Table of Contents
`
`UNITED STATES
`SECURITIES AND EXCHANGE COMMISSION
`Washington, D.C. 20549
`FORM 10-Q
`
`(Mark One)
`☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
`OF 1934
`
`For the quarterly period ended June 30, 2020
`OR
`☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
`OF 1934
`
`For the transition period from to
`Commission file number: 001-37372
`
`Collegium Pharmaceutical, Inc.
`(Exact name of registrant as specified in its charter)
`
`Virginia
`(State or other jurisdiction of
`incorporation or organization)
`100 Technology Center Drive
`Stoughton, MA
`(Address of principal executive offices)
`
`03-0416362
`(I.R.S. Employer
`Identification Number)
`
`02072
`(Zip Code)
`
`Title of each class
`Common Stock, par value $0.001 per share
`
`(781) 713-3699
`(Registrant’s telephone number, including area code)
`Securities registered pursuant to Section 12(b) of the Act:
`Trading Symbol(s)
`Name of each exchange on which registered
`COLL
`The NASDAQ Global Select Market
`
`Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
`1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
`requirements for the past 90 days. Yes ⌧ No ☐
`Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405
`of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such
`files). Yes ⌧ No ☐
`Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an
`emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in
`Rule 12b-2 of the Exchange Act.
`Large accelerated filer ☐
`
`Non-accelerated filer ☐
`(Do not check if
`smaller reporting
`company)
`If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
`new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
`Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ⌧
`As of July 31, 2020, there were 34,525,650 shares of Common Stock, $0.001 par value per share, outstanding.
`
`Accelerated filer ☒
`
` Smaller reporting company
`☐
`
`Emerging growth
`company ☐
`
`Purdue 2049
`Collegium v. Purdue, PGR2018-00048
`
`

`

`Table of Contents
`
`PART I—FINANCIAL INFORMATION
`
`TABLE OF CONTENTS
`
`Item 1.
`Item 2.
`Item 3.
`Item 4.
`
`Condensed Consolidated Financial Statements (Unaudited)
`Management’s Discussion and Analysis of Financial Condition and Results of Operations
`Quantitative and Qualitative Disclosures About Market Risk
`Controls and Procedures
`
`PART II—OTHER INFORMATION
`
`Legal Proceedings
`Risk Factors
`Unregistered Sales of Equity Securities and Use of Proceeds
`Defaults Upon Senior Securities
`Mine Safety Disclosures
`Other Information
`Exhibits
`
`Item 1.
`Item 1A.
`Item 2.
`Item 3.
`Item 4.
`Item 5.
`Item 6.
`Signature
`
`2
`
`4
`35
`43
`43
`
`44
`44
`79
`80
`80
`80
`81
`82
`
`Purdue 2049
`Collegium v. Purdue, PGR2018-00048
`
`

`

`Table of Contents
`
`FORWARD-LOOKING STATEMENTS
`
`Statements made in this Quarterly Report on Form 10-Q that are not statements of historical or current facts, such as those under the heading “Management’s
`Discussion and Analysis of Financial Condition and Results of Operations,” are “forward-looking statements” within the meaning of the Private Securities
`Litigation Reform Act of 1995. Forward-looking statements discuss our current expectations and projections relating to our financial condition, results of
`operations, plans, objectives, future performance and business. These statements may be preceded by, followed by or include the words “aim,” “anticipate,”
`“believe,” “estimate,” “expect,” “forecast,” “intend,” “outlook,” “plan,” “potential,” “project,” “projection,” “seek,” “may,” “could,” “would,” “should,”
`“can,” “can have,” “likely,” the negatives thereof and other words and terms of similar meaning.
`
`Forward-looking statements are inherently subject to risks, uncertainties and assumptions; they are not guarantees of performance. You should not place
`undue reliance on these statements. We have based these forward-looking statements on our current expectations and projections about future events.
`Although we believe that our assumptions made in connection with the forward-looking statements are reasonable, we cannot assure you that the
`assumptions and expectations will prove to be correct.
`
`You should understand that the following important factors could affect our future results and could cause those results or other outcomes to differ materially
`from those expressed or implied in our forward-looking statements:
`
`●
`
`●
`
`●
`●
`●
`●
`●
`●
`●
`
`●
`●
`●
`
`●
`●
`●
`●
`●
`●
`●
`
`●
`●
`●
`●
`
`our ability to commercialize and grow sales of our products, particularly in light of current global challenges stemming from the COVID-19
`pandemic;
`our ability to obtain and maintain regulatory approval of our products and any product candidates, and any related restrictions, limitations, and/or
`warnings in the label of an approved product;
`the size of the markets for our products and any product candidates, and our ability to service those markets;
`the success of competing products that are or become available;
`our ability to obtain and maintain reimbursement and third-party payor contracts for our products;
`the costs of commercialization activities, including marketing, sales and distribution;
`the rate and degree of market acceptance of our products;
`changing market conditions for our products;
`the outcome of any patent infringement, opioid-related or other litigation that may be brought by or against us, including litigation with Purdue
`Pharma, L.P. and Teva Pharmaceuticals USA, Inc.;
`the outcome of any governmental investigation related to the manufacture, marketing and sale of opioid medications;
`the performance of our third-party suppliers and manufacturers;
`our ability to secure adequate supplies of active pharmaceutical ingredient for each of our products and to manufacture adequate quantities of
`commercially salable inventory and to maintain our supply chain in the face of global challenges, such as the COVID-19 pandemic;
`our ability to effectively manage our relationships with licensors and to commercialize products that we may in-license from third parties;
`our ability to attract collaborators with development, regulatory and commercialization expertise;
`our ability to obtain funding for our operations and business development;
`our ability to comply with the terms of our outstanding indebtedness;
`regulatory developments in the United States;
`our ability to obtain and maintain sufficient intellectual property protection for our products and any product candidates;
`our ability to comply with stringent government regulations relating to the manufacturing and marketing of pharmaceutical products, including
`U.S. Drug Enforcement Agency (“DEA”) compliance;
`the loss of key commercial, scientific or management personnel;
`our customer concentration, which may adversely affect our financial condition and results of operations;
`the accuracy of our estimates regarding expenses, revenue, capital requirements and need for additional financing; and
`the other risks, uncertainties and factors discussed under the heading “Risk Factors” in this Quarterly Report on Form 10-Q.
`
`In light of these risks and uncertainties, expected results or other anticipated events or circumstances discussed in this Quarterly Report on Form 10-Q
`(including the exhibits hereto) might not occur. We undertake no obligation, and specifically decline any obligation, to publicly update or revise any forward-
`looking statements, even if experience or future developments make it clear that projected results expressed or implied in such statements will not be
`realized, except as may be required by law.
`
`These and other risks are described under the heading “Risk Factors” in this Quarterly Report on Form 10-Q. Those factors and the other risk factors
`described therein are not necessarily all of the important factors that could cause actual results or developments to differ materially from those expressed in
`any of our forward-looking statements. Other unknown or unpredictable factors also could harm our results. Consequently, there can be no assurance that
`actual results or developments anticipated by us will be realized or, even if substantially realized, that they will have the expected consequences to, or effects
`on, us. Given these uncertainties, prospective investors are cautioned not to place undue reliance on such forward-looking statements.
`
`3
`
`Purdue 2049
`Collegium v. Purdue, PGR2018-00048
`
`

`

`Table of Contents
`
`Item 1. Condensed Consolidated Financial Statements (Unaudited).
`
`PART I—FINANCIAL INFORMATION
`
`
`
`Collegium Pharmaceutical, Inc.
`
`CONDENSED CONSOLIDATED BALANCE SHEETS
`
`(in thousands, except share and per share amounts)
`
`Assets
`Current assets
`Cash and cash equivalents
`Accounts receivable
`Inventory
`Prepaid expenses and other current assets
`Total current assets
`Property and equipment, net
`Operating lease assets
`Intangible asset, net
`Restricted cash
`Other noncurrent assets
`Total assets
`Liabilities and shareholders' equity
`Current liabilities
`Accounts payable
`Accrued expenses
`Accrued rebates, returns and discounts
`Current portion of term notes payable
`Current portion of operating lease liabilities
`Total current liabilities
`Term notes payable, net of current portion
`Convertible senior notes
`Operating lease liabilities, net of current portion
`Total liabilities
`Commitments and contingencies (see Note 14)
`Shareholders’ equity:
`Preferred stock, $0.001 par value; authorized shares - 5,000,000 at
`June 30, 2020 and December 31, 2019; issued and outstanding shares - none at
`June 30, 2020 and December 31, 2019
`Common stock, $0.001 par value; authorized shares - 100,000,000 at
`June 30, 2020 and December 31, 2019; issued and outstanding shares -
`34,494,302 at June 30, 2020 and 33,678,840 at December 31, 2019
`Additional paid-in capital
`Accumulated deficit
`Total shareholders’ equity
`Total liabilities and shareholders’ equity
`
`
`
`$
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`$
`
`$
`
`$
`
`June 30,
`2020
`
`
`
`
`
`December 31,
`2019
`
`
`
`$
`
`$
`
`$
`
`145,678
`81,195
`18,815
`5,125
`250,813
`15,156
`8,697
`369,494
`2,547
`163
`646,870
`
`8,182
`25,111
`171,053
`47,069
`696
`252,111
`133,862
`96,046
`9,084
`491,103
`
`—
`
`34
`507,124
`(351,391)
`155,767
`646,870
`
`$
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`170,019
`72,953
`9,643
`3,105
`255,720
`11,854
`9,047
`29,503
`—
`178
`306,302
`
`6,247
`33,480
`157,549
`3,833
`656
`201,765
`7,667
`—
`9,438
`218,870
`
`—
`
`34
`447,297
`(359,899)
`87,432
`306,302
`
`See accompanying notes to the Condensed Consolidated Financial Statements.
`
`4
`
`Purdue 2049
`Collegium v. Purdue, PGR2018-00048
`
`

`

`Table of Contents
`
`Collegium Pharmaceutical, Inc.
`
`CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
`
`(in thousands, except share and per share amounts)
`
`Product revenues, net
`Cost of product revenues
`Cost of product revenues (excluding intangible
`asset amortization)
`Intangible asset amortization
`Total cost of products revenues
`Gross profit
`Operating expenses
`Research and development
`Selling, general and administrative
`Total operating expenses
`Income (loss) from operations
`Interest expense
`Interest income
`Income (loss) before income taxes
`Provision for income taxes
`Net income (loss)
`
`Earnings (loss) per share — basic
`Weighted-average shares — basic
`
`Earnings (loss) per share — diluted
`Weighted-average shares — diluted
`
`Three months ended June 30,
`2020
`2019
`78,058 $
`75,040 $
`
`$
`
`Six months ended June 30,
`2020
`2019
`154,569 $
`149,556
`
`12,899
`16,795
`29,694
`48,364
`
`2,493
`29,322
`31,815
`16,549
`(8,259)
`14
`8,304
`246
`8,058 $
`
`44,966
`3,688
`48,654
`26,386
`
`2,459
`28,935
`31,394
`(5,008)
`(236)
`532
`(4,712)
`—
`(4,712) $
`
`40,128
`27,090
`67,218
`87,351
`
`5,159
`60,582
`65,741
`21,610
`(13,082)
`226
`8,754
`246
`8,508 $
`
`90,442
`7,376
`97,818
`51,738
`
`5,451
`61,287
`66,738
`(15,000)
`(470)
`1,058
`(14,412)
`—
`(14,412)
`
`0.23 $
`34,395,266
`
`(0.14) $
`33,397,709
`
`0.25 $
`34,247,977
`
`(0.43)
`33,338,243
`
`0.23 $
`35,091,906
`
`(0.14) $
`33,397,709
`
`0.24 $
`35,089,740
`
`(0.43)
`33,338,243
`
`$
`
`$
`
`$
`
`See accompanying notes to the Condensed Consolidated Financial Statements.
`
`5
`
`Purdue 2049
`Collegium v. Purdue, PGR2018-00048
`
`

`

`Table of Contents
`
`Collegium Pharmaceutical, Inc.
`
`CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
`
`(in thousands)
`
`Operating activities
`Net income (loss)
`Adjustments to reconcile net income (loss) to net cash used in operating activities:
`Amortization expense
`Depreciation expense
`Stock-based compensation expense
`Non-cash lease expense
`Non-cash interest expense for amortization of debt discount and issuance costs
`Changes in operating assets and liabilities:
`Accounts receivable
`Inventory
`Prepaid expenses and other assets
`Accounts payable
`Accrued expenses
`Accrued rebates, returns and discounts
`Operating lease assets and liabilities
`Other long-term liabilities
`Net cash provided by operating activities
`Investing activities
`Purchase of intangible asset
`Purchases of property and equipment
`Net cash used in investing activities
`Financing activities
`Proceeds from issuances of common stock from employee stock purchase plans
`Proceeds from the exercise of stock options
`Payments made for employee restricted stock tax withholdings
`Proceeds from issuance of term note, net of issuance costs of $2,456
`Proceeds from convertible senior notes, net of issuance costs of $5,473
`Repayment of term notes
`Repayment of term loan
`Net cash provided by financing activities
`
`Net (decrease) increase in cash, cash equivalents and restricted cash
`Cash, cash equivalents and restricted cash at beginning of period
`Cash, cash equivalents and restricted cash at end of period
`
`Reconciliation of cash, cash equivalents and restricted cash to the Condensed Consolidated Balance
`Sheets:
`Cash and cash equivalents
`Restricted cash
`Total cash, cash equivalents and restricted cash
`
`Supplemental disclosure of cash flow information
`Cash paid for interest
`
`Supplemental disclosure of non-cash activities
`Acquisition of property and equipment in accounts payable and accrued expenses
`Accrued royalties discharged upon closing of asset acquisition
`Inventory used in the construction and installation of property and equipment
`Receivable from stock option exercises in other current assets
`Operating lease assets assumed
`Operating lease liabilities assumed
`
`Six months ended June 30,
`2020
`2019
`
`$
`
`8,508
`
`$
`
`(14,412)
`
`27,090
`394
`10,535
`36
`3,860
`
`(8,242)
`(9,785)
`(2,005)
`1,935
`(8,645)
`13,504
`—
`—
`37,185
`
`(368,226)
`(1,662)
`(369,888)
`
`357
`6,080
`(1,922)
`192,117
`138,277
`(12,500)
`(11,500)
`310,909
`
`(21,794)
`170,019
`148,225
`
`145,678
`2,547
`148,225
`
`8,259
`
`$
`
`$
`
`$
`
`$
`
`$
`1,555
`$
`1,145
`$
`613
`— $
`— $
`— $
`
`$
`
`$
`
`$
`
`$
`
`$
`$
`$
`$
`$
`$
`
`7,376
`355
`8,425
`229
`—
`
`(3,333)
`(2,136)
`509
`(1,209)
`(3,285)
`13,481
`734
`(676)
`6,058
`
`—
`(4,198)
`(4,198)
`
`444
`299
`(523)
`—
`—
`—
`—
`220
`
`2,080
`146,633
`148,713
`
`148,713
`—
`148,713
`
`362
`
`512
`—
`—
`5
`9,957
`10,691
`
`See accompanying notes to the Condensed Consolidated Financial Statements.
`
`6
`
`Purdue 2049
`Collegium v. Purdue, PGR2018-00048
`
`

`

`Table of Contents
`
`Collegium Pharmaceutical, Inc.
`
`NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
`
`(unaudited, in thousands, except share and per share amounts)
`
`1. Nature of Business
`
`Collegium Pharmaceutical, Inc. (the “Company”) was incorporated in Delaware in April 2002 and then reincorporated in
`Virginia in July 2014. The Company has its principal operations in Stoughton, Massachusetts. The Company is a specialty
`pharmaceutical company committed to being the leader in responsible pain management. The Company’s first product,
`Xtampza ER, is an abuse-deterrent, extended-release, oral formulation of oxycodone. In April 2016, the United States Food
`and Drug Administration (the “FDA”) approved the Company’s new drug application (“NDA”) for Xtampza ER for the
`management of pain severe enough to require daily, around-the-clock, long-term opioid treatment and for which alternative
`treatment options are inadequate. In June 2016, the Company announced the commercial launch of Xtampza ER.
`
`The Company’s product portfolio also includes Nucynta ER and Nucynta IR (the “Nucynta Products”). In December 2017,
`the Company entered into a Commercialization Agreement (the “Nucynta Commercialization Agreement”) with Assertio
`Therapeutics, Inc. (formerly known as Depomed) (“Assertio”), pursuant to which the Company acquired the right to
`commercialize the Nucynta Products in the United States. The Company began shipping and recognizing product sales on
`the Nucynta Products on January 9, 2018 and began marketing the Nucynta Products in February 2018. Nucynta ER is an
`extended-release formulation of tapentadol that is indicated for the management of pain severe enough to require daily,
`around-the-clock, long-term opioid treatment, including neuropathic pain associated with diabetic peripheral neuropathy in
`adults, and for which alternate treatment options are inadequate. Nucynta IR is an immediate-release formulation of
`tapentadol that is indicated for the management of acute pain severe enough to require an opioid analgesic and for which
`alternative treatments are inadequate in adults.
`
`On February 6, 2020, the Company entered into an Asset Purchase Agreement with Assertio (the “Nucynta Purchase
`Agreement”), pursuant to which the Company agreed to acquire from Assertio certain assets related to the Nucynta
`Products (the “Nucynta Acquisition”), including the license from Grünenthal GmbH (“Grünenthal”), for an aggregate
`purchase price of $375,000, subject to certain closing and post-closing adjustments as described in the Nucynta Purchase
`Agreement. On February 13, 2020, the Company closed the Nucynta Acquisition in accordance with the Nucynta Purchase
`Agreement. Upon closing, the Nucynta Commercialization Agreement was effectively terminated and the Company’s
`royalty payment obligations to Assertio thereunder ceased. Following the closing, the Company will pay royalties directly
`to Grünenthal at a rate of 14% of net sales of the Nucynta Products and no longer pay royalties to Assertio.
`
`In March 2020, the World Health Organization declared the continued spread of a novel coronavirus (“COVID-19”) a
`pandemic. The pandemic has severely impacted global economic activity, and many countries and many states in the
`United States have reacted to the outbreak by instituting quarantines, mandating business and school closures and
`restricting travel. The travel restrictions and “social distancing” recommendations resulting from the spread of COVID-19
`have impacted the Company’s sales professionals’ ability to travel to and meet with healthcare providers in person. The
`Company periodically reviews its accounting estimates in light of changes in circumstances, facts and experience. As of the
`date of the filing of this Quarterly Report on Form 10-Q, the COVID-19 pandemic and actions taken to contain it have
`impacted revenue (due to fewer new patients beginning therapy with the Company’s products and adverse impact on the
`Company’s ability to promote products due to closure or limited operations of many physicians’ offices) and decreased
`certain operating expenses, including travel, marketing and expenses associated with participation in congresses that have
`been postponed. The Company believes that the disruptions caused by COVID-19 will continue through 2020 and there
`remains substantial uncertainty as to when such disruptions will cease (or ease).
`
`The Company’s operations are subject to certain risks and uncertainties. The principal risks include inability to successfully
`commercialize products, changing market conditions for products and development of competing products, changing
`regulatory environment and reimbursement landscape, litigation related to opioid marketing and distribution practices,
`manufacture of adequate commercial inventory, inability to secure adequate supplies of active pharmaceutical ingredients,
`key personnel retention, protection of intellectual property, patent infringement litigation and the availability of additional
`capital financing on terms acceptable to the Company.
`
`7
`
`Purdue 2049
`Collegium v. Purdue, PGR2018-00048
`
`

`

`Table of Contents
`
`The Company believes that its cash and cash equivalents at June 30, 2020, together with expected cash inflows from the
`commercialization of its products, will enable the Company to fund its operating expenses, debt service and capital
`expenditure requirements under its current business plan for the foreseeable future.
`
`2. Summary of Significant Accounting Policies
`
`Basis of Presentation
`
`The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of Collegium
`Pharmaceutical, Inc. (a Virginia corporation) as well as the accounts of Collegium Securities Corp. (a Massachusetts
`corporation), incorporated in December 2015, and Collegium NF, LLC (a Delaware limited liability company), organized
`in December 2017, both wholly owned subsidiaries requiring consolidation. The consolidated financial statements of the
`Company have been prepared in accordance with accounting principles generally accepted in the United States of America
`(“GAAP”) for interim financial reporting and as required by Regulation S-X, Rule 10-01. Accordingly, they do not include
`all of the information and footnotes required by GAAP for complete consolidated financial statements.
`
`In the opinion of the Company’s management, the accompanying unaudited Condensed Consolidated Financial Statements
`contain all adjustments (consisting of items of a normal and recurring nature) necessary to fairly present the financial
`position of the Company as of June 30, 2020, the results of operations for the three and six months ended June 30, 2020
`and 2019, and cash flows for the six months ended June 30, 2020 and 2019. The results of operations for the six months
`ended June 30, 2020 are not necessarily indicative of the results to be expected for the full year.
`
`The preparation of the Condensed Consolidated Financial Statements in accordance with GAAP requires the Company to
`make estimates and assumptions that impact the reported amounts of assets, liabilities, revenues, costs and expenses and
`the disclosure of contingent assets and liabilities in the Company’s consolidated financial statements and accompanying
`notes. Estimates in the Company’s consolidated financial statements include revenue recognition, including the estimates of
`product returns, units prescribed, discounts and allowances related to commercial sales of products, estimates of useful
`lives with respect to intangible assets, accounting for stock based compensation, contingencies, impairment of intangible
`assets, and tax valuation reserves. The Company bases estimates and assumptions on historical experience when available
`and on various factors that it believes to be reasonable under the circumstances. The Company evaluates its estimates and
`assumptions on an ongoing basis. The Company’s actual results may differ from these estimates under different
`assumptions or conditions. The consolidated interim financial statements should be read in conjunction with the audited
`financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended
`December 31, 2019 (the “Annual Report”).
`
`8
`
`Purdue 2049
`Collegium v. Purdue, PGR2018-00048
`
`

`

`Table of Contents
`
`Significant Accounting Policies
`
`The Company’s significant accounting policies are described in Note 2, “Summary of Significant Accounting Policies,” in
`the Company’s Annual Report. During the interim period covered by this Quarterly Report on Form 10-Q, the Company
`assumed certain material assets and liabilities in connection with consummating the Nucynta Acquisition, in addition to the
`issuance of convertible notes and term notes that required a review for embedded derivatives. As a result, the Company
`adopted the following accounting policy:
`
`Embedded Derivatives
`
`The Company accounts for derivative financial instruments as either equity or liabilities in accordance with Accounting
`Standards Codification Topic 815, Derivatives and Hedging, based on the characteristics and provisions of each instrument.
`Embedded derivatives are required to be bifurcated from the host instruments and recorded at fair value if the derivatives
`are not clearly and closely related to the host instruments on the date of issuance. The Company’s term notes (see Note 10)
`and convertible notes (see Note 11) contain certain features that, in accordance with ASC 815, are not clearly and closely
`related to the host instrument and represent derivatives that are required to be re-measured at fair value each reporting
`period. The Company determined that the estimated fair value of the derivatives at issuance and as of June 30, 2020 were
`not material based on a scenario-based cash flow model that uses unobservable inputs that reflect the Company’s own
`assumptions. Should the Company’s assessment of the probabilities around these scenarios change, including for changes
`in market conditions, there could be a change to the fair value.
`
`Other than the aforementioned changes, there have been no material changes in the Company’s significant accounting
`policies, other than the adoption of accounting pronouncements below, as compared to the significant accounting policies
`described in the Annual Report.
`
`Reclassifications
`
`The Company has reclassified certain amounts in its Condensed Consolidated Statements of Operations for the three and
`six months ended June 30, 2019 to conform to the 2020 presentation. Specifically, the Company disaggregated previously
`reported cost of product revenues of $48,654 for the three months ended June 30, 2019 into the captions Cost of product
`revenues (excluding intangible asset amortization) $44,966 and Intangible asset amortization $3,688. In addition, the
`Company disaggregated previously reported cost of product revenues of $97,818 for the six months ended June 30, 2019
`into the captions Cost of product revenues (excluding intangible asset amortization) $90,442 and Intangible asset
`amortization $7,376. The reclassifications relate to the presentation of the Company’s gross profit and amortization expense
`and were made to provide the readers of the Company’s consolidated financial statements with additional insight into how
`the Company and its management view and evaluate its performance and profitability. This reclassification within the
`consolidated statements of operations for the three and six months ended June 30, 2019 had no impact on previously
`reported total consolidated revenues or consolidated results of operations.
`
`Recently Adopted Accounting Pronouncements
`
`New accounting pronouncements are issued periodically by the Financial Accounting Standards Board (“FASB”) and are
`adopted by the Company as of the specified effective dates.
`
`The Company adopted Accounting Standard Updated (“ASU”) 2016-13, Financial Instruments – Credit Losses (ASC Topic
`326): Measurement of Credit Losses on Financial Instruments, which requires companies to measure credit losses utilizing
`a methodology that reflects expected credit losses and requires a consideration of a broader range of reasonable and
`supportable information to inform credit loss estimates. Subsequent to issuance, the FASB issued ASUs 2019-04, 2019-05,
`2019-10, 2019-11 and 2020-03 to provide additional guidance on the adoption of ASU 2016-13. The Company adopted
`ASU 2016-13 on January 1, 2020 and the adoption did not have a material impact on the Company’s consolidated financial
`position, results of operations, equity or cash flows.
`
`In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference
`Rate Reform on Financial Reporting, to ease the potential burden in accounting for reference rate reform. The amendments
`in ASU 2020-04 are elective and apply to all entities that have contracts, hedging relationships, and other transactions that
`reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. The new standard
`became effective immediately and may be applied prospectively to contracts and transactions through
`
`9
`
`Purdue 2049
`Collegium v. Purdue, PGR2018-00048
`
`

`

`Table of Contents
`
`December 31, 2022. Upon the transition of the Company’s contracts and transactions to new reference rates in connection
`with reference rate reform, the Company will prospectively apply the amendments of ASU 2020-04 and disclose the effect
`on its consolidated financial statements
`
`Recently Issued Accounting Pronouncements Not Yet Adopted
`
`In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income
`Taxes. The amendments in ASU 2019-12 affect a wide variety of income tax accounting standards with the objective of
`reducing their complexity. The new standard is effective for annual and interim periods beginning after December 15, 2020,
`with early adoption permitted. The Company is currently evaluating the standard’s effect on the Company’s consolidated
`financial statements.
`
`3. Revenue from Contracts with Customers
`
`The Company’s revenue to date is from sales of the Company’s products, which are primarily sold to distributors
`(“customers”), which in turn sell the product to pharmacies for the treatment of patients (“end users”).
`
`Revenue Recognition
`
`In accordance with Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC Topic
`606”), the Company recognizes revenue when a customer obtains control of promised goods or services, in an amount that
`reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue
`recognition for arrangements that an entity determines are within the scope of ASC Topic 606, the Company performs the
`following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract;
`(iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and
`(v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step
`model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods
`or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC
`Topic 606, the Company assesses the goods or services promised within each contract and determines those that are
`performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as
`revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the
`performance obligation is satisfied.
`
`Performance Obligations
`
`The Company determined that performance obligations are satisfied and revenue is recognized when a customer takes
`control of the Company’s product, which occurs at a point in time. This generally occurs upon delivery of the products to
`customers, at which point the Company recognizes revenue and records accounts receivable, which represents the
`Company’s only contract asset. Payment is typically received 30 to 90 days after satisfaction of the Company’s
`performance obligations and generally does not have an effect on contract asset and contract liability balances. The
`Company expenses incremental costs of obtaining a contract as and when incurred if the expected amortization period of
`the assets is one year or less.
`
`Transaction Price and Variable Consideration
`
`Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products
`or services to a customer (“transaction price”). The transaction price for product sales includes variable consideration
`related to sales deductions, including (1) rebates and incentives, including managed care rebates, government rebates, co-
`pay program incentives, and sales incentives and allowances; (2) product returns, including return estimates for both the
`Xtampza ER and the Nucynta Products; and, (3) trade allowances and chargebacks, including fees for