a competitor or other third party from developing or marketing an identical product for an indication that is outside the scope of the patented method or from developing a different formulation that is outside the scope of the patented formulation. Moreover, with respect to method-of-use patents, even if competitors or other third parties do not actively promote their product for our targeted indications or uses for which we may obtain patents, physicians may recommend that patients use these products off-label, or patients may do so themselves. Although off-label use may infringe or contribute to the infringement of method-of-use patents, the practice is common and such infringement is difficult to prevent or prosecute. In addition, there are numerous publications and other prior art that may be relevant to our owned and in-licensed formulation and method-of-use patents and may be used to challenge the validity of such patents in litigation or other intellectual property-related proceedings. If such challenges are successful, our owned and in-licensed patents may be narrowed or found to be invalid and we may lose valuable intellectual property rights. Any of the foregoing could have a material adverse effect on our business, financial conditions and results of operations and prospects.

If we fail to comply with our obligations in our intellectual property agreements with third parties, we could lose intellectual property rights that are important to our business.

We have entered into license agreements with third parties and may need to obtain additional licenses from others in the future in order to develop and commercialize our current and future products and product candidates. It is possible that we may be unable to obtain additional licenses we may need at a reasonable cost or on reasonable terms, if at all. In that event, we may be required to expend significant time and resources to redesign our product candidates or the methods for manufacturing them, or to develop or license replacement technology, all of which may not be feasible on a technical or commercial basis. If we are unable to obtain any additional licenses we may need, we may be unable to develop or commercialize the affected product candidates, which could harm our business significantly.

Our existing intellectual property agreements with Titan, Camurus and Endo Pharmaceuticals, Inc., or Endo, and our future intellectual property agreements may, impose various diligence, milestone payment, royalty, insurance and other obligations on us. We may need to outsource and rely on third parties to meet these obligations including for many aspects of the clinical development, sales and marketing of our products covered under our agreements. Delay or failure by these third parties could adversely affect the continuation of our agreements with these third parties. If we fail to comply with our obligations under such agreements, our licensors may have the right to terminate the agreement, in which event we would not be able to develop or market the affected products. If we lose such licensed intellectual property rights, our business, results of operations, financial condition and prospects may be materially adversely affected. We may enter into additional intellectual property agreements, including licenses, in the future and if we fail to comply with obligations under those agreements, we could suffer similar consequences.

Moreover, the agreements under which we license intellectual property from third parties are complex, and certain provisions in such agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could narrow what we believe to be the scope of our rights to the relevant intellectual property, or increase what we believe to be our financial or other obligations under the relevant agreement. We may be required to pay milestones and royalties based on our revenues from sales of our products utilizing the technologies licensed or sublicensed and these royalty payments could adversely affect the overall profitability for us of any products that we may seek to

50


Table of Contents

commercialize. Any of the foregoing, including if we lose intellectual property rights which we have licensed from third parties, may have a material adverse effect on our business, results of operations, financial condition and prospects.

Issued patents covering our products and technology could be found invalid or unenforceable if challenged in court or before administrative bodies in the United States or abroad.

Our and our licensors' patents and patent applications, if issued, may be challenged, invalidated or circumvented by third parties. For example, if another party has filed a U.S. patent application on inventions similar to those owned or in-licensed to us, we or, in the case of in-licensed intellectual property, the licensor may have to participate in an interference proceeding declared by the PTO to determine priority of invention in the United States. The costs of these proceedings could be substantial, and it is possible that such proceedings may be decided against us if the other party had independently arrived at the same or similar invention prior to our own or, if applicable, our licensor's invention, resulting in a loss of our U.S. patent position with respect to such invention. If another party has reason to assert a substantial new question of patentability against any of our claims in our owned and in-licensed U.S. patents, the third party can request that the PTO reexamine the patent claims, which may result in a loss of scope of some claims or a loss of the entire patent. In addition to potential interference and reexamination proceedings, we or our licensors may become a party to post-grant review, inter partes review, or derivation proceedings in the PTO, and equivalent proceedings in foreign jurisdictions (e.g., patent opposition proceedings in the European Patent Office or other jurisdictions) where either our owned or in-licensed patents or patent applications are challenged, or we are challenging the patents or patent applications of others. The costs of these proceedings could be substantial, and it is possible that our efforts would be unsuccessful. Also, we may allege that third parties infringe our or our licensors' patents and the defendant could counterclaim that such patents are invalid or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity or unenforceability are commonplace. Any such patent litigation or proceeding could result in the loss of our or our licensors' patent or loss or reduction in the scope of one or more of the claims of such patent. Even if we are successful, such litigation or proceedings may be costly and may distract our management and other personnel from their normal responsibilities. Any of the foregoing could have a material adverse effect on our business, prospects, financial condition and results of operations.

If we are sued for infringing intellectual property rights of third parties, it will be costly and time consuming, and an unfavorable outcome in that litigation would have a material adverse effect on our business.

Our commercial success depends upon our ability and the ability of our collaborators to develop, manufacture, market and sell our products and product candidates and use our proprietary technologies without infringing the proprietary and intellectual property rights of third parties. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields relating to opioid addiction, chronic pain and schizophrenia and the fields relating to medical implants and injection depots. As the medical device, biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that others may assert that our products or product candidates infringe the patent rights of others. Moreover, it is not always clear to industry participants, including us, which patents cover various types of medical devices, drugs, products or their methods of use. Thus, because of the large number of patents issued and patent applications filed in our fields, there may be a risk that third parties may allege that they have patents or other intellectual property rights encompassing our products, product candidates, technology or methods.

51


Table of Contents

In addition, there may be issued patents of third parties of which we are currently unaware, that are infringed or are alleged to be infringed by our products, product candidates or proprietary technologies. Because some patent applications in the United States may be maintained in secrecy until the patents are issued, patent applications in the United States and many foreign jurisdictions are typically not published until 18 months after filing, and publications in the scientific literature often lag behind actual discoveries, we cannot be certain that others have not filed patent applications for our technology, products or product candidates covered by our owned and in-licensed issued patents or pending patent applications or that we or, if applicable, our licensor were the first to invent the technology, product or product candidate. Our competitors may have filed, and may in the future file, patent applications covering our or similar products, product candidates and technologies and any such patent application may have priority over our owned and in-licensed patent applications or patents, which could further require us to obtain rights or license rights to such patent applications, which may not be available on commercially reasonable terms or at all.

We may be exposed to, or threatened with, litigation by third parties having patent or other intellectual property rights alleging that our products, product candidates and/or proprietary technologies infringe their intellectual property rights. These lawsuits are costly and could adversely affect our results of operations and divert the attention of managerial and technical personnel. There is a risk that a court would decide that we or our commercialization partners are infringing the third party's patents and would order us or our partners to stop the activities covered by the patents. In addition, there is a risk that a court will order us or our collaborators to pay the other party damages for having violated the third party's patents.

If a third-party's patent was found to validly cover our products and/or product candidates, proprietary technologies or their uses, we or our collaborators could be enjoined by a court and required to pay damages, which may be substantial, and could be unable to commercialize Probuphine or our product candidates or use our proprietary technologies unless we or they obtained a license to the patent. Such a license may not be available to us or our collaborators on acceptable terms, or at all and may be non-exclusive thereby giving our competitors and other third parties access to the same technologies licensed to us. In addition, during litigation, the patent holder could obtain a preliminary injunction or other equitable relief which could prohibit us from making, using or selling our products, technologies or methods pending a trial on the merits, which could be years away.

Even if we believe third-party intellectual property claims are without merit, there is no assurance that a court would find in our favor on questions of infringement, validity or enforceability. A court of competent jurisdiction could hold that any asserted third party patents are valid, enforceable and infringed, which could materially and adversely affect our ability to commercialize our products and/or product candidates. In order to successfully challenge the validity of any such U.S. patent in federal court, we would need to overcome a presumption of validity. As this burden is a high one requiring us to present clear and convincing evidence as to the invalidity of any such U.S. patent claim, there is no assurance that a court of competent jurisdiction would invalidate the claims of any such U.S. patent.

There is a substantial amount of litigation involving patent and other intellectual property rights in the medical device, biotechnology and pharmaceutical industries generally. If a third party claims that we or our collaborators infringe its intellectual property rights, we may face a number of issues, including, but not limited to:

infringement and other intellectual property claims which, regardless of merit, may be expensive and time-consuming to litigate and may divert our management's attention from our core business;

52


Table of Contents

substantial damages for infringement, which we may have to pay if a court decides that the product at issue infringes on or violates the third party's rights, and if the court finds that the infringement was willful, we could be ordered to pay treble damages and the patent owner's attorneys' fees;

a court order prohibiting us from selling or licensing the product unless the third party licenses its patent rights to us, which it is not required to do;

if a license is available from a third party, we may have to pay substantial royalties, upfront fees and/or grant cross-licenses to intellectual property rights for our products; and

redesigning our products or processes so they do not infringe, which may not be possible or may require substantial monetary expenditures and time.

Moreover, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of our common stock. Further, we may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have a material adverse effect on our ability to raise the funds necessary to continue our operations or otherwise have a material adverse effect on our business, results of operations, financial condition and prospects.

Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.

Periodic maintenance fees, renewal fees, annuity fees and various other government fees on our owned and in-licensed patents and patent applications are or will be due to be paid to the PTO in several stages and various government patent agencies outside of the United States over the lifetime of such patents and patent applications and any patent rights we may own or license in the future. We have systems in place to remind us to pay these fees, and we employ outside firms to remind us or our licensors to pay annuity fees due to foreign patent agencies on our foreign patents and pending foreign patent applications. The PTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. In many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. However, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, our competitors or other third parties might be able to enter the market and this circumstance would have a material adverse effect on our business.

We will not seek to protect our intellectual property rights in all jurisdictions throughout the world and we may not be able to adequately enforce our intellectual property rights even in the jurisdictions where we seek protection.

Filing, prosecuting and defending patents on products and product candidates in all countries and jurisdictions throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States could be less extensive than those in the United States, assuming that rights are obtained in the United States. Our licenses from Titan and Camurus with respect to Probuphine, CAM2038 and BB0417 are also limited to territories that include a limited number of jurisdictions. Accordingly, our licensors or other third parties hold exclusive rights to intellectual property

53


Table of Contents

covering those products in other jurisdictions and if we do not obtain a license to such rights, we will not have sufficient rights to commercialize those products in those other jurisdictions. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. In addition, the statutory deadlines for pursuing patent protection in certain foreign jurisdictions are based on the priority date of each of our patent applications and we or our licensors may not timely file foreign patent applications.

Competitors may use our technologies in jurisdictions where we do not pursue and obtain patent protection to develop their own products and further, may export otherwise infringing products to territories where we have patent protection, but enforcement is not as strong as that in the United States. These products may compete with our products and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing. Even if we pursue and obtain issued patents in particular jurisdictions, our patent claims or other intellectual property rights may not be effective or sufficient to prevent third parties from so competing.

The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States. Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. The legal systems of some countries, particularly developing countries, do not favor the enforcement of patents and other intellectual property protection, especially those relating to medical devices, biotechnology or pharmaceuticals. This could make it difficult for us to stop the infringement of our patents, if obtained, or the misappropriation of our other intellectual property rights. For example, many foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. In addition, many countries limit the enforceability of patents against third parties, including government agencies or government contractors. In these countries, patents may provide limited or no benefit. Patent protection must ultimately be sought on a country-by-country basis, which is an expensive and time-consuming process with uncertain outcomes. Accordingly, we may choose not to seek patent protection in certain countries, and we will not have the benefit of patent protection in such countries.

Furthermore, proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly, could put our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.

We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.

As is common in the medical device, biotechnology and pharmaceutical industries, many of our employees, consultants or advisors are currently, or were previously, employed at universities or other medical device, biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although no claims against us are currently pending, we may be subject to claims that these individuals or we have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of any such individual's current or former employer. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management, which would adversely affect our financial condition.

54


Table of Contents

In addition, we may not be successful in executing agreements that require our employees, consultants or advisors who may be involved in the conception or development of intellectual property to assign such intellectual property to us. Even if we execute such agreements, the assignment of intellectual property rights may not be self-executing or the assignment agreements may be breached, and we may be forced to bring claims against third parties, or defend claims that they may bring against us, to determine the ownership of what we regard as our intellectual property.

Numerous factors may limit any potential competitive advantage provided by our intellectual property rights.

The degree of protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect our business, provide a barrier to entry against our competitors or potential competitors, or permit us to maintain our competitive advantage. Moreover, if a third party has intellectual property rights that cover our products or the practice of our technology, we may not be able to fully exercise or extract value from our intellectual property rights. The following examples are illustrative:

others may be able to develop and/or practice products or technology that is similar to our products or technology or aspects of our products or technology but that is not covered by the claims of patents, should such patents issue from our patent applications;

we or our licensors might not have been the first to make the inventions covered by a pending patent application that we own or license;

we or our licensors might not have been the first to file patent applications covering an invention;

third parties may independently develop similar or alternative products or technologies without infringing our intellectual property rights;

pending patent applications that we own or license may not lead to issued patents;

patents, if issued, that we own or license may not provide us with any competitive advantages, or may be narrowed or held invalid or unenforceable, as a result of legal challenges by our competitors or other third parties;

third parties may compete with us in jurisdictions where we do not pursue and obtain patent protection;

we may not be able to obtain and/or maintain necessary or useful licenses on reasonable terms or at all;

third parties may assert an ownership interest in our intellectual property and, if successful, such disputes may preclude us from exercising exclusive rights over that intellectual property;

we may not develop or in-license additional proprietary technologies that are patentable; and

the patents of others may be asserted against us and have an adverse effect on our business.

Should any of these events occur, they could significantly harm our business, financial condition, results of operations or prospects.

55


Table of Contents

Our reliance on third parties requires us to share our trade secrets, which increases the possibility that a competitor or other third party will discover our trade secrets or that our trade secrets will be misappropriated or disclosed.

Because we currently contract with third parties for the manufacture of Probuphine, CAM2038, BB0417 and our other product candidates and may enter into similar contracts in the future, we must, at times, share our proprietary technology and other confidential information, including trade secrets, with such third parties. We seek to protect our proprietary technology and other confidential information, in part, by entering into confidentiality agreements and, if applicable, material transfer agreements, collaborative research agreements, consulting agreements or other similar agreements with our collaborators, contractors, advisors, employees and consultants prior to beginning research or disclosing any such proprietary technology or confidential information. These agreements typically limit the rights of the third parties to use or disclose our proprietary or confidential information. Despite the contractual provisions employed when working with third parties and our efforts to protect our proprietary technology and confidential information, the need to share trade secrets and other confidential information increases the risk that such trade secrets and confidential information become known by our competitors or other third parties, are independently developed or published by third parties, are inadvertently incorporated into the technology of others or are disclosed or used in violation of these agreements. Given that our proprietary position is based, in part, on our know-how and trade secrets, a competitor's or third party's discovery of our know-how and trade secrets or any other unauthorized use or disclosure of such know-how and trade secrets would impair our competitive position and may have a material adverse effect on our business, financial condition, results of operations and prospects.

Risks relating to the securities markets and an investment in our stock

We expect that our stock price will fluctuate significantly and investors may not be able to resell their shares at or above the initial public offering price.

The trading price of our common stock following this offering may be highly volatile and could be subject to wide fluctuations in response to various factors, many of which are beyond our control. The stock market in general and the market for biopharmaceutical companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, you may not be able to sell your common stock at or above the initial public offering price. The market price for our common stock may be influenced by many factors, including those discussed in this "Risk Factors" section and elsewhere in this prospectus and the following:

the results of our efforts to discover, develop, acquire or in-license product candidates;

success of competitive products or technologies;

results or delays in clinical trials or changes in the development status of our future product candidates;

any delay in our regulatory filings for any product candidates and any adverse development or perceived adverse development with respect to the applicable regulatory authority's review of such filings;

regulatory or legal developments in the United States and other countries, especially changes in laws or regulations applicable to our products, including clinical trial requirements for approvals;

our inability to obtain or delays in obtaining adequate product supply for any approved product or inability to do so at acceptable prices;

56


Table of Contents

any failure to commercialize any product candidates or if the size and growth of the markets we intend to target fail to meet expectations;

additions or departures of key scientific or management personnel;

unanticipated serious safety concerns related to our or our competitors' product candidates;

introductions or announcements of new products offered by us or significant acquisitions, strategic partnerships, joint ventures or capital commitments by us, our collaborators or our competitors and the timing of such introductions or announcements;

our ability to effectively manage our growth;

our ability to successfully treat additional types of genetic-based diseases;

changes in the structure of healthcare payment systems;

actual or anticipated changes in estimates to or projections of financial results, development timelines or recommendations by securities analysts;

publication of research reports about us or our industry or positive or negative recommendations or withdrawal of research coverage by securities analysts;

market conditions in the pharmaceutical and biotechnology sectors or the economy generally;

our ability or inability to raise additional capital through the issuance of equity or debt or collaboration arrangements and the terms on which we raise it;

trading volume of our common stock;

disputes or other developments relating to proprietary rights, including patents, litigation or interference matters and our ability to obtain patent protection for our technologies;

significant lawsuits, including patent or stockholder litigation; and

general economic, industry and market conditions.

If our quarterly operating results fall below the expectations of investors or securities analysts, the price of our common stock could decline substantially. Furthermore, any quarterly fluctuations in our operating results may, in turn, cause the price of our stock to fluctuate substantially. We believe that quarterly comparisons of our financial results are not necessarily meaningful and should not be relied upon as an indication of our future performance.

The stock market in general, and market prices for the securities of biopharmaceutical companies like ours in particular, have from time to time experienced volatility that often has been unrelated to the operating performance of the underlying companies. These broad market and industry fluctuations may adversely affect the market price of our common stock, regardless of our operating performance.

In several recent situations when the market price of a stock has been volatile, holders of that stock have instituted securities class action litigation against the company that issued the stock. If any of our stockholders were to bring a lawsuit against us, the defense and disposition of the lawsuit could be costly and divert the time and attention of our management and harm our operating results.

57


Table of Contents

An active trading market for our common stock may not develop.

Prior to this offering, there has been no public market for our common stock and an active trading market for our shares may never develop or be sustained following this offering. The initial price to the public for our common stock was determined through negotiations with the underwriters, and the negotiated price may not be indicative of the market price of the common stock after the offering. The lack of an active market may impair investors' ability to sell their shares at the time they wish to sell them or at a price that they consider reasonable, may reduce the market value of their shares and may impair our ability to raise capital. Further, Apple Tree Partners IV, L.P, together with its affiliates, or Apple Tree, owned all of our outstanding capital stock as of September 30, 2016, and the sales of stock by Apple Tree, or the lack thereof, may have a material adverse effect on our stock price and trading volume.

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.

The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. We do not currently have, and may never obtain, research coverage by industry or financial analysts. If no, or few, analysts commence coverage of us, the trading price for our stock would be negatively impacted. If one or more of the analysts who covers us downgrades our stock or publishes inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our stock could decrease, which could cause our stock price and trading volume to decline.

Apple Tree will continue to own a majority of our common stock after this offering and will be able to control or exercise significant influence over matters subject to stockholder approval.

Apple Tree owned all of our capital stock as of December 31, 2016. Upon completion of this offering and concurrent private placement, Apple Tree will beneficially own 73.9% of our capital stock (or 71.1% if the underwriters' exercise their option in full to purchase additional shares), excluding any shares that Apple Tree may purchase in this offering. Accordingly, after this offering, Apple Tree will be able to determine the composition of the board of directors, retain the voting power to approve all matters requiring stockholder approval, including mergers and other business combinations, and continue to have significant influence over our operations. The interests of Apple Tree could deviate from the interests of our other stockholders. In addition, the concentration of ownership could have the effect of delaying or preventing a change in our control or otherwise discouraging a potential acquirer from attempting to obtain control of us that you may believe are in your best interests as one of our stockholders. This in turn could have a material adverse effect on our stock price and may prevent attempts by our stockholders to replace or remove the board of directors.

Because we qualify for, and intend to rely on, the exemptions from corporate governance requirements as a result of being a "controlled company" within the meaning of the NASDAQ listing standards, you will not have the same protections afforded to stockholders of companies that are subject to such requirements.

Upon the completion of this offering, Apple Tree will continue to control a majority of our common stock. As a result, we are a "controlled company" within the meaning of the NASDAQ listing standards. Under these rules, a company of which more than 50% of the voting power is held by an individual, a group or another company is a "controlled company" and may elect not to comply with certain NASDAQ corporate governance requirements, including the requirement that a majority of the board of directors consist of independent directors. Following this offering, we intend to rely on certain of these exemptions.

58


Table of Contents

Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of the NASDAQ corporate governance requirements.

If you purchase shares of common stock in this offering, you will suffer immediate dilution of your investment.

The initial public offering price of our common stock is substantially higher than the net tangible book value per share of our common stock. Therefore, if you purchase shares of our common stock in this offering, you will pay a price per share that substantially exceeds our net tangible book value per share after this offering. To the extent shares subsequently are issued under outstanding options or restricted stock units, you will incur further dilution. Based on the assumed initial public offering price of $19.50 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, you will experience immediate dilution of $12.45 per share, representing the difference between our pro forma as adjusted net tangible book value per share, which gives effect to this offering and the concurrent private placement, and the assumed initial public offering price. In addition, purchasers of common stock in this offering will have contributed approximately 36% of the aggregate price paid by all purchasers of our stock but will own only approximately 28% of our common stock outstanding after this offering (or 40% and 31%, respectively, if the underwriters exercise their option in full to purchase additional shares). See "Dilution".

Our management team has broad discretion to use the net proceeds from this offering and concurrent private placement and its investment of these proceeds may not yield a favorable return. They may invest the proceeds of this offering in ways with which investors disagree.

We expect to use the net proceeds from this offering and concurrent private placement for the commercialization of Probuphine, advancement of product candidates in clinical development and for working capital and other general corporate purposes. We may also use a portion of the net proceeds to acquire, license and invest in complementary products, technologies or businesses; however, we currently have no agreements or commitments to complete any such transaction. However, within the scope of our plan, and in light of the various risks to our business that are set forth in this section, our management will have broad discretion over the use of proceeds from this offering and concurrent private placement, and we could spend the proceeds from this offering and concurrent private placement in ways our stockholders may not agree with or that do not yield a favorable return, if at all. If we do not invest or apply the proceeds of this offering and concurrent private placement in ways that improve our operating results, we may fail to achieve expected financial results, which could cause our stock price to decline. See "Use of Proceeds".

Future sales of our common stock or securities convertible or exchangeable for our common stock may depress our stock price.

Our stockholders prior to the sale of shares in our initial public offering may continue to hold a substantial number of shares of our common stock that they are able to sell in the public market, subject in some cases to certain legal restrictions. Significant portions of these shares are held by a small number of stockholders. If these stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market, the trading price of our common stock could decline. The perception in the market that these sales may occur could also cause the trading price of our common stock to decline.

Our executive officers, directors and the holders of options and restricted stock units, or RSUs, have entered into market standoff agreements with us or lock-up agreements with the underwriters under which they have agreed, subject to specific exceptions, not to sell any of our stock for 180 days following the date of this prospectus. We refer to such period as the lock-up period. Upon expiration of the lock-up

59


Table of Contents

period, up to approximately 1,252,000 shares of our common stock subject to RSUs are expected to have satisfied both the service-based vesting condition and liquidity-based vesting condition and may be eligible for sale in the public market at that time. In order to avoid pressure on our stock's trading volume at the expiration of the lock-up period, beginning as early as 90 days from the date of this prospectus through the end of the lock-up period, we expect to waive the liquidity-based vesting condition with respect to certain RSUs and to permit the sale of a number of shares subject to RSUs in the public market in order to satisfy income tax obligations for such individuals resulting from the vesting and settlement of the outstanding RSUs. We expect that up to approximately 424,000 shares, 40,000 shares, 394,000 shares and 394,000 shares will be eligible for sale into the public market on the 90th day, the 120th day, the 150th day and the 180th day, respectively, after the date of this prospectus, which may be subject to increase as agreed in writing with the underwriters. Beginning 181 days after the date of this prospectus, the remainder of the shares of our common stock will be eligible for sale in the public market from time to time thereafter, subject in some cases to the volume and other restrictions of Rule 144 promulgated under the Securities Act. If these additional shares of common stock are sold, or if it is perceived that they will be sold, in the public market, the trading price of our common stock could decline.

Anti-takeover provisions under our charter documents and Delaware law could delay or prevent a change of control which could limit the market price of our common stock and may prevent or frustrate attempts by our stockholders to replace or remove our current management.

Our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that could delay or prevent a change of control of our company or changes in our board of directors that our stockholders might consider favorable. Some of these provisions include:

a board of directors divided into three classes serving staggered three-year terms, such that not all members of the board will be elected at one time;

a prohibition on stockholder action through written consent, which requires that all stockholder actions be taken at a meeting of our stockholders;

a requirement that special meetings of stockholders be called only by the chairman of the board of directors, the chief executive officer, the president or by a majority of the total number of authorized directors;

advance notice requirements for stockholder proposals and nominations for election to our board of directors;

a requirement that no member of our board of directors may be removed from office by our stockholders except for cause and, in addition to any other vote required by law, upon the approval of not less than 75% of all outstanding shares of our voting stock then entitled to vote in the election of directors;

a requirement of approval of not less than 75% of all outstanding shares of our voting stock to amend any bylaws by stockholder action or to amend specific provisions of our certificate of incorporation; and

the authority of the board of directors to issue preferred stock on terms determined by the board of directors without stockholder approval and which preferred stock may include rights superior to the rights of the holders of common stock.

In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporate Law, which may prohibit certain business combinations with stockholders owning 15% or more of our outstanding voting stock. These anti-takeover provisions and other provisions

60


Table of Contents

in our amended and restated certificate of incorporation and amended and restated bylaws could make it more difficult for stockholders or potential acquirers to obtain control of our board of directors or initiate actions that are opposed by the then-current board of directors and could also delay or impede a merger, tender offer or proxy contest involving our company. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing or cause us to take other corporate actions you desire. Any delay or prevention of a change of control transaction or changes in our board of directors could cause the market price of our common stock to decline.

We have never paid dividends on our capital stock, and we do not anticipate paying any cash dividends in the foreseeable future.

The continued operation and expansion of our business will require substantial funding. Investors seeking cash dividends in the foreseeable future should not purchase our common stock. Although Braeburn BVBA paid a liquidating cash dividend upon its dissolution in November 2015, we have never paid cash dividends on any of our classes of capital stock to date and we currently intend to retain our available cash to fund the development and growth of our business. Any determination to pay dividends in the future will be at the discretion of our board of directors and will depend upon results of operations, financial condition, contractual restrictions, restrictions imposed by applicable law and other factors our board of directors deems relevant. We do not anticipate paying any cash dividends on our common stock in the foreseeable future. Any return to stockholders will therefore be limited to the appreciation in the market price of their stock, which may never occur.

Our certificate of incorporation will provide that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders' ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our certificate of incorporation will provide that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a breach of fiduciary duty, any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our certificate of incorporation or our bylaws, any action to interpret, apply, enforce, or determine the validity of our certificate of incorporation or bylaws, or any action asserting a claim against us that is governed by the internal affairs doctrine. The choice of forum provision may limit a stockholder's ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees. Alternatively, if a court were to find the choice of forum provision contained in our certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business and financial condition.

If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial condition, results of operations or cash flows, which may adversely affect investor confidence in us and, as a result, the value of our common stock.

The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal control over financial reporting. Commencing with our first annual report on Form 10-K, we will be required, under Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. A material weakness is a control deficiency, or combination of control deficiencies, in internal

61


Table of Contents

control over financial reporting that results in more than a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected on a timely basis. Section 404 of the Sarbanes-Oxley Act also generally requires an attestation from our independent registered public accounting firm on the effectiveness of our internal control over financial reporting. However, for as long as we remain an emerging growth company as defined in the JOBS Act, we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirement.

Our compliance with Section 404 will require that we incur substantial accounting expense and expend significant management efforts. We currently do not have an internal audit group, and we will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge, and compile the system and process documentation necessary to perform the evaluation needed to comply with Section 404. We may not be able to complete our evaluation, testing and any required remediation in a timely fashion, which could potentially subject us to sanctions or investigations by the SEC, or other regulatory authorities. During the evaluation and testing process, if we identify one or more material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal control over financial reporting is effective. We cannot assure you that there will not be material weaknesses or significant deficiencies in our internal control over financial reporting in the future. Any failure to maintain internal control over financial reporting could severely inhibit our ability to accurately report our financial condition, results of operations or cash flows. If we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm determines we have a material weakness or significant deficiency in our internal control over financial reporting once that firm begin its reviews, we could lose investor confidence in the accuracy and completeness of our financial reports, the market price of our common stock could decline, and we could be subject to sanctions or investigations by NASDAQ, the SEC, or other regulatory authorities. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets.

Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud and the accuracy and timing of our financial reporting may be adversely affected.

Upon consummation of this offering, we will become subject to the periodic reporting requirements of the Exchange Act. These rules and regulations will require, among other things, that we establish and periodically evaluate procedures with respect to our internal controls over financial reporting. Reporting obligations as a public company are likely to place a considerable strain on our financial and management systems, processes and controls, as well as on our personnel. Our disclosure controls and procedures are designed to reasonably assure that information required to be disclosed by us in reports we file or submit under the Exchange Act is accumulated and communicated to management, recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. We believe that any disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

These inherent limitations reflect the reality that judgments can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements due to error or fraud may occur and not be detected.

62


Table of Contents

If our senior management is unable to conclude that we have effective internal control over financial reporting, or to certify the effectiveness of such controls, or if our independent registered public accounting firm cannot render an unqualified opinion on management's assessment and the effectiveness of our internal control over financial reporting once we cease to be an emerging growth company, or if material weaknesses in our internal controls are identified, we could be subject to regulatory scrutiny and a loss of public confidence, which could have a material adverse effect on our business and our stock price. In addition, if we do not maintain adequate financial and management personnel, processes and controls, we may not be able to manage our business effectively or accurately report our financial performance on a timely basis, which could cause a decline in our common stock price and adversely affect our results of operations and financial condition.

We will need to develop and expand our company, and we may encounter difficulties in managing this development and expansion, which could disrupt our operations.

As of January 1, 2017, we have 97 employees in the United States; 61 are field-based employees engaged in sales, physician training and other marketing support functions, nine are engaged in positions directly related to sales and marketing, 13 are engaged in positions related to clinical development, product development, regulatory and operations and 14 are engaged in positions related to general and administrative, and in connection with becoming a public company, we expect to increase our number of employees and the scope of our operations. To manage our anticipated development and expansion, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities, including the construction of a manufacturing facility, and continue to recruit and train additional qualified personnel. Also, our management may need to divert a disproportionate amount of its attention away from its day-to-day activities and devote a substantial amount of time to managing these development activities. Due to our limited resources, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. This may result in weaknesses in our infrastructure, give rise to operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees. The physical expansion of our operations may lead to significant costs and may divert financial resources from other projects, such as the development of our product candidates. If our management is unable to effectively manage our expected development and expansion, our expenses may increase more than expected, our ability to generate or increase our revenue could be reduced and we may not be able to implement our business strategy. Our future financial performance and our ability to commercialize our product candidates, if approved, and compete will depend, in part, on our ability to effectively manage the future development and expansion of our company.

We will incur increased costs as a result of operating as a public company.

As a public company, and particularly after we are no longer an emerging growth company, we will incur significant legal, accounting and other expenses that we did not incur as a private company, including costs associated with public company reporting requirements. We also anticipate that we will incur costs associated with relatively recently adopted corporate governance requirements, including requirements of the SEC, and the NASDAQ Global Market. We expect these rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly. We also expect that these rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors or as executive officers. We are currently evaluating and monitoring developments with respect to these rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.

63


Table of Contents

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, we will be required to furnish a report by our management on our internal control over financial reporting, including an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. However, while we remain an emerging growth company, we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. To achieve compliance with Section 404 within the prescribed period, we will be engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. Despite our efforts, there is a risk that neither we nor our independent registered public accounting firm will be able to conclude within the prescribed timeframe that our internal control over financial reporting is effective as required by Section 404. This could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements and we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial and management resources.

We are an emerging growth company and the reduced disclosure requirements applicable to emerging growth companies may make our common stock less desirable to investors.

We are an emerging growth company, and, for as long as we continue to be an emerging growth company, we may choose to take advantage of exemptions from various reporting requirements applicable to other public companies but not to "emerging growth companies." We could remain an "emerging growth company" for up to five years, or until the earliest of (1) the last day of the first fiscal year in which our annual gross revenue exceeds $1 billion, (2) the date that we become a "large accelerated filer" as defined in Rule 12b-2 under the Securities Exchange Act of 1934, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter or (3) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three-year period. For so long as we remain an "emerging growth company," we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include:

not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002;

not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor's report providing additional information about the audit and the financial statements; and

reduced disclosure obligations regarding executive compensation.

We may choose to take advantage of some, but not all, of the available exemptions. We have taken advantage of reduced reporting burdens in this prospectus. In particular, we have not included all of the executive compensation information that would be required if we were not an emerging growth company. We cannot predict whether investors will find our common stock less attractive if we rely on certain or all of these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

64


Table of Contents

In addition, the JOBS Act provides that an emerging growth company may take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

After the completion of this offering, we may be at an increased risk of securities class action litigation.

Historically, securities class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is especially relevant for us because biotechnology and pharmaceutical companies have experienced significant stock price volatility in recent years. If we were to be sued, it could result in substantial costs and a diversion of management's attention and resources, which could harm our business.

65


Table of Contents

Special note regarding forward-looking statements

This prospectus contains forward-looking statements within the meaning of the federal securities laws, and these statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as "may," "will," "should," "expects," "plans," "anticipates," "could," "intends," "target," "projects," "contemplates," "believes," "estimates," "predicts," "potential" or "continue" or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this prospectus include, but are not limited to, statements about:

the accuracy of our estimates regarding expenses, future revenues, cash forecasts, and capital requirements;

the expected timing of progress and reporting results from our clinical trials of Probuphine, CAM2038, BB0817 and our other product candidates and expected timing of regulatory filings and approvals, including the timing for submitting an NDA to the FDA for such product candidates;

our ability to successfully commercialize Probuphine and launch weekly and monthly CAM2038, if approved, for the treatment of opioid addiction, based on our sales and marketing plans;

our commercialization, marketing and manufacturing capabilities and strategy;

our ability to establish our products as new standards of care in the therapeutic markets in which we operate;

the willingness of healthcare providers to prescribe and patients to use our implantable and injectable medications;

the performance of our third-party contract manufacturers and clinical research organizations;

our ability to construct and operate our own manufacturing plant and to find and qualify suitable suppliers;

the size of markets and the potential market opportunity for which our products are approved and our ability to penetrate such markets;

the rate and degree of market acceptance of our products for any indication once approved;

our ability to obtain additional financing when needed;

our competitive position and the success of competing products that are or become available for the indications that we are pursuing;

our intellectual property position;

the loss of key scientific or management personnel; and

regulatory and political developments in the United States and foreign countries.

We caution you that the foregoing list may not contain all of the forward-looking statements made in this prospectus.

66


Table of Contents

You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this prospectus primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in "Risk Factors" and elsewhere in this prospectus. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this prospectus. You should read this prospectus and the documents that we reference in this prospectus and have filed with the Securities and Exchange Commission as exhibits to the registration statement, of which this is a part, completely and with the understanding that the results, events and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.

The forward-looking statements made in this prospectus relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this prospectus to reflect events or circumstances after the date of this prospectus or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

67


Table of Contents

Industry and market data

We obtained the industry and market data in this prospectus from our own internal estimates and research as well as from industry and general publications and research, surveys, studies and trials conducted by third parties. Some data is also based on our good faith estimates, which are derived from management's knowledge of the industry and independent sources. This data involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. We are responsible for all of the disclosure contained in this prospectus, and we believe these industry and general publications and third-party research, surveys, studies and trials are reliable. In addition, while we believe the market opportunity information included in this prospectus is generally reliable and is based on reasonable assumptions, such data involves risks and uncertainties and are subject to change based on various factors, including those discussed under the heading "Risk Factors." These and other factors could cause our results to differ materially from those expressed in the estimates made by third parties and by us.

68


Table of Contents

Use of proceeds

We estimate that the net proceeds from the sale of shares of our common stock that we are selling in this offering will be approximately $137.2 million, based upon an assumed initial public offering price of $19.50 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters' option to purchase additional shares from us is exercised in full, we estimate that our net proceeds would be approximately $158.2 million, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

Each $1.00 increase or decrease in the assumed initial public offering price of $19.50 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus would increase or decrease the net proceeds that we receive from this offering by approximately $7.2 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions payable by us. Similarly, each increase or decrease of one million in the number of shares of common stock offered by us would increase or decrease the net proceeds that we receive from this offering by approximately $18.1 million, assuming the assumed initial public offering price remains the same and after deducting the estimated underwriting discounts and commissions payable by us. A one million share increase in the number of shares offered by us together with a concomitant $1.00 increase in the assumed initial public offering price of $19.50 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase the net proceeds to us from this offering by $26.2 million after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Conversely, a one million share decrease in the number of shares offered by us together with a concomitant $1.00 decrease in the assumed initial public offering price of $19.50 per share, which is the midpoint of the estimated price range set forth on the cover page of this prospectus, would decrease the net proceeds to us from this offering by $24.4 million after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

We currently expect to use the net proceeds from the offering as follows:

commercialization of Probuphine, advancement of product candidates in clinical development; and

the remaining proceeds, if any, to fund new and ongoing research and development activities, working capital and other general corporate purposes, which may include funding for the hiring of additional personnel, capital expenditures and the costs of operating as a public company.

Based on our current plans, we believe our cash, cash equivalents and short-term investments, together with the net proceeds to us from this offering and the concurrent private placement, will be sufficient to fund our operations for at least the next 12 months.

This expected use of the net proceeds from this offering represents our intentions based upon our current plans and business conditions. As of the date of this prospectus, we cannot predict with certainty all of the particular uses for the net proceeds to be received upon the completion of this offering or the amounts that we will actually spend on the uses set forth above. The amounts and timing of our actual expenditures and the extent of clinical development may vary significantly depending on numerous factors, including the progress of our development efforts, the status of and results from nonclinical studies and any ongoing clinical trials or clinical trials we may commence in the future, as well as any collaborations that we may enter into with third parties for our product candidates and any unforeseen cash needs. As a result, our management will retain broad discretion over the allocation of the net proceeds from this offering and the concurrent private placement.

Pending our use of the net proceeds from this offering, we intend to invest the net proceeds in a variety of capital preservation investments, including short-term, investment-grade, interest-bearing instruments and U.S. government securities.

69


Table of Contents

Dividend policy

We have never declared or paid any cash dividends on our capital stock. However, in connection with its dissolution in November 2015, Braeburn BVBA transferred its assets to Apple Tree, including its cash which was deemed to be a liquidating cash dividend by Braeburn BVBA. We currently intend to retain all available funds and any future earnings, if any, to fund the development and expansion of our business and we do not anticipate paying any cash dividends in the foreseeable future. Any future determination to pay cash dividends will be made at the discretion of our board of directors. Investors should not purchase our common stock with the expectation of receiving cash dividends.

70


Table of Contents

Capitalization

The following table sets forth our cash, cash equivalents and capitalization as of September 30, 2016:

on an actual basis;

on a pro forma basis to give effect to (i) the conversion of all outstanding shares of our convertible preferred stock, into an aggregate of 16,503,945 shares of common stock, par value $0.0001 upon the completion of this offering and the filing of our amended and restated certificate of incorporation upon the completion of this offering, and (ii) the issuance of 991,110 shares of common stock related to restricted stock units granted under the 2015 Equity Incentive Plan that were both the service-based vested and liquidity-based vested at the completion of our proposed initial public offering which are included for purposes of this calculation, but are subject to lock-up agreements with the underwriters that preclude sales for at least 180 days following the date of this prospectus without prior approval from the underwriters; and

on a pro forma as adjusted basis to give further effect to (i) the sale of 7,692,308 shares of our common stock offered in this offering, based on an assumed an initial public offering price of $19.50 per share, which is the midpoint of the estimated price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us and (ii) the sale of $40 million shares of our common stock in a concurrent private placement to Apple Tree (or 2,051,282 shares of common stock, based on the assumed initial public offering price of $19.50 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus).

Our capitalization following the closing of this offering will be adjusted based on the actual initial public offering price and other terms of the offering determined at pricing. You should read this information together with our audited consolidated financial statements and related notes appearing elsewhere in this

71


Table of Contents

prospectus and the information set forth under the heading "Selected Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations."

 
   
   
   
 
 
  As of September 30, 2016  
 
  Actual
  Pro Forma
  Pro Forma
As Adjusted

 
 
  (unaudited)

  (in thousands, except share amounts)
 

Cash and cash equivalents(1)

  $ 23,528   $ 23,528   $ 200,769  

Stockholders' equity:

                   

Convertible preferred stock (Series A Preferred Stock), $0.0001 par value; 350,000,000 shares authorized, 222,803,262 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted

    22          

Preferred Stock, $0.0001 par value; 1,000,000 shares authorized, no shares issued or outstanding, actual; no shares authorized, issued or outstanding, pro forma; no shares authorized, issued or outstanding, adjusted

             

Common Stock, $0.0001 par value; 90,000,000 shares authorized, no shares issued or outstanding, actual; 90,0000 shares authorized, 17,495,055 shares issued and outstanding, pro forma; 90,000,000 shares authorized, 27,238,645 shares issued and outstanding, adjusted(1,2,3)

        2     3  

Accumulated other comprehensive income

             

Additional paid-in capital

    233,572     238,133     415,373  

Accumulated deficit

    (199,921 )   (204,462 )   (204,462 )

Total stockholders' equity

    33,673     33,673     210,914  

Total capitalization

  $ 33,673   $ 33,673   $ 210,914  

(1)    The pro forma adjustments do not reflect the (i) $22 million capital contribution from Apple Tree in October 2016 in connection with the issuance and sale of 22,000,000 shares of our series A preferred stock, or 1,629,629 shares of our common stock at the applicable conversion rate of 13.5 preferred shares for 1 common share, or (ii) the $22 million capital contribution from Apple Tree in December 2016 in connection with the further issuance and sale of 22,000,000 shares of our series A preferred stock, or 1,629,629 shares of our common stock at the applicable conversion rate of 13.5 preferred shares for 1 common share.

(2)    The pro forma adjustments to common stock include (i) the conversion of 222,803,262 shares of our series A preferred stock into 16,503,945 shares of our common stock, at the applicable conversion rate of 13.5 preferred shares for 1 common share, and (ii) the issuance of 991,110 shares of common stock related to restricted stock units granted under the 2015 Equity Incentive Plan that were both service-based vested and liquidity-based vested at the completion of our proposed initial public offering.

(3)    The pro form as adjusted column includes the adjustments described in footnote 2 above as well as (i) the sale of 7,692,308 of our common stock offered in this offering, based on an assumed initial public offering price of $19.50 per share, which is the midpoint of the estimated price range set forth on the cover page of this prospectus, and (ii) the sale of 2,051,282 shares of common stock, based on an assumed initial public offering price of $19.50 per share, which is the midpoint of the estimated price range set forth on the cover page of this prospectus, in the concurrent private placement to Apple Tree.

72


Table of Contents

A $1.00 increase or decrease in the assumed initial public offering price of $19.50 per share, which is the midpoint of the estimated price range set forth on the cover page of this prospectus, would increase or decrease each of cash and cash equivalents, additional paid-in capital, total stockholders' deficit (equity) and total capitalization on a pro forma as adjusted basis by approximately $7.2 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. An increase or decrease of one million shares in the number of shares offered by us would increase or decrease each of cash and cash equivalents, additional paid-in capital, total stockholders' deficit (equity) and total capitalization on a pro forma as adjusted basis by approximately $18.1 million, assuming no change in the assumed initial public offering price of $19.50 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. A one million share increase in the number of shares offered by us together with a concomitant $1.00 increase in the assumed initial public offering price of $19.50 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase each of cash and cash equivalents, total stockholders' equity and total capitalization by $26.2 million after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Conversely, a one million share decrease in the number of shares offered by us together with a concomitant $1.00 decrease in the assumed initial public offering price of $19.50 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would decrease each of cash and cash equivalents, total stockholders' equity and total capitalization by $24.4 million after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The number of shares of our common stock shown as outstanding on an actual, pro forma and pro forma as adjusted basis in the table above is based on no shares of common stock outstanding as of September 30, 2016, in addition to the 16,503,945 shares of our common stock issuable upon the conversion of our convertible preferred stock, which excludes:

1,100,000 shares of common stock reserved for future issuance under our 2017 Stock Option and Incentive Plan, plus annual increases thereunder, as described in the section "Executive Compensation—Stock Option Plans—2017 Stock Option and Incentive Plan," which will become effective on the date immediately prior to the date on which the registration statement of which this prospectus is part is declared effective;

1,013,417 shares of common stock reserved for future issuance under our 2015 Equity Incentive Plan, after giving effect to the reverse stock split and taking into account awards that have been granted as described below; and

75,925 shares of our common stock issuable upon the exercise of outstanding options as of September 30, 2016 at a weighted average exercise price of $2.38 per share.

73


Table of Contents

Dilution

If you invest in our common stock in this offering, your ownership interest will be diluted to the extent of the difference between the initial public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock immediately after this offering. Net tangible book value dilution per share to new investors represents the difference between the amount per share paid by purchasers of shares of common stock in this offering and the pro forma as adjusted net tangible book value per share of common stock immediately after completion of this offering.

Net tangible book value per share is determined by dividing our total tangible assets, which is comprised of our total assets less our net intangible assets of $14.3 million and the capitalized fair-value of our portion of the building related to our North Carolina build-to-suit lease of $4.6 million, less our total liabilities by the number of shares of common stock outstanding. As of September 30, 2016, there were no shares of common stock outstanding. Our pro forma net tangible book value (deficit) as of September 30, 2016 was $14.7 million, or $0.84 per share, based on the total number of shares of our common stock outstanding as of September 30, 2016, after giving effect to (i) the conversion of all outstanding shares of our convertible preferred stock as of September 30, 2016 into an aggregate of 16,503,945 shares of common stock, which conversion will occur immediately prior to the completion of this offering; and (ii) the issuance of 991,110 shares of common stock related to restricted stock units that were both service-based vested and liquidity-based vested as of the completion of this offering.

After giving effect to the sale by us of 7,692,308 shares of common stock in this offering based on the assumed initial public offering price of $19.50 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us and the sale of 2,051,282 shares of our common stock in the concurrent private placement to Apple Tree, based on the assumed initial public offering price of $19.50 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, our pro forma as adjusted net tangible book value as of September 30, 2016 would have been $192.0 million, or $7.05 per share. This represents an immediate increase in pro forma net tangible book value of $6.21 per share to our existing stockholders and immediate dilution of $12.45 per share to investors purchasing shares of common stock in this offering at the assumed initial public offering price. The following table illustrates this dilution:

Assumed initial public offering price per share

        $ 19.50  

Historical net tangible book value per share as of September 30, 2016

  $ 0.00        

Pro forma increase in net tangible book value per share attributable to the conversion of preferred stock and issuance of restricted stock units

  $ 0.84        

Pro forma net tangible book value per share as of September 30, 2016

  $ 0.84        

Increase in net tangible book value per share attributable to new investors          

  $ 6.21        

Pro forma net tangible book value per share after this offering

        $ 7.05  

Dilution per share to new investors

        $ 12.45  

Each $1.00 increase or decrease in the assumed initial public offering price of $19.50 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, our pro forma as adjusted net tangible book value per share to new investors by $0.29, and would increase or decrease, as applicable, dilution per share to new investors in this offering by $13.16 or $11.74, respectively, assuming that the number of shares offered by us, as set

74


Table of Contents

forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions payable by us. An increase of one million shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase the pro forma as adjusted net tangible book value per share after this offering by $0.39 and decrease the dilution per share to new investors participating in this offering by $12.06, assuming the assumed initial public offering price remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. A decrease of one million shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would decrease the pro forma as adjusted net tangible book value per share after this offering by $0.42 and increase the dilution per share to new investors participating in this offering by $12.88, assuming the assumed initial public offering price remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. A one million share increase in the number of shares offered by us together with a concomitant $1.00 increase in the assumed initial public offering price of $19.50 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase the pro forma as adjusted net tangible book value per share after this offering by $0.71 and increase the dilution per share to new investors participating in this offering by $12.75, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Conversely, a one million share decrease in the number of shares offered by us together with a concomitant $1.00 decrease in the assumed initial public offering price of $19.50 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would decrease the pro forma as adjusted net tangible book value per share after this offering by $0.69 and decrease the dilution per share to new investors participating in this offering by $12.14, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. The information discussed above is illustrative only and will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing.

If the underwriters exercise their option to purchase additional shares from us in full, the pro forma as adjusted net tangible book value per share of our common stock immediately after this offering would be $7.50 per share, and the dilution in pro forma net tangible book value per share to new investors in this offering would be $12.00 per share.

The following table presents, on a pro forma as adjusted basis as of September 30, 2016, after giving effect to the conversion of all outstanding shares of convertible preferred stock into common stock immediately prior to the completion of this offering and the issuance of shares of common stock related to restricted stock units that were both service-based vested and liquidity-based vested at completion of this offering, the differences between the existing stockholders, Apple Tree as the concurrent private placement investor, and the new investors purchasing shares of our common stock in this offering with respect to the number of shares purchased from us, the total consideration paid or to be paid to us, which includes net proceeds received from the issuance of common stock and convertible preferred stock, cash received from the exercise of stock options, and the average price per share paid or to be paid to us at an assumed offering price of $19.50 per share, which is the midpoint of the estimated offering price range set forth on

75


Table of Contents

the cover page of this prospectus, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us:

 
   
   
   
   
   
 
 
  Shares purchased   Total consideration    
 
 
  Average price
per share

 
 
  Number
  Percent
  Amount
  Percent
 

Existing stockholders(1)

    17,495,055     64%   $ 222,803,262     54%   $ 12.74  

Concurrent private placement investor

    2,051,292     8%     40,000,000     10%   $ 19.50  

New investors

    7,692,308     28%     150,000,000     36%   $ 19.50  

Total

    27,238,645     100%   $ 412,803,262     100%   $ 15.16  

(1)    Includes the issuance of 991,110 shares of common stock related to restricted stock units that were both service-based vested and liquidity-based vested at completion of this offering.

     Except as otherwise indicated, the above discussion and tables assume no exercise of the underwriters' option to purchase additional shares. If the underwriters exercise their option to purchase additional shares in full from us, our existing stockholders would own 62%, the concurrent private placement investor would own 7% and our new investors would own 31% of the total number of shares of our common stock outstanding upon the completion of this offering.

The number of shares of our common stock to be outstanding after this offering is based on 16,503,945 shares of our common stock issuable upon the conversion of our convertible preferred stock and 991,110 shares of common stock related to restricted stock units that were both service-based vested and liquidity-based vested at completion of this offering, and excludes:

the $22 million capital contribution from Apple Tree in October 2016 in connection with the issuance and sale of 22,000,000 shares of our series A preferred stock (or 1,629,629 shares of our common stock at the applicable conversion rate of 13.5 preferred shares for 1 common share) and the $22 million capital contribution from Apple Tree in December 2016 in connection with the issuance and sale of 22,000,000 shares of our series A preferred stock (or 1,629,629 shares of our common stock at the applicable conversion rate of 13.5 preferred shares for 1 common share);

1,100,000 shares of common stock reserved for future issuance under our 2017 Stock Option and Incentive Plan, plus annual increases thereunder, as described in the section "Executive Compensation—Stock Option Plans—2017 Stock Option and Incentive Plan," which will become effective on the date immediately prior to the date on which the registration statement of which this prospectus is part is declared effective;

1,013,417 shares of common stock reserved for future issuance under our 2015 Equity Incentive Plan, after giving effect to the reverse stock split and taking into account awards that have been granted as of January 1, 2017 as described below; and

75,925 shares of our common stock issuable upon the exercise of outstanding options as of September 30, 2016 at a weighted average exercise price of $2.38 per share.

New investors will experience further dilution if any of our outstanding options are exercised, new options are issued and exercised under our equity incentive plans or we issue additional shares of common stock, other equity securities or convertible debt securities in the future.

76


Table of Contents

Selected financial data

You should read the following selected historical consolidated financial data below together with "Capitalization," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements, related notes and other financial information included elsewhere in this prospectus. We derived the statements of operations data for the years ended December 31, 2014 and 2015 and the balance sheet data as of December 31, 2014 and 2015, from our audited consolidated financial statements included elsewhere in this prospectus. The statements of operations data for the nine months ended September 30, 2016 and 2015 and the balance sheet data as of September 30, 2016 have been derived from our unaudited consolidated financial statements appearing at the end of this prospectus and have been prepared on the same basis as the audited consolidated financial statements. Our historical results are not necessarily indicative of results to be expected in any future period.

 
  Year ended December 31,   Nine months ended September 30,  
 
  2014
  2015
  2015
  2016
 

    (in thousands)  

                (unaudited)  

Statement of Operations Data:

                         

Revenue

  $   $ 25   $   $ 42  

Cost of sales

                44  

Gross profit

        25         (2 )

Expenses:

   
 
   
 
   
 
   
 
 

Research and development

    37,195     31,374     16,345     50,933  

Selling, general and administrative

    3,076     6,964     4,031     27,095  

Total expenses

    40,271     38,338     20,376     78,028  

Loss from operations

    (40,271 )   (38,313 )   (20,376 )   (78,030 )

Other income / (expense), net

    (185 )   (650 )   (646 )   1,214  

Loss before income tax expense / (benefit)

    (40,456 )   (38,963 )   (21,022 )   (76,816 )

Income tax expense / (benefit)

        1,600     1,602      

Net loss

    (40,456 )   (40,563 )   (22,624 )   (76,816 )

Other comprehensive income / (loss)

                         

Unrealized gain / (loss) during period, net of tax benefit of $18 and $0 for the year ended December 31, 2015 and 2014 and $215 and $0 for the nine months ended September 30, 2016 and 2015, respectively

    (925 )   2,140     1,635     (28 )

Comprehensive loss

  $ (41,381 ) $ (38,423 ) $ (20,989 ) $ (76,844 )

Net loss per common share, basic and diluted

  $ (1.85 ) $ (0.36 ) $ (0.26 )    

Net loss per preferred share, basic and diluted

      $ (0.33 ) $ (0.26 ) $ (0.45 )

Weighted average basic and diluted common shares outstanding

   
21,867,489
   
76,932,160
   
76,019,503
   
 

Weighted average basic and diluted preferred shares outstanding

        39,826,161     10,000,000     170,923,700  

77


Table of Contents

 
  December 31,    
 
 
  September 30,
2016

 
 
  2014
  2015
 

    (in thousands)  

                (unaudited)  

Balance Sheet Data:

                   

Cash and cash equivalents

  $ 8,755   $ 5,507   $ 23,528  

Prepaid expenses and other current assets

    325     3,017     5,912  

Investment in Titan Pharmaceuticals

    2,888     5,045      

Property and equipment, net

    176     423     11,407  

Intangible assets, net

            14,342  

Other non-current assets

    50     98     1,613  

Total assets

    12,194     14,090     56,802  

Accounts payable, accrued expenses, and other current liabilities

    14,435     7,314     18,469  

Financing obligation and other long-term liabilities

    365     9     4,660  

Total liabilities

    14,800     7,323     23,129  

Total shareholders' equity / (deficit)

    (2,606 )   6,767     33,673  

Total liabilities and shareholders' equity / (deficit)

  $ 12,194   $ 14,090   $ 56,802  

78


Table of Contents

Management's discussion and analysis of financial condition and results of operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with "Selected Financial Data" and our consolidated financial statements and related notes included elsewhere in this prospectus. This discussion and analysis, and other parts of this prospectus, contains forward-looking statements and numerous risks and uncertainties, including but not limited to those described in the "Risk Factors" section of this prospectus. Our actual results, including timing therein, may differ materially from those contained in any forward-looking statements.

You should carefully read the "Risk Factors" section of this prospectus to gain an understanding of the important factors, and related estimates and judgments that may cause actual results to differ materially from our forward-looking statements. Please also see the section entitled "Special Note Regarding Forward-Looking Statements."

Overview

We are a commercial-stage pharmaceutical company focused on the development and commercialization of novel long-acting medications for serious disorders of the central nervous system, or CNS. Our proprietary implantable and injectable delivery mechanisms provide differentiated solutions for chronic diseases with high unmet medical needs. Our specialty CNS focus is on fast-growing therapeutic areas recognized as serious public health crises, where long-acting technologies offer important benefits such as increased medication compliance, improved patient convenience, reduced risk of abuse and relapse and reduced public health and societal costs.

Our lead therapeutic area is opioid addiction, which is sometimes referred to as opioid use disorder or opioid dependence, and is a chronic, relapsing brain disease characterized by long-lasting structural and functional changes in the brain. Our other therapeutic areas of focus are pain, schizophrenia and spasticity, which refers to feelings of stiffness and a wide range of involuntary muscle spasms.

We believe that long-acting medications for specialty CNS conditions are not just a matter of convenience, but are an essential tool for the effective treatment of these diseases. These are chronic CNS conditions requiring constant vigilance, where the consequences of suboptimal treatment compliance can range from severe to life-threatening. For example, patients with opioid addiction are currently limited to treatment with daily medications, for which poor compliance can rapidly lead to relapse, overdose and death. For our lead therapeutic areas of focus, we are focused on developing weekly, monthly and six-month dosage formulations that we believe will allow healthcare providers to treat patients throughout the continuum of care from treatment initiation through long-term maintenance. This enables healthcare providers to prescribe personalized care for each patient across a complex patient base having diverse therapeutic needs.

Our marketed product, Probuphine, was approved by the United States Food and Drug Administration, or FDA, on May 26, 2016, and is the first and only implantable formulation of buprenorphine for the maintenance treatment of opioid addiction. Our lead product candidates, weekly and monthly CAM2038, are subcutaneous injectable formulations of buprenorphine for the treatment of opioid addiction. In November 2016, we reported positive top-line results from a Phase 3 trial of weekly and monthly CAM2038 for opioid addiction. CAM2038 achieved non-inferiority compared to oral daily buprenorphine based on the primary endpoint and superiority to oral daily buprenorphine based on a secondary endpoint. Based on the successful results from this Phase 3 trial, we are working to submit a New Drug Application, or NDA, for

79


Table of Contents

weekly and monthly CAM2038 in the first half of 2017. The FDA has granted fast track designation for weekly and monthly CAM2038 for the treatment of opioid addiction.

Our investigational pipeline also includes late-stage programs in the therapeutic areas of pain and schizophrenia. Because buprenorphine has also been approved for the treatment of chronic pain, we believe our long-acting medications, Probuphine and CAM2038, have the potential to provide a suite of therapeutic products across the continuum of care for pain. We believe our long-acting medications, if approved, will provide continuous around-the-clock therapy, resulting in improved pain relief, increased convenience and enhanced quality of life. We are also developing BB0817, an implant that offers continuous, six-month delivery of risperidone, one of the most effective chemical compounds for the treatment of schizophrenia. Schizophrenia requires life-long treatment, and positive outcomes are significantly dependent on medication compliance, making long-acting treatments especially effective. We believe BB0817 has the potential for unique positioning in the schizophrenia market with a treatment duration that at least doubles currently-marketed injectables, which range from two weeks to three months. We also have two product candidates, BB0417 for the treatment of acute post-operative pain, nausea and vomiting, and BB1216 for the treatment of spasticity, which are in earlier-stages of development.

We were incorporated in 2012 as a wholly-owned subsidiary of Braeburn Pharmaceuticals BVBA SPRL, or Braeburn BVBA, a Belgium domiciled entity also founded in 2012. Together, these entities were a wholly-owned portfolio company of Apple Tree Partners IV, L.P. and its subsidiaries. In November 2015, Braeburn BVBA was voluntarily dissolved, and as a result, we became a wholly-owned portfolio company of Apple Tree Partners IV, L.P.

Critical accounting policies and financial overview

Our management's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which we have prepared in accordance with generally accepted accounting principles in the United States, or GAAP. The preparation of these consolidated 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 consolidated financial statements, as well as the reported revenues and expenses during the reporting periods. We evaluate these estimates and judgments on an ongoing basis. We base our estimates on 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 that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are more fully described above and in Note 1 to our consolidated financial statements appearing elsewhere in this prospectus, we believe that the following accounting policies are also critical for fully understanding and evaluating our financial condition and results of operations.

Financial overview

Revenues

Since approval of our lead product, Probuphine, on May 26, 2016, our efforts have focused on training and certifying healthcare providers and working with payors on reimbursement coverage. We are planning a full-scale commercial launch in the first quarter of 2017 with our new fully-deployed field force, consisting

80


Table of Contents

entirely of our employees. We expect personnel and recruiting costs, travel expenses, training expenses and field-related activities of the new field force to add approximately $15.8 million to our operating expenses in the next fiscal year. Our revenues relate to product sales of Probuphine, and supplies related to the Probuphine insertion and removal procedures.

We recognize revenue from product sales when: (i) the price is substantially fixed or determinable; (ii) the buyer has paid, or is obligated to pay, and the obligation is not contingent on resale of the product; (iii) the obligation would not be changed in the event of theft or physical damage to the product; (iv) the buyer acquiring the product for resale has economic substance apart from that provided by the seller; (v) there is no significant obligation for future performance to directly bring about resale of the product by the buyer; and (vi) returns can be reasonably estimated. We record as deferred revenue any amounts not satisfying all revenue recognition criteria.

Gross-to-net adjustments against receivable balances primarily relate to cash discounts and rebates for co-pay/co-insurance reimbursements, and are recorded in the same period the related revenue is recognized, resulting in a reduction to product sales revenue and the recording of accounts receivable net of allowance. Gross-to-net adjustment accruals related to estimated Medicaid rebates, other sales rebates, and returns are recognized in the same period the related revenue is recognized, resulting in a reduction to product sales revenue, and are included in accrued expenses in the accompanying unaudited condensed consolidated balance sheets.

As Probuphine is a new product, is not an extension of an existing line of product, and we have no historical experience with products in a similar therapeutic category, revenue is deferred until the right of return no longer exists and pricing is fixed or determinable (or, sufficient historical experience to estimate gross-to-net adjustments are developed). Specific considerations for Probuphine are as follows:

Rebates:  We may offer, or may be required to offer, purchase price rebates on the sale of Probuphine including but not limited to mandated discounts under the Medicaid Drug Rebate Program. Rebates are amounts owed after the final dispensing of the product to a benefit plan participant and are based upon contractual agreements or legal requirements with public sector (e.g. Medicaid) benefit providers. The allowance for rebates is based on statutory discount rebate rates and expected utilization by eligible participants. Our estimate for expected utilization for rebates is based on very limited comparative operating history, together with our assessment of actual and pending prescriptions for which it has validated the insurance benefits.

Allowances for rebates also include co-pay or co-insurance rebates to patients. We may assist patients covered under private insurance (non-federal health care programs) for out-of-pocket costs for co-pays or co-insurance, up to a maximum benefit based upon patient financial need. We also may assist patients who self-pay for out-of-pocket costs up to a maximum benefit based upon patient financial need. Our estimate for allowance for rebates for co-pay or co-insurance is based on very limited comparative operating history, together with our assessment of actual and pending claim data received for reimbursement.

Returns:  Under the "buy and bill" model, we will accept product returns, and will not invoice the relevant physician, if our products are returned to us within 30 days of receipt by the physician. Pursuant to an agreement with our exclusive specialty pharmacy distributor, Avella of Dear Valley, Inc., or Avella, we will only accept returns for product that is damaged during transit to Avella, and provided that we received confirmation of such damage within two days of receipt of the relevant product by

81


Table of Contents

    Avella, and if the product is returned to us within five business days of receipt by Avella. We do not record any sales revenue until after the relevant right of return lapses.

Cash discounts:  We extend a cash discount on sales to our exclusive specialty pharmacy distributor, Avella.

We include shipping and handling costs in cost of sales, as appropriate.

Research and development expense

Research and development, or R&D, expenses relate to our investments in clinical studies and the development of new products and therapies. Our research and development efforts include the development of product offerings along the continuum of care for opioid addiction, pain, schizophrenia and spasticity. Our research and development program is also leveraging our core understanding of long-acting implantable and injectable technologies. R&D expenses include but are not limited to the following:

fees paid to consultants and clinical research organizations, or CROs, including in connection with our nonclinical and clinical trials, and other related clinical trial fees, such as for investigator grants, patient screening, laboratory work, clinical trial database management, clinical trial material management and statistical compilation and analysis;

payments, including milestone and technology access payments, made under third-party licensing agreements where such products have no alternative future where the relevant product is not approved for sale by the FDA;

costs related to acquiring clinical trial materials;

costs related to compliance with regulatory requirements;

inventory costs where such inventory is not capable of being held for sale because it is not approved by the FDA; and

costs related to salaries, bonuses and other compensation for employees in research and development functions.

We expense research and development costs as they are incurred. We expect research and development expense to be our largest category of operating expense and to fluctuate from period to period based on the timing of specific research, clinical studies, product launches, development and testing initiatives. However, as we increase our commercialization activities for Probuphine, we expect our sales and marketing expenses will increase period over period. Further, invoicing from third-party contractors for R&D services performed during a particular reporting period may lag several months. Management frequently must estimate the costs of such services based on, for example, our estimate of management fees, site management and monitoring costs and data management costs. Differences between actual clinical trial costs from estimated clinical trial costs may be material and are adjusted in the period in which they become certain. Historically, these differences have not been material; however, material

82


Table of Contents

differences could occur in the future. The historic direct costs relating to each of our product candidates are summarized as follows:

 
  Years ended December 31,   Nine months ended
September 30,
 
  2015
  2014
  2016
  2015

  (in thousands)

          (unaudited)   (unaudited)

Probuphine, addiction

  $  8,787   $  6,987   $  4,400   $ 7,503

CAM2038, addiction(1)

  16,308   20,720   28,604   6,346

CAM2038, pain

  840     4,365   469

BB0817(2)

  2,908   9,207   8,227   1,194

Research and development

  $28,843   $36,914   $45,596   $15,512

(1)    The expense for the year ended December 31, 2014 includes approximately $20.0 million for payments for CAM2038 made under a third-party licensing agreement with Camurus AB, or Camurus, which had no alternative future use as CAM2038 is not yet approved for sale by the FDA.

(2)    The expense for the year ended December 31, 2014 includes approximately $9.2 million for payments relating to the MedLaunch Implant Program with FX Therapeutics, Inc., or FX, and Endo Pharmaceuticals, Inc., or Endo, in relation to BB0817 which had no alternative future use as BB0817 is not yet approved for sale by the FDA.

Completion dates and completion costs can vary significantly for each product candidate and are difficult to predict, and often are delayed. We anticipate we will make determinations as to which programs to pursue and how much funding to direct to each program on an ongoing basis in response to the scientific and clinical success or failure of each product candidate, the estimated costs to continue the development program relative to our available resources, as well as an ongoing assessment as to each product candidate's commercial potential.

Selling, general and administrative expenses

Selling, general and administrative expenses consist primarily of compensation for employees in executive, finance, legal and sales and marketing functions. Other selling, general and administrative expenses include facility-related costs not otherwise included in research and development expense; advertising and other similar expenses incurred to direct products for commercial use; and professional fees for legal and accounting services.

We expect that our selling, general and administrative expenses will increase in future periods as a result of our continued efforts to bring our product candidates to market, including increased payroll, commercial and sales operations expenses, and increased service fees for legal, accounting and investor relations expenses. In addition, we expect to incur increased expenses as a result of being a public company.

Inventory valuation

Inventories are stated at the lower of cost or estimated realizable value. Inventories are stated at the actual cost per lot determined using the specific identification method. We capitalize inventory costs associated with our products after regulatory approval by the FDA when, based on management's judgment, future commercialization is considered probable and the future economic benefit is expected to be realized; otherwise, such costs are expensed as research and development. Prior to the receipt of FDA approval for our lead product, Probuphine, on May 26, 2016, we determined to expense all previously incurred inventory costs associated with Probuphine as research and development costs because the inventory was not capable of being held for sale prior to such approval and, further, we had previously received a Complete Response Letter from the FDA for Probuphine in April 2013 following a positive outcome from an earlier FDA Advisory Committee affirmative vote.

83


Table of Contents

We periodically analyze our inventory levels to identify inventory that may expire prior to expected sale or has a cost basis in excess of its estimated realizable value, and write-down such inventories as appropriate. In addition, our product is subject to strict quality control and monitoring which we perform throughout the manufacturing process. If certain batches or units of product no longer meet quality specifications or become obsolete due to expiration, we record a charge to cost of sales to write down such unmarketable inventory to its estimated realizable value.

Impairment of long-lived assets

The useful life of our long-lived assets is determined using the period of expected future cash flows, adjusted for entity-specific factors. Current facts or circumstances are periodically evaluated to determine if the carrying value of depreciable assets to be held and used may not be recoverable. If such circumstances exist, an estimate of undiscounted future cash flows generated by the long-lived asset, or the appropriate grouping of assets, is compared to the carrying value to determine whether an impairment exists at its lowest level of identifiable cash flows. If an asset is determined to be impaired, the loss is measured based on the difference between the asset's fair value and its carrying value. An estimate of the asset's fair value is based on quoted market prices in active markets, if available. If quoted market prices are not available, the estimate of fair value is based on various valuation techniques using Level 3 fair value inputs, including a discounted value of estimated future cash flows. There were no impairments of long-lived assets as of September 30, 2016 and December 31, 2015, respectively.

Leases

We have non-cancelable leases for our manufacturing and office spaces. The leases are reviewed for classification as operating or capital leases. For operating leases, rent is recognized on a straight-line basis over the lease period. For capital leases, we record the leased asset with a corresponding liability. Payments are recorded as reductions to the liability with an appropriate interest charge recorded based on the then-outstanding remaining liability.

For the build-to-suit lease of our manufacturing facility in Durham, North Carolina, we considered the nature of the renovations and our involvement during the construction period of newly leased office space and determined that we are considered to be the owner of the construction project during the construction period. As such, we are required to capitalize the fair value the asset, including potentially the building, construction costs incurred and capitalized interest, on our consolidated balance sheet along with a corresponding financing liability ("build-to-suit accounting"). Upon occupancy for build-to-suit leases, we will assess whether the circumstances qualify for sales recognition under the sale-leaseback accounting guidance. If the lease meets the sale-leaseback criteria, we will remove the asset and related financial obligation from the balance sheet and evaluate the lease for treatment as a capital or operating lease. If upon completion of construction, the project does not meet the sale-leaseback criteria, the leased property will be treated as a capital lease for financial reporting purposes.

Stock-based compensation

We recognize all share-based payments to employees, including grants of employee stock options and restricted share units, or RSUs, at estimated fair value and otherwise pursuant to the requirements of the Braeburn Pharmaceuticals, Inc., 2015 Equity Plan, or 2015 Plan. Equity shares generally vest over a 4-year period, with 25% vesting on the first anniversary of the vesting start date, and 2.08% vesting every month thereafter. The vesting start date of these initial grants has typically been set as the employees' date of hire. Issuances of equity shares to grantees following the initial grant, may vest quarterly or monthly commencing from the relevant grant date. These equity shares and RSUs will not become exercisable until the occurrence of a "liquidation event", which is defined as 180 days following either an initial public

84


Table of Contents

offering or certain change of control transactions, which is considered a performance condition. If a liquidation event occurs following termination of the grantee's service, then the grantee will remain eligible to vest that proportion of equity shares calculated as if the liquidation event and termination date had occurred on the same day. If and when a liquidation event occurs, we will amortize the fair value of stock option or RSU grants on a straight-line basis over the remaining service period of the individual stock option or RSU grant, which generally equals the remaining vesting period. The 2015 Plan also provides that, in the event of certain change of control transactions prior to termination of service, all outstanding, unvested equity shares shall automatically vest. Equity shares granted under the 2015 Plan expire on the tenth anniversary of the date they were granted.

We determined that the performance condition was not probable of achievement at the date of grant because the occurrence of either an initial public offering or change of control is outside of our control, and therefore has not recognized any stock-based compensation expense since inception. As of September 30, 2016, there was approximately $3.0 million of total unrecognized compensation cost related to unvested share-based compensation arrangements granted under the 2015 Plan. This cost is expected to be recognized as compensation expense over the weighted average remaining service period of approximately 1.2 years.

We do not have sufficient history to estimate the volatility of its common stock price or the expected life of the options. We calculate expected volatility based on reported data for similar publicly traded companies for which historical information is available and will continue to do so until the historical volatility of its common stock is sufficient to measure expected volatility for future option grants.

Fair value of common stock

We are a private company with no active public market for our common stock. We utilize significant estimates and assumptions in determining the fair value of our common stock. We performed these valuations as of September 1, 2015 and July 1, 2016, or the Valuation Dates.

The following table presents the grant dates of outstanding employee stock options and RSUs that we granted from January 1, 2014 through September 30, 2016 along with the corresponding exercise price for each grant and our estimate of the fair value per share of our common stock on each grant date, which we utilize to calculate stock-based compensation expense.

 
   
   
   
   
   
   
 
 
  Restricted stock   Nonqualified stock options  
Date of grant
  Number of
shares

  Exercise
price
per share

  Current estimate
of common stock
fair value
per share on
grant date

  Number of
shares

  Exercise
price
per
share

  Current estimate
of common stock
fair value
per share on
grant date

 

September 2015

    829,659   $   $ 2.73       $   $  

October 2015

    159,805   $   $ 2.73       $   $  

January 2016

    47,524   $   $ 2.73       $   $  

April 2016

      $   $     12,962   $ 2.73   $ 2.73  

July 2016

      $   $     62,963   $ 4.13   $ 4.13  

Shares granted as of September 30, 2016

    1,036,988                 75,925              

As of December 31, 2015 and September 30, 2016, there were no vested shares.

85


Table of Contents

In conducting the valuations, our board of directors, with input from management, considered objective and subjective factors that we believed to be relevant for the valuation conducted, including our best estimate of our business condition, prospects and operating performance at the Valuation Dates. In determining the estimated fair value of our common stock, we considered an independent valuation performed in accordance with the guidance outlined in the American Institute of Certified Public Accountants' Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation, or the Practice Aid.

The Practice Aid identifies various available methods for allocating enterprise value across classes and series of capital stock to determine the estimated fair value of common stock at each of the Valuation Dates. In accordance with the Practice Aid, our management considered the following methods:

Current value method.  The current value method is based on allocating the enterprise value of the Company to the debt and preferred stock based on the higher of the liquidation preference or conversion value. Common stock is assigned the residual amount (if any) after consideration is given to the preferred stock.

Option pricing method.  The option-pricing method, or OPM, treats the common stock and preferred stock as call options on the enterprise value. The strike prices of the options are determined based on the characteristics of the capital structure of the company. This includes the number of shares of each equity security, the liquidation preferences of preferred equity and the strike prices of warrants and options.

Probability-weighted approach.  The probability-weighted expected return method determines the value of the common stock based upon an analysis of future values for the enterprise using different future outcomes. The share value is based upon the present value of the probability of each future outcome becoming available to the enterprise, and the rights of each share class.

We applied the option pricing method to allocate the estimated enterprise value of the Company between our common stock and preferred stock, then utilized a probability-weighted approach to determine the common stock value of the Company based on possible exit event scenarios for the Valuation Dates. Based on our capitalization structure as of each of the Valuation Dates, our capitalization structure consisted of Series A preferred stock and restricted stock units, and on some dates, options, but no outstanding shares of common stock. The Series A preferred stock may be optionally converted into common stock, but it does not automatically convert to common stock in connection with an exit event, such as an initial public offering. As a result, in the no exit event scenario, no value was ascribed to our common stock as no shares of common stock were outstanding, the holder of Series A preferred stock would not voluntarily convert such shares into common stock given the superior rights, preferences and privileges of the Series A preferred stock, and all options and restricted stock units would expire and be worthless given their liquidity-based vesting condition. One of the key inputs into the model used in the OPM is the future estimated cash flows of the Company, which are based on management's estimate of patient populations, market penetration, competitive dynamics and compliance rates, expected launch dates, prices and costs per unit sold, selling, general and administrative expenses and capital expenditures. We used industry standard studies to assess cumulative technical success probabilities for each phase of development. The estimated future cash flows were then converted to present value using an 16% to 18% discount rate. The discount rate was based on studies done of similar-stage biopharmaceutical companies, and reflected our debt to capital structure and the single capital instrument that we had outstanding (convertible preferred stock). Further, we also incorporated the present value of our net operating loss benefit, and our cash balance less interest-bearing debt as at the relevant Valuation Dates to determine the enterprise value of the Company.

86


Table of Contents

We applied a 15% to 20% discount to reflect the lack of marketability of our common stock. We based this discount on (i) put option analysis, (ii) advice from our valuation specialist, and (iii) our plans for obtaining liquidity pursuant to, relevantly, an initial public offering of our securities.

We performed these valuations with the assistance of a third-party valuation specialist on the Valuation Dates.

September 1, 2015 Valuation.    We estimated that a share of common stock had a value of $2.73 per share at September 1, 2015. This valuation utilized an 18% discount rate and a 15% to 20% discount for lack of marketability. Further, we ascribed an 85% probability that we would not have an exit event and a 15% probability that we would have an exit event through an initial public offering. We do not believe there was a significant change in the fair value of our stock between September 2015 and April 2016. In forming this decision, we determined not to provide any accretive value to the April 2016 receipt of an affirmative vote for Probuphine from the Psychopharmacologic Drugs Advisory Committee of the FDA, or AdComm, because we had previously received a Complete Response Letter, or non-approval letter, from the FDA in April 2013 following a positive outcome from an earlier AdComm affirmative vote.     

July 1, 2016 Valuation.    We estimated that a share of common stock had a value of $4.13 per share at July 1, 2016, an increase of $1.40 from the prior valuation at September 1, 2015. This valuation utilized a 16% discount factor and a 15% to 20% discount for lack of marketability. Further, we ascribed a 75% probability that we would not have an exit event and a 25% probability that we would have an exit event through an initial public offering. The increase in the common stock valuation reflected the approval of our marketed product, Probuphine, by the FDA on May 26, 2016.

Related party transactions

    Transactions with affiliates of common parent

We transact with certain affiliates of our parent, Apple Tree Partners IV, L.P., or its controlled entities. Transactions involving related parties cannot be presumed to be carried out on an arm's-length basis, as the requisite conditions of competitive, free-market dealings may not exist.

Apple Tree Life Sciences, Inc.

Up until January 1, 2016, we received certain services from Apple Tree Life Sciences, or ATLS, a wholly-owned subsidiary of Apple Tree Partners IV, L.P. These services included administrative services relating to accounting, finance, legal, human resources and other administrative services, together with research and development services, including regulatory and clinical support. ATLS charged us a service fee consisting of allocated internal time incurred on our projects by their employees, plus a pre-determined mark-up. Further, we paid or reimbursed ATLS at cost for any expenses incurred by third parties on our behalf.

Since January 1, 2016, no such costs have been incurred from ATLS, or any other related entity of Apple Tree Partners IV, L.P., and we do not expect to incur any such expenses going forward.

    Female Opioid-Addiction Research and Clinical Experts (FORCE)

In July 2016, we entered into a charitable contribution agreement with Female Opioid-Addiction Research and Clinical Experts, or FORCE, a non-profit charitable organization of which certain of our employees, including our Chief Executive Officer, are members of the FORCE Board of Directors. We agreed to provide $0.2 million to FORCE, of which we will receive no benefit. In August 2016, we paid $0.2 million to FORCE.

87


Table of Contents

In addition, during the nine months ended September 30, 2016, we paid certain expenses on behalf of FORCE totaling $33,000. We do not expect to make any additional future payments on behalf of FORCE.

Other Accounting Policies

Cost of sales

Cost of sales includes products costs, manufacturing costs as well as actual and estimated royalty expenses associated with our "for sale" products. Royalties are generally based on applicable revenue sold and are recognized in the period that the related revenue is earned.

Other (expense) / income

    Foreign currency transaction loss

Our books and records are denominated and maintained in United States Dollars, or USD, which we have also determined to be our functional currency. Transactions denominated in currencies other than USD are translated to USD at the prevailing exchange rate on the date of the transactions. Account balances denominated in currencies other than USD are translated to USD at the prevailing exchange rate on the last day of the reporting period. Foreign currency exchange gains and losses resulting from these translations are included in other (expense) / income.

Prior to the dissolution of Braeburn BVBA, we held foreign-currency denominated cash accounts, which were re-measured to USD at each reporting period and recorded as foreign currency gain or loss. As of December 31, 2015 and September 30, 2016, we did not have any foreign-currency denominated cash accounts.

    Income tax expense

At December 31, 2015, we had federal and state net operating loss carryforwards of approximately $29.7 million and $29.7 million, respectively. At December 31, 2014, we had federal and state net operating loss carryforwards of approximately $0.3 million and $0.3 million, respectively. These net operating loss carryforwards expire in various amounts starting in 2033. At December 31, 2015 and 2014, we had federal research credit carryforwards in the amount of approximately $0.6 million and $0, respectively. These carryforwards begin to expire in 2035.

Since we may need to raise additional funding to finance our operations, we may undergo further ownership changes in the future, which could trigger an ownership change pursuant to Section 382 and Section 383 of the Internal Revenue Code of 1986, as amended. If an ownership change is triggered, it will limit our ability to use some of our net operating loss and research tax credit carryforwards. As a result, if we generate taxable income, our ability to use some of our loss carryforwards to offset U.S. federal taxable income or tax may be subject to limitations, which could result in increased future tax liability to us.

Prepaid expenses

Prepaid expenses are assets resulting from payments that are made before the criteria for expense recognition have been met. Prepaid expenses may arise from advance payments for setting up clinical trials and clinical trial sites, construction projects, insurance premiums, leases, professional dues, memberships and subscriptions. The payment is expected to yield economic benefits over one or more future months. We recognize expense over the applicable services period.

88


Table of Contents

Results of operations for the nine months ended September 30, 2016 and 2015

Revenues

 
  Nine months ended
September 30,
   
 
  % change
2015 to 2016

 
  2016
  2015

  (unaudited, in thousands)    

Product sales, net

  $42   $—   N/A

For the nine months ended September 30, 2016 and 2015, we recognized net product sales revenue of $42 thousand for the sales of Probuphine and supplies related to the Probuphine insertion and removal procedures. We deferred approximately $0.2 million and $0 as of September 30, 2016 and 2015, respectively. Following receipt of FDA approval for Probuphine on May 26, 2016, we focused our post-approval commercialization efforts for Probuphine on training healthcare providers to prescribe and implant Probuphine as required under our REMS, and working with payors to ensure reimbursement for Probuphine. We are planning a full-scale commercial Probuphine launch in the first quarter of 2017 with our new fully-deployed field force.

We record product sales net of allowances and accruals for rebates, distribution-related fees and discounts, product returns and other sales-related deductions. These allowances and accruals will continue to grow in relation to an increase in the sales of Probuphine. The following table summarizes the provisions, and credits/payments, for discounts, rebates and chargebacks, distribution-related fees, and returns and other sales-related deductions:

 
   
   
   
   
 
 
  Discounts,
rebates and
chargebacks

  Distribution-
related fees

  Returns and
other sales-
related deductions

  Total
 

          (unaudited, in thousands)  

Balance as of December 31, 2015

  $—   $—   $—   $—  

Provision related to current period sales

  8     5   13  

Credits/payments

      (5 ) (5 )

Balance as of September 30, 2016

  $8   $—   $—   $8  

Cost of product sales

Upon receipt of marketing approval of Probuphine from the FDA in May 2016, we began capitalizing inventory costs associated with commercial supplies of Probuphine. Costs for manufacturing supplies of Probuphine prior to receipt of FDA approval were recognized as research and development expenses in the period that the costs were incurred. Therefore, to the extent we utilize inventory that had previously been expensed as a research and development expenditure, the associated costs are not included in cost of sales when revenue is recognized from the sale of those supplies.

We previously expensed approximately $1.1 million in commercial lots of Probuphine prior to approval as research and development expense, and based on our current plans and assumptions, we believe that we will have sold all of our previously expensed supply of Probuphine product by the third quarter of 2017. Once we begin charging capitalized inventory to cost of product sales, we expect that the cost of product sold as a percentage of net revenue will be in the high single digits. The shelf life of Probuphine is three years, and as of September 30, 2016, the weighted average remaining life of the pre-launch inventories was approximately 1.2 years.

89


Table of Contents

Research and development expenses

 
   
   
   
 
  Nine months ended
September 30,
   
 
  % change
2015 to 2016

 
  2016
  2015

  (unaudited, in thousands)    

Research and development

  $50,933   $16,345   212%

Research and development expenses were approximately $50.9 million for the nine months ended September 30, 2016 compared to approximately $16.3 million for the same period in 2015, an increase of approximately $34.6 million. The increase was primarily due to an increase of approximately $26.9 million in clinical costs related to the start of two Phase 3 CAM2038 clinical trials (HS-11-421 and HS-14-499), a Phase 2 CAM2038 PK study (HS-13-478), and two BB0817 clinical trials, partially offset by a $6.6 million decrease in clinical costs related to Probuphine. Manufacturing and clinical supply costs also increased by approximately $10.8 million period-over-period due to the aforementioned studies. Research activities related to ATI-9242, for which we terminated development in November 2016, increased by approximately $1.7 million period-over-period. We also realized an increase in regulatory costs of approximately $0.7 million and personnel and personnel-related costs of approximately $0.6 million.

Selling, general and administrative expenses

 
   
   
   
 
  Nine months ended
September 30,
   
 
  % change
2015 to 2016

 
  2016
  2015

  (unaudited, in thousands)    

Selling, general and administrative

  $27,095   $4,031   572%

Selling, general and administrative expenses were approximately $27.1 million for the nine months ended September 30, 2016 compared to approximately $4.0 million for the same period in 2015, an increase of approximately $23.1 million. The increase was primarily due to (i) the costs of training approximately 2,400 healthcare providers, including certification under our REMS training program following FDA approval of Probuphine in May 2016, an increase of approximately $7.0 million; (ii) an increase of approximately $10.1 million in external costs, which includes an increase of approximately $6.5 million in marketing and market access related expenses; and (iii) an increase of approximately $5.3 million in personnel and personnel-related costs. We expect these costs to increase in the near future, especially in early 2017, as we complete our initial REMS training program and enable a full-scale commercial Probuphine launch in the first quarter of 2017.

Gain on sale of investments, net

We recorded a gain on sale of marketable investment securities of approximately $1.2 million and $0 for the nine months ended September 30, 2016 and 2015, respectively, related to the sale of shares of Titan Pharmaceuticals, Inc., or Titan, stock.

Income tax expense

We reported an income tax expense of approximately $0 and $1.6 million for the nine months ended September 30, 2016 and 2015, respectively. On May 21, 2015, there was an intercompany transfer of intellectual property from Braeburn Pharmaceuticals BVBA, a Belgian entity, to Braeburn Pharmaceuticals, Inc., a US entity. This event triggered a taxable gain for Belgian tax purposes that exceeded the amount of Belgian net operating losses available. This was a one-time event that will have no impact on future operating results.

90


Table of Contents

Results of operations for the years ended December 31, 2015 and 2014

The following table summarizes selected operating statement data for the years ended December 31, 2015 and 2014:

Revenues

 
   
   
   
 
  Years ended
December 31,
   
 
  % change
2014 to 2015

 
  2015
  2014

  (in thousands)    

Service revenue

  $25   $—   N/A

For the year ended December 31, 2015, we recorded $25 thousand related to a research evaluation agreement we entered into in fiscal year 2015. We do not expect any additional future revenue related to this agreement moving forward.

Research and development expenses

 
   
   
   
 
 
  Years ended
December 31,
   
 
 
  % change
2014 to 2015

 
 
  2015
  2014
 

    (in thousands)        

Research and development

  $ 31,374   $ 37,195     (16%)  

Research and development expenses were approximately $31.4 million for the year ended December 31, 2015 compared to approximately $37.2 million for the same period in 2014, a decrease of approximately $5.8 million.

Research and development expenses for the year ended December 31, 2014 were primarily composed of approximately $20.0 million for payments made under a third-party licensing agreement with Camurus, $9.2 million for payments relating to the MedLaunch Implant Program, or MedLaunch, which includes an $8.0 million option agreement with FX and a $1.2 million purchase of MedLaunch assets from Endo, approximately $5.9 million related to Probuphine clinical development costs and approximately $1.1 million in personnel and personnel-related costs.

Research and development expenses for the year ended December 31, 2015 were primarily composed of approximately $22.0 million related to clinical development costs, approximately $5.4 million related to product development costs and approximately $2.9 million in personnel and personnel-related costs. Clinical development costs primarily consist of approximately $13.8 million related to CAM2038 for treatment of opioid addiction, approximately $5.6 million related to Probuphine for treatment of opioid addiction and approximately $1.6 million related to BB0817 for the treatment of schizophrenia.

General and administrative expenses

 
   
   
   
 
 
  Years ended
December 31,
   
 
 
  % change
2014 to 2015

 
 
  2015
  2014
 

    (in thousands)        

General and administrative

  $ 6,964   $ 3,076     126%  

91


Table of Contents

General and administrative expenses were approximately $7.0 million for the year ended December 31, 2015 compared to approximately $3.1 million for the same period in 2014, an increase of approximately $3.9 million. The increase was primarily due to an increase of approximately $2.5 million in external costs, which includes an increase of approximately $1.0 million in legal fees, and an increase of approximately $1.4 million in personnel and personnel-related costs.

Interest (expense) / income, net

Interest income consists primarily of interest income earned on cash and cash equivalents and restricted cash. Our interest income has not been significant due to low interest earned on nominal cash and investment balances. Interest expense consists of interest accrued on a five-year loan agreement with Apple Tree Investments SARL, a subsidiary of Apple Tree Partners IV, L.P., for approximately €0.3 million, which we issued in December 2014. The loan was repaid (with accrued interest of approximately $20 thousand) in November 2015.

Income tax expense

We reported an income tax expense of approximately $1.6 million and $0 as of December 31, 2015 and 2014, respectively. On May 21, 2015, there was an intercompany transfer of intellectual property from Braeburn Pharmaceuticals BVBA, a Belgian entity, to Braeburn Pharmaceuticals, Inc., a US entity. This event triggered a taxable gain for Belgian tax purposes that exceeded the amount of Belgian net operating losses available. This taxable gain on the transfer of intellectual property resulted in a (41.6%) impact on our effective tax rate for the year ended December 31, 2015. This was a one-time event that will have no impact on future operating results.

Liquidity and capital resources for the nine months ended September 30, 2016 and 2015

We have experienced net losses and negative cash flows from operations since our inception. As of September 30, 2016 and 2015, we had sustained cumulative losses of approximately $199.9 million and $104.5 million, respectively. As of September 30, 2016 and 2015, we had approximately $23.5 million and $6.9 million in cash and cash equivalents, respectively.

We have funded our operations to date exclusively through the issuance of common and preferred equity securities to our parent company, Apple Tree Partners IV, LP. We expect to incur substantial expenditures and losses in the foreseeable future arising from the further development of our product candidates. We will require significant additional financing to develop our product candidates, prepare regulatory filings and obtain regulatory approvals, establish our manufacturing operations and establish our sales and marketing capabilities. We will seek funds through additional equity financings from Apple Tree Partners IV, LP. or through other sources of financing. Our current financial condition, and exclusive dependence on Apple Tree Partners IV, LP. as our sole source of funding, raises substantial doubt about our ability to continue as a going concern. Our failure to raise capital as and when needed would have a material adverse impact on our financial condition and our ability to pursue our business strategies, including but not limited to insolvency.

92


Table of Contents

Cash flows

The tables below set forth our significant sources and uses of cash for the periods set forth below.

 
   
   
 
 
  Nine months ended
September 30,
 
 
  2016
  2015
 

    (unaudited, in thousands)  

Cash provided by (used in):

             

Operating activities

  $ (70,159 ) $ (30,875 )

Investing activities

  $ (15,570 ) $ (304 )

Financing activities

  $ 103,750   $ 30,049  

Net cash used in operating activities

Net cash used in operating activities during the nine months ended September 30, 2016 was approximately $70.2 million, an increase of approximately $39.3 million from cash used in operating activities during the nine months ended September 30, 2015 of approximately $30.9 million. The approximately $70.2 million used in operating activities during the nine months ended September 30, 2016 was driven by net loss of approximately $76.8 million and an increase in accounts payable and accrued expenses of approximately $10.6 million partially offset by an increase in prepaid and other assets of approximately $2.3 million. The increase in accounts payable and accrued expenses is related to a lag in invoicing from third-party contractors for services performed during the reporting period, coupled with an increase in operating expenses. The approximately $30.9 million used in operating activities during the nine months ended September 30, 2015 was primarily driven by net loss of approximately $22.7 million and a decrease in due to affiliated entities of approximately $10.6 million.

Net cash used in investing activities

Net cash used in investing activities during the nine months ended September 30, 2016 was approximately $15.6 million, which represents an increase of approximately $15.3 million from the cash used in investing activities during the nine months ended September 30, 2015 of approximately $0.3 million. The increase in cash used in investing activities was primarily due to a $15.0 million milestone payment to Titan pursuant to the relevant licensing agreement and otherwise following receipt of FDA approval for Probuphine in late May 2016 and capital expenditures of approximately $5.8 million, partially offset by the sale of Titan stock for approximately $6.2 million.

Net cash provided by financing activities

Net cash provided by financing activities during the nine months ended September 30, 2016 was approximately $103.8 million, which represents an increase of approximately $73.8 million from cash provided by financing activities during the nine months ended September 30, 2015. The cash provided by financing activities during the nine months ended September 30, 2016 was attributable to proceeds from the issuance of preferred stock of approximately $103.8 million to Apple Tree Partners IV, LP. The cash provided by financing activities during the nine months ended September 30, 2015 was attributable to proceeds from the issuance of Braeburn BVBA common stock of approximately $20.0 million and preferred stock of approximately $10.0 million.

93


Table of Contents

Liquidity and capital resources for the years ended December 31, 2015 and 2014

We have experienced significant net losses and negative cash flows from operations since our inception. As of December 31, 2015 and 2014, we had sustained cumulative losses of approximately $123.1 million and $81.8 million, respectively. As of December 31, 2015 and 2014, we had approximately $5.5 million and $8.8 million in cash and cash equivalents, respectively.

Cash flows

The tables below set forth our significant sources and uses of cash for the periods set forth below.

 
   
   
 
 
  Years ended
December 31,
 
 
  2015
  2014
 

    (in thousands)  

Cash provided by (used in):

             

Operating activities

  $ (49,347 ) $ (50,408 )

Investing activities

  $ (511 ) $ (12 )

Financing activities

  $ 47,445   $ 58,885  

Net cash used in operating activities

Net cash used in operating activities during the year ended December 31, 2015 was approximately $49.3 million, a decrease of approximately $1.1 million from cash used in operating activities during the year ended December 31, 2014 of approximately $50.4 million. The approximately $49.3 million used in operating activities during the year ended December 31, 2015 was driven by net loss of approximately $40.6 million and a decrease in due to affiliated entities of approximately $10.7 million. The approximately $50.4 million used in operating activities during the year ended December 31, 2014 was primarily driven by net loss of approximately $40.6 million and a decrease in due to affiliated entities of approximately $12.7 million.

Net cash used in investing activities

Net cash used in investing activities during the year ended December 31, 2015 was approximately $0.5 million, which represents an increase of approximately $0.5 million from the cash used in investing activities during the year ended December 31, 2014 of $12 thousand. The increase in cash used in investing activities was due to an increase in capital expenditures of approximately $0.3 million and in increase in restricted cash of approximately $0.2 million.

Net cash provided by financing activities

Net cash provided by financing activities during the year ended December 31, 2015 was approximately $47.4 million, which represents a decrease of approximately $11.5 million from cash provided by financing activities during the year ended December 31, 2014 of approximately $58.9 million. The approximately $47.4 million provided by financing activities during the year ended December 31, 2015 was primarily attributable to proceeds from the issuance of Braeburn BVBA common stock of approximately $20.0 million and preferred stock of approximately $28.5 million. The approximately $58.9 million provided by financing activities during the year ended December 31, 2014 was primarily attributable to proceeds from the issuance of Braeburn BVBA common stock of approximately $58.5 million.

94


Table of Contents

Contractual obligations and commitments

The following table summarizes our contractual obligations at December 31, 2015 and the effects such obligations are expected to have on our liquidity and cash flows in future periods:

 
   
   
   
   
   
 
 
  Total
  Less than
a year

  1 - 3 Years
  3 - 5 Years
  More than
five years

 

    (in thousands)  

Contractual Obligations:

                               

Clinical and regulatory obligations

  $ 58,879   $ 51,159   $ 7,720   $   $  

Supply agreements

    7,693     7,693              

Facility related obligations

    11,748     11,748              

Operating lease obligations

    9,591     355     2,012     1,689     5,536  

Total contractual cash obligations

  $ 87,911   $ 70,955   $ 9,732   $ 1,689   $ 5,536  

Clinical and regulatory obligations.    Represents obligations by us to make payments under clinical contracts.

Supply agreements.    Represents obligations by us to make payments under supply agreements.

Facility related obligations.    Represents obligations related to the North Carolina facility.

Operating lease obligations.    Represents future minimum lease payments under non-cancelable operating leases.

Payments under our licenses described in the notes to our consolidated financial statements are not considered contractual obligations due to the uncertainty of the occurrence of the triggering events under those agreements, including the potential future milestone and royalty payments. These payments generally become due and payable only upon the achievement of certain clinical development, regulatory or commercial milestones including, for example, initial sales following receipt of FDA approval of the relevant product. As of December 31, 2015, the total amount of contingent payments that could become due if the regulatory and sales milestones are achieved is $337.3 million.

Subsequent to December 31, 2015, we executed material amendments to two existing agreements. We entered into the First Amendment to the Camurus license agreement, which obligates us to reimburse $1.5 million towards a Phase 1 clinical trial. We also amended our agreement for an ongoing BB0817 clinical trial that increased the total contract value by approximately $1.9 million. See "Business—Third Party Agreements."

Future funding requirements

To date, we have not generated significant revenue from the sale of Probuphine. Further, we do not know when, or if, we will generate any significant revenue from product sales associated with any of our product candidates because this is entirely dependent upon the receipt of FDA regulatory approval and the resultant commercialization efforts, the occurrence of which is uncertain and unpredictable. At the same time, we expect our expenses to increase in connection with our ongoing development activities, particularly as we continue the research, development and clinical trials of, and seek regulatory approval for, our product candidates.

95


Table of Contents

Upon the completion of this offering, we expect to incur additional costs associated with operating as a public company. In addition, subject to obtaining FDA regulatory approval of any of our product candidates, we expect to incur significant commercialization expenses for product sales, marketing, manufacturing and distribution.

Based upon our current operating plan and subject to revenue accruing from product sales of Probuphine and related operating assumptions therein, we believe that the net proceeds from this offering, together with our existing cash and cash equivalents, will enable us to fund our operating expenses, and capital expenditure requirements for at least the next 12 months. In particular, we expect that these funds will allow us to complete our pivotal Phase 3 addiction clinical trial for our lead product candidate, CAM2038 for opioid addiction, and file a New Drug Application with the FDA, as well as progress our other late-stage programs in the therapeutic areas of pain and schizophrenia. We may require additional capital to fund future clinical trials of our product candidates, and to obtain regulatory approval for, and to commercialize, our product candidates.

Our future capital requirements will depend on many factors, including:

the commercial success of our launch of Probuphine and our ability to derive meaningful revenues therein;

the progress, costs, results and timing of our clinical trials;

the outcome, costs and timing of seeking and obtaining FDA and any other regulatory approvals;

the willingness of the FDA or other regulatory agencies to accept our trial data, as well as our other completed and planned clinical and nonclinical studies and other work, as the basis for review and approval of our product candidates in the United States;

the number and characteristics of product candidates that we pursue, including our product candidates in nonclinical development;

the ability of our product candidates to progress through clinical development successfully;

our need to expand our research and development activities;

the costs associated with securing and establishing commercialization and manufacturing capabilities;

market acceptance of our product candidates;

the costs of acquiring, licensing or investing in businesses, products, product candidates and technologies;

our ability to maintain, expand, defend and enforce the scope of our owned and in-licensed intellectual property portfolio, including the amount and timing of any payments we may be required to make, or that we may receive, in connection with the licensing, filing, prosecution, defense and enforcement of any of our owned or in-licensed patents or other intellectual property rights;

our need and ability to hire additional management and scientific and medical personnel;

the effect of competing technological and market developments;

our need to implement additional internal systems and infrastructure, including financial and reporting systems; and

96


Table of Contents

the economic and other terms, timing and success of our existing licensing arrangements and any collaboration, licensing or other arrangements into which we may enter in the future.

Until such time, if ever, as we can generate substantial revenue from product sales, we expect to finance our cash needs through a combination of equity offerings, debt financings, government or other third-party funding, commercialization, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect, or are senior or preferred to, the rights of our existing stockholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, limit corporate actions or declaring dividends. If we raise additional funds through government or other third-party funding, commercialization, marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. There can be no assurance that such additional funding, if available, can be obtained on terms acceptable to us or be sufficient to support our activities. If we are unable to obtain additional financing, future operations would need to be scaled back or discontinued. Accordingly, there is substantial doubt regarding our ability to continue as a going concern.

Off-balance sheet arrangements

We do not have any off-balance sheet arrangements.

Quantitative and qualitative disclosures about market risk

We face limited market risk as our financial instruments as of September 30, 2016 consisted entirely of cash. We expect to invest a portion of our cash in interest-bearing money market accounts and prime money market funds in the near term at which point our financial instruments and financial position will have an inherent market risk related to potential losses arising from adverse changes in interest rates. However, we do not expect this risk to be significant due to the planned short-term maturities and low risk profiles of such cash equivalents.

We occasionally contract with vendors internationally. Transactions with these vendors are predominantly settled in U.S. dollars, and, therefore, we believe that we have only minimal exposure to foreign currency exchange risks. We do not hedge against foreign currency risks.

97


Table of Contents

Business

Overview

Our company

We are a commercial-stage pharmaceutical company focused on the development and commercialization of novel long-acting medications for serious disorders of the central nervous system, or CNS. Our proprietary implantable and injectable delivery mechanisms provide differentiated solutions for chronic diseases with high unmet medical needs. Our specialty CNS focus is on fast-growing therapeutic areas recognized as serious public health crises, where long-acting technologies offer important benefits such as increased medication compliance, improved patient convenience, reduced risk of abuse and relapse and reduced public health and societal costs.

Our lead therapeutic area is opioid addiction, which is sometimes referred to as opioid use disorder or opioid dependence, and is a chronic, relapsing brain disease characterized by long-lasting structural and functional changes in the brain. The most common form of opioid addiction is addiction to prescription pain relievers. Opioid addiction affects 2.6 million people in the United States across all socioeconomic groups. A 2016 survey from the Kaiser Family Foundation indicates that nearly half of all Americans know someone suffering from opioid addiction. Seventy-five percent of people with opioid addiction started taking opioids as a pain medication prescribed by a physician following a medical procedure or accidental injury. Our other therapeutic areas of focus are pain, schizophrenia and spasticity, which refers to feelings of stiffness and a wide range of involuntary muscle spasms. We have one approved product, Probuphine, a six-month buprenorphine implant for the maintenance treatment of opioid addiction. In November 2016, we reported positive top-line results from a Phase 3 trial of weekly and monthly CAM2038, an injectable formulation of buprenorphine, for opioid addiction. CAM2038 achieved non-inferiority compared to oral daily buprenorphine based on the primary endpoint and superiority to oral daily buprenorphine based on a secondary endpoint. We have four additional late-stage product candidates in our pipeline across our different therapeutic areas, as well as two earlier-stage product candidates.

We believe that long-acting medications for specialty CNS conditions are not just a matter of convenience, but are an essential tool for the effective treatment of these diseases. These are chronic CNS conditions requiring constant vigilance, where the consequences of suboptimal treatment compliance can range from severe to life threatening. For example, patients with opioid addiction are currently limited to treatment with daily medications, for which poor compliance can rapidly lead to relapse, overdose and death. For our therapeutic areas of focus, we are developing weekly, monthly and six-month dosage formulations that we believe will allow healthcare providers to treat patients throughout the continuum of care from treatment initiation through long-term maintenance. This enables healthcare providers to prescribe personalized care for each patient across a complex patient base having diverse therapeutic needs.

Opioid addiction: the problem

The U.S. government has declared prescription opioid abuse an unprecedented public health epidemic, having an estimated $80 billion annual economic impact in U.S. health and social costs as of 2013. The number of drug overdose deaths related to opioids quadrupled between 2000 and 2014, closely tracking the increase in prescriptions dispensed for opioids. Every day 3,900 people begin to abuse or misuse prescription opioids and 580 people begin to use heroin. Every day approximately 2,000 people are hospitalized and 78 people die from overdose involving opioids, resulting in approximately 30,000 opioid overdose deaths per year.

98


Table of Contents

Even though the United States is home to only five percent of the world's population, it consumes over eighty percent of the world's prescription opioids. The opioid abuse epidemic predominantly stems from this overuse of opioid medications, prescribed primarily for the treatment of pain.

Opioid addiction: current treatment approaches and inherent limitations

In 2015, approximately 12.5 million people misused opioid pain relievers and over 800,000 people used heroin in the United States. Opioid addiction can be treated effectively with a combination of medication and psychosocial therapy, and society saves up to an estimated $12 for every $1 spent on treatment for opioid addiction. Yet today, less than half of the estimated 2.6 million people who have been diagnosed with opioid addiction in the United States receive medication.

The current standard of care for outpatient treatment of opioid addiction is oral daily buprenorphine, which generally should be life-long therapy because opioid addiction is typically a chronic life-long condition. In 2015, approximately 700,000 patients were on oral daily buprenorphine treatment for opioid addiction. The largest branded oral daily buprenorphine product in the United States is Suboxone sublingual film, which must be held under the tongue for up to 15 minutes without swallowing in order to receive the full dose. Because of the rapidly growing epidemic of opioid abuse, in August 2016 the U.S. Department of Health and Human Services, or HHS, expanded the number of patients that qualified physicians are allowed to treat with buprenorphine from 100 to 275, representing a potentially meaningful increase in the future size of the buprenorphine market.

Although oral buprenorphine is an effective treatment for opioid addiction, the burden of daily medication coupled with the inconvenience of the sublingual formulation contribute to low patient compliance and suboptimal medical outcomes. Despite being a chronic condition where relapse can have dire consequences, on average, patients take medication only 33% of the time that they need it. Each day a patient is off medication, the odds of relapse increase significantly, and consequently a patient is in significant danger of potential overdose and death. Additionally, buprenorphine is a synthetic opiate and therefore, when dispensed to patients for self-administration, it is susceptible to diversion, or selling on the street, misuse, abuse and accidental pediatric exposure.

Despite the low compliance, difficulty of use, low penetration and other challenges associated with current therapies, in 2015, U.S. gross sales of branded and generic buprenorphine products were estimated to be approximately $2 billion. Reported 2015 U.S. net sales of Suboxone sublingual film were $807 million. We believe effective therapies can enhance compliance, lower treatment stigma, improve quality of life of patients and expand the addressable market.

Opioid addiction: our solutions

We intend to address the limitations of current treatment approaches for opioid addiction by replacing oral daily medications, including sublingual formulations, with a suite of complementary long-acting implantable and injectable medications. Our solutions are designed to establish a continuum of care for patients, providing personalized drug delivery that is optimized to help patients progress from treatment initiation through long-term maintenance. We believe that our product portfolio addresses several limitations of the current treatment pathway in opioid addiction as described below:

Enhanced medication compliance and clinical outcomes.  Patients frequently forget or choose not to take their oral daily medications as prescribed. This lack of compliance is one of the biggest barriers to achieving desired clinical outcomes. We believe that our long-acting treatments will provide patients and

99


Table of Contents

    healthcare providers with increased confidence that patients have received their required dose of medication, thereby leading to more successful clinical outcomes.

Improved quality of life for patients.  We believe that our long-acting treatments will relieve the burden of daily medication and daily reminders of the disease as well as reduce the stigma of opioid addiction for patients and their caregivers.

Improved social outcomes.   Chronic abuse of opioids can lead to impaired judgment, decision-making, learning, memory and behavior control, making it difficult for addicted patients to carry out normal daily activities. By reducing the risk of relapse and abuse, we believe our long-acting treatments will help patients take care of their families, fulfill their passions and lead more productive and rewarding lives.

Help manage a public health epidemic.  Oral medications find their way to streets, often through "pill mills" and other illegitimate channels, leading to drug abuse, addiction and overdose, as well as potentially life-threatening accidental pediatric exposure. Because our products are physician-administered, we believe that our long-acting treatments could help reduce these risks.

Our marketed product, Probuphine, was approved by the United States Food and Drug Administration, or FDA, in May 2016, and is the first and only implantable formulation of buprenorphine for the maintenance treatment of opioid addiction. Probuphine is administered by a healthcare provider who inserts four implants, each smaller than a one-inch matchstick, sub-dermally in the patient's upper arm during a short in-office procedure usually lasting less than 15 minutes. After insertion, Probuphine delivers buprenorphine continuously for six months. Thereafter, the implants can be removed and replaced with new Probuphine implants.

Our lead product candidates, weekly and monthly CAM2038, are subcutaneous injectable formulations of buprenorphine for the treatment of opioid addiction. We believe CAM2038 will expand our target patient population, including not only patients who have been successfully treated with buprenorphine but also patients new to buprenorphine therapy. In November 2016, we reported positive top-line results from a Phase 3 trial of weekly and monthly CAM2038 for opioid addiction. CAM2038 achieved non-inferiority compared to oral daily buprenorphine based on the primary endpoint and superiority to oral daily buprenorphine based on a secondary endpoint. Based on the successful results from this pivotal Phase 3 trial, we are working expeditiously to submit a New Drug Application, or NDA, for weekly and monthly CAM2038 in the first half of 2017. The FDA has granted fast track designation for weekly and monthly CAM2038 for the treatment of opioid addiction.

Probuphine and CAM2038 have the potential to transform and enhance the continuum of care for opioid addiction, as compared to current clinical practice which is limited to the use of oral daily buprenorphine. We believe a weekly buprenorphine injection would be an attractive option for beginning buprenorphine treatment where weekly medical visits to adjust dose is common practice. We believe a monthly injection would be an attractive option for early-stage maintenance treatment where a transition to monthly visits after finding a stable dose is common practice. For longer-term maintenance treatment, which may continue for years, or even indefinitely, we believe a six-month implant would be an attractive option.

100


Table of Contents

Opioid addiction: Enhanced continuum of care aligned with clinical practice

GRAPHIC

In 2016, our post-approval commercialization efforts for Probuphine were focused on a medical affairs driven introduction, including training healthcare providers to prescribe and implant Probuphine, working with payors to ensure comprehensive reimbursement, and implementing our new specialty pharmacy distribution model. In the United States, approximately 6,000 physicians account for approximately 90% of buprenorphine prescriptions, and the top 100 payors account for approximately 85% of buprenorphine coverage. We have trained and certified approximately 2,500 healthcare providers to prescribe and implant Probuphine, and over 70 payors have indicated that they intend to cover Probuphine, including Humana and all regional Blue Cross Blue Shield plans, and certain larger payors, such as Aetna and Cigna, have indicated that they will not require prior authorization.

We are planning a full-scale commercial launch with our new fully-deployed field force of approximately 60 representatives in the first quarter of 2017 when we expect more payors to have released medical coverage policies for Probuphine. These commercialization efforts will also lay the groundwork for marketing CAM2038, which we expect will target the same prescribers. We intend to further expand our field force if and when we launch CAM2038.

Additional product candidates

Our investigational pipeline also includes late-stage programs in the therapeutic areas of pain and schizophrenia and an early-stage program in spasticity. We believe all of these conditions can also be more effectively managed using long-acting implantable or injectable medications. We believe that treating these diseases with long-acting therapies will have many of the benefits described above for opioid addiction, including enhanced compliance, improved clinical outcomes, improved quality of life for patients and reduced risk of diversion of controlled substances.

Because buprenorphine has also been approved for the treatment of chronic pain, we believe our long-acting medications, weekly and monthly CAM2038 and Probuphine, have the potential to provide a suite of therapeutic products across the continuum of care for pain. We believe our long-acting medications, if approved, will provide continuous around-the-clock therapy, resulting in improved pain relief, increased convenience and enhanced quality of life. Furthermore, we believe our long-acting pain medications can help address the root causes of the opioid abuse epidemic because they are implanted or injected directly by a healthcare provider, and therefore are not susceptible to the diversion and misuse that occurs with self-administered oral daily opioids.

101


Table of Contents

We are also developing the following product candidates:

BB0817 is an implant that offers continuous, six-month delivery of risperidone, the most commonly prescribed medication for the treatment of schizophrenia. Schizophrenia requires life-long treatment, and positive outcomes are significantly dependent on medication compliance, making long-acting treatments especially effective. We believe BB0817 has the potential for unique positioning in the schizophrenia market with a treatment duration that at least doubles that of currently-marketed injectables, which range from two weeks to three months. This product candidate is currently in Phase 3 development, with expected clinical trial results in 2017.

BB0417 is a subcutaneous injectable formulation that offers three to five days of buprenorphine and granisetron, a widely used drug to treat nausea and vomiting, for the potential treatment of acute post-operative pain, nausea and vomiting. Effective acute post-operative pain management is an indispensable component of the continuum of care for the surgical patient, as inadequate pain control may result in delayed mobilization and recovery, pulmonary and cardiac complications and an increased likelihood of the development of neuropathic pain. In addition, post-operative vomiting and nausea are the most common causes of patient dissatisfaction after anesthesia, with approximately 30-50% of post-operative patients experiencing vomiting and nausea. We believe that BB0417 has the potential to improve the well-being of post-operative patients and reduce the need for other medications including oral opioid painkillers, which are taken home and self-administered by the patient. This product candidate is currently in Phase 1 development.

BB1216 is an implant that offers continuous, six-month delivery of tizanidine, a commonly prescribed muscle relaxant, for the treatment of moderate to severe spasticity. Spasticity is typically reported in patients with multiple sclerosis, traumatic brain injury, cerebral palsy and spinal cord injury. Current treatment options for spasticity include a variety of oral daily medications, and one common oral treatment is tizanidine. Another treatment option is surgical implantation of an intrathecal baclofen pump for disabling spasticity that does not respond to oral medications or where side effects limit treatment. We believe that BB1216 may provide effective relief with fewer side effects and enhanced clinical outcomes compared to oral medications and will be an attractive alternative to surgical implantation of an intrathecal pump. This product candidate is currently in animal testing of the formulation, and if this testing is successful, we expect that it will advance directly to Phase 3 development.

Intellectual property and barriers to entry

We believe our products are protected from generic entry by a range of intellectual property, trade secrets and know-how as well as a range of complex clinical and regulatory requirements. As a result of these barriers to entry, we believe our products will generate long-duration cash flows. These barriers to entry for our products include:

Strong patent protection.  For example, the U.S. patent estate for Probuphine is expected to extend through 2024, the U.S. patent estate for CAM2038 is expected to extend through 2027, the U.S. patent estate for BB0417 includes applications that, if issued, are expected to extend through 2036, the U.S. patent estate for BB0817 is expected to extend through 2029 and the U.S. patent estate for BB1216 is expected to extend through 2032.

Challenging formulation and manufacturing.  We believe that long-acting implantable and injectable formulations are particularly difficult to create or re-engineer, which is evidenced by the small number of long-acting implantable and injectable medications that have ever been approved. Manufacturing complexities include proprietary specifications for release rates that can be difficult to replicate, the

102


Table of Contents

    ability to produce pre-filled syringes under aseptic conditions and the ability to obtain adequate supplies of and work with the required complex raw materials, including controlled substances, which are only available from a limited number of suppliers.

Regulatory complexity.  We believe the regulatory pathway for generic versions of long-acting implantable and injectable medications will be more complex and costly than the relatively simple pharmacokinetic studies required for oral small molecule generics. We believe approval will require large and lengthy clinical trials which demonstrate not only equivalent efficacy and safety outcomes, but also equivalent drug release profiles. The regulatory requirement to certify healthcare providers under the REMS program for Probuphine and anticipated REMS program for CAM2038 will create additional barriers to entry for generics.

Competitive strengths

Focus on large and underserved specialty CNS markets.    Our lead therapeutic area of focus is opioid addiction, which is widely recognized as an unprecedented public health epidemic in the United States. Treatment of opioid addiction is a multi-billion dollar market. In 2015, U.S. gross sales of branded and generic buprenorphine products were estimated to be approximately $2 billion. Further, buprenorphine sales have experienced double-digit growth year-over-year from 2009 to 2015, with an estimated compound annual growth rate, or CAGR, of 20% over this time period. We also have long-acting product candidates in development for chronic pain and schizophrenia, both of which are also fast-growing, multi-billion dollar markets with U.S. gross sales of all chronic pain products and schizophrenia products estimated at $15.1 billion and $3.5 billion, respectively in 2015. Our specialty CNS markets are characterized by concentrated prescriber audiences and strong patient advocacy efforts, which we believe will allow us to effectively commercialize products with a small, targeted sales force and enhance our ability to achieve comprehensive product reimbursement.

Differentiated products addressing high unmet medical needs.    Our products utilize proprietary long-acting delivery mechanisms that are uniquely designed to provide novel solutions for our specialty CNS markets. Our products are designed to enhance compliance and lower treatment stigma and to reduce the potential for medication diversion and abuse. As a result, we believe our products will lead to better clinical and social outcomes. Oral daily medications for opioid addiction reinforce addictive behavior and societal stigma, and easily allow for "drug holidays" that can lead to relapse and potentially overdose. Opioid medications for chronic pain are overprescribed and physicians and public health organizations have been calling for new, safer and less addictive treatment alternatives. In addition, significant negative health and social consequences arise when compliance with schizophrenia therapy is inadequate.

Mitigated clinical and regulatory risk.    Our current products apply novel delivery mechanisms to existing FDA-approved therapeutic molecules. Therefore, we may be able to leverage the proven safety and efficacy of these molecules to use the FDA's section 505(b)(2) approval pathway. We believe this mitigates the clinical and regulatory risks associated with our products.

Long duration cashflows from products with high barriers to entry.    Our products are covered by a range of intellectual property, trade secrets and know-how and are subject to a range of complex clinical and regulatory requirements. In addition, our supply chain is difficult to replicate as it involves the handling of controlled substances, which involves the need for special permits and licenses, and involves several single source suppliers. Patents on our products are expected to extend through the mid-2020s through mid-2030s. Long-acting implantable and injectable formulations are particularly difficult to create or re-engineer, due to trade secrets and proprietary know-how around complexities working with

103


Table of Contents

undisclosed and difficult to source raw materials. We believe the generic regulatory pathway will be complex and costly, requiring clinical trials which demonstrate high standards of equivalent efficacy, safety and drug release profiles. Certification under controlled substance REMS programs will create additional barriers.

Platform for organic growth and expansion.    Our business model is driven by seeking out, in-licensing and developing the best long-acting therapies in order to improve patient outcomes and reduce costs to the healthcare system and society. Our product development expertise, and the investments we are making in our commercial and manufacturing infrastructure, can be leveraged across our diversified product portfolio and we believe will provide operating leverage as we continue to bring products to market. We intend to leverage our existing technology platforms as well as business development efforts to complement our organic growth and support sustainable long-term growth.

Proven, experienced management team.    Our management team has an established track record of developing successful clinical and commercial organizations. Over the course of more than 25 years in the pharmaceutical industry, our CEO Behshad Sheldon drove the success of multiple blockbuster pharmaceuticals, including Abilify for schizophrenia, bipolar disorder and depression; Glucophage for type 2 diabetes; and Plavix for the prevention of stroke and heart attack. Other key members of our management team were also part of the teams responsible for these and other blockbuster drugs, have reimbursement experience including for buprenorphine products for treatment of opioid addiction, or have experience in government agencies including as Commissioner of the FDA.

Our growth strategies

Grow sales of our recently approved product Probuphine for opioid addiction.    We intend to drive strong adoption of Probuphine by targeting physicians, physician practices, integrated health systems, correctional facilities and other institutional providers who are likely to have substantial numbers of patients suitable for Probuphine treatment, and the top 100 payors who account for approximately 85% of U.S. buprenorphine coverage. To date, our post-approval commercialization efforts for Probuphine have focused on a medical affairs driven introduction, including training healthcare providers to implant and prescribe Probuphine and working with payors to ensure comprehensive reimbursement. We have trained and certified approximately 2,500 healthcare providers to prescribe and implant Probuphine, and over 70 payors have indicated that they intend to cover Probuphine, including Humana and all regional Blue Cross Blue Shield plans, and certain larger payors, such as Aetna and Cigna, have indicated that they will not require prior authorization. We are planning a full-scale commercial launch with our new fully-deployed field force of approximately 60 representatives in the first quarter of 2017 when we expect more payors to have released medical coverage policies for Probuphine and when we will have implemented our specialty pharmacy distribution model. These commercialization efforts will also lay the groundwork for marketing CAM2038 which we expect will target the same prescribers.

Advance our lead product candidates, weekly and monthly CAM2038 for opioid addiction, and the rest of our specialty CNS pipeline, to establish a diversified portfolio of commercial products.    If weekly and monthly CAM2038 is approved, we will market a comprehensive suite of opioid addiction products that we believe will allow healthcare providers to treat patients throughout the continuum of care as they progress from treatment initiation through long-term maintenance. We expect a number of key milestones over the course of 2017, including submitting an NDA for weekly and monthly CAM2038 in the first half of 2017. Our development pipeline has the potential to launch eight products over the next four years, and this diversified portfolio will leverage our specialty CNS commercial infrastructure.

104


Table of Contents

Leverage differentiated product profiles to establish leadership positions in underserved markets.    We intend to establish our products as new standards of care in the therapeutic markets in which we operate. In both opioid addiction and chronic pain, we have the potential to be the only company that offers a comprehensive portfolio of long-acting medications including once weekly, once monthly and six-month formulations. BB0817, our long-acting risperidone for schizophrenia, has the potential to be the first and only implantable risperidone in a market which has been transitioning towards long-acting formulations given the significant consequences associated with inadequate compliance. We believe our products will be differentiated both by their inherent attributes and their potential to offer improved clinical outcomes and quality of life for patients.

Expand our markets by addressing unmet needs and providing access to innovative therapies.    Our novel long-acting medications are differentiated from current standards of care, and are designed to address high unmet needs in the large and growing markets of opioid addiction, pain and schizophrenia. We believe our innovative therapies will enhance compliance and lower treatment stigma, and therefore will improve patient outcomes and quality of life. In addition, our long-acting medications reduce the potential for medication diversion and abuse, which is important for both the pain and opioid addiction markets. By addressing currently unmet medical needs, we believe our portfolio will allow healthcare providers to expand the population of patients they are able to effectively treat.

Pursue additional product development opportunities via targeted business development.    Over time, we intend to leverage our commercial infrastructure to become the leading pharmaceutical company focused on specialty CNS therapeutic areas. As such, we believe we will become the partner of choice for development and commercialization in specialty CNS which will provide opportunities to expand our pipeline of long-acting product candidates. We believe that the concentrated and targeted nature of the specialty CNS sector will allow us to benefit from meaningful operating leverage as we further expand our product portfolio.

Our technology approach

Our approach to developing long-acting medications is to identify the best possible therapeutic solution for a targeted indication and then to license or acquire delivery technologies that enable us to offer this solution. As a result of this approach we are not limited to specific technologies or platforms.

Our long-acting six-month implantable medications, Probuphine, BB0817 and BB1216 are the only long-acting implantable medications either approved or in development for their targeted indications.

Our long-acting injectable medications have inherent attributes that we believe make them uniquely suited to the development of more convenient and attractive therapeutic alternatives as described below:

Multiple duration forms.  We are able to formulate injectables in both once weekly and once monthly forms. This will allow us to align our products with the prevailing clinical practices across certain therapeutics areas that we intend to serve.

Multiple dosages.  For each injectable, we are able to provide a wide range of different dosages. This enables healthcare providers to prescribe personalized care for each patient across a complex patient base having diverse therapeutic needs.

Small, low-viscosity volumes.   Our injectables require a small dosage volume of only 0.6 ml. We believe this small volume and the low viscosity of the liquid solution will minimize discomfort for patients, leading to enhanced patient and physician acceptance.

105


Table of Contents

Small needle size.  Our injectables require a small 23 gauge needle for administration, similar to the needle size used for patient self-administered insulin injections or seasonal flu shots. We believe this small needle size will minimize discomfort and make the injection process less frightening for patients, leading to enhanced patient and physician acceptance.

No refrigeration required.  While the current formulations of buprenorphine require refrigerated storage, which most healthcare provider offices do not have, our injectables do not require refrigerated storage. This enables healthcare providers to store and administer our injectables with greater convenience.

No reconstitution required.  Our injectables come in ready-to-use pre-loaded syringes, which do not require extra time spent in mixing and preparation prior to use, adding to the convenience for healthcare providers.

Our current product portfolio combines three primary delivery technologies with FDA-approved compounds for the treatment of opioid addiction, pain, schizophrenia and spasticity:

ProNeura implantable drug delivery technology    This long-acting implantable technology offers continuous buprenorphine delivery for up to six months, and consists of a small, solid implant, smaller than the size of a one-inch matchstick, made from a mixture of ethylene-vinyl acetate, or EVA, and the drug substance. The resulting product is a solid matrix that is placed sub-dermally, normally in the inner part of the upper arm in a short in-office procedure usually lasting less than 15 minutes. After insertion, Probuphine delivers buprenorphine continuously for six months. Thereafter, the implants can be removed and replaced with new Probuphine implants.

FluidCrystal injectable drug delivery platform    This long-acting injectable technology offers continuous buprenorphine delivery from one week to one month, and consists of a liquid lipid solution which on contact with the body transforms to a liquid crystalline gel. This gel depot effectively encapsulates the drug compound which is slowly and steadily released as the depot biodegrades. The technology also allows for a high drug load in a smaller injection volume.

MedLaunch implant platform    This implant platform technology enables subcutaneous insertion of a cylindrical, non-biodegradable, flexible polymer that can be used to deliver long-acting formulations of daily, oral drugs, such as risperidone or tizanidine. This polymer membrane controls the rate of diffusion of the drug substance thereby providing immediate release while improving drug delivery via controlled release over a period of six months and up to one year.

106


Table of Contents

Our markets and product portfolio

The table below summarizes our current product portfolio:

 
   
   
   
   
   
Product
  Indication
  Substance
  Form
  Phase of
Development

  Braeburn
Commercialization
Rights

Probuphine   Opioid addiction   Buprenorphine   6-month implant   Marketed(1)   United States, Canada(2)

CAM2038 Weekly

 

Opioid addiction

 

Buprenorphine

 

Weekly injectable

 

Phase 3

 

North America; Asia option rights(3)
CAM2038 Monthly   Opioid addiction   Buprenorphine   Monthly injectable   Phase 3   North America; Asia option rights(3)
CAM2038 Weekly   Chronic pain   Buprenorphine   Weekly injectable   Phase 3   North America; Asia option rights(3)
CAM2038 Monthly   Chronic pain   Buprenorphine   Monthly injectable   Phase 3   North America; Asia option rights(3)

Probuphine

 

Chronic pain

 

Buprenorphine

 

6-month implant

 

Phase 3

 

United States, Canada(2)

BB0817

 

Schizophrenia

 

Risperidone

 

6-month implant

 

Phase 3

 

Worldwide
BB0417   Acute post-operative pain   Buprenorphine and Granisetron   3 to 5 day injectable   Phase 1   North America; Asia option rights(3)
BB1216   Spasticity   Tizanidine   6-month implant   Clinic ready(4)   Worldwide

(1)    The FDA has required that we conduct four post-approval clinical trials to assess the insertion, localization and removal related serious adverse events of Probuphine, the risk of the QT interval in the heart's electrical cycle during treatment with Probuphine, the effect of scarring or inflammation related to a prior implant on the safety of re-implantation / re-insertion, the potential for implant migration, and the bioavailability of Probuphine into the same insertion site, and the safety, feasibility and pharmacokinetics of Probuphine implantation at alternate body sites.

(2)    We have exclusively sub-licensed commercialization rights in Canada to Knight Therapeutics, Inc.

(3)    We have option rights for China, Japan, South Korea and Taiwan.

(4)   If current formulation and testing are successful, we expect BB1216 will advance directly to Phase 3 development.

Opioid addiction

Overview

Prescription opioids, such as oxycodone and fentanyl, as well as illicit opioids, such as heroin, can be physically and psychologically addictive. They are full (not partial) opioid agonists that cause the release of dopamine, a brain chemical that regulates emotion and feelings of pleasure, resulting in a euphoric effect, or "high," which strongly reinforces substance abuse. After chronic abuse of opioids, people develop tolerance, feel fewer euphoric effects and develop stronger symptoms of withdrawal if they stop taking opioids. Greater amounts of opioids are required to overcome tolerance to the desired effects even as they may be less pronounced or even non-existent. Chronic abuse of opioids can lead to impaired judgment, decision-making, learning, memory and behavior control.

The U.S. government has declared opioid abuse an unprecedented public health epidemic, with more than 60% of drug overdose deaths involving an opioid. The epidemic is driven by opioid medications prescribed for pain. Between 2000 and 2014, nearly half a million Americans died from drug overdoses and the number of overdose deaths related to opioids quadrupled, closely tracking the increase in prescriptions dispensed for opioids. In 2015, healthcare providers wrote 228 million prescriptions for opioids, more than the number of American adults. Misuse of prescription painkillers often leads to heroin use as a cheaper alternative to prescription drugs, and accounts for four out of five new heroin users. On a daily basis, more than 650,000 opioid prescriptions are dispensed, 3,900 people begin to abuse or misuse prescription

107


Table of Contents

opioids, and 580 people begin to use heroin. Every day approximately 2,000 people are hospitalized and 78 people die from overdose involving opioids, resulting in approximately 30,000 opioid overdose deaths per year.

Today, less than half of the estimated 2.6 million people who have been diagnosed with opioid addiction in the United States are receiving medication. Left untreated, opioid addiction is associated with spread of HIV and hepatitis C, criminal activity, accidents and trauma related to drug-seeking behaviors and fatal overdose. Consequently, the opioid addiction epidemic has major social and economic impacts. In 2013, prescription opioid abuse accounted for approximately an estimated $80 billion in U.S. health and social costs.

Current treatment options

In 2015, approximately 12.5 million people misused opioid pain relievers and over 800,000 people used heroin in the United States. Opioid addiction can be effectively treated with a combination of medication and psychosocial therapy. Society saves up to an estimated $12 for every $1 spent on treatment for opioid addiction. The current standard of care for the outpatient treatment of opioid addiction is oral daily buprenorphine, which is a partial (not full) opioid agonist that was first approved by the FDA in 2002. Buprenorphine is an opioid, but it is recognized as safer than other opioids because it has a "ceiling effect," meaning that its euphoric effects only increase with its increasing dosage up to a ceiling point, after which taking higher doses has minimal or no increase in effect. This means buprenorphine is less addictive than full agonists, with lower potential for misuse. The ceiling effect also reduces the risk of respiratory failure associated with high doses of opioids, which is the primary cause of fatality related to opioid overdose.

In 2015, U.S. gross sales of all marketed branded and generic buprenorphine products was estimated to be approximately $2 billion. The largest branded oral daily buprenorphine product in the United States is Suboxone sublingual film, which must be held under the tongue for up to 15 minutes without swallowing in order to receive the full dose. The HHS regulates the number of patients that physicians can treat with buprenorphine for opioid addiction and recently increased this number from a maximum of 100 patients to 275 patients for qualified physicians.

Patients treated with buprenorphine are more likely to maintain abstinence compared with those who receive psychosocial intervention alone, leading to a reduction in rates of death and secondary disease. Treatment with buprenorphine has been shown to decrease not only illicit opioid abuse, but also transmission of infectious diseases associated with needle sharing, drug-related crime and fatal overdose. According to a 2015 study by the Legal Action Center, patients receiving medication, such as buprenorphine, as part of their treatment were 75% less likely to die from a drug overdose than patients without medication.

Although oral buprenorphine is an effective treatment for opioid addiction, the burden of daily medication coupled with the inconvenience of the sublingual formulation contributes to low patient compliance and suboptimal medical outcomes. Despite being a chronic condition where relapse can have dire consequences, patients are taking medication on average only 33% of the time that they need it. Each day a patient is off medication, the odds of relapse increase significantly, and consequently a patient is in significant danger of potential overdose and death.

When dispensed to patients for self-administration, buprenorphine becomes susceptible to diversion, misuse, abuse and accidental pediatric exposure. With buprenorphine, patients are faced with the choice of

108


Table of Contents

continuing their medication, or using illicit opioids. A common practice is known as taking a "drug holiday," which means using oral buprenorphine to control withdrawal symptoms in between using illicit opioids for euphoric effect. When a patient is actively using illicit opioids their brain adapts to the exposure of the opioid, and when a patient is on buprenorphine the brain begins to heal and starts moving to a more normal state. As a result, if a person decides not to take their medication and use illicit opioids the potential for an overdose increases because they no longer have the same tolerance level.

Our products for opioid addiction

Our marketed product, Probuphine, is a six-month buprenorphine implant for the maintenance treatment of opioid addiction in patients who have achieved and sustained prolonged clinical stability on a dose of up to 8 mg per day of oral buprenorphine, which represents approximately twenty-five percent of oral buprenorphine prescriptions. Probuphine uses the proprietary ProNeura drug delivery technology whereby buprenorphine hydrochloride is uniformly distributed throughout a polymer implant made out of EVA. Treatment with Probuphine requires a healthcare provider to insert a set of four implants, each smaller than a one-inch matchstick, sub-dermally in the patient's upper arm during a short in-office procedure lasting less than 15 minutes. After insertion, Probuphine delivers buprenorphine continuously for six months. Thereafter, the implants can be removed and replaced with new Probuphine implants.

Our lead product candidates, weekly and monthly CAM2038, are subcutaneous injectable formulations of buprenorphine for the treatment of opioid addiction. CAM2038 uses the proprietary FluidCrystal delivery system. After injection, CAM2038 absorbs body fluids to create a gel-like encapsulation of buprenorphine under the skin. This results in an initial immediate release of buprenorphine followed by a slow and consistent release of the drug over a weekly or monthly treatment period. Weekly and monthly CAM2038 each come in multiple doses to match the range of effective buprenorphine doses. Each finished product candidate comes as a ready-to-use, low-volume, thin-needle, pre-filled syringe, which is stable at room temperature and therefore does not require refrigeration.

We believe CAM2038 will expand our target patient population, including not only patients who have been successfully treated with buprenorphine but also patients new to buprenorphine therapy. We believe a weekly buprenorphine injection, if approved, available in a range of therapeutic dose options would be an attractive option for beginning buprenorphine treatment where weekly medical visits to adjust dose is common practice. We believe a monthly injection available in a range of therapeutic dose options that match our weekly injection doses would be an attractive option for early-stage maintenance treatment where a transition to monthly visits after finding a stable dose is common practice. For longer-term maintenance treatment, we believe a Probuphine six-month implant would be an attractive option.

In November 2016, we reported positive top-line results from a Phase 3 trial of weekly and monthly CAM2038 for opioid addiction. CAM2038 achieved non-inferiority compared to oral daily buprenorphine based on the primary endpoint and superiority to oral daily buprenorphine based on a secondary endpoint. Based on the successful results from this pivotal Phase 3 trial, we are working to submit an NDA for weekly and monthly CAM2038 in the first half of 2017. The FDA has granted fast track designation for weekly and monthly CAM2038 for the treatment of opioid addiction. Other ongoing supportive trials for CAM2038 include a customary one year safety trial and a Phase 2 injection site trial to determine if CAM2038 can produce similar buprenorphine levels at injection sites in the buttocks, abdomen, arm and thigh.

We believe that weekly and monthly CAM2038, together with six-month Probuphine, address the limitations of current treatment approaches for opioid addiction by providing a suite of complementary long-acting

109


Table of Contents

implantable and injectable medications. Our products will allow healthcare providers to treat patients throughout the continuum of care as they progress from treatment initiation through long-term maintenance.

Pain

Overview

Chronic pain, or pain lasting for more than 12 weeks, is a large and growing market. According to the National Institute on Drug Abuse, or NIDA, over 100 million people suffer from chronic pain in the United States, with 23 million patients reporting a significant level of pain. Common chronic pain complaints include headache, lower back pain, cancer pain, arthritis pain and neurogenic pain, or pain resulting from damage to the nervous system. In United States, the total annual incremental cost of health care due to chronic pain in 2010 was up to $635 billion, which combines the medical costs of pain care and the economic costs related to lost wages and productivity. Acute pain, usually following a specific event such as surgery or injury, generally lasts less than 12 weeks but can often transition to chronic pain and, if treated with opioids, can lead to dependence and addiction.

Current treatment options

Opioids (e.g., morphine, oxycodone, hydrocodone and fentanyl), have consistently been shown to be effective in treating pain, and roughly one in five patients seen by healthcare providers for non-cancer pain symptoms are prescribed opioids, accounting for approximately 228 million prescriptions written for opioids in 2015. According to the NIDA over 48 million people use opioid analgesics to treat their pain. However, the rapid rise in the opioid abuse epidemic has heightened scrutiny of the use of opioid painkillers and led the Centers for Disease Control and Prevention, or CDC, to issue new guidelines about their use. These guidelines caution healthcare providers to be selective in prescribing opioids, to start with low doses, to weigh risks and benefits when prescribing opioids for chronic pain, and to prescribe high doses only after a careful risk assessment. The guidelines also recommend that patients being treated with opioids for chronic pain who are suspected of a potential opioid addiction should be transitioned to treatment with methadone or buprenorphine. In 2015, approximately 3 million prescriptions were written for methadone and 6.7 million prescriptions for buprenorphine.

Buprenorphine is an attractive treatment alternative for patients with pain, due to the fact that it is powerful, with a potency 25 to 50 times that of morphine. However, buprenorphine has a ceiling effect with respect to euphoric effects, which means there is a reduced risk of addiction, and a reduced risk of respiratory failure associated with high doses of opioids, which is the primary cause of death related to opioid overdose. Clinical trials, including those evaluating the treatment outcomes of patients treated with high doses of opioids (as much as 400 mg/day or more of morphine) who were transitioned to oral buprenorphine at doses ranging from 8-32 mg/day, have shown that buprenorphine is useful in treating pain. The FDA has approved two buprenorphine drug products for treatment of chronic pain, a transdermal patch marketed as Butrans and a buccal film marketed as Belbuca.

However, Butrans and Belbuca are only available in low doses of buprenorphine, comparable to roughly 1 mg/day or less of oral buprenorphine. While Butrans and Belbuca may be effective for some chronic pain patients, a survey of existing clinical practices suggests that many patients have improved outcomes at higher doses. Butrans and Belbuca also carry risks of diversion, abuse, misuse and accidental pediatric exposure. A transdermal patch m