bdsi-20191231
10-KfalseDecember 31, 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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________________
Form 10-K
__________________________________________
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
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 001-31361
__________________________________________
BioDelivery Sciences International, Inc.
(Exact name of registrant as specified in its charter)
__________________________________________
Delaware
(State or other jurisdiction of
incorporation or organization)
35-2089858
(I.R.S. Employer
Identification No.)
4131 ParkLake Avenue, Suite 225, Raleigh, NC.
27612
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number: 919-582-9050
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of exchange on which registered
Common stock, par value $0.001BDSIThe Nasdaq Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
__________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ☐    No  ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ☐    No  ☒
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 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, or a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  ☒
The aggregate market value of the voting and non-voting common equity held by non-affiliates as of June 28, 2019 was approximately $359,814,864 based on the closing sale price of the company’s common stock on such date of $4.65 per share, as reported by the NASDAQ Global Select Market.
As of March 6, 2020, there were 96,360,486 shares of company common stock issued and 96,344,995 shares of company common stock outstanding.



Table of Contents
BioDelivery Sciences International, Inc.
Annual Report on Form 10-K
For the fiscal year ended December 31, 2019
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Unless we have indicated otherwise, or the context otherwise requires, references in this Report to “BDSI,” the “Company,” “we,” “us” and “our” or similar terms refer to BioDelivery Sciences International, Inc., a Delaware corporation and its consolidated subsidiaries.

We own various trademark registrations and applications, and unregistered trademarks, including BioDelivery Sciences International, Inc., BEMA, BELBUCA, BUNAVAIL, ONSOLIS and our corporate logo. We have an exclusive license to use and display the Symproic registered trademark in order to commercialize Symproic in the United States. All other trade names, trademarks and service marks of other companies appearing in this prospectus are the property of their respective holders. Solely for convenience, the trademarks and trade names in this prospectus may be referred to without the ® and ™ symbols, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. We do not intend to use or display other companies’ trademarks and trade names to imply a relationship with, or endorsement or sponsorship of us by, any other companies.



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From time to time, we may use our website, our Facebook page at Facebook.com/BioDeliverySI, on Twitter at @BioDeliverySI to distribute material information, and on LinkedIn at linkedin.com/company/biodeliverysciencesinternational/. Our financial and other material information is routinely posted to and accessible on the Investors section of our website, available at www.bdsi.com. Investors are encouraged to review the Investors section of our website because we may post material information on that site that is not otherwise disseminated by us. Information that is contained in and can be accessed through our website, our Facebook page and our Twitter posts are not incorporated into, and does not form a part of, this Annual Report.



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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Report and the documents we have filed with the Securities and Exchange Commission (which we refer to herein as the SEC) that are incorporated by reference herein contain forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that involve significant risks and uncertainties. Any statements contained, or incorporated by reference, in this Report that are not statements of historical fact may be forward-looking statements. When we use the words “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “will” and other similar terms and phrases, including references to assumptions, we are identifying forward-looking statements. Forward-looking statements involve risks and uncertainties which may cause our actual results, performance or achievements to be materially different from those expressed or implied by forward-looking statements.

These forward-looking statements include, but are not limited to, statements about:
our plans and expectations regarding the commercialization, manufacturing, marketing and distribution efforts relating to our BEMA (as defined below) drug delivery technology platform and any of our approved products;
the domestic and international regulatory process and related laws, rules and regulations governing our technologies and our products and formulations, including: (i) the timing, status and results of our, or our commercial partners’ filings with the U.S. Food and Drug Administration and its foreign equivalents, (ii) the timing, status and results of non-clinical work and clinical studies, including regulatory review thereof and (ii) the heavily regulated industry in which we operate our business generally;
our ability to enter into strategic partnerships for the commercialization, manufacturing and distribution of our products;
our ability, or the ability of our commercial partners or licensors, to actually develop, commercialize, secure raw materials or active pharmaceutical ingredients in sufficient quantities, manufacture or distribute our products, including for BELBUCA and Symproic;
our ability to finance our operations on acceptable terms, either through the raising of capital, the incurrence of convertible or other indebtedness or through strategic financing or commercialization partnerships;
the protection and control afforded by our patents or other intellectual property, and any interest in patents or other intellectual property that we license, of our or our partners’ ability to enforce our rights under such owned or licensed patents or other intellectual property;
the outcome of ongoing or potential future litigation (and related activities, including inter partes reviews, inter partes reexaminations and “Paragraph IV” litigations) or other claims or disputes relating to our business, technologies, patents, products or processes;
our expected revenues (including sales, milestone payments and royalty revenues) from our products and any related commercial agreements of ours;
the ability of our manufacturing partners to supply us or any commercial partners with clinical or commercial supplies of our products in a safe, timely and regulatory compliant manner and the ability of such partners to address any regulatory issues that have arisen or may in the future arise;
our ability to retain members of our management team and our employees; and
competition existing today or that will likely arise in the future.
The foregoing does not represent an exhaustive list of risks that may impact the forward-looking statements used herein or in the documents incorporated by reference herein. Please see “Risk Factors” for additional risks which could adversely impact our business and financial performance and related forward-looking statements.
Moreover, new risks regularly emerge and it is not possible for our management to predict all risks, nor can we assess the impact of all risks on our business or the extent to which any risk, or combination of risks, may cause actual results to differ from those contained in any forward-looking statements. All forward-looking statements included in this Report are based on information available to us on the date hereof. Except to the extent required by applicable laws or rules, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained throughout this Report and the documents we have filed with the SEC.
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PART I
ITEM 1. Description of Business
Overview
BioDelivery Sciences International, Inc. (NASDAQ: BDSI) is a rapidly growing specialty pharmaceutical company dedicated to patients living with chronic pain and associated conditions. We have built a portfolio of products that includes utilizing our novel and proprietary BioErodible MucoAdhesive, or BEMA, drug-delivery technology to develop and commercialize new applications of proven therapies aimed at addressing important unmet medical needs. At our core is a shared passion to make every day a little bit easier for patients and help improve the lives of people living with serious and debilitating chronic conditions so they can experience life to the fullest. We commercialize in the U.S. using our own sales force while working in partnership with third parties to commercialize our products outside the U.S. We have made it a point to deeply understand the patients’ journeys and are driven by recognizing the full impact of their conditions so we can deliver life-improving solutions. Our marketed products address serious and debilitating conditions, including chronic pain, opioid dependence and opioid-induced constipation.
Our Strategy
Our strategy is evolving with the establishment of our commercial footprint in the management of chronic pain. We seek to continue to build a well-balanced, diversified, high-growth specialty pharmaceutical company. Through our industry-leading commercialization infrastructure, we are executing the commercialization of our existing products. As part of our corporate growth strategy, we have licensed, and will continue to explore opportunities to acquire or license, additional products that meet the needs of patients living with debilitating chronic conditions and treated primarily by therapeutic specialists. As we gain access to these drugs and technologies, we will employ our commercialization experience to bring them to the marketplace. With a strong commitment to patient access and a focused business-development approach for transformative acquisitions or licensing opportunities, we will leverage our experience and apply it to developing new partnerships that enable us to commercialize novel products that can change the lives of people suffering from debilitating chronic conditions.
Our commercial strategy for BELBUCA is to further drive continued adoption in the large long-acting opioid (LAO) market based on its unique profile coupled with growing physician interest, policy tailwinds, and expanding payer access. We aim to leverage the specialized commercial infrastructure we established for BELBUCA as a vehicle to enable commercial growth in Symproic, which is being increasingly seen as a complementary asset.
Our Company
We are a publicly listed company. Our common stock is listed on The Nasdaq Global Select Market under the symbol “BDSI.” We were incorporated in the state of Indiana in 1997 and reincorporated as a Delaware-based corporation in 2002.
Background on Chronic Pain, Opioid Induced Constipation and Opioid Dependence
Chronic Pain
Chronic pain is often defined as any pain lasting more than 12 weeks. Whereas acute pain is a normal sensation that alerts us to possible injury, chronic pain persists – often for months or even longer. Chronic pain may arise from an initial injury, such as back sprain, or there may be an ongoing cause, such as an illness. Sometimes there is no clear cause. According to results from a National Health Interview Survey, there are over 25 million American adults experiencing daily chronic pain, with over 10 million of these experiencing severe pain on a daily basis.
Treatment Landscape for Chronic Pain
The pain market is well established, with many pharmaceutical companies marketing new formulations of existing molecules, as well as generic versions of older, non-patent protected products. In 2019, according to data from Symphony Health, the market for long-active opioids in the U.S. totaled over $3.1 billion in annual sales with almost 12 million prescriptions dispensed. However, prescription volume of long-acting opioids declined more than 13% in 2019 compared to 2018 amidst continuing efforts to curb misuse, abuse and over use of opioids in order to address the current opioid crisis.
A number of products are competitors to BELBUCA, including BuTrans from Purdue Pharma L.P., or Purdue, a transdermal formulation of buprenorphine which also has a generic equivalent available. Other competitors are U.S. Drug Enforcement Agency, or the DEA, Schedule II opioids such as OxyContin from Purdue, as well as Xtampza ER and Nucynta ER from Collegium Pharmaceutical, Inc., or Collegium, and multiple generic Schedule II oral opioid formulations, such as
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morphine, hydrocodone, and fentanyl containing products. Approximately 70% of the retail/mail order prescriptions for long-acting opioids are dispensed as a generic product.
Some manufacturers have also formulated Schedule II opioids in abuse deterrent formulations, or ADF. Embeda from Pfizer Inc., Hysingla ER from Purdue, Zohydro ER from Pernix Therapeutics Holdings Inc., MorphaBond ER from Daiichi Sankyo Company, Xtampza ER from Collegium and Arymo ER from Egalet Corporation, as well as new formulations of OxyContin, use a variety of technologies that aim to minimize the potential for abuse and misuse. Select abuse deterrent products are playing an increasingly important role in treating patients with chronic pain, while others are experiencing slower than anticipated adoption, leading to cessation of manufacturing/promotion for products such as Arymo ER. This has led some manufacturers to reconsider launching an ADF product into the current market.
In addition to product competition, there are other factors that have impacted the market for pain products in general. Opioids continue to garner increased scrutiny based on the growing problem of prescription drug abuse and addiction. The FDA and other government agencies have taken an increasing number of actions to address the problem of opioid abuse and addiction.
In July 2012, the Federal Drug Administration (or "FDA") approved a class-wide Risk Evaluation and Mitigation Strategy (or "REMS") program for the extended release and long-acting opioids. The class-wide REMS program consists of a REMS-compliant educational program offered by an accredited provider of continuing medical education, patient counseling materials and a medication guide. BELBUCA falls within the existing class-wide REMS program.
In August 2014, the DEA published its final ruling in the Federal Register moving hydrocodone combination products (such as Vicodin, Lortab, Norco, etc.) from Schedule III to the more-restrictive Schedule II, as recommended by the Assistant Secretary for Health of HHS and as supported by the DEA’s own evaluation of relevant data. As a result of the ruling, hydrocodone containing products are now classified in the same category (Schedule II) as morphine and oxycodone.
In March 2016, the U.S. Department of Health and Human Services, (or "HHS")’s Centers for Disease Control and Prevention, or the CDC, issued guidelines for prescribing opioids for chronic pain. CDC developed and published the CDC Guideline for Prescribing Opioids for Chronic Pain to provide recommendations for the prescribing of opioid pain medication for patients 18 and older in primary care settings. Recommendations focus on the use of opioids in treating chronic pain. The guidelines advocate use of non-pharmacologic therapy and non-opioid pharmacologic therapy as first line therapy for chronic pain. When starting opioid therapy for chronic pain, clinicians are advised to prescribe immediate-release opioids instead of extended-release/long-acting, or ER/LA, opioids and to prescribe the lowest effective dosage. Clinicians were directed to reassess patient’s medication needs when considering doses of 50 morphine milligram equivalents, or MME or greater and should avoid increasing total daily doses to 90 MME or greater. A sharp reduction in prescriptions among Primary Care Physicians and an increase among Pain Specialists are evidence of the shift in prescribing and in the dynamics of pain treatment.
In June 2017, the FDA requested that Endo Pharmaceuticals, Inc. remove Opana ER (oxymorphone), from the market based on concerns that the benefits of the drug may no longer outweigh its risks. This was the first time the agency has taken steps to remove a currently marketed opioid pain medication from sale due to the public health consequences of abuse. The FDA’s decision was based on a review of all available post-marketing data, which demonstrated a significant shift in the route of abuse of Opana ER from nasal to injection following the product’s reformulation. It is anticipated that other steps will be taken to further limit the use, duration, dose or availability of certain opioids – particularly those with Schedule II designation.
In September 2017, the CDC removed the MME conversion factors for buprenorphine from its online oral MME data file. And, in 2018, it included a statement in the MME data file noting “Buprenorphine doses are not expected to be associated with overdose risk in the same dose-dependent manner as doses for full agonist opioids.”
In May 2019, the Health and Human Services Pain Management Best Practices Inter-Agency Task Force issued their Final Report on Pain Management Best Practices: Updates, Gaps, Inconsistencies, and Recommendations. The report identifies that one of the barriers in pain management best practices “include lack of coverage and reimbursement for buprenorphine as well as the lack of education and training on the proper usage of buprenorphine. There has been a lack of access to buprenorphine treatment for chronic pain.” The report then makes recommendations that third-party payers should provide coverage and reimbursement for buprenorphine treatment approaches. The report also encouraged the primary use of buprenorphine when opioids are appropriate for chronic pain. In October 2019, the HHS issued a guide for clinicians on how to appropriately reduce the dose for patients on long-term opioids. Within this guidance, it was noted that if patients on high opioid dosages are unable to taper despite worsening pain and/or function with opioids, clinicians should consider transitioning the patient to buprenorphine. The guide also noted that in addition to treating pain, buprenorphine has other properties that may be
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helpful, including less opioid-induced hyperalgesia and easier withdrawal than full mu-agonist opioids, and less respiratory depression than other long-acting opioids.
For 2019, the Centers for Medicare and Medicaid Services adopted a soft edit of 90 MME per day for patients, aligning with the 2016 CDC Guideline recommendation. A medication soft edit can be used to alert the pharmacist to a potential safety risk for the patient, but can often be overridden after consulting with the prescriber.
Opioid Induced Constipation
Opioid analgesics are an important therapeutic option for patients with moderate-to-severe chronic pain. However, a common side-effect of opioid therapy is opioid-induced constipation, or OIC, which is characterized by reduced bowel movement frequency, increased straining, sensation of incomplete evacuation, and hard stools after the initiation of opioid therapy. Unlike many other opioid-related adverse effects, opioid-induced constipation does not subside over time. According to the 2018 American Gastroenterological Association Institute Guideline on the Medical Management of Opioid-Induced Constipation, OIC is estimated to affect 40% to 80% of patients taking chronic opioid therapy. One-third of patients with OIC report skipping, reducing, or stopping use of opioids—despite experiencing an increase in pain—in an effort to have a bowel movement.
Treatment Landscape for Opioid Induced Constipation
First-line treatment for opioid-induced constipation typically involves a combination of pharmacological and non-pharmacological interventions such as laxatives and increased dietary fiber. However, these approaches are associated with sub-optimal efficacy and do not address the underlying mechanism of OIC. OIC results from the specific effects of opioids on the gastrointestinal tract, differing mechanistically from other forms of constipation. Therefore, medical management of this disorder requires targeted treatment.
In 2010, Relistor injectable was approved by the FDA as the first peripherally acting mu-opioid receptor antagonist, or PAMORA, for the treatment of OIC in adults with chronic non-cancer pain. The PAMORA mechanism of action targets the underlying cause of OIC, selectively blocking opioid actions at peripheral μ-opioid receptors, including those in the enteric nervous system, without affecting analgesia in the central nervous system (or "CNS"). In 2014, Movantik was the first oral PAMORA approved for the treatment of OIC, with the oral formulation of Relistor approved in mid-2016. In March 2017, Symproic was the third PAMORA approved for the treatment of OIC in adults with chronic non-cancer pain.
In addition to the PAMORA agents, Amitiza is also approved for the treatment of OIC in adults with chronic non-cancer pain. Amitiza is a chloride channel 2 activator in the gut, which increases intestinal fluid secretion and enhances transit through the gut without altering sodium and potassium serum concentrations.
In October 2018, the American Gastroenterological Association, or AGA issued guidelines for the medical management of OIC to help reduce practice variation and promote high quality and high-value care for patients suffering from OIC. For patients in whom traditional laxative therapy results in sub-optimal symptom control, the AGA recommends the use of PAMORAs. Of the PAMORAs, Symproic is the only OIC therapy with a strong recommendation and high quality of evidence from the AGA. Due to insufficient evidence, the AGA did not issue a recommendation regarding the use of Amitiza® in OIC.
In 2019, according to data from Symphony Health, the PAMORA market totaled $352 million in annual sales. There were over 585,000 PAMORA prescriptions dispensed, a slight decrease of 3% from 2018, driven by the decline in opioid prescribing.
Opioid Dependence
Opioid dependence is a medical diagnosis that is characterized by the inability of an individual to stop using opioids, either prescription opioids such as morphine, hydrocodone and oxycodone, or illicit opioids such as heroin, even when it is in the best interest of the individual to do so. Opioid dependence is a complex medical condition that often requires long-term treatment and care. The treatment of opioid dependence is important to reduce both the associated health and social consequences and to improve the well-being and social functioning of people affected. According to the National Survey on Drug Use and Health, in 2016, 2.1 million people in the U.S. had an opioid use disorder.
Treatment Landscape for Opioid Dependence
Treatment with buprenorphine reduces the typical cravings and withdrawal symptoms associated with coming off opioid prescription painkillers and heroin. This allows the individual suffering from an addiction to opioids – along with counseling and support – to work toward recovery. On average, treatment lasts several months, reflecting relatively high dropout rates, but a significant number of people remain on buprenorphine treatment chronically, with nearly one-quarter of patients still on therapy after nine months.
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In addition to BUNAVAIL, there are several buprenorphine containing products currently marketed for the treatment of opioid dependence including Suboxone®, a sublingual film formulation of buprenorphine and naloxone, Zubsolv, a sublingual tablet of buprenorphine and naloxone, and multiple generic formulations of both buprenorphine and buprenorphine/naloxone tablets. In February 2019, generic equivalents of Suboxone entered the market, rapidly eroding the leadership position that Suboxone had maintained for several years.
The total U.S. market for buprenorphine containing products for opioid dependence exceeded $3.2 billion in 2019, an increase of 6% over 2018, according to Symphony Health. The market has grown steadily as a result of the rapidly escalating problem of prescription opioid misuse and abuse, a recent resurgence of heroin use, the growing number of physicians treating opioid dependence, and the inclusion of addiction treatment as an essential benefit in the Affordable Care Act. Due to the entrance of Suboxone generic equivalents, the dollar value of this market is anticipated to decline in 2020.
Breakthrough Cancer Pain
Cancer patients often suffer from a variety of symptoms including pain as a result of their cancer or cancer treatment. Pain is a widely prevalent symptom in cancer patients, and an estimated 50% to 90% of those with cancer also suffer from what is referred to as breakthrough cancer pain, or BTCP. BTCP episodes have a rapid onset that peaks in three to five minutes and can last several minutes to an hour, and usually occur several times per day.
Treatment Landscape for Breakthrough Cancer Pain
BTCP can be difficult to treat due to its severity, rapid onset and the often unpredictable nature. Physicians typically treat BTCP with a variety of short-acting opioid medications, including morphine and fentanyl. The breakthrough cancer pain market has become increasingly crowded and more competitive in recent years.
A number of formulations of fentanyl are available employing a variety of drug delivery technologies, all which provide rapid onset and relatively short duration of action to address the fast onset and short duration of BTCP. The principal competitors had traditionally been Actiq® (fentanyl citrate) oral transmucosal lozenge and Fentora® (fentanyl buccal tablet). In recent years, newer product entries, particularly Subsys® (fentanyl sublingual spray) from Insys, have gained significant market share. Additional competitors include the sublingual tablet formulation of fentanyl (Abstral®) and a nasal spray formulation of fentanyl (Lazanda®). In addition, multiple generic formulations of Actiq® are currently available. All of the fentanyl based products are subject to the Transmucosal Immediate Release Fentanyl (TIRF) REMS Access Program, which was designed to ensure informed risk-benefit decisions before initiating treatment with a transmucosal fentanyl product, and while patients are on treatment, to ensure appropriate use.
Despite the increased number of fentanyl-based products approved for the treatment of BTCP, the market has contracted significantly since peaking at almost 120,000 prescriptions in 2014, to less than 17,000 prescriptions in 2019, according to Symphony Health.
Our BEMA Drug Delivery Technology
Our BEMA drug delivery technology consists of a small, bi-layered erodible polymer film for application to the buccal mucosa (the lining inside the cheek). BEMA films have the capability to deliver a rapid, reliable dose of drug across the buccal mucosa for time-critical conditions such as “breakthrough” cancer pain or in situations where gastrointestinal absorption of an oral drug is not practical or reliable, or in facilitating the administration of drugs with poor oral bioavailability.
We believe that the BEMA technology permits control of two critical factors allowing for better dose-to-dose reproducibility: (i) the contact area for mucosal drug delivery, and (ii) the time the drug is in contact with that area, known as residence time. In contrast to competing transmucosal delivery systems such as 1) lozenges, 2) buccal tablets and 3) matrix-based delivery systems placed under the tongue or sprayed in the oral cavity, BEMA products are designed to:
adhere to buccal mucosa in seconds and dissolve in minutes;
permit absorption without patients being required to move the product around in the mouth for absorption, thus avoiding patient intervariability;
allow for unidirectional drug flow into the mucosa as a result of a backing layer on the side of the BEMA film facing into the patient’s mouth;
provide a reproducible delivery rate, not susceptible to varying or intermittent contact with oral membranes; and
dissolve completely, leaving no residual product or waste and avoiding patient removal, and the possibility for diversion or disposal of partially used product.
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We currently own the BEMA drug delivery technology.
Sales and Market Overview of our Products
The following table summarizes the status of our marketed products:
Product/FormulationIndicationDevelopment StatusCommercial Status
BELBUCAManagement of pain severe enough to require daily, around-the-clock, long-term opioid treatment and for which alternative treatment options are inadequateApproval: U.S. in October 2015; Canada in June 2017BDSI markets in U.S.
Symproicthe treatment of opioid-induced constipation in adult patients with chronic non-cancer painApproval: U.S. in March 2017BDSI markets in U.S.; licensed from Shionogi in April 2019
BUNAVAILTreatment of opioid dependenceApproval: U.S. in June 2014BDSI markets in U.S.*
ONSOLIS/BREAKYL /PAINKYL (U.S./E.U./Taiwan trade names, respectively)Breakthrough cancer pain in opioid tolerant patientsApproval: U.S. in July 2009; Canada in May 2010; E.U. in October 2010 and Taiwan in July 2013Partnership with Mylan in all regions except North America, Taiwan and South Korea; partnership with TTY in Taiwan.
* In March 2020, we announced that we were discontinuing marketing for BUNAVAIL in the U.S.
The pharmaceutical industry and the therapeutic areas in which we compete are highly competitive and subject to rapid and substantial regulatory and technological changes. Developments by others may render our BEMA technology and marketed products noncompetitive or obsolete, or we may be unable to keep pace with technological developments or other market factors. Technological competition in the industry from pharmaceutical and biotechnology companies, universities, governmental entities and others diversifying into the field is intense and is expected to increase.
There have been a growing number of companies developing products utilizing various thin film drug delivery technologies. While numerous over-the-counter pharmaceutical products have been brought to market in thin film formulations, few containing prescription products have been introduced in the U.S. Among the products to receive FDA approval are BELBUCA, BUNAVAIL, and ONSOLIS (BDSI), Suboxone film (Indivior PLC) and Zuplenz (Midatech Pharma PLC). Companies in the development and manufacture of thin film technologies include LTS, Lohmann Therapie-Systeme AG, ARx, LLC and Aquestive Therapeutics, Inc. (formerly known as MonoSol Rx LLC, or Aquestive). In addition, a number of companies are developing improved versions of existing products using oral dissolving, nasal spray, aerosol, sustained release injection and other drug delivery technologies. We believe that potential competitors are seeking to develop and commercialize technologies for buccal, sublingual or mucosal delivery of various therapeutics or groups of therapeutics. While our information concerning these competitors and their development strategy is limited, we believe our technology can be differentiated because the BEMA technology provides for a rapid and consistent delivery, high drug bioavailability and convenient use based on how the BEMA technology adheres to the buccal membrane and dissolves. Our clinical trials across a number of BEMA products have demonstrated that the technology is an effective means of drug delivery that is well tolerated and offers convenience to patients.
Since 2016, we have utilized our own sales force, which provides us with significantly more control over commercialization efforts and greater flexibility to accommodate future strategic options. We have left commercialization of our ONSOLIS product in ex-U.S. markets with partners. As of January 2020, BELBUCA and Symproic are supported by a field force of approximately 121 sales representatives, 13 regional sales managers and two area directors.
BELBUCA (buprenorphine buccal film), CIII, for Chronic Pain
BELBUCA is a buccal film that contains buprenorphine, a Schedule III opioid, and was approved by the FDA on October 26, 2015 for use in patients with pain severe enough to require daily, around-the-clock, long-term opioid treatment for which alternative options are inadequate. BELBUCA is differentiated from other opioids and has the potential to address some of the most critical issues facing healthcare providers treating chronic pain with prescription opioids – abuse, misuse, addiction and the risk of overdose. As a Schedule III opioid, buprenorphine has less abuse and addiction potential compared to Schedule II opioids such as oxycodone, fentanyl, hydrocodone and morphine. Compared to currently marketed products and products under development, we believe that BELBUCA is differentiated based on the following features:
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strong and durable efficacy in both opioid naïve and opioid experienced patients;
Schedule III designation by DEA, which indicates less abuse and addiction potential compared Schedule II opioids, which include oxycodone, hydrocodone and morphine;
published studies have shown that buprenorphine’s physiologic effects reach a plateau, and this ceiling effect may result in a lower risk of overdose related respiratory depression;
favorable tolerability with a low incidence of constipation and low discontinuation rate;
flexible dosing options with seven available strengths; and
buccal administration to optimize buprenorphine delivery.
Because of the safety, tolerability and efficacy benefits associated with buprenorphine, we believe that BELBUCA should be the first-line long-acting opioid for patients with pain severe enough to require daily, around-the-clock, long-term opioid treatment for which alternative treatments, such as non-opioids or immediate release opioids, are inadequate.
We believe that there are long-term growth opportunities for BELBUCA and we focus our commercial efforts primarily on BELBUCA.
Our sales force is focused on current BELBUCA prescribers and clinicians we believe have the greatest opportunity to be adopters of BELBUCA, such as high prescribers of long-acting opioids, BuTrans/buprenorphine transdermal and/or HCPs who prescribe short acting opioids around-the-clock for patients with chronic pain. In parallel, we are heavily focused on increasing market access for BELBUCA. As of January 2020, BELBUCA had formulary coverage for more than 96% of commercial lives. Approval rates within the commercial channel remained favorable throughout 2019 at about 85%. BELBUCA continues to have favorable approval rates over 90% within other Medicare plans, as we pursue improved access to BELBUCA for the senior population suffering with chronic pain.
In 2019, we also made significant improvements in patient access for BELBUCA, resulting in 100 million lives having preferred access and over 250 million lives having access to BELBUCA across all channels . BELBUCA total prescriptions in 2019, according to Symphony Health, totaled over 330,000, an increase of 103% over 2018. BELBUCA's share of total buprenorphine prescriptions (products for the treatment of chronic pain only) for 2019 totaled 38% compared to 23% for the prior year, and increased as high as 41% in December 2019. In addition to a steady increase in BELBUCA prescription volume through 2019, there was also an increase in the use of higher doses of BELBUCA as healthcare providers continued to gain comfort titrating patients to higher optimal doses. In 2019, 41% of BELBUCA prescriptions were for doses of 450 mcg or greater, compared to 36% in 2018. Therefore, the weighted average price per prescription continued to increase in 2019.
Symproic (naldemedine), for Opioid Induced Constipation
Symproic was approved by the FDA on March 23, 2017 for the treatment of OIC in adult patients with chronic non-cancer pain, including patients with chronic pain related to prior cancer or its treatment who do not require frequent (e.g., weekly) opioid dosage escalation. Compared to currently marketed products and products under development, we believe that Symproic is differentiated based on the following features:

strong and durable efficacy observed in randomized, double-blind, placebo controlled clinical trials of 12 week and 52 week duration in OIC patients;
OIC relief that was more frequent, more complete, with less straining than patients taking placebo;
recommended by the American Gastroenterological Association for patients with laxative refractory OIC;
adverse event profile comparable to placebo, with low rates of abdominal pain observed across the phase III program; and
the only prescription OIC medication with the convenience of once daily dosing, with only a tablet strength, and that can be taken with or without food and with or without laxatives.
Because of the durable efficacy, tolerability and convenience benefits, we believe that Symproic is a best-in-class PAMORA that reliably provides durable relief of OIC, which frees both the patient and the healthcare provider to focus on treating the patient’s chronic pain.
On April 4, 2019, we entered into an exclusive licensing agreement with Shionogi to commercialize Symproic in the U.S. and Puerto Rico for the treatment of OIC in adults with chronic non-cancer pain.
Symproic is a strong complementary product to BELBUCA, as patients requiring a PAMORA are by definition taking an opioid. Therefore, our sales force remains focused on high prescribers of long-acting opioids, BuTrans/buprenorphine transdermal and/or HCPs who prescribe short acting opioids around-the-clock for patients with chronic pain.
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In 2019, we also focused on increasing market access for Symproic. As of January 2020, Symproic had formulary coverage for more than 95% of commercial lives. Approval rates within the commercial channel remained favorable throughout 2019 at about 80% and Medicare approval rates of over 70%.
In 2019, we also made significant improvements in patient access for Symproic, resulting in over 100 million lives having preferred access and over 240 million lives having access to Symproic across all channels. Symproic total prescriptions in 2019, according to Symphony Health, totaled over 60,000, an increase of 53% over 2018. Symproic share of PAMORA prescriptions in 2019 totaled 10.4% versus 6.6% for the prior year, ending 2019 with a 11.4% share in December.
BUNAVAIL(buprenorphine and naloxone buccal film), CIII, for Opioid Dependence
In June 2014, BUNAVAIL was approved by the FDA for the maintenance treatment of opioid dependence as part of a complete treatment plan to include counseling and psychosocial support, and on November 3, 2014, we announced the availability of BUNAVAIL in the U.S. BUNAVAIL provides an alternative treatment utilizing the advanced BEMA drug delivery technology. BUNAVAIL provides the highest bioavailability of any buprenorphine-containing product for opioid dependence, allowing for effective treatment with half the dose compared to Suboxone film.
As noted above, in January 2017 with the reacquisition of BELBUCA, we transitioned our primary commercial emphasis from BUNAVAIL to BELBUCA; and with the licensing of Symproic in April 2019, our commercial efforts are now focused on the continued growth of BELBUCA and Symproic. In March 2020, we announced that we are discontinuing marketing for BUNAVAIL.
ONSOLIS (fentanyl buccal soluble film) for Breakthrough Cancer Pain
In July 2009, ONSOLIS was approved for the management of breakthrough pain in cancer patients 18 years of age and older who are already receiving and who are tolerant to opioid therapy for their underlying persistent cancer pain. ONSOLIS is indicated for the treatment of BTCP. ONSOLIS provides significant reduction in pain for patients suffering from BTCP in a convenient formulation with a range of doses to allow patients to titrate to an adequate level of pain control. We currently license ONSOLIS to TTY Biopharm Co., Ltd., or TTY, which markets the product as PAINKYL in Taiwan, and to Mylan N.V., which markets the product as BREAKYL in Europe.
Additional Overview Information
From our inception through December 31, 2019, we have recorded accumulated losses totaling approximately $366.6 million. Our historical operating losses have resulted principally from our prior research and development activities, including clinical trial activities for our products, sales, and general and administrative expenses. Ultimately, if we secure additional approvals from the FDA and other regulatory bodies throughout the world for other products that we may acquire or in-license in the future, our goal will be to augment our current sources of revenue and, as applicable, deferred revenue (principally licensing fees), with sales of such products or royalties from such sales, on which we may pay royalties or other fees to our licensors and/or third-party collaborators as applicable.
We intend to materially finance our commercialization and distribution efforts and our working capital needs primarily through:
commercializing our approved products such as BELBUCA and Symproic;
partnering with other pharmaceutical companies, to assist in the distribution and commercialization of our products, for which we could expect to receive an upfront payment, milestones and/or royalty payments; and
securing proceeds from public and private financings and other potential strategic transactions.
We have based our estimates of market size estimates, peak annual sales projections and similar matters described below and elsewhere in this Report on our market research, third party reports and publicly available information which we consider reliable. However, readers are advised our projected sales and similar metrics regarding BELBUCA, Symproic and ONSOLIS are merely estimates and subject to many factors, many of which may be beyond our control, which will likely cause us to revise such estimates. Readers are also advised that our projected sales figures do not consider the royalties and other payments we will need to make to our licensors and strategic partners. Our estimates are based upon our management’s reasonable judgments given the information available and their previous experiences, although such estimates may not prove to be accurate.

Key Collaborative, Supply and Manufacturing Agreements
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We are and have been a party to collaborative agreements with corporate partners, contractors, universities and government agencies. Our collaboration arrangements are intended to provide us with access to greater resources and scientific expertise in addition to our in-house capabilities. We also have supply arrangements with several of the key component producers of our delivery technology and we rely on third-party manufacturers and packagers to produce commercial product. Our collaborative, supply and manufacturing agreements include:
ARx. Effective July 30, 2014, we entered into an agreement with ARx, LLC pursuant to which ARx acted as a supplier of BUNAVAIL laminate (bulk product) for the U.S. Our supply agreement with ARx was then amended July 14, 2017 through December 31, 2023.  Upon the discontinued marketing of BUNAVAIL in March 2020, we have post-termination obligations with ARx of costs incurred pursuant to the binding portions of the rolling forecast.
Effective January 6, 2017, we assumed Endo’s agreement with ARx to supply BELBUCA laminate (bulk product). This agreement automatically renews for successive terms of one year each and currently covers minimum annual commitments for supply of bulk product through 2023.
Sharp. Effective March 6, 2014, we entered into an exclusive agreement with Sharp Corporation, or Sharp, to convert the BUNAVAIL laminate (bulk product) into individual dosage units and package them to supply BUNAVAIL finished product. Our supply agreement with Sharp ran for an initial term from March 6, 2014 until December 31, 2016 and was extended by mutual agreement for subsequent one-year terms. Upon the discontinued marketing of BUNAVAIL in March 2020, we have post-termination obligations with Sharp minimal fees.
Effective January 6, 2017, we assumed Endo’s agreement with Sharp which covers exclusive annual commitments for supply of packaged BELBUCA finished product through 2022.
Tapemark. Effective January 6, 2017, we assumed Endo’s agreement with The Tapemark Company, or Tapemark, to convert the BELBUCA laminate (bulk product) into individual dosage units which were then transferred to Sharp for secondary packaging and supply of BELBUCA finished product. Tapemark continued to provide such services for BELBUCA through 1st quarter of 2018 as we transitioned the converting and primary packaging operations for BELBUCA over to an alternate packaging site in 2018. Tapemark remains qualified to conduct converting and primary packaging of BELBUCA and we continue to explore other opportunities to utilize Tapemark’s contract manufacturing services going forward.
Shionogi. Effective April 4, 2019, we entered into an agreement with Shionogi, Inc. pursuant to which Shionogi acts as a supplier of Symproic finished product. Our supply agreement with Shionogi runs until April 2021 and can be extended by written amendment up to two consecutive 6-month periods.
Relationship with CDC IV, LLC
On July 14, 2005, we entered into a Clinical Development and License Agreement, or CDLA, with the predecessor of CDC IV, LLC, or CDC IV, which provided funds to us for the development of ONSOLIS. Under the CDLA, as amended, we pay CDC IV a mid-single digit royalty, which shall not be less than $375,000 per quarter, on sales of ONSOLIS. The CDLA royalty term ends upon the latter of expiration of the patent for ONSOLIS or generic entry into any particular country, or the CDLA is terminated. We and CDC IV are also party to a Royalty Purchase and Amendment Agreement, or the RPAA, pursuant to which we pay CDC IV a 1% royalty on sales of BELBUCA. The RPAA royalty term shall terminate upon the earlier of (i) such time at which annual net sales of BUNAVAIL or BELBUCA equal less than $7.5 million in any calendar year following the third (3rd) anniversary of initial launch of the product and CDC IV receives $18,750 in three (3) consecutive quarters as payment for CDC IV’s 1% royalty during such calendar year or (ii) upon the last commercial sale of BELBUCA anywhere in the world.
Licenses, Intellectual Property and Proprietary Information
Our intellectual property strategy is intended to maximize protection of our proprietary technologies and know-how and to further expand targeted opportunities by extension of our patents, trademarks, license agreements and trade secrets portfolio. In addition, an element of our strategic focus provides for varying specific royalty or other payment obligations by our commercial partners as our applicable intellectual property portfolio changes or business activity reaches certain thresholds.
However, patent positions of biotechnology and pharmaceutical organizations are uncertain and involve complex legal and technical issues. There is considerable uncertainty regarding the breadth of claims in patent cases which results in varied degrees of protection. While we believe that our intellectual property position is sound, it may be that our pending patent applications will not be granted or that our awarded claims may be too narrow to protect the products against competitors. It is also possible that our intellectual property positions will be challenged or that patents issued to others prior to our patent
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issuance may preclude us from commercializing our products. It is also possible that other parties could have or could obtain patent rights which may cover or block our products or otherwise dominate our patent position.
BEMA Technology
The drug delivery technology space is congested, although we do not believe that our BEMA products conflict with, are dominated by, or infringe any external patents and we do not believe that we require licenses under external patents for our BEMA based products in the U.S. It is possible, however, that a court of law in the U.S. or elsewhere might determine otherwise. If a court were to determine that we were infringing other patents and that those patents were valid, we might be required to seek one or more licenses to commercialize our products or technologies and we may be unable to obtain such licenses from the patent holders. If we were unable to obtain a license, or if the terms of the license were onerous, there may be a material adverse effect upon our business plan to commercialize these products.
On March 1, 2011, we were granted a patent extending the exclusivity of the BEMA drug delivery technology in Canada to 2027. The Canadian Patent No. 2,658,585 provides additional patent protection for ONSOLIS and BELBUCA. In April 2012, the USPTO granted US Patent No. 8,147,866, which will extend the exclusivity of the BEMA drug delivery technology for BELBUCA and BUNAVAIL in the U.S. from 2020 to 2027. In April 2014, the USPTO granted US Patent No. 8,703,177 (issued from US Patent Application No. 13/590,094), which will extend the exclusivity of the BEMA drug delivery technology for BUNAVAIL in the U.S. to at least 2032. In February 2018, we were granted US Patent No. 9,901,539, which will extend the exclusivity of the BEMA technology for BELBUCA in the U.S. to December 21, 2032.
We own various patents and patent applications relating to the BEMA technology. US Patent No. 6,159,498 (expiration date October 2016), US Patent No. 7,579,019 (expiration date January 22, 2020), US Patent No. 8,147,866 (expiration date July 23, 2027), US Patent 8,703,177 (expiration date August 20, 2032), US Patent 9,522,188 (expiration date April 24, 2035), US Patent 9,597,288 (expiration date July 23, 2027), US Patent 9,655,843 (expiration date July 23, 2027), US Patent 9,901,539 (expiration date December 21, 2032), Canadian Patent No. 2,658,585 (expiration date July 2027), EP2054031 (expiration date July 2027) and EP 0 973 497 (expiration date October 2017) are of particular value to our business and technology platform relating to the BEMA delivery technology. On February 16, 2010, we filed a complaint with the United States Federal District Court for the District of Columbia, requesting the USPTO be required to further extend the patent term for US 7,579,019 from 835 days to 1,191 days. In March 2011, we prevailed in this case, and the patent expiration date of US Patent No. 7,579,019 is now extended from January 31, 2019 to January 22, 2020.
On January 22, 2014, Aquestive filed a Petition for Inter Partes Review, or IPR, on US Patent No. 7,579,019 with the USPTO. In the Petition, Aquestive is requesting an inter partes review because it is asserting that the claims of US Patent No. 7,579,019 are alleged to be unpatentable over certain prior art references. The USPTO instituted the IPR on the US Patent No. 7,579,019 (which we refer to as the ’019 Patent). The USPTO found all claims patentable and Aquestive filed a Request for Rehearing. On December 19, 2016, the PTAB issued a final decision denying Aquestive’s request for rehearing. Aquestive did not appeal this final decision.
Government Regulation
The nonclinical and clinical development, manufacturing and marketing of any drug product is subject to significant regulation by governmental authorities in the U.S. and other countries. Complying with these regulations involves considerable time, expense and uncertainty.
In the U.S., drugs are subject to rigorous federal regulation and, to a lesser extent, state regulation. The Federal Food, Drug and Cosmetic Act, as amended, and the regulations promulgated thereunder, and other federal and state statutes and regulations govern, among other things, the testing, manufacture, safety, efficacy, labeling, storage, record keeping, approval, advertising and promotion of our drugs. Drug development and approval within this regulatory framework is difficult to predict, requires several years and involves the expenditure of substantial resources. Moreover, ongoing legislation by Congress and rulemaking by the FDA presents an ever-changing landscape where we could be required to undertake additional activities before any governmental approval to market our products is granted.
Risk Evaluation and Mitigation Strategy
In March 2008, new legislation designated as the Food and Drug Administration Amendments Act of 2007 (the FDAAA) took effect. This legislation strengthened the FDA’s authority over drug safety and directs the FDA to develop systems aimed at managing the risk-benefit ratio of a drug, with a particular focus on post-approval safety. FDAAA authorized the FDA to require and enforce a Risk Evaluation and Mitigation Strategy, or REMS, if the FDA determines that it is necessary to ensure that the benefits of a drug outweigh the potential risks. The legislation also provides the FDA with authority to require a REMS at any point in a drug product’s lifecycle based on new safety information.
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A REMS is defined by the FDA as a strategy to manage a known or potential serious risk associated with a drug or biological product. The FDA’s assessment of whether to require a REMS as a condition for approval considers factors such as the size of the population likely to use the drug, the seriousness of the disease or condition that is to be treated by the drug, the expected benefit, and the seriousness of any known or potential adverse events that may be related to the drug. A REMS may be conveyed through the use of a number of tools including a Medication Guide for distribution when the drug is dispensed, a communication plan to physicians to convey potential risks, and elements to ensure safe use. These elements may include provisions that healthcare providers who prescribe the drug and pharmacists who dispense the drug have particular training, experience or special certifications; that the drug be dispensed only in certain healthcare settings; that the drug be dispensed to patients with evidence of safe-use conditions; and/or that patients must be enrolled in a registry. Under the FDAAA, the FDA has also been granted enforcement authority over violations of the REMS provisions. The FDA may impose civil monetary penalties, the drug or biological product can be deemed misbranded, and/or the FDA may obtain injunctive relief against further distribution of the product.
On December 29, 2011, the FDA approved a “class-wide” REMS program covering all transmucosal fentanyl products under a single risk management program. ONSOLIS is subject to this REMS, which includes a number of Elements to Assure Safe Use (ETASU).
Additionally, FDA has implemented a class-wide REMS covering all opioid analgesic drug products. The class-wide REMS includes a REMS-compliant educational program offered by an accredited provider of continuing medical education, patient counseling materials and a medication guide. BELBUCA is subject to this REMS.
A REMS is also in place for buprenorphine for the treatment of opioid dependence. BUNAVAIL is included in this REMS, which includes a medication guide and healthcare professional and patient education.
The cost and implementation of all of these “shared system” REMS is shared among multiple companies that are required to participate by way of having an approved product that is subject to the particular REMS.
International Approval
Whether or not FDA approval has been obtained, approval of a product by regulatory authorities in foreign countries must be obtained prior to the commencement of commercial sales of the drug in such countries. The requirements governing the conduct of clinical trials and drug approvals vary widely from country to country, and the time required for approval may be longer or shorter than that required for FDA approval. Although there are some procedures for unified filings for certain European countries, in general, each country currently has its own procedures and requirements.
ONSOLIS (under different trade names and with a slightly different formulation) is approved in Europe and in Taiwan. In 2019, after learning that Purdue would no longer be marketing BELBUCA in Canada, BDSI requested that Purdue ask Health Canada to cancel its registration and approval there. BDSI has no plans at the moment to market BELBUCA outside of the U.S.
Other Regulation
In addition to regulations enforced by the FDA, we are also subject to U.S. regulation under the Controlled Substances Act, the Occupational Safety and Health Act, the Environmental Protection Act, the Toxic Substances Control Act, the Resource Conservation and Recovery Act and other present and potential future federal, state, local or similar foreign regulations. Although we believe that our safety procedures comply with the standards prescribed by state and federal regulations, the risk of injury cannot be completely eliminated. In the event of any accident, we could be held liable for any damages that result and any such liability could exceed our resources.
Employees
As of March 6, 2020, we have 178 full-time employees. Of which, 128 handle our outside sales and training, 13 are involved in our medical affairs, clinical development program and regulatory, 26 handle our administration, finance, legal, human resources, operations, quality and supply chain management, and 11 handle our marketing and market access. Advanced degrees and certifications of our staff include four Ph.D., one M.D., three PharmDs, two CPAs, twenty-one MBAs, eleven MSs, ten MAs, four JDs, one MPA, one MEDU and three RNs. None of our employees are covered by collective bargaining agreements. From time to time, we also employ independent contractors on a consulting basis or to support our administrative functions. We consider relations with all our employees to be in good standing. Each of our employees has entered into confidentiality, intellectual property assignment and non-competition agreements with us.
Available Information
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Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (which we refer to herein as the Exchange Act), are filed with the SEC. Such reports and other information that we file with the SEC are available free of charge on our website at http://ir.bdsi.com/financials/sec-filings when such reports are available on the SEC website. The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at http://www.sec.gov. The contents of these websites are not incorporated into this filing. Further, the foregoing references to the URLs for these websites are intended to be inactive textual references only.
Item 1A. RISK FACTORS
Investing in our common stock involves a high degree of risk. Before purchasing our common stock, you should carefully consider the following risk factors as well as all other information contained in this Report, including our consolidated financial statements and the related notes. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties that we are unaware of, or that we currently deem immaterial, also may become important factors that affect us. If any of the following risks occur, our business, financial condition or results of operations could be materially and adversely affected. In that case, the trading price of our common stock could decline, and you may lose some or all of your investment.
Risks Relating to Our Business
We have incurred significant losses since inception and as such, you cannot rely upon our historical operating performance to make an investment decision regarding our company.
From our inception in January 1997 and through December 31, 2019, we have recorded significant losses. Our accumulated deficit at December 31, 2019 was approximately $366.6 million. As of December 31, 2019, we had working capital of approximately $63.8 million. Our ability to generate revenue and achieve profitability depends upon our ability, alone or with others, to effectively market and sell our products, secure and maintain payer access and manufacture our products to meet demand. We may be unable to achieve any or all of these goals consistently.
We have generated licensing-related revenue for ONSOLIS outside the US, and we have generated revenue from the commercial sales of our approved products, BELBUCA and BUNAVAIL. In the case of BELBUCA, our approval initially generated milestone revenue from our prior commercial partner Endo. However, in January 2017, we re-acquired the commercialization rights for BELBUCA and are utilizing our internal sales force to sell our product. In the case of Symproic, we acquired rights to the product in April 2019, and commenced the commercial launch of the product using our own sales force shortly thereafter. In the case of BUNAVAIL, sales have been challenging since we commenced the commercial launch of the product in November 2014 and, in March 2020, we announced that we are discontinuing marketing for BUNAVAIL. In the case of ONSOLIS, sales have been adversely affected by: (i) the lack of a uniform REMS program at the time of the launch of ONSOLIS, and (ii) certain post-FDA manufacturing issues associated with ONSOLIS, which have led to the suspension of manufacturing and marketing of ONSOLIS in the U.S. and Canada. As of the date of this report, we do not have any plans to launch ONSOLIS in the U.S.
We have limited experience commercializing Symproic.
We have limited experience commercializing Symproic, and our sales, marketing and distribution capabilities related to this product have only been recently established. As such, we may not achieve success in marketing and promoting Symproic, or any other products we develop or acquire in the future or products we may commercialize through the exercise of co-promotion rights. Specifically, to optimize the commercial potential of Symproic, we must execute upon our commercialization plan effectively and efficiently. In addition, we must continually assess and modify our commercialization plan to adapt to the promotional response. Further, we must continue to focus and refine our marketing campaign to ensure a clear and understandable physician-patient dialogue around Symproic as an appropriate therapy. In addition, we must provide our sales force with the highest quality training, support, guidance and oversight for them to effectively promote Symproic. If we fail to perform these commercial functions in the highest quality manner, Symproic may not achieve its maximum commercial potential or any level of success at all. Finally, we are competing and expect to compete with other companies that currently have extensive and well-funded marketing and sales operations, and our marketing and sales efforts may be unable to compete against these other companies, which would also hurt our ability to obtain market acceptance of Symproic.
If our competitors are successful in obtaining approval for Abbreviated New Drug Applications for products that have the same active ingredients as BELBUCA or Symproic, sales of BELBUCA or Symproic may be adversely affected.
Our competitors may submit for approval certain Abbreviated New Drug Applications, or ANDAs, which provide for the marketing of a drug product that has the same active ingredients in the same strengths and dosage form as a drug product
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already listed with the FDA, and which has been shown to be bioequivalent to such FDA-listed drug. Drugs approved in this way are commonly referred to as generic versions of a listed drug and can often be substituted by pharmacists under prescriptions written for an original listed drug. Any applicant filing an ANDA is required to make patent certifications to the FDA, such as certification to the FDA that the new product that is subject to the ANDA will not infringe an already approved product’s listed patents or that such patents are invalid (otherwise known as a Paragraph IV Certification).
In the past, we have initiated litigation with generic competitors that have filed Paragraph IV Certifications challenging certain of our patents. While we have entered in to settlement agreements with certain competitors, we are still pursuing litigation to defend against Patent IV Certifications related to BELBUCA. For more information, see Note 17, “Commitments and Contingencies” to our consolidated financial statements included in Part IV of this Report on Form 10-K. We believe that we will continue to be subject to ANDA-related litigation, which is costly and distracting and has the potential to impair the long-term value of our products.
We may need to raise substantial additional funding to fund our operations. If we fail to obtain additional financing, we may be unable to continue to spend on commercialization activities (including those relating to BELBUCA and Symproic) or complete the commercialization of other product candidates.
Our operations have required substantial amounts of cash since inception, and we expect to spend substantial amounts of our financial resources on our commercialization and development efforts going forward. Our business currently generates revenue from product sales , and such current sources of revenue may not be sufficient to meet our present and short-term capital requirements. Therefore, given that we plan to continue to spend on commercialization activities (including those relating to BELBUCA and Symproic) as well as potentially on other strategic initiatives, we may require additional capital to fund these activities. We may also need to raise additional funds sooner if we choose to expand more rapidly than we presently anticipate or due to other unanticipated factors. If adequate funds are unavailable, we may be required to delay, reduce the scope of or eliminate one or more of our commercialization programs or marketing efforts.
We cannot be certain that additional funding will be available on acceptable terms, or at all. We have no committed source of additional capital and if we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue the commercialization of our products. [Our collaboration and license agreements may also be terminated if we are unable to meet the payment or other obligations under the agreements.]
Any of the above events could significantly harm our business, prospects, financial condition and results of operations and cause the price of our common stock to decline.
Our long-term capital requirements are subject to numerous risks.
Our long-term capital requirements are expected to depend on many factors, including, among others:
time and costs involved in addressing regulatory and other issues that may arise post-FDA approval (such as we have experienced with ONSOLIS and, to a lesser extent, with BELBUCA and Symproic);
costs involved in preparing, filing, prosecuting, maintaining and enforcing (through litigation or other means) our patents, trademarks and other intellectual property;
costs of developing sales, marketing and distribution channels and our ability to sell our products;
costs involved in establishing manufacturing capabilities for commercial quantities of our products;
costs we may incur in acquiring new technologies or products;
competing technological and market developments;
market acceptance of our products;
costs for recruiting and retaining employees and consultants;
costs for training physicians; and
legal, accounting, insurance and other professional and business-related costs.
We may consume available resources more rapidly than currently anticipated, resulting in the need for additional funding sooner than anticipated. We may seek to raise any necessary additional funds through equity or debt financings, collaborative arrangements with corporate partners or other sources, which may have a material effect on our current or future business prospects.
Our term loan agreement with Pharmakon contains restrictions that limit our flexibility in operating our business. We may be required to make a prepayment or repay the outstanding indebtedness earlier than we expect under our loan
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agreement if a prepayment event or an event of default occurs, including a material adverse change with respect to us, which could have a materially adverse effect on our business.
Our agreement with Pharmakon contains various covenants that limit our ability to engage in specified types of transactions. These covenants limit our ability to, among other things:
incur additional indebtedness;
enter into a merger, consolidation or certain changing of control events without complying with the terms of the loan agreement;
change the nature of our business;
change our organizational structure or type;
amend, modify or waive any of our material agreements or organizational documents;
grant certain types of liens on our assets;
make certain investments;
pay cash dividends; and
enter into material transactions with affiliates.
The restrictive covenants of the term loan agreement could prevent us from pursuing business opportunities that we or our stockholders may consider beneficial. A breach of any of these covenants could result in an event of default under the term loan agreement. An event of default will also occur if, among other things, a material adverse change in our business, operations or condition occurs, or a material impairment of the prospect of our repayment of any portion of the amounts we owe under the term loan agreement occurs. In the case of a continuing event of default under the agreement, Pharmakon could elect to declare all amounts outstanding to be immediately due and payable and terminate all commitments to extend further credit, proceed against the collateral in which we granted Pharmakon a security interest under the term loan agreement and related agreements, or otherwise exercise the rights of a secured creditor. Amounts outstanding under the term loan agreement are secured by all of our existing and future assets (excluding certain intellectual property).
We may not have enough available cash or be able to raise additional funds on satisfactory terms, if at all, through equity or debt financings to make any required prepayment or repay such indebtedness at the time any such prepayment event or event of default occurs. In such an event, we may be required to delay, limit, reduce or terminate our commercialization efforts or grant to others rights to market our products that we would otherwise prefer to develop and market ourselves. Our business, financial condition and results of operations could be materially adversely affected as a result.
Until ONSOLIS returns to the market in North America, we will not receive additional revenues from ONSOLIS.
ONSOLIS was originally licensed to and launched in the U.S. by Mylan. In January 2015, we entered into an assignment and revenue sharing agreement with Mylan under which Mylan transferred the marketing authorizations for ONSOLIS for the U.S. back to us. On May 11, 2016, we and Collegium executed a definitive license and development agreement under which we granted the exclusive rights to develop and commercialize ONSOLIS in the U.S. to Collegium.
On December 8, 2017, we received the required 90-day notice from Collegium regarding termination of the license agreement and the effective date of termination was March 8, 2018. We are assessing our commercial options for ONSOLIS. However, as of the date of this Report, we have no such plans to reintroduce ONSOLIS in the U.S., which indicates we will not receive additional revenues from this product.
Social issues around the abuse of opioids, including law enforcement and other legal concerns over diversion of opioids and regulatory efforts to combat abuse, misuse and addiction, could impact the potential market for BELBUCA.
Opioid abuse in the U.S. is a significant healthcare issue, and the active ingredient in BELBUCA is an opioid. Media reports regarding prescription drug abuse and the diversion of opioids and other controlled substances are commonplace. Law enforcement and regulatory agencies have and will likely continue to apply policies and guidelines that seek to limit the availability or use of opioids. In addition, federal, state and local governments have and may enact legislation or executive orders with similar goals. State and local governments have also taken legal action against opioid manufacturers to recoup alleged damages arising out of the abuse and misuse of opioids. Such efforts have challenged and could inhibit our ability to successfully market BELBUCA.
Aggressive enforcement and unfavorable publicity regarding, for example, the use or misuse of oxycodone or other opioid drugs; the limitations of abuse-resistant formulations; the ability of drug abusers to discover previously unknown ways to abuse opioid drugs; public inquiries and investigations into prescription drug abuse; litigation; or regulatory activity
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regarding sales, marketing, distribution or storage of opioid drugs could have a material adverse effect on our business. Additionally, there may be continued reluctance of some regulators and third-party payers to pay a premium for abuse-deterrent formulations of opioids or opioids such as BELBUCA with less abuse and addiction potential compared to Schedule II opioids. These factors could reduce the potential size of the market for BELBUCA and decrease the revenues we are able to generate from its sale.
Efforts by the FDA and other regulatory bodies to combat abuse of opioids may negatively impact the market for BELBUCA. For example, in February 2016, the FDA released an action plan to address the opioid abuse epidemic and reassess the FDA’s approach to opioid medications. The plan identifies FDA’s focus on implementing policies to reverse the opioid abuse epidemic, while maintaining access to effective treatments. The actions set forth in the FDA’s plan include strengthening post marketing study requirements to evaluate the benefit of long-term opioid use, changing the REMS requirements to provide additional funding for physician education courses, releasing a draft guidance setting forth approval standards for generic-abuse deterrent opioid formulations, and seeking input from the FDA’s Scientific Board to broaden the understanding of the public risks of opioid abuse. The FDA’s Scientific Advisory Board met to address these issues on March 1, 2016. The FDA’s plan is part of a broader initiative led by the HHS to address opioid-related overdose, death and dependence. The HHS initiative’s focus is on improving physician’s use of opioids through education and resources to address opioid over-prescribing, increasing use and development of improved delivery systems for naloxone, which can reverse overdose from both prescription opioids and heroin, to reduce overdose-related deaths, and expanding the use of Medication-Assisted Treatment, which couples counseling and behavioral therapies with medication to address substance abuse. Also, as part of this initiative, the CDC has launched a state grant program to offer state health departments resources to assist with abuse prevention efforts, including efforts to track opioid prescribing through state-run electronic databases. In March 2016, as part of the HHS initiative, the CDC released a new Guideline for Prescribing Opioids for Chronic Pain. The guideline is intended to assist primary care providers treating adults for chronic pain in outpatient settings. The guideline provides recommendations to improve communications between doctors and patients about the risks and benefits of opioid therapy for chronic pain, improve the safety and effectiveness of pain treatment, and reduce the risks associated with long-term opioid therapy. The guideline does not specifically address the use of buprenorphine for chronic pain or make treatment recommendations about the use of abuse-deterrent opioids.
In addition, at least 41 U.S. states and many cities and counties have filed civil suits or instituted other proceedings against opioid manufacturers and wholesalers of opioid drugs seeking damages under various claims for contributing to the opioid crisis. Such litigations could further damage the market for opioid products like BELBUCA. To the extent our company is named in such lawsuits, we could be required to participate in the settlement of such litigations or the payment of damages, which could divert our management’s attention from our business, deplete our financial resources, and damage our reputation.
Government agencies may establish and promulgate usage guidelines that could limit the use of our products and drug candidates.
National and state level government agencies, professional and medical societies, and other groups may establish usage guidelines that apply to our products and drug candidates. These guidelines could address such matters as usage and dose, among other factors. Application of such guidelines could limit the clinical use or commercial appeal of our products or drug candidates.
Acceptance of our technologies or products in the marketplace is uncertain and failure to achieve market acceptance will prevent or delay our ability to generate material revenues.
Our future financial performance will depend, to a large extent, upon the introduction and physician and patient acceptance of our technologies and products. Even if approved for marketing by the necessary regulatory authorities, our technologies and products may not achieve market acceptance.
The degree of market acceptance for our products will depend upon a number of factors, including:
regulatory clearance of marketing claims for the uses that we are developing;
demonstration of the advantages, safety and efficacy of our products and technologies;
pricing and reimbursement policies of government and third-party payers such as insurance companies, health maintenance organizations and other health plan administrators;
ability to attract corporate partners, including pharmaceutical companies, to assist in commercializing our products;
regulatory programs such as the class-wide REMS for ONSOLIS and BELBUCA or market (including competitive) forces that may make it more difficult for us to penetrate a particular market segment; and
ability to timely and effectively manufacture and market our products.
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Physicians, various other healthcare providers, patients, payers or the medical community in general may be unwilling to accept, utilize or recommend any of our approved products. If we are unable to obtain regulatory approval or are unable (either on our own or through third parties) to manufacture, commercialize and market our proposed formulations or products when planned, we may not achieve any market acceptance or generate revenue.
All these risks are particularly true for BELBUCA and Symproic, which are our two products that we are commercializing ourselves.
If we are unable to convince physicians as to the benefits of our products, we may incur delays or additional expense in our attempt to establish market acceptance.
Use of our products will require physicians to be informed regarding the intended benefits of our products. The time and cost of such an educational process may be substantial. Inability to carry out this physician education process may adversely affect market acceptance of our proposed formulations or products. We may be unable to timely educate physicians regarding our intended pharmaceutical formulations or products in sufficient numbers to achieve our marketing plans or to achieve product acceptance. Any delay in physician education may materially delay or reduce demand for our formulations or products. In addition, we may expend significant funds toward physician education before any acceptance or demand for our products are created, if at all. Nonetheless, even with our best efforts, certain physicians may never prescribe our product.
We have been and expect to be significantly dependent on our collaborative agreements for the manufacturing of our products, which expose us to the risk of reliance on the performance of third parties.
In conducting our operations, we currently rely, and expect to continue to rely, on numerous collaborative agreements with third parties such as manufacturers, commercial partners, governmental agencies and not-for-profit organizations for both strategic and financial resources.
The termination of these relationships, or failure to perform by us or our partners (who are subject to regulatory, competitive and other risks) under their applicable agreements or arrangements with us, or our failure to secure additional agreements for our products, would substantially disrupt or delay our development activities. Any such loss would likely increase our expenses and materially harm our business, financial condition and results of operation.
We depend upon key personnel who may terminate their employment with us at any time.
Our ability to achieve our corporate objectives will depend to a significant degree upon the continued services of key management, particularly our senior executive officers. Our management and other employees may voluntarily terminate their employment with us at any time. The loss of the services of these or other key personnel, or the inability to attract and retain additional qualified personnel, could result in delays to loss of sales and diversion of management resources. In addition, we depend on our ability to attract and retain other highly skilled personnel. Competition for qualified personnel is intense, and the process of hiring and integrating such qualified personnel is often lengthy. We may be unable to recruit such personnel on a timely basis, if at all, which would negatively impact our commercialization programs. Additionally, we do not currently maintain “key person” life insurance on the lives of our executives or any of our employees. This lack of insurance means that we may not have adequate compensation for the loss of the services of these individuals.
We may be unable to manage our growth effectively.
After focusing our efforts for many years on clinical development of products, our business strategy now involves growth and expansion as we continue our evolution into a fully integrated specialty pharmaceutical company. For example, as we in-license or acquire additional product candidates, we will likely have to expand existing operations to increase our contract manufacturing capabilities, hire and train new personnel to handle the marketing and sales of our products and assist patients in obtaining reimbursement for the use of our products. We may also need to grow to support our commercial activities for BELBUCA and Symproic. This growth may place significant strain on our management and financial and operational resources. Successful growth is also dependent upon our ability to implement appropriate financial and management controls, systems and procedures. Our ability to effectively manage growth depends on our success in attracting and retaining highly qualified personnel, for which the competition may be intense. If we fail to manage these challenges effectively, our business could be harmed.
We are exposed to product liability, non-clinical and clinical liability risks which could place a substantial financial burden upon us, should lawsuits be filed against us.
Our business exposes us to potential product liability and other liability risks that are inherent in the testing, manufacturing and marketing of pharmaceutical formulations and products. We expect that such claims could be asserted against us at some point. In addition, the use in our clinical trials of pharmaceutical formulations and products and the
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subsequent sale of these formulations or products by us or our potential collaborators may cause us to bear a portion of or all product liability risks. A successful liability claim or series of claims brought against us could have a material adverse effect on our business, financial condition and results of operations.
We currently have a general liability/product liability policy which includes coverage for our clinical trials and our commercially marketed products. Annual aggregate limits include $2 million for general liability, with $1 million for each occurrence, with umbrella liability in the amount of an additional $5 million aggregate and $5 million per occurrence; product liability is $10 million for aggregate and $10 million per occurrence. It is possible that this coverage will be insufficient to protect us from future claims. Under our agreements, our partners are required to carry comprehensive general product liability and tort liability insurance, each in amounts not less than $2 million per incident and $2 million annual aggregate and to name us as an additional insured thereon. However, we or our commercial partners may be unable to obtain or maintain adequate product liability insurance on acceptable terms, if at all, and there is a risk that our insurance will not provide adequate coverage against our potential liabilities. Furthermore, our current and potential partners with whom we have collaborative agreements, or our future licensees may not be willing to indemnify us against these types of liabilities and may not themselves be sufficiently insured or have sufficient assets to satisfy any product liability claims. Claims or losses in excess of any product liability insurance coverage that may be obtained by us or our partners could have a material adverse effect on our business, financial condition and results of operations.
Moreover, product liability insurance is costly, and due to the nature of the pharmaceutical products underlying BELBUCA, Symproic, and ONSOLIS, we or our partners may not be able to obtain such insurance, or, if obtained, we or our partners may not be able to maintain such insurance on economically feasible terms. If a product related action is brought against us, or liability is found against us prior to our obtaining product liability insurance for any product, or should we have liability found against us for any other matter in excess of any insurance coverage we may carry, we could face significant difficulty continuing operations.
We are presently a party to lawsuits by third parties who claim that our products, methods of manufacture or methods of use infringe on their intellectual property rights, and we may be exposed to these types of claims in the future.
We are presently, and may continue to be, exposed to litigation by third parties based on claims that our technologies, processes, formulations, methods, or products infringe the intellectual property rights of others or that we have misappropriated the trade secrets of others. This risk is exacerbated by the fact that the validity and breadth of claims covered in pharmaceutical patents is, in most instances, uncertain and highly complex. Any litigation or claims against us, whether or not valid, would result in substantial costs, could place a significant strain on our financial and human resources and could harm our reputation. Such a situation may force us to do one or more of the following:
incur significant costs in legal expenses for defending against an intellectual property infringement suit;
• delay the launch of, or cease selling, making, importing, incorporating or using one or more or all of our technologies and/or formulations or products that incorporate the challenged intellectual property, which would adversely affect our revenue;
• obtain a license from the holder of the infringed intellectual property right, which license may be costly or may not be available on reasonable terms, if at all; or
• redesign our formulations or products, which would be costly and time-consuming.
With respect to our BEMA delivery technology, the thin film drug delivery technology space is highly competitive. There is a risk that a court of law in the U.S. or elsewhere could determine that one or more of our BEMA based products conflicts with or covered by external patents. This risk presently exists in our litigation Aquestive Therapeutics, Inc. (formerly known as MonoSol Rx LLC, or Aquestive) relating to our BELBUCA product which was filed in January 2017. If the courts in these cases were to rule against us and our partner in these cases, we could be forced to license technology from Aquestive or be prevented from marketing BELBUCA, or otherwise incur liability for damages, which could have a material adverse effect on our ability for us or our partners to market and sell BELBUCA.
We have been granted non-exclusive license rights to European Patent No. 949 925, which is controlled by LTS to market BELBUCA and ONSOLIS within the countries of the European Union. We are required to pay a low single digit royalty on sales of products that are covered by this patent in the European Union. We have not conducted freedom to operate searches and analyses for our other proposed products. Moreover, the possibility exists that a patent could issue that would cover one or more of our products, requiring us to defend a patent infringement suit or necessitating a patent validity challenge that would be costly, time consuming and possibly unsuccessful.
Our lawsuits with Aquestive and Indivior have caused us to incur significant legal costs to defend ourselves, and we would be subject to similar costs if we are a party to similar lawsuits in the future Furthermore, if a court were to determine that
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we infringe any other patents and that such patents are valid, we might be required to seek one or more licenses to commercialize our BEMA products. We may be unable to obtain such licenses from the patent holders, which could materially and adversely impact our business.
If we are unable to adequately protect or enforce our rights to intellectual property or secure rights to third-party patents, we may lose valuable rights, experience reduced market share, assuming there is any market share, or incur costly litigation to, enforce, maintain or protect such rights.
Our ability to license, enforce and maintain patents, maintain trade secret protection and operate without infringing the proprietary rights of others will be important to our commercializing any formulations or products under development. The current and future development of our drug delivery technologies is contingent upon whether we are able to maintain licenses and access patented technologies. Without these licenses, the use of technologies would be limited and the sales of our products could be prohibited. Therefore, any disruption in access to the technologies could substantially delay the development and sale of our products.
The patent positions of biotechnology and pharmaceutical companies, including ours, which involve licensing agreements, are frequently uncertain and involve complex legal and factual questions. In addition, the coverage claimed in a patent application can be significantly reduced before the patent is issued. Consequently, our patents, patent applications and licensed rights may not provide protection against competitive technologies or may be held invalid if challenged or could be circumvented. Our competitors may also independently develop drug delivery technologies or products similar to ours or design around or otherwise circumvent patents issued to, or licensed by, us. In addition, the laws of some foreign countries may not protect our proprietary rights to the same extent as U.S. law.
We also rely upon trade secrets, technical know-how and continuing technological innovation to develop and maintain our competitive position. We require our employees, consultants, advisors and collaborators to execute appropriate confidentiality and assignment-of-inventions agreements with us. These agreements provide that materials and confidential information developed or made known to the individual during the course of the individual’s relationship with us is to be kept confidential and not disclosed to third parties except in specific circumstances and assign the ownership of relevant inventions created during the course of employment to us. These agreements may be breached, and in some instances, we may not have an appropriate remedy available for breach of the agreements. Furthermore, our competitors may independently develop substantially equivalent proprietary information and techniques, reverse engineer, or otherwise gain access to our proprietary technology. We may be unable to meaningfully protect our rights in trade secrets, technical know-how and other non-patented technology.
In addition, we may have to resort to costly and time consuming litigation to protect or enforce our rights under certain intellectual property, or to determine their scope, validity or enforceability. Enforcing or defending our rights could be expensive, could cause significant diversion of our resources and may not prove successful. Any failure to enforce or protect our rights could cause us to lose the ability to exclude others from using our technologies to develop or sell competing products.
We are dependent on third party suppliers for key components of our delivery technologies and products.
Key components of our drug delivery technologies and products, including for BELBUCA and Symproic, may be provided by sole or limited numbers of suppliers, and supply shortages or loss of these suppliers could result in interruptions in supply or increased costs. Certain components used in our development activities, such as the active pharmaceutical ingredients, or API, of our products, are currently purchased from a single or a limited number of outside sources. The reliance on a sole or limited number of suppliers could result in:
delays associated with development and non-clinical and clinical trials due to an inability to timely obtain a   single or limited source component;
• inability to timely obtain sufficient quantities of API and an adequate supply of required components; and
• reduced control over pricing, quality and timely delivery.
Our relationships with our manufacturers and suppliers are particularly important to us and any loss of or material diminution of their capabilities due to factors such as regulatory issues, accidents, acts of God, extreme weather events, pandemics, labor issues and strikes, or any other factor beyond our reasonable control would have a material adverse effect on our company. Any loss of or interruption in the supply of components from our suppliers or other third-party suppliers would require us to seek alternative sources of supply or require us to manufacture these components internally, which we are currently not able to do.
If the supply of any components is lost or interrupted, API, product or components from alternative suppliers may not be available in sufficient quality or in volumes within required time frames, if at all, to meet our or our partners’ needs. This could delay our ability to complete clinical trials, obtain approval for commercialization or commence marketing or cause us to
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lose sales, force us into breach of other agreements, incur additional costs, delay new product introductions or harm our reputation. Furthermore, product or components from a new supplier may not be identical to those provided by the original supplier. Such differences could have material effects on our overall business plan and timing, could fall outside of regulatory requirements, affect product formulations or the safety and effectiveness of our products that are being developed.
There are risks associated with our reliance on third parties for managed care, distribution infrastructure and channels.
We expect that we may from time to time choose to enter into agreements with commercial partners to engage in marketing and distribution efforts around our products. We may be unable to establish or maintain third-party relationships on a commercially reasonable basis, if at all. In addition, these third parties may have similar or more established relationships with our competitors.
We may be unable to engage qualified distributors. Even if engaged, these distributors may:
fail to satisfy financial or contractual obligations to us;
fail to adequately market our formulations or products;
cease operations with little or no notice to us; or
offer, design, manufacture or promote competing formulations or products.
If we fail to develop sales, managed care, marketing and distribution channels, we would experience delays in generating sales and incur increased costs, which would harm our financial results.
The class-wide Risk Evaluation and Mitigation Strategy, or REMS, for all transmucosal fentanyl products, and similar programs for other narcotic products, may slow sales and marketing efforts for products that contain narcotics, which could impact our royalty and sales revenue from such products.
Our approved product ONSOLIS is formulated with the potent narcotic fentanyl. On December 29, 2011, FDA approved a REMS program covering all transmucosal fentanyl products. The program, which is referred to as the Transmucosal Immediate Release Fentanyl (TIRF) REMS Access Program, was designed to ensure informed risk-benefit decisions before initiating treatment with a transmucosal fentanyl product, and while patients are on treatment, to ensure appropriate use. The approved program covers all approved transmucosal fentanyl products under a single program and was implemented in March 2012. Additionally, the FDA has implemented a class-wide REMS covering the extended release and long acting opioid class. The class-wide REMS program consists of a REMS-compliant educational program offered by an accredited provider of continuing medical education, patient counseling materials and a medication guide. BELBUCA falls within the existing class-wide REMS program. The cost and implementation of the extended release and long-acting opioid REMS is shared among multiple companies in the category.
Our business and operations could suffer in the event of system failures.
Despite the implementation of security measures, 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 could cause interruptions in our operations, and could result in a material disruption of our commercialization activities, and our business operations, in addition to possibly requiring substantial expenditures of resources to remedy. The loss of clinical trial data from completed or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. 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 product could be delayed.
Actions of activist shareholders could be disruptive and potentially costly and the possibility that activist shareholders may seek changes that conflict with our strategic direction could cause uncertainty about the strategic direction of our business.
Activist investors may attempt to effect changes in our strategic direction and how our company is governed or may seek to acquire control over our company. Some investors (commonly known as “activist investors”) seek to increase short-term stockholder value by advocating corporate actions such as financial restructuring, increased borrowing, special dividends, stock repurchases, or even sales of assets or the entire company. Activist campaigns can also seek to change the composition of our board of directors, and campaigns that contest or conflict with our strategic direction could have an adverse effect on our results of operations and financial condition as responding to proxy contests and other actions by activist shareholders can disrupt our operations, be costly and time-consuming, and divert the attention of our board of directors and senior management from the
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pursuit of our business strategies. In addition, perceived uncertainties as to our future direction that can arise from potential changes to the composition of our board of directors sought by activists may lead to the perception of a change in the direction of the business, instability or lack of continuity which may be exploited by our competitors, may cause concern to our current or potential customers, may result in the loss of potential business opportunities and may make it more difficult to attract and retain qualified personnel and business partners. These types of actions could divert our management’s attention from our business or cause significant fluctuations in our stock price based on temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of our business, all of which could have a material adverse effect on our company.
Risks Related to Regulation
Our failure to obtain government approvals or to comply with ongoing governmental regulations relating to our technologies could delay or limit introduction of our proposed formulations and products and result in failure to achieve revenues or maintain our ongoing business.
The manufacture and marketing of our products are subject to extensive regulation for safety, efficacy and quality by numerous government authorities in the U.S. and abroad. Before receiving FDA or foreign regulatory clearance to market our proposed formulations and products, we will have to demonstrate that our formulations and products are safe and effective in the patient population and for the diseases that are to be treated. Clinical trials, manufacturing and marketing of drugs are subject to the rigorous testing and approval process of the FDA and equivalent foreign regulatory authorities. The Federal Food, Drug and Cosmetic Act and other federal, state and foreign statutes and regulations govern and influence the testing, manufacture, labeling, advertising, distribution and promotion of drugs and medical devices. As a result, regulatory approvals can take a number of years or longer to accomplish and require the expenditure of substantial financial, managerial and other resources.
If users of our products are unable to obtain adequate reimbursement from third-party payers, or if new restrictive legislation is adopted, market acceptance of our products may be limited and we may not achieve material revenues.
The continuing efforts of government and insurance companies, health maintenance organizations and other payers of healthcare costs to contain or reduce costs of healthcare may affect our future revenues and profitability, and the future revenues and profitability of our potential customers, suppliers and collaborative partners and the availability of capital. For example, in certain foreign markets, pricing or profitability of prescription pharmaceuticals is subject to government control. In the U.S., given recent federal and state government initiatives directed at lowering the total cost of healthcare, the U.S. Congress and state legislatures will likely continue to focus on healthcare reform, the cost of prescription pharmaceuticals and on the reform of the Medicare and Medicaid systems. While we cannot predict whether any such legislative or regulatory proposals will be adopted, the announcement or adoption of such proposals and related laws, rules and regulations could materially harm our business, financial conditions, results of operations or stock price. Moreover, the passage of the Patient Protection and Affordable Care Act in 2010, and efforts to amend or repeal such law, has created significant uncertainty relating to the scope of government regulation of healthcare and related legal and regulatory requirements, which could have an adverse impact on sales of our products.
The ability of our company to commercialize BELBUCA and Symproic, or any partners with which we have a licensing arrangement to sell ONSOLIS will depend in part on the extent to which appropriate reimbursement levels for the cost of our proposed formulations and products and related treatments are obtained by governmental authorities, private health insurers and other organizations, such as HMOs. Consumers and third-party payers are increasingly challenging the prices charged for drugs and medical services. Also, the trend toward managed healthcare in the U.S., which could control or significantly influence the purchase of healthcare services and drugs, as well as legislative proposals to reform healthcare or reduce government insurance programs, may all result in lower prices for or rejection of our drugs.
Our business involves environmental risks related to handling regulated substances which could severely affect our ability to develop our drug delivery technology.
In connection with the manufacture of materials and products, we and our partners are subject to federal, state and local laws, rules, regulations and policies governing the use, generation, manufacture, storage, air emission, effluent discharge, handling and disposal of certain materials, biological specimens and wastes. We and our partners may be required to incur significant costs to comply with environmental and health and safety regulations in the future. The activities of our manufacturing and commercial partners, both now and in the future, may involve the controlled use of hazardous materials, including but not limited to certain hazardous chemicals and narcotics. We cannot completely eliminate the risk of accidental contamination or injury from these materials. In the event of such an occurrence, we could be held liable for any damages that result and any such liability could exceed our resources.
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Government and other efforts to reform the healthcare industry could have adverse effects on our company, including the inability of users of our current and future approved products to obtain adequate reimbursement from third-party payers, which could lead to diminished market acceptance of, and revenues from, such products.
Our ability to commercialize BELBUCA and Symproic alone or with collaborators, will depend in part on the extent to which coverage and reimbursement for the product will be available from:
government and health administration authorities;
private health maintenance organizations and health insurers; and
other healthcare payers.
Significant uncertainty exists as to the reimbursement status of newly approved healthcare products. The regulations that govern marketing approvals, pricing and reimbursement for new drug products vary widely from country to country. In the U.S., the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act of 2010, or the ACA, is significantly changing the way healthcare is financed by both governmental and private insurers. While we cannot predict what impact on federal reimbursement policies this law or any amendment to it will continue to have in general or specifically on any product that we commercialize, the ACA or any such amendment may result in downward pressure on pharmaceutical reimbursement, which could negatively affect market acceptance of new drug products. In addition, although the U.S. Supreme Court has upheld the constitutionality of most of the ACA, several states have not implemented certain sections of the ACA, including 19 that have rejected the expansion of Medicaid eligibility for low income citizens, and some members of the U.S. Congress are still working to repeal the ACA. More recently, President Trump has been seeking to repeal or replace all or portions of the ACA but to date no such legislation has been passed.
The Tax Cuts and Jobs Act of 2017 includes a provision repealing, effective January 1, 2019, the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate”. Additionally, on January 22, 2018, President Trump signed a continuing resolution on appropriations for fiscal year 2018 that delayed the implementation of certain fees mandated by the ACA, including the so-called “Cadillac” tax on certain high cost employer- sponsored insurance plans, the annual fee imposed on certain health insurance providers based on market share, and the medical device excise tax on non-exempt medical devices. Further, the Bipartisan Budget Act of 2018, or the BBA, among other things, amends the ACA, effective January 1, 2019, to increase from 50% to 70% the point-of-sale discount that is owed by pharmaceutical manufacturers who participate in Medicare Part D and to close the coverage gap in most Medicare drug plans, commonly referred to as the “donut hole”. Congress may still consider other legislation to repeal and replace elements of the ACA. We expect that the ACA, as currently enacted or as it may be amended or repealed in the future, and other healthcare reform measures that may be adopted in the future, could have a material adverse effect on our industry generally and on our ability to successfully commercialize our products. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the U.S. or abroad. If we or our collaborators are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we or our collaborators are not able to
maintain regulatory compliance, our products may lose any regulatory approval that may have been obtained and we may not achieve or sustain profitability, which would adversely affect our business.
In addition, we are subject to the Federal Drug Supply Chain Security Act of 2013, or the DSCSA. The U.S. government has enacted DSCSA which requires development of an electronic product tracking and tracing of each prescription drug at the salable unit level through the distribution system, which will be effective incrementally over a 10-year period. Compliance with DSCSA and future U.S. federal or state electronic requirements may increase our operational expenses and impose significant administrative burdens.
We may also be subject to healthcare laws, regulation and enforcement. Our failure to comply with those laws could have a material adverse effect on our results of operations and financial conditions.
We may also be subject to several healthcare regulations and enforcement by the federal government and the states and foreign governments in which we conduct our business. The laws that may affect our ability to operate include:
the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, which governs the conduct of certain electronic healthcare transactions and protects the security and privacy of protected health information;
the federal healthcare programs’ Anti-Kickback Law, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual for, or the purchase, order or recommendation of, any good or service for which payment may be made under federal healthcare programs such as the Medicare and Medicaid programs;
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federal false claims 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;
federal criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters; 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.
If 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, the curtailment or restructuring of our operations, the exclusion from participation in federal and state healthcare programs and imprisonment, any of which could adversely affect our ability to operate our business and our financial results.
Risks Related to Our Common Stock and Non-Voting Convertible Preferred Stock
Our business is subject to increasingly complex corporate governance, public disclosure, and accounting requirements and regulations that could adversely affect our business and financial results and condition.
We are subject to changing rules and regulations issued by various federal and state governmental authorities as well as the stock exchange on which our common stock is listed. These entities, including the Public Company Accounting Oversight Board, the Securities and Exchange Commission, or the SEC, and the Nasdaq Capital Market, have issued a significant number of new and increasingly complex requirements and regulations over the course of the last several years and continue to develop additional requirements and regulations in response to laws enacted by the U.S. Congress, including the Sarbanes-Oxley Act of 2002 and, more recently, the Dodd-Frank Wall Street Reform and Protection Act, or the Dodd-Frank Act.
There are significant corporate governance and executive compensation-related provisions in the Dodd-Frank Act that expressly authorized or required the SEC to adopt additional rules in these areas, such as an advisory shareholder vote to approve of our executives’ compensation, or Say on Pay, proxy access, and an advisory shareholder vote on how often we should include a Say on Pay proposal in our proxy materials for future annual shareholder meetings or any special shareholder meeting for which we must include executive compensation information in the proxy statement for that meeting. Our efforts to comply with these requirements are likely to result in an increase in expenses which is difficult to quantify at this time.
In addition, we are subject to often complex accounting rules and interpretations promulgated by the Financial Accounting Standards Board (including its Emerging Issues Task Force). We have faced challenges related to compliance with accounting rules in the past and may face such challenges in the future, and adjustments to or restatements of our financial statements or accounting policies based on such challenges could have a material adverse effect on our stock price and our reputation.
Our stock price is subject to market factors and market volatility, both generally and with respect to our industry and our company specifically. As such, there is a risk that your investment in our common stock could fluctuate in value.
The overall market for securities in recent years has experienced extreme price and volume fluctuations that have particularly affected the market prices of many smaller companies. In particular, the market prices of securities of biotechnology and pharmaceutical companies have been extremely volatile and have experienced fluctuations that often have been unrelated or disproportionate to the operating performance of these companies. These broad market fluctuations (as well as market reactions to particular developments with our company) have and could continue to result in extreme fluctuations in the price of our common stock, which could cause a decline in the value of our common stock. These fluctuations, as well as general economic and market conditions, may have a material and/or adverse effect on the market price of our common stock.
Our Series A Non-Voting Convertible Preferred Stock ranks senior to our common stock in the event of a bankruptcy, liquidation or winding up of our assets.
As of the date of this Report, we have 2,709,300 issued and 2,093,155 outstanding shares of Series A Non-Voting Convertible Preferred Stock, or “Series A”, which we issued in connection with our $40 million financing which closed on December 2012. In the event of our bankruptcy, liquidation or winding up, our assets will be available to pay obligations on our Series A in preference to the holders of our common stock.
Our Series B Non-Voting Convertible Preferred Stock ranks senior to our common stock in the event of a bankruptcy, liquidation or winding up of our assets.
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As of the date of this Report, we have 5,000 issued and 618 outstanding shares of Series B Non-Voting Convertible Preferred Stock, or “Series B”, which is convertible into 3,433,335 shares of our common stock. We issued the Series B in connection with our $50 million registered direct offering which closed on May 22, 2018. In the event of our bankruptcy, liquidation or winding up, our assets will be available to pay obligations on our Series B, which ranks on par with Series A, in preference to the holders of our common stock.
Additional authorized shares of our common stock and preferred stock available for issuance may adversely affect the market for our common stock.
As of March 6, 2020, there are 96,360,486 shares of common stock issued and 96,344,995 shares of common stock outstanding.
On July 25, 2019, our stockholders approved an amendment to our certificate of incorporation to increase the number of authorized shares of common stock, par value $0.001, of our common stock from 125,000,000 to 175,000,000 shares. This increase in our authorized shares of common stock provides us with the flexibility to issue more shares in the future, which might cause dilution to our stockholders. In addition, the total number of shares of our common stock issued and outstanding does not include shares reserved in anticipation of the exercise of outstanding options or warrants. To the extent such options (including options under our stock incentive plan) or warrants are exercised, the holders of our common stock may experience further dilution.
Moreover, in the event that any future financing should be in the form of, be convertible into or exchangeable for, equity securities, and upon the exercise of options and warrants, investors would experience additional dilution. Finally, in addition to the above referenced shares of common stock which may be issued without stockholder approval, we have 5 million shares of authorized preferred stock, of which 2,709,300 shares have been designated as Series A and 5,000 have been designated as Series B. The remaining 2,285,700 shares of preferred stock remain undesignated shares of preferred stock, the terms of which may be fixed by our board of directors. We have issued preferred stock in the past, and our board of directors has the authority, without stockholder approval, to create and issue one or more additional series of such preferred stock and to determine the voting, dividend and other rights of holders of such preferred stock. The issuance of any of such series of preferred stock may have an adverse effect on the holders of common stock.
We currently have an effective shelf registration which registered up to $125 million of our securities for potential future issuance. To the extent we issue such shares of stock under this registration statement, the current holders of our common stock may experience further dilution.
Anti-takeover provisions under our organizational 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 certificate of incorporation, as amended, our amended and restated bylaws and Delaware law contain provisions that may have the effect of preserving our current management, such as:
authorizing the issuance of “blank check” preferred stock without any need for action by stockholders;
limiting the ability of stockholders to call special meetings of stockholders;
permitting stockholder action by written consent;
establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted on by stockholders at stockholder meetings;
requiring a super-majority vote of our stockholders to remove directors of our company; and
providing that our stockholders may only remove our directors for “cause” (as defined in our bylaws).
These provisions affect your rights as a stockholder since they permit our board of directors to make it more difficult for common stockholders to replace members of the board or undertake other significant corporate actions. Because our board of directors is responsible for appointing the members of our management team, these provisions could in turn affect any attempt to replace our current management team.
The financial and operational projections that we may make from time to time are subject to inherent risks.
The projections that our management may provide from time to time (including, but not limited to, those relating to potential peak sales amounts, production and supply dates, and other financial or operational matters) reflect numerous assumptions made by management, including assumptions with respect to our specific as well as general business, economic, market and financial conditions and other matters, all of which are difficult to predict and many of which are beyond our
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control. Accordingly, there is a risk that the assumptions made in preparing the projections, or the projections themselves, will prove inaccurate. There may be differences between actual and projected results, and actual results may be materially different from those contained in the projections. The inclusion of the projections in (or incorporated by reference in) this Report should not be regarded as an indication that we or our management or representatives considered or consider the projections to be a reliable prediction of future events, and the projections should not be relied upon as such.
We do not intend to pay dividends on our common stock.
We have never declared or paid any cash dividend on our capital stock. We currently intend to retain any future earnings and do not expect to pay any dividends for the foreseeable future. Therefore, you should not invest in our common stock with the expectation that you will receive dividends.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Description of Property.
Our corporate headquarters is located in Raleigh, North Carolina. We moved into our current headquarters in February 2015. The lease for this office, which commenced November 14, 2014 for 89 months, is approximately 12,000 square feet of space and has remaining base rent of $0.9 million payable through July 2022. Rent is payable in monthly installments and is subject to yearly price increases and increases for our share of common area maintenance costs. The landlord for this space is HRLP Raleigh, L.P. We believe this space is adequate as our principal executive office location.
Item 3. Legal Proceedings.
Refer to Note 17, "Commitments and Contingencies" to our consolidated financial statements included in Part IV of this Report on Form 10-K, which is incorporated into this item by reference.
Item 4. Mine Safety Disclosures.
Not applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Beginning November 1, 2019, our common stock is listed for quotation on the NASDAQ Global Select Market under the symbol “BDSI”. Prior to November, our common stock was listed on the NASDAQ Capital Market.
As of March 6, 2020, we had approximately 112 holders of record of our common stock. No cash dividends have been paid on the common stock to date. We currently intend to retain earnings for further business development and do not expect to pay cash dividends in the foreseeable future.
Performance Graph
The following graph shows a comparison of the five-year total cumulative returns of an investment of $100 in cash on December 31, 2014 in (i) our common stock (ii) the Nasdaq Composite Index (iii) the Nasdaq Global Select Index (iv) the Nasdaq Biotechnology Index and (v) the NYSE Pharmaceutical Index. All values assume reinvestment of the full amount of all dividends (to date, we have not declared any dividends).
This stock performance graph shall not be deemed “filed” with the SEC or subject to Section 18 of the Securities Exchange Act, nor shall it be deemed incorporated by reference in any of our filings under the Securities Act of 1933, as amended (the “Securities Act”). Comparison of cumulative total return on investment since December 31, 2014:

https://cdn.kscope.io/7d69dbd20bfb2a63cea62275fd4e8881-bdsi-20191231_g1.jpg

12/31/201412/31/201512/31/201612/31/201712/31/201812/31/2019
BioDelivery Sciences Int’l, Inc.$100.00  $39.85  $14.56  $24.54  $30.78  $52.58  
Nasdaq Composite (U.S. Companies)100.00  105.73  113.66  145.76  140.10  189.45  
Nasdaq Global Select100.00  106.11  114.16  146.62  141.23  191.51  
Nasdaq Biotechnology100.00  111.42  87.26  105.64  95.79  119.17  
NYSE Pharmaceutical100.00  101.62  90.38  102.28  106.76  122.68  



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Item 6. Selected Financial Data.
The statements of operations data and statements of cash flows data for the years ended December 31, 2019, 2018 and 2017 and the balance sheet data as of December 31, 2019 and 2018 have been derived from our audited consolidated financial statements included elsewhere in this annual report. The statements of operations data and statements of cash flows data for the years ended December 31, 2016 and 2015 and the balance sheet data as of December 31, 2017, 2016 and 2015 have been derived from our audited consolidated financial statements not included in this annual report. The following selected financial data should be read in conjunction with our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and consolidated financial statements and related notes beginning on page F-1 and other financial information included in this Report.
20192018201720162015
Statements of Operations Data:
Total revenue (1)$111,389  $55,640  $61,985  $15,546  $48,231  
Operating income (loss)3,736  (23,648) (29,420) (63,935) (35,179) 
Net (loss) income (2) (3)(15,305) (46,367) 5,285  (67,138) (37,672) 
Diluted net (loss) income per share(0.18) (0.73) 0.09  (1.25) (0.72) 
Balance Sheet Data:
Cash, short-term and long-term investments$63,888  $43,822  $21,195  $32,019  $83,560  
Total assets (4) (5)182,905  108,533  88,101  51,720  102,772  
Long-term liabilities59,148  57,252  53,075  50,097  42,993  
Accumulated deficit(366,593) (351,288) (305,056) (310,341) (243,203) 
Total stockholders’ equity (deficit)69,764  29,742  8,877  (17,665) 31,696  
Statements of Cash Flows Data:
Net cash flows from operating activities$11,072  $(24,113) $(32,451) $(53,982) $(3,732) 
(1)Total revenue in 2017 includes $20 million in contract revenue from Endo related to a patent extension that was previously recorded as deferred revenue because all or a portion of such $20 million was contingently refundable to Endo if a third party generic product was introduced in the U.S. during the patent extension period from 2020 to 2027. However, due to BDSI and Endo entering into a termination agreement which terminated the BELBUCA license to Endo effective January 6, 2017, the deferred $20 million was recognized as revenue in January 2017.
(2)Net loss in 2018 includes the deemed dividend related to the beneficial conversion feature in Series B Preferred Stock of $12.5 million.
(3)Net loss in 2017 includes the bargain purchase gain of the BELBUCA acquisition from Endo totaling $27.3 million, recorded as income in January 2017.
(4)Total assets for the year ended December 31, 2019 includes the value of the BELBUCA license and distribution rights intangible asset, net, totaling $31.5 million.and the value of the Symproic license and distribution rights intangible asset, net, totaling $28.8 million.
Item 7. 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 our consolidated financial statements and related notes appearing elsewhere in this Report. All amounts and percentages are approximate due to rounding. When we cross-reference to a “Note,” we are referring to our “Notes to Consolidated Financial Statements,” unless the context indicates otherwise. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. The actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those which are not within our control.
Our Strategy
Our strategy is evolving with the establishment of our commercial footprint in the management of chronic pain. We seek to continue to build a well-balanced, diversified, high-growth specialty pharmaceutical company. Through our industry-leading commercialization infrastructure, we are executing the commercialization of our existing products. As part of our corporate growth strategy, we have licensed, and will continue to explore opportunities to acquire or license, additional products that meet the needs of patients living with debilitating chronic conditions and treated primarily by therapeutic specialists. As we gain
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access to these drugs and technologies, we will employ our commercialization experience to bring them to the marketplace. With a strong commitment to patient access and a focused business-development approach for transformative acquisitions or licensing opportunities, we will leverage our experience and apply it to developing new partnerships that enable us to commercialize novel products that can change the lives of people suffering from debilitating chronic conditions.
Our commercial strategy for BELBUCA is to further drive continued adoption in the large long-acting opioid (LAO) market based on its unique profile coupled with growing physician interest, policy tailwinds, and expanding payer access. We aim to leverage the specialized commercial infrastructure we established for BELBUCA as a vehicle to enable commercial growth in Symproic, which is being increasingly seen as a complementary asset.
Recent Highlights
On April 4, 2019, we entered into an exclusive licensing agreement with Shionogi to commercialize Symproic in the U.S. and Puerto Rico, for the treatment of OIC in adults with chronic non-cancer pain.
• On April 15, 2019, we completed an underwritten public offering by us and a selling stockholder of 12,000,000 shares of common stock at a public offering price of $5.00 per share. The gross proceeds from our portion of the offering (10,000,000 shares), before deducting the underwriter discounts and commission and other offering expenses, were $50.0 million, or $47.6 million net proceeds.
• On May 23, 2019, we refinanced our existing debt agreement with a new facility from Pharmakon. The new facility consists of a $60.0 million term loan and is expected to result in an estimated $1.5 million in annual interest cost savings compared to the previous debt facility.
• On July 1, 2019, we were added to the broad-market Russell 3000® Index as well as the Russell 2000® Index at the conclusion of the 2019 Russell indexes annual reconstitution.
On July 9, 2019, we announced that several regional healthcare plans improved patient access to BELBUCA during the second quarter of this year. The regional U.S. insurance plans enhanced BELBUCA’s coverage to preferred status or initiated coverage for BELBUCA, which means that an additional six million covered lives now have access to BELBUCA. These six million covered lives brings the total number of commercial lives with access to BELBUCA to more than 165 million, representing more than 90% of the U.S. commercial insurance market.
On August 28, 2019, we reported the acceptance of five scientific abstracts highlighting data supporting our portfolio of products that address the unmet need of chronic conditions at the PAINWeek® 2019 National Conference on Pain for Frontline Practitioners which took place in September in Las Vegas, NV.
On October 1, 2019, we announced that a major pharmacy benefits manager, or "PBM", began providing improved patient access to BELBUCA and Symproic, with full plan adoption on January 1, 2020. The addition of this large national PBM increased the number of covered lives to approximately 14 million covered lives within both commercial and health exchange plans that have access to BELBUCA as either the preferred or preferred exclusive buprenorphine product within their respective plans and Symproic as the preferred exclusive product within its class. Also, on January. 13, 2020, we announced that a large PBM, along with various healthcare insurance companies, have expanded access for Symproic to more than 25 million additional commercial covered lives by placing Symproic in preferred formulary position beginning on January 1, 2020. As of January 1, 2020, this brings the total number of covered lives with preferred access to BELBUCA is approximately 100 million (out of more than 250 million with access to coverage) and the total number of covered lives with preferred access to Symproic is more than 100 million, (out of more than 240 million with access to coverage).
On November 22, 2019, our Board of Directors appointed Dr. Vanila Singh to join the Board and to serve on the Compensation Committee of the Board.
On December 11, 2019, we announced the launch of This Is Pain, a long-term initiative that aims to improve the lives of over 10 million American adults living with chronic pain. As part of the initiative, actress Kristin Chenoweth is sharing her personal experience with chronic pain to help spread awareness around the disease.
On December 19, 2019, we announced we had been selected for addition to the NASDAQ Biotechnology Index.
On January 6, 2020, we announced the appointment of Kevin Ostrander as Senior Vice President of Business Development and member of the Company Executive Leadership Team.
On February 27, 2020, we presented at the American Academy of Pain Medicine’s (AAPM) 36th Annual Meeting, positive results of a study titled, “A Phase I Placebo-Controlled Trial Comparing the Effect of Buprenorphine Buccal Film and Oral Oxycodone Hydrochloride on Respiratory Drive”.
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On March 09, 2020, we announced that we had appointed Jeffrey A. Bailey to our Board of Directors.
Our Products and Related Trends

Our current product portfolio currently consists of four products that are approved by the FDA. Three of our products utilize our patented BEMA thin film drug delivery technology.
BELBUCA
BELBUCA (buprenorphine buccal film) is a buccal film that contains buprenorphine, a Schedule III opioid, and was approved by the FDA in October 2015 for use in patients with pain severe enough to require daily, around-the-clock, long-term opioid treatment for which alternative options are inadequate. BELBUCA is differentiated from other opioids and has the potential to address some of the most critical issues facing healthcare providers treating chronic pain with prescription opioids – abuse, misuse, addiction and the risk of overdose. Compared to currently marketed products and products under development, we believe that BELBUCA is differentiated based on the following features:
strong and durable efficacy in both opioid naïve and opioid experienced patients;
Schedule III designation by DEA, which indicates less abuse and addiction potential compared to Schedule II opioids, which include oxycodone, hydrocodone and morphine;
in published studies, investigators observed that respiratory depression from buprenorphine administration reached a plateau, and we believe this ceiling effect may result in a lower risk of overdose related respiratory depression;
favorable tolerability with a low incidence of constipation and low discontinuation rate;
flexible dosing options with seven available strengths; and
buccal administration to optimize buprenorphine delivery.
We believe that there are long-term growth opportunities for BELBUCA and we focus our commercial efforts primarily on BELBUCA. Our sales force is focused on current BELBUCA prescribers, chronic pain management specialists, and clinicians we believe have the greatest opportunity to be adopters of BELBUCA. As of January 2020, BELBUCA had formulary coverage for more than 96% of commercial lives.
The risks to our company associated with BELBUCA include: (i) inability to continue to manufacture adequate supplies for commercial use; (ii) unexpected product safety issues; (iii) failure of our sales force to effectively sell the product and, (iv) inadequate reimbursement. A technical or commercial failure of BELBUCA would have a material adverse effect on our future revenue potential and would negatively affect investor confidence in our company and our public stock price.

SYMPROIC

Symproic is a peripherally acting mu-opioid receptor antagonist, or PAMORA, and was approved by the FDA on March 23, 2017 for the treatment of opioid-induced constipation in adult patients with chronic non-cancer pain, including patients with chronic pain related to prior cancer or its treatment who do not require frequent (e.g., weekly) opioid dosage escalation. OIC occurs primarily via activation of enteric mu-receptors in the small intestine and proximal colon, which results in harder stool and less frequent and less effective defecation. Because OIC results from the specific effects of opioids, it differs mechanistically from other forms of constipation, and deserves dedicated medical management. Compared to currently marketed products and products under development for OIC, we believe that Symproic is differentiated based on the following features:
strong and durable efficacy observed in randomized, double-blind, placebo controlled clinical trials of 12 week and 52 week duration in OIC patients;
OIC relief that was more frequent, more complete, with less straining than patients taking placebo
recommended by the American Gastroenterological Association for patients with laxative refractory OIC;
adverse event profile comparable to placebo, with low rates of abdominal pain observed across the phase III program; and
the only prescription OIC medication with the convenience of once daily dosing, with only a tablet strength, and that can be taken with or without food and with or without laxatives.

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Because of the durable efficacy, tolerability and convenience benefits, we believe that Symproic is a best-in-class PAMORA that reliably provides durable relief of OIC, which frees both the patient and the healthcare provider to focus on treating the patient’s chronic pain.
We believe that there are long-term growth opportunities for Symproic. According to data from Symphony Health, in 2019 Symproic prescription volume grew over 60%, capturing 10% of the PAMORA market. In 2019 the PAMORA market declined by 3%, with over 585,000 PAMORA prescriptions dispensed. The growth rate of the PAMORAs has slowed, driven by a decline in opioid prescription rates. As of January 2020, Symproic had formulary coverage for more than 95% of commercial lives.
The risks to our company associated with Symproic include: (i) unexpected product safety issues; (ii) inability to continue to supply product in adequate quantities to meet the commercial demand; (iii) inability to manufacture adequate supplies for commercial use; (iv) failure of our sales force to effectively sell the product and, (v) inadequate reimbursement.

BUNAVAIL
In June 2014, BUNAVAIL (buprenorphine and naloxone buccal film) was approved by the FDA for the maintenance treatment of opioid dependence as part of a complete treatment plan to include counseling and psychosocial support. BUNAVAIL contains the partial opioid agonist buprenorphine, which binds to the same receptors as opiate drugs but has a higher affinity, and naloxone, an opioid antagonist and an abuse deterrent. In March 2020, we announced that we are discontinuing marketing for BUNAVAIL.
ONSOLIS
In July 2009, ONSOLIS (fentanyl buccal soluble film) was approved for the management of pain that “breaks through” the effects of other medications being used to control persistent pain, or breakthrough pain, in cancer patients 18 years of age and older who are already receiving and who are tolerant to opioid therapy for their underlying persistent cancer pain. We refer to breakthrough pain in opioid tolerant patients with cancer as BTCP. ONSOLIS provides significant reduction in pain for patients suffering from BTCP in a convenient formulation with a range of doses to allow patients to titrate to an adequate level of pain control. We are not currently assessing options for U.S. commercialization of ONSOLIS. Given current declining market conditions, we have no plans to introduce the product in the U.S. at this time. The product is no longer a strategic asset for the Company.
We will continue to seek additional license agreements. We anticipate that funding for the next several years will come primarily from earnings from sales of BELBUCA and Symproic, and milestone payments and royalties from Mylan and TTY.
Critical Accounting Policies and Estimates
Estimates
The preparation of consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. We review all significant estimates affecting the consolidated financial statements on a recurring basis and records the effect of any necessary adjustments prior to their issuance. Significant estimates include: revenue recognition, sales allowances such as returns of product sold, government program rebates, customer coupon redemptions, wholesaler/pharmacy discounts, product service fees, rebates and chargebacks, sales bonuses, stock-based compensation, inventory, fixed assets,
determination of fair values of assets and liabilities relating to business combinations, and deferred income taxes.
Impairment Testing
In accordance with Generally Accepted Accounting Principles, or GAAP, goodwill impairment testing is performed at the reporting unit level annually, or more frequently if indicated by events or conditions. We performed an evaluation and determined that there is only one reporting unit. In performing a goodwill impairment test, GAAP allows for either a qualitative or a quantitative assessment to be performed. If a qualitative evaluation determines that no impairment exists, then no further analysis is performed. If a qualitative evaluation is unable to determine whether impairment has occurred, a quantitative evaluation is performed. The quantitative impairment test first identifies potential impairments by comparing the fair value of the reporting unit with its carrying value. If the carrying value exceeds the fair value, an impairment charge is recorded based on that difference. The determination of goodwill impairment is highly subjective. It considers many factors both internal and external and is subject to significant changes from period to period. No goodwill impairment charges have resulted from this analysis for 2019, 2018 or 2017.
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An impairment of a long-lived asset other than goodwill is recognized under GAAP if the carrying value of the asset (or the group of assets of which it is a part) exceeds (i) the future estimated undiscounted cash flow from the use of the asset (or group of assets) and (ii) the fair value of the asset (or asset group). In making this impairment assessment, we predominately use an undiscounted cash flow model derived from internal forecasts. Factors that could change the result of our impairment test include, but are not limited to, different assumptions used to forecast future net sales, expenses, capital expenditures, and working capital requirements used in our cash flow models. If our management determines that the value of intangible assets have become impaired using this approach, we will record an accounting charge for the impairment. No impairment charges have been recorded for other amortizing intangibles in 2019, 2018 or 2017.
The Assigned Value of Acquired Tangible and Intangible Assets and Assumed and Contingent Liabilities Associated with Business Combinations
We account for acquisitions of businesses using the acquisition method of accounting where the cost is allocated to the underlying net tangible and intangible assets acquired, based on their respective estimated fair values. If the estimated fair values of the net assets acquired is more than the purchase price, the excess is immediately recorded in earnings as a bargain purchase gain. Alternatively, if the purchase price is greater than the estimated fair values of the net assets acquired, the excess is recorded as goodwill. Determining the fair value of certain acquired assets and liabilities is subjective in nature and often involves the use of significant estimates and assumptions, including, but not limited to, the selection of appropriate valuation methodology, projected revenue, expenses and cash flows, weighted average cost of capital, discount rates and estimates of terminal values. Business acquisitions are included in our consolidated financial statements as of the date of the acquisition.
Inventory Valuation
We provide inventory write-downs determined primarily by the accumulated cost to manufacture our inventory, which is impacted by component costs and manufacturing yields. The write-down is measured as the difference between the cost of the inventory and net realizable value and charged to cost of sales. At the point of the loss recognition, a new, lower cost basis for that inventory is established, and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis.
We provide a reserve for excess and obsolete inventories identified by a lot-by-lot analysis of our finished goods inventory which considers the expiration dates and future demand forecasts. The write-down is measured as the difference between the cost of the inventory on-hand and the expected demand of the inventory. At the point of the loss recognition, a charge to cost of sales is recorded and a reserve is established for that inventory. The inventory reserve is relieved upon the future sale or disposal of that inventory.
Stock-Based Compensation and other Stock-Based Valuation Issues
We account for stock-based awards to employees and non-employees using fair value-based method to determine compensation for all arrangements where shares of stock or equity instruments are issued for compensation. Fair values of equity securities issued are determined by management based predominantly on the trading price of our common stock. The values of these awards are based upon their grant-date fair value. That cost is recognized over the period during which the employee is required to provide service in exchange for the award.
We use the Black-Scholes option pricing model to determine the fair value of stock option and warrant grants. Refer to Note 1, “Nature of business and summary of significant accounting policies” for more information related to assumptions in applying the Black-Scholes option pricing model.
Fair Value of Financial Instruments
We measures the fair value of instruments in accordance with GAAP which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.
GAAP defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. GAAP also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. We consider the carrying amount of our cash and cash equivalents to approximate fair value due to short-term nature of this instrument.
Revenue Recognition
Revenue from Contracts with Customers
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Effective January 1, 2018, we adopted Accounting Standards Codification, or ASC, Topic 606, “Revenue from Contracts with Customers,” using the modified retrospective approach. We utilized a comprehensive approach to assess the impact of the guidance on our contract portfolio. We reviewed our current accounting policies and practices to identify potential differences resulting from the application of the new requirements to our revenue contracts, including evaluation of performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price, allocating the transaction price to each separate performance obligation and accounting treatment of costs to obtain and fulfill contracts. Under the new guidance, we are required to evaluate the impact of estimating variable consideration related to our product sales and licensing contracts. We use the expected value method to estimate the total revenue of the contract, constrained by the probability that there would not be a significant revenue reversal in a future period. We will continue to evaluate the expected value of revenue over the term of the contract and adjust revenue recognition as appropriate.
Refer to Note 1, “Nature of business and summary of significant accounting policies” for more information related to, (i) product sales, (ii) performance obligations, (iii) adjustments to product sales and (iv) gross to net accruals.
License and development agreements
We periodically enter into license and development agreements to develop and commercialize our products. The arrangements typically are multi-deliverable arrangements that are funded through upfront payments, milestone payments and other forms of payment. Depending on the nature of the contract these revenues are classified as research and development reimbursements or contract revenue.
Product Royalty Revenues
Product royalty revenue amounts are based on sales revenue of the PAINKYL product under the Company’s license agreement with TTY and the BREAKYL product under the Company’s license agreement with Mylan.
Product royalty revenues are computed on a quarterly basis when revenues are fixed or determinable, collectability is reasonably assured, and all other revenue recognition criteria are met. TTY and Mylan have the right to reject products that do not comply with product, packaging, or regulatory specifications. Defective product must be identified by TTY and Mylan within 10 days after inspection at their respective distribution sites. We bill TTY and Mylan immediately upon receipt by them of product (FOB manufacturer). On a quarterly basis, a reconciliation is prepared that reflects the difference between actual net sales by TTY and Mylan multiplied by the royalty percentage, and the actual royalty payments made during the quarter (which is based on a “transfer price” at the time we invoice TTY and Mylan). The parties “true-up” the differences within 45 days of each quarter-end.
Cost of Sales
Cost of sales in 2019 includes direct costs attributable to the production of BELBUCA, Symproic, BUNAVAIL, BREAKYL and PAINKYL. Cost of sales also includes royalty expenses owed to third parties.
For BELBUCA, Symproic and BUNAVAIL, cost of sales includes raw materials, production costs at our contract manufacturing sites, quality testing directly related to the product, lower of cost of market and depreciation on equipment that we have purchased to produce BELBUCA, Symproic and BUNAVAIL. It also includes any batches not meeting specifications and raw material yield loss. Cost of sales for BELBUCA, Symproic and BUNAVAIL are recognized when sold to the wholesaler from our distribution center. There was no deferred cost of sales for the years ended December 31, 2019 nor 2018. Yield losses and batches not meeting specifications are expensed as incurred. For the year ended December 31,2019, depreciation expense included accelerated depreciation for BUNAVAIL specific equipment due to the March 2020 announcement to discontinue marketing of BUNAVAIL.
For BREAKYL and PAINKYL, we do not take ownership of the subject product as we do not have inventory. Accordingly, raw material product is transferred to Mylan, in the case of BREAKYL and TTY in the case of PAINKYL, immediately in accordance with the terms of our contractual arrangements with Mylan and TTY. LTS manufactures both products for us. Mylan’s and TTY’s royalty payments to us include an amount related to cost of sales. Ownership and title to the product, including insurance risk, belong to LTS from raw material through completion and inventory of the subject product, and then to Mylan and TTY upon shipment of such subject product. This is in accordance with our contracts with LTS and Mylan and TTY, which identify the subject product as FOB manufacturer.
Income taxes
Refer to Note 13, “Income taxes” for more information related to (i) the impact of the Tax Act to our Company, (ii) reconciliation of the Federal statutory income tax rate to the effective rate, (iii) the tax effects of temporary differences and net operating losses that give rise to significant components of deferred tax assets and liabilities and (iv) our federal and state net operating loss carry forward (“NOLs”).
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Results of Operations
For the Year Ended December 31, 2019 Compared to the Year Ended December 31, 2018
Product Sales. We recognized $107.9 million and $51.4 million in product sales during the years ended 2019 and 2018, respectively, from our products BELBUCA, Symproic and BUNAVAIL. The increase in 2019 is principally due to increased BELBUCA product sales and the acquisition of Symproic, which was partially offset by lower BUNAVAIL product sales, as well as additional reserves recorded in connection with the discontinuation of the marketing of BUNAVAIL.
Product Royalty Revenues. We recognized $3.3 million and $3.4 million in product royalty revenue during the years ended 2019 and 2018, respectively, which are composed of BREAKYL sales from Mylan and PAINKYL sales from TTY.
Contract Revenues. We recognized $0.2 million in contract revenue during the year ended 2019 related to milestone revenues associated with PAINKYL from TTY. We recognized $0.8 million in contract revenue during the year ended 2018, which was composed of $1.0 million in contract revenue related to our former license agreement with Purdue, offset by the reversal of $0.2 million in milestone revenue as a result of the termination of the aforementioned license agreement in March 2019.
Cost of Sales. We incurred $21.6 million and $15.8 million in cost of sales during the years ended 2019 and 2018, respectively. Cost of sales includes product cost, royalties paid, depreciation and yield adjustments. The increase in cost of sales is driven by the overall increase in gross sales as well as a one time acceleration of depreciation expense for certain BUNAVAIL specific equipment.
Selling, General and Administrative Expenses. During the years ended December 31, 2019 and 2018, selling, general and administrative expenses totaled $86.1 million and $58.6 million, respectively. Selling, general and administrative costs include BELBUCA, Symproic and BUNAVAIL sales, marketing, and commercial expenses. These costs also include legal expenses, professional fees, wages and stock-based compensation expense. The increase in selling, general and administrative expenses during 2019 is due primarily to the increase in compensation expense related to our expansion efforts, medical affairs expenses, increased marketing efforts and expenses related to the acquisition of Symproic.
Research and Development. We recognized $4.9 million of research and development expense during the year ended December 31, 2018 related to allocated wages and compensation for approved products and product candidates. There was no such research and development expense during the year ended December 31, 2019 due to the Company focusing entirely on commercialization of products beginning in 2019.
Interest Expense, Net. During the year ended December 31, 2019, we had net interest expense of $19.0 million, consisting of $11.9 million of one-time costs associated with the refinancing of our debt, $6.8 million of scheduled interest payments relating to both loans, $0.8 million of related amortization of discount and loan costs for both the old and new debt arrangements, and $0.4 million of warrant interest expense associated with the former CRG loan. The one-time expenses related to the payoff of the CRG loan consisted of $5.2 million in unamortized deferred loan fees, $3.9 million in unamortized warrant discount costs and $2.8 million in loan prepayment fees and realized losses, for a cumulative total of $11.9 million in one-time costs.
During the year ended December 31, 2019, we also had interest income of $0.9 million.
During the year ended December 31, 2018, we had net interest expense of $10.2 million, consisting of $6.1 million of scheduled interest payments, $3.0 million of related amortization of discount and loan costs and $1.1 million of warrant interest expense all related to the former debt arrangement.
Information pertaining to fiscal year 2017 was included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 on page 43 under Part II, Item 7, “Management’s Discussion and Analysis of Financial Position and Results of Operations,” which was filed with the SEC on March 14, 2019.
Refer to Note 12, “Net sales by product” for more information related to (i) net product sales for BELBUCA, Symproic and BUNAVAIL, and (ii) the percentages related to each product.

Medical Affairs Initiatives
In 2019, we transitioned from a research and development-oriented organization into one that is more commercially focused. As such, we expanded our medical affairs capabilities and honed our efforts toward maximizing our products in the market, particularly with our lead asset, BELBUCA. Specifically, our resources and energies were focused on:
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Strategically expanding our medical affairs department to include scientific communications and publications, medical science liaisons, and expertise regarding clinical and Health Economic and Outcomes Research, or HEOR, initiatives;
Developing a robust medical affairs plan for BELBUCA and defining future clinical studies, publications, congress activities, and educational initiatives to deliver on the strategic imperatives in order to inform all stakeholders on the attributes of BELBUCA in order that it can become an option for patients suffering with chronic pain;
Planning public policy initiatives and developing policy expertise in order to capitalize on federal and state tailwinds that focus on safer opioid options in chronic pain;
Continuing to progress post-marketing requirements, or PMRs, and plans for BELBUCA, Symproic and BUNAVAIL; and
Providing regulatory, pharmacovigilance, PV, and drug safety support for BELBUCA, Symproic, and ONSOLIS.
Our estimates of medical affairs initiatives, and our projected sales associated with each of our products discussed below and elsewhere in this Report are merely estimates and subject to multiple factors, many of which are, or may be beyond our control, including those detailed in the Risk Factors section of this Report. These factors and risks could cause delays, cost overruns or otherwise cause us to not achieve these estimates. Readers are also advised that our projected sales figures do not consider the royalties and other payments we will need to make to our licensors and strategic partners. Our estimates are based upon our market research and management’s reasonable judgments, but readers are advised that such estimates may prove to be inaccurate.
The following is a summary of our current products at December 31, 2019:
BELBUCA (buprenorphine buccal film). Following the transfer of BELBUCA to us in January 2017, we led clinical and Medical Affairs support behind BELBUCA. We have assumed responsibility for the conduct of post approval commitments specified by FDA in the approval of BELBUCA, which include a thorough QT (TQT) study and a pediatric study. In September 2013, the FDA announced that it will require all companies holding NDAs for extended-release/long-acting, or ER/LA opioid analgesic drug products to conduct four post-marketing studies regarding risks associated with their long-term use and one clinical trial to estimate risk of hyperalgesia. The FDA replaced the original requirements with new post-marketing requirements in February 2016. The Opioid PMR Consortium was formed with representatives from each of the member companies providing an opportunity for one set of studies to be completed to satisfy the FDA requirements and distributing the associated costs across all member companies. Each member company pays an equal share of the program costs and new members are required to pay equal share of the costs to date upon program entry and of future costs going forward. We joined the Opioid PMR Consortium in October 2017 and our initial share of the program cost was paid in late 2017. To date, six of eleven studies have been completed and the program is expected to continue into 2020 and possibly beyond. In addition, during the past year, we have completed a Phase 1 study looking at the change in minute ventilation between BELBUCA, oxycodone and placebo. Those results are being analyzed and interpreted and will be made publicly available in 2020. Additionally, three scientific manuscripts were submitted (and accepted) to tier-one pain journals in 2019 and will be published in 2020. Finally, four scientific abstracts regarding BELBUCA were submitted, accepted, and presented at PAINWeek 2019.
BUNAVAIL. Activities in 2017 included work to support a label expansion of BUNAVAIL for the induction (conversion to buprenorphine) of opioid dependent subjects, performance of FDA post-marketing study requirements and improvements in commercial manufacturing. In May 2017, we announced that the FDA expanded the BUNAVAIL label to include induction of opioid dependent patients. In March 2020, we announced that we were discontinuing marketing for BUNAVAIL.
SYMPROIC. In 2019 we submitted a scientific abstract to PAINWeek 2019 which was accepted and presented. In addition, we continued to advance an FDA post-marketing requirement (PMR) which is an observational study to access the risk of major adverse cardiovascular events (MACE) in naldemedine users.
Non-GAAP Financial Information:
We report our consolidated financial results in accordance with GAAP; however, we believe that earnings before interest, taxes, depreciation and amortization (“EBITDA”) and other non-GAAP results should not be considered in isolation of or as an alternative for, earnings measures prepared in accordance with GAAP. Management uses these non-GAAP measures internally to measure the ongoing operating performance of our Company along with other metrics, and for planning and forecasting purposes. In addition, when evaluating non-GAAP results, we exclude certain items that are considered to be non-cash and if applicable, non-recurring, in nature.
EBITDA and Non-GAAP Income/(Loss):
We have presented EBITDA because it is a key measure used by our management and board of directors to understand and evaluate our operating performance and to develop operational goals for managing our business. We believe this financial
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measure helps identify underlying trends in our business that could otherwise be masked by the effect of the expenses that we exclude. In particular, we believe that the exclusion of the expenses eliminated in calculating EBITDA can provide a useful measure for period-to-period comparisons of our core operating performance. Accordingly, we believe that EBITDA provides useful information to investors and others in understanding and evaluating our operating results, enhancing the overall understanding of our past performance and future prospects, and allowing for greater transparency with respect to key financial metrics used by our management in its financial and operational decision-making.
EBITDA is not prepared in accordance with GAAP, and should not be considered in isolation of, or as an alternative to, measures prepared in accordance with GAAP. There are a number of limitations related to the use of adjusted EBITDA rather than net income/(loss), which is the nearest GAAP equivalent. Some of these limitations are:
EBITDA excludes depreciation and amortization and, although these are non-cash expenses, the assets being depreciated or amortized may have to be replaced in the future, the cash requirements for which are not reflected in EBITDA;
EBITDA does not reflect provision for (benefit from) income taxes or the cash requirements to pay taxes; and
EBITDA excludes net interest, including both interest expense and interest income.
Non-GAAP net income/(loss) is an alternative view of our performance that we are providing because management believes this information enhances investors’ understanding of our results as it permits investors to better understand the ongoing operations of the business, the impact of any non-recurring one-time events, the cash results of the organization and is an additional measure used by management to assess performance.
Non-GAAP net income/(loss) is not prepared in accordance with GAAP, and should not be considered in isolation of, or as an alternative to, measures prepared in accordance with GAAP. There are a number of limitations related to the use of non-GAAP net income/(loss) rather than net income/(loss), which is the nearest GAAP equivalent. Some of these limitations are:
Non-GAAP income/(loss) excludes certain one-time items because of the nature of the items and the impact that those have on the analysis of underlying business performance and trends. Specifically, in the presentation of non-GAAP income/(loss) for the year ended December 31, 2019, we have excluded the financial impact of our debt refinancing which closed in May 2019, as it is non-recurring. This excluded item is a significant component in understanding and assessing ongoing financial performance. The one-time expenses related to the payoff of the CRG loan consisted of $5.2 million in unamortized deferred loan fees, $3.9 million in unamortized warrant discount costs and $2.8 million in loan prepayment fees and realized losses, for a cumulative total of $11.9 million in one-time costs. Also during 2019, we have excluded the non-recurring financial impact of the BUNAVAIL discontinuation, for a cumulative total of $3.8 million. In the presentation of non-GAAP income/(loss) for the year ended December 31, 2017, we have excluded the financial impact of the fair value of the bargain purchase price of the BELBUCA acquisition which closed in January 2017, as it is non-recurring. This excluded item is also a significant component in understanding and assessing ongoing financial performance. The one-time gain related to the asset purchase price and fair value of assets acquired for a cumulative total of $27.3 million in a one-time gain;
The expenses and other items that we exclude in our calculation of non-GAAP net income/(loss) may differ from the expenses and other items, if any, that other companies may exclude from non-GAAP net income/(loss) when they report their operating results since non-GAAP income/(loss) is not a measure determined in accordance with GAAP, and it has no standardized meaning prescribed by GAAP;
We exclude stock-based compensation expense from non-GAAP net income/(loss) although (a) it has been, and will likely continue to be for the foreseeable future, a significant recurring expense for our business and an important part of our compensation strategy and (b) if we did not pay out a portion of our compensation in the form of stock-based compensation, the cash salary expense included in operating expenses would likely be higher, which would affect our cash position;
We exclude amortization of intangible assets from non-GAAP net income/(loss) due to the non-cash nature of this expense and although it has been and will continue to be for the foreseeable future a recurring expense for our business, these expenses do not affect our cash position; and
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Amortization of warrant discount costs associated with the CRG loan which was dissolved in May 2019 are excluded given these expenses did not affect our cash position;
Reconciliations of non-GAAP metrics to most directly comparable U.S. GAAP financial measures:
The following tables reconcile net income/(loss)earnings and computations (in thousands) under GAAP to a Non-GAAP basis.
Year Ended December 31,
Reconciliation of GAAP net income/(loss) to EBITDA (non-GAAP)201920182017
GAAP net income/(loss)$(15,305) $(33,867) $5,285  
Add back:
Provision for income taxes 14  (15,972) 
Net interest expense19,036  10,206  (18,733) 
Depreciation and amortization8,748  6,188  6,119  
EBITDA$12,484  $(17,459) $(23,301) 
Reconciliation of GAAP net income/(loss) to Non-GAAP net income/(loss)
GAAP net income/(loss)(15,305) (33,867) 5,285  
Non-GAAP adjustments:
Stock-based compensation expense5,416  5,941  14,800  
Amortization of intangible assets6,981  5,157  5,425  
Amortization of warrant discount448  1,076  832  
Non-recurring financial impact of debt refinance11,866  —  —  
Non-recurring financial impact of BUNAVAIL discontinuation3,750    
Non-recurring financial impact of bargain purchase gain  (27,336) 
Non-GAAP net income/(loss)$13,156  $(21,693) $(994) 

Liquidity and Capital Resources
Since inception, we have financed our operations principally from the sale of equity securities, proceeds from borrowings, convertible notes, and notes payable, funded research arrangements, revenue generated as a result of our worldwide license and development agreements and the commercialization of our BELBUCA, Symproic and BUNAVAIL products. We intend to finance our commercialization and working capital needs from existing cash, earnings from the commercialization of BELBUCA and Symproic, royalty revenue, new sources of debt and equity financing, existing and new licensing and commercial partnership agreements and, potentially, through the exercise of outstanding common stock options and warrants to purchase common stock.
At December 31, 2019, we had cash of approximately $63.9 million. We generated $11.1 million of cash in operations during the year ended December 31, 2019 and had stockholders’ equity of $69.8 million, versus stockholders’ equity of $29.7 million at December 31, 2018. We believe that we have sufficient current cash, along with expected proceeds from sales, to manage the business as currently planned.
Additional capital may be required to support the continued commercialization of our BELBUCA and Symproic products, or other products which may be acquired or licensed by us, and for general working capital requirements. Based on agreements with our partners, the ability to scale up or reduce personnel and associated costs are factors considered throughout the product life cycle. Available resources may be consumed more rapidly than currently anticipated, potentially resulting in the need for additional funding.
Accordingly, while we don't anticipate that we will be required to raise additional capital in the near term, in the event funding is required, we believe it may be available to us through a variety of sources, including:
public equity markets;
private equity financings;
commercialization agreements and collaborative arrangements;
grants and new license revenues;
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bank loans;
equipment financing;
public or private debt; and
exercise of existing warrants and options.
Readers are cautioned that additional funding, capital or loans (including, without limitation, milestone or other payments from commercialization agreements) may be unavailable on favorable terms, if at all. If adequate funds are not available, we may be required to significantly reduce or refocus our operations or to obtain funds through arrangements that may require us to relinquish rights to certain technologies and drug formulations or potential markets, either of which could have a material adverse effect on us, our financial condition and our results of operations in 2020 and beyond. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of such securities could result in ownership dilution to existing stockholders.
Term Loan Agreement
Refer to Note 11, “Notes payable” for more information related to (i) the 2017 CRG Servicing, LLC ("CRG") term loan agreement and payoff (ii) the 2019 Biopharma Credit plc ("Pharmakon") loan agreement, and (iii) the future maturities of notes payable obligations.
Contractual Obligations and Commercial Commitments
Our non-cancellable contractual obligations as of December 31, 2019 are as follows (in thousands):
Payments Due by Period
TotalLess than
1 year
1-3 years3-5 yearsMore than
5 years
Operating lease obligations$949  $360  $589  $—  $—  
Secured loan facility60,000  —  13,846  46,154  —  
Interest on secured loan facility23,932  5,997  11,614  6,321  —  
Minimum royalty expenses*11,250  1,500  3,000  3,000  3,750  
Purchase obligations**1,885  1,363  522  —  —  
Total contractual cash obligations$98,016  $9,220  $29,571  $55,475  $3,750  
* Minimum royalty expenses represent a contractual floor that we are obligated to pay CDC and NB Athyrium LLC regardless of actual sales. The minimum payment is $0.4 million per quarter or $1.5 million per year until patent expiry on July 23, 2027.
** Purchase obligations represent an agreement for the supply of active pharmaceutical ingredient for use in production.
Off Balance Sheet Arrangements
We are not a party to any off balance sheet arrangements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Interest rate risk
Our cash includes all highly liquid investments with an original maturity of three months or less. Because of the short-term maturities of our cash, we do not believe that an increase in market rates would have a significant impact on the realized value of our investments. We place our cash on deposit with financial institutions in the U.S. The Federal Deposit Insurance Corporation covers $0.25 million for substantially all depository accounts. As of December 31, 2019, we had approximately $65.1 million, which exceeded these insured limits.
Foreign currency exchange risk
We currently have, and may in the future have increased, commercial, manufacturing and clinical agreements which are denominated in Euros or other foreign currencies. As a result, our financial results could be affected by factors such as a change in the foreign currency exchange rate between the U.S. dollar or Euro or other applicable currencies, or by weak economic
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conditions in Europe or elsewhere in the world. Such amounts are currently immaterial to our financial position or results of operations. We are not currently engaged in any foreign currency hedging activities.
Market Risk
We do not engage in speculative transactions nor do we hold or issue financial instruments for trading purposes. In connection with the recapitalization of our business, we have entered into a secured credit facility consisting of a term loan. Our term loan note bears interest which includes fluctuating interest rates based on LIBOR.
There is currently uncertainty around whether LIBOR will continue to exist after 2021. However, if LIBOR ceases to exist, we will not be required to renegotiate our loan documents with our current lender.
Market indexed security risk
We have issued warrants to various holders underlying shares of our common stock. These warrant investments were measured at their fair value at date of issuance and recorded as warrant expense in the accompanying consolidated statement of operations. We use the Black-Scholes model for valuation of the warrants.
Item 8. Financial Statements and Supplementary Data.
Our Consolidated Financial Statements and Notes thereto and the report of Cherry Bekaert LLP, our independent registered public accounting firm, are set forth on pages F-1 through F-37 of this Report.
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
The Company has established disclosure controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and is accumulated and communicated to management, including the principal executive officer (our Chief Executive Officer) and principal financial officer (our Chief Financial Officer), to allow timely decisions regarding required disclosure.
Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Annual Report on Form 10-K. Management recognizes that any disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives. Our disclosure controls and procedures have been designed to provide reasonable assurance of achieving their objectives. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2019.
Limitations on the Effectiveness of Controls
Our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected. Our Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation as of the end of the period covered by this Report that our disclosure controls and procedures were sufficiently effective to provide reasonable assurance that the objectives of our disclosure control system were met.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the year ended December 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting
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As required by the SEC rules and regulations for the implementation of Section 404 of the Sarbanes-Oxley Act, our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our consolidated financial statements for external reporting purposes in accordance with GAAP. Our internal control over financial reporting includes those policies and procedures that:
(1)pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of our company,
(2)provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors, and
(3)provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect errors or misstatements in our consolidated financial statements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree or compliance with the policies or procedures may deteriorate. Management assessed the effectiveness of our internal control over financial reporting at December 31, 2019. In making these assessments, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) (COSO). Based on our assessments and those criteria, management determined that we maintained effective internal control over financial reporting at December 31, 2019.
Item 9B. Other Information.
None.
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PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Our directors and executive officers and their ages as of March 6, 2020 are as follows:
NameAgePosition(s) Held
Peter S. Greenleaf50  Chairman of the Board and Director
Mark A. Sirgo, Pharm.D.66  Vice Chairman of the Board and Director
Herm Cukier53  Chief Executive Officer and Director
Scott M. Plesha55  President and Chief Commercial Officer
Mary Theresa Coelho58  Chief Financial Officer and Treasurer
Thomas B. Smith, M.D.59  Chief Medical Officer
James Vollins51  General Counsel, Chief Compliance Officer and Corporate Secretary
Frank E. O’Donnell, Jr., M.D.70  Director
W. Mark Watson69  Director
Todd C. Davis59  Director
Kevin Kotler48  Director
Vanila Singh, M.D., MAMC49  Director
There are no family relationships between any of our directors or executive officers.
Peter S. Greenleaf, age 50, has been our Chairman of the Board and Director since May 2018. He has served as the Chief Executive Officer of Aurinia Pharmaceuticals, Inc., since April 2019. Previously, he served as the Chief Executive Officer of Cerecor, Inc., since March 2018 and as Chief Executive Officer of Sucampo Pharmaceuticals, Inc., from March 2014 to February 2018, when Sucampo was sold to Mallinckrodt PLC. Prior to that, Mr. Greenleaf served as Chief Executive Officer of Histogenics Corporation from June 2013 to March 2014, as President of MedImmune, Inc., and MedImmune Ventures from 2010 to June 2013, and Senior Vice President, Commercial Operations of MedImmune from 2006 to 2010. Mr. Greenleaf also held senior commercial roles at Centocor Biotech, Inc. (now Janssen Biotechnology, Johnson & Johnson), from 1998 to 2006, and at Boehringer Mannheim G.m.b.H. (now Roche Holdings) from 1996 to 1998. Mr. Greenleaf has been a member of the board of directors of Antares Pharma since December 2018. Mr. Greenleaf chairs the Maryland Venture Fund Authority and served as a member of the board of directors of the Biotechnology Industry Organization. He previously served on the boards of PhARMA, the Tech Council of Maryland and the University of Maryland Baltimore Foundation, Inc. Mr. Greenleaf earned an MBA degree from St. Joseph’s University and a BS degree from Western Connecticut State University.
Mark A. Sirgo, Pharm.D., age 66, has been our Director since August 2005 and Vice Chairman of the Board since October 2016. He has served as Chief Executive Officer of ArunA Bio since January 2019. Formerly, he served as our President since January 2005 and Chief Executive Officer since August 2005. He joined our company in August 2004 as Senior Vice President of Commercialization and Corporate Development upon our acquisition of Arius Pharmaceuticals, of which he was a co-founder and Chief Executive Officer. He has also served as our Executive Vice President, Corporate and Commercial Development and our Chief Operating Officer. Dr. Sirgo has over 35 years of experience in the pharmaceutical industry, which includes clinical drug development, marketing, sales, and business development, and executive management positions. Prior to Arius Pharmaceuticals, from 2003 to 2004, he spent 16 years in a variety of positions of increasing responsibility in both clinical development and marketing at Glaxo, Glaxo Wellcome, and GlaxoSmithKline, including Vice President of International OTC Development and Vice President of New Product Marketing. Dr. Sirgo was responsible for managing the development and FDA approval of Zantac 75 while at Glaxo Wellcome, among other accomplishments. From 1996 to 1999, Dr. Sirgo was Senior Vice President of Global Sales and Marketing at Pharmaceutical Product Development, Inc. Dr. Sirgo served on the Board of Directors of Salix Pharmaceuticals, Inc., from 2008 until its sale in 2015. Dr. Sirgo was added to the Board of Directors of Biomerica, Inc., a diagnostics and therapeutic company, in July 2016 and as Chairman of the Board of RDD Pharma, Ltd., in April 2018. Dr. Sirgo received his BS in Pharmacy from The Ohio State University and his Doctorate from Philadelphia College of Pharmacy and Science.
Herm Cukier, age 53, has been our Chief Executive Officer and a member of our Board of Directors since May 2018. From December 2013 to April 2018, he served in various capacities at Allergan plc, ultimately as Senior Vice President, Head of Commercial Strategy and Innovation. He also served as the Senior Vice President of Allergan’s Eye Care division and as Senior Vice President of Allergan’s Woman’s Healthcare division. From 2010 to 2013, he served as Vice President of Bayer HealthCare, and from 2009 to 2010, he served as President, Chief Executive Officer, and board member at Reverion Pharmaceuticals, Inc., a start-up company associated with Weill Cornell Medical College. From 2005 to 2008, he served as Chief Marketing Officer and member of the Executive Committee at Organon Biosciences, which was acquired by Schering-
Plough. He began his career in 1992 at Pfizer and later served as Executive Director of Global Marketing at Bristol-Myers Squibb. Mr. Cukier received an MBA from the Columbia Business School and a BSE in Bioengineering from the University of Pennsylvania.
Scott M. Plesha, age 55, joined the company in August 2015 as our Senior Vice President, Sales, with more than 26 years of sales experience and over 18 years of sales management experience within the pharmaceutical and medical industries. Mr. Plesha assumed the additional responsibility of leading our Marketing department in December 2015. In January 2018, Mr. Plesha was appointed to the role of President of the Company. Mr. Plesha leads our Specialty Sales Force, Marketing, and Training departments. Prior to joining the company, Mr. Plesha was Senior Vice President, GI Sales Force & Training at Salix Pharmaceuticals, where since 2002 he led Salix’s top rated gastrointestinal (GI) sales forces, the sales training department as well as many other sales operations functions. During Mr. Plesha’s tenure at Salix he was responsible for launching or growing product sales as well as optimizing and expanding the sales force to accommodate the multiple companies and products that Salix acquired. Prior to joining Salix, Mr. Plesha was a Regional Sales Manager for the O’Classen Dermatologics division of Watson Pharmaceuticals, Inc. Mr. Plesha began his pharmaceutical sales career with Solvay Pharmaceuticals where he was a field as well institutional sales representative. Mr. Plesha received a Bachelor of Arts in Pre-Medical Studies from DePauw University.
Terry Coelho, age 58, has been our Chief Financial Officer and Treasurer since January 2019 and has more than 30 years of financial and operational experience. Ms. Coelho’s extensive experience includes serving in diverse leadership capacities across various industries for both private and public global companies. Prior to joining the company, Ms. Coelho served as Chief Financial Officer and Treasurer at Balchem Corporation from October 2017 to October 2018. From September 2017 to October 2017, she served as Chief Operating Officer for Diversey, Inc., a multi-billion dollar global private equity carve-out from Sealed Air Corporation and held senior finance positions at Diversey Care from October 2014 through August 2017, including as Chief Financial Officer for Diversey Care. Ms. Coelho has also served in senior finance leadership roles at Novartis from 2007 to 2014. She spent the previous twenty years at Mars, Incorporated where she held roles of increasing responsibility and encompassing leadership across all areas of finance and general management. Ms. Coelho earned an MBA in Finance from IBMEC in Brazil and a Bachelor of Arts degree in both Economics and International Relations, summa cum laude, from The American University School of International Service.
Thomas B. Smith, M.D., age 59, has been our Chief Medical Officer since July 2018 and brings nearly thirty years of medical experience and expertise in the field of pain management. His extensive and wide-ranging roles include having served as Chief Medical Officer at various leading pain companies, head of medical affairs at top tier pharma and CRO companies, as well as running his own private practice. Dr. Smith served as Chief Medical Officer at Charleston Labs, Inc., from January 2017 to July 2018 and from October 2014 to January 2017, he served as the Chief Medical Officer of Ameritox, Ltd. Dr. Smith previously served as Chief Medical Officer for Mallinckrodt Pharmaceuticals from 2012 to 2014 and held clinical leadership roles at Abbott Laboratories, Teva Pharmaceuticals, Kendle International, Akros Pharma and Genzyme during 2001 to 2014. Dr. Smith earned a Doctor of Medicine degree from the Indiana University School of Medicine and a Bachelor of Science degree from Purdue University. He is a member of several medical societies and organizations including the American Medical Association and the American Academy of Family Physicians. Dr. Smith is a highly published scientific author and has delivered more than 150 presentations in his field of expertise.
James Vollins, age 51, has been our General Counsel, Chief Compliance Officer and Corporate Secretary, and member of the Executive Leadership Team since November 2018. Mr. Vollins has twenty-five years of legal experience with over ten years of in-house experience in the pharmaceutical industry, which includes work on several major strategic transactions and a successful initial public offering. From 2014 to 2018, Mr. Vollins was General Counsel, Chief Compliance Officer and Corporate Secretary for Bio Products Laboratory Limited, a UK based manufacturer of plasma-derived therapies, where he helped lead the transformation of the business from a government owned not-for-profit to a high-performing commercial enterprise that successfully launched three new drugs in the U.S., expanded its sales force, and achieved significant revenue growth. Mr. Vollins has also worked for other industry-leading pharmaceutical companies, including Grifols Inc., Talecris Biotherapeutics, Inc. and Pfizer Inc. Mr. Vollins received a Juris Doctor from Case Western Reserve University School of Law and a Bachelor of Arts from Wesleyan University.
Frank E. O’Donnell, Jr., M.D., age 70, has served as a member of our Board of Directors since March 2002 and served as our Chairman of the Board until May 2018. Dr. O'Donnell has previously served as our President and Chief Executive Officer. In January 2005, he relinquished the title of President, and in August 2005 he relinquished the title of Chief Executive Officer. Until November 2016, Dr. O'Donnell served as a Manager of The Hopkins Capital Group, an affiliation of limited liability companies that engage in private equity and venture capital investing in disruptive technologies in healthcare. Dr. O'Donnell is Chairman of Defender Pharmaceuticals, Inc., a privately held company developing pharmaceuticals for national defense. Until November 2016, Dr. O'Donnell was also Chairman of the Board of Directors of Hedgepath Pharmaceuticals, Inc., which is developing oncology drugs for an orphan indication. Dr. O'Donnell is a graduate of The Johns Hopkins School of Medicine and received his residency training at the Wilmer Ophthalmological Institute, Johns Hopkins Hospital. Dr. O'Donnell is a former
professor and Chairman of the Department of Ophthalmology, St. Louis University School of Medicine. He is a trustee of St. Louis University.
W. Mark Watson, CPA, age 69, joined our Board of Directors as an independent member in December 2017 and is Chairman of the Audit Committee. Mr. Watson is a Certified Public Accountant with over 40 years of experience in public accounting and auditing, having spent his entire career from January 1973 to June 2013 at Deloitte Touche Tohmatsu, the multinational professional services network, and its predecessor, most recently as Central Florida Marketplace Leader. Among other industries, he has a particular expertise in the health and life sciences sector. He has served as lead audit partner and advisory partner on the accounts of many public companies ranging from middle market firms to Fortune 500 enterprises. Mr. Watson is a member of the American Institute of Certified Public Accountants and the Florida Institute of Certified Public Accountants. Mr. Watson is a member of the Board of Directors of Sykes Enterprises, Inc., and is a member of the Audit Committee. He is also Chairman of the Board of Directors and Chairman of the Audit Committee of Inhibitor Therapeutics, Inc. He received his undergraduate degree in Accounting from Marquette University.
Todd C. Davis, age 59, has served as a member of our Board of Directors since May 2018. Mr. Davis is the Founder and Managing Partner of RoyaltyRx Capital, a special opportunities investment firm. From 2006 until 2018, Mr. Davis was a Founder & Managing Partner of Cowen/HealthCare Royalty Partners, a global healthcare investment firm. He has almost thirty years of experience in both operations and investing in the biopharmaceutical and life science industries. Mr. Davis has been involved in over $3 billion in healthcare financings including growth equity, public equity turnarounds, structured debt and royalty acquisitions. He has also led, structured and closed over 40 additional intellectual property licenses, as well as hybrid royalty-debt deals. Previously, Mr. Davis was a partner at Paul Capital Partners, where he co-managed that firm's royalty investments as a member of the Royalty Management Committee. He also served as a partner responsible for biopharmaceutical growth equity investments at Apax Partners. Mr. Davis began his business career in sales at Abbott Laboratories where he held several commercial roles of increasing responsibility. He subsequently held general management, business development, and licensing roles at Elan Pharmaceuticals. Mr. Davis is a Navy veteran and holds a B.S. from the U.S. Naval Academy and an M.B.A. from Harvard University. He currently serves on the board of Palvella Therapeutics Inc., Vaxart Inc., and Ligand Pharmaceuticals. He is also a board member of the Harvard Business School Healthcare Alumni Association.
Kevin Kotler, age 48, has served as a member of our Board of Directors since May 2018. Mr. Kotler has over 25 years of experience as an investor and analyst following the healthcare industry. He is the Founder and Managing Member of Broadfin Capital, which is the investment advisor for Broadfin Healthcare Master Fund, Ltd., a healthcare-focused investment fund that he launched in 2005. Mr. Kotler served as a Director of Avadel Pharmaceuticals from December 2018 to October 2019 and as a director of InnerSpace Neuro Solutions, Inc., a privately-held medical device company, since 2014. He served as Director of Novelion Therapeutics Inc., from December 2016 to September 2018. Mr. Kotler earned a BS in Economics from the Wharton School at the University of Pennsylvania in 1993.
Vanila M. Singh, M.D., MAMC, age 49, joined our Board of Directors as an independent director in November 2019. Dr. Singh is currently a Clinical Associate Professor of Anesthesiology, Pain and Peri-operative Medicine at Stanford University School of Medicine and is a teaching mentor at Walter Reed National Military Medical Center. Dr. Singh is the immediate past Chief Medical Officer of the United States Department of Health and Human Services (HHS) and served as Chairperson of the Inter-Agency Pain Management Best Practices Task Force, chartered by Congress and involving multiple federal health agencies, professional medical organizations, and patient advocacy groups to guide the medical community and key stakeholders in optimal patient care in a growing and complex national health matter. Dr. Singh, board-certified in both anesthesiology and pain medicine, specializes in treating patients with complex chronic pain issues. She graduated from the University of California at Berkeley with a B.S. in both molecular and cell biology and economics. She received her M.D. from the George Washington University School of Medicine & Health Sciences. Dr. Singh completed her internal medicine internship at Yale University School of Medicine and her anesthesiology residency and pain medicine fellowship at Weill-Cornell New York Presbyterian Hospital, which included training at Memorial Sloan Kettering and the Hospital for Special Surgery.
Key Employees
Below are the biographies of certain key non-executive officer employees of our company:
Joseph Lockhart was promoted to Senior Vice President of Operations for our company in January 2018 after having served as our Vice President of Manufacturing and Supply Chain since joining the company in November 2015. Drawing upon over 30 years of experience in the pharmaceutical industry with specific focus in the areas of manufacturing, supply chain, product development, CMC (Chemistry, Manufacturing, and Controls) and quality, Mr. Lockhart now provides senior-level management to our company’s overall Operations, including Clinical, Quality, Regulatory, and Manufacturing/Supply Chain. Prior to joining our company, Mr. Lockhart served as Vice President, Pharmaceutical Development and Manufacturing at Salix Pharmaceuticals, where since 2001 he established the Pharmaceutical Development and Manufacturing team and contributed to
multiple NDA submissions, as well as multiple product acquisitions and launches. During Mr. Lockhart’s tenure at Salix he held positions of increasing responsibility and was responsible for managing Manufacturing, Technical Operations, Formulation Development, and Clinical Trial Material Operations. From 1986 thru 2001 Mr. Lockhart served in various pharmaceutical CMC-related roles and responsibilities at both the Manager and the Director levels of management. Mr. Lockhart received a Master of Business Administration degree from the University of North Carolina at Charlotte as well as a Bachelor of Arts degree in Chemistry from the University of North Carolina at Chapel Hill.
Kevin Ostrander joined our company in January 2020 as Senior Vice President, Business Development. Drawing on nearly 30 years of pharmaceutical industry experience in the areas of business development, licensing, regulatory affairs, marketing, project management and formulation/process development, Kevin leads our business development function with experience in closing more than 75 transactions across brand, generic and OTC markets. Prior to joining our company, Mr. Ostrander served in the role of Vice President of Business Development for Glenmark Pharmaceuticals Inc. USA, whereby he developed several strategic product partnerships for the US generics division, as well as, having closed multiple transactions in the branded prescription area to expand the company’s US presence. Before joining Glenmark, Mr. Ostrander held positions of increasing responsibility with Sandoz Inc. (Division of Novartis), Mylan Specialty, Watson Pharmaceuticals, Cardinal Health, Elan Drug Delivery and Nycomed. Mr. Ostrander has been involved in the issuance of several US patents for his previous contributions in research and development. Mr. Ostrander received a Master of Business Administration degree in International Business from St. Joseph’s University in Philadelphia, Pennsylvania, a Master of Science degree in Pharmaceutical Regulatory Affairs and Quality Assurance from Temple University School of Pharmacy, Philadelphia, Pennsylvania and a Bachelor of Science degree in Biology from the State University of New York at Albany.
Director Independence
We believe that Peter S. Greenleaf, W. Mark Watson, Todd C. Davis, Kevin Kotler and Dr. Vanila Singh qualify as independent directors for NASDAQ Stock Market purposes. This means that our board of directors is composed of a majority of independent directors as required by NASDAQ Stock Market rules.
Meetings of the Board of Directors and Stockholders
Our board of directors met in person and telephonically six times during 2019 and also acted by unanimous written consent. Each member of our board of directors was present 100% of the board of directors’ meetings held. It is our policy that all directors must attend all stockholder meetings, barring extenuating circumstances. All directors were present at the 2019 Annual Meeting of Stockholders.
Board Committees
Our board of directors has established three standing committees: Audit, Compensation, and Nominating and Corporate Governance. All standing committees operate under a charter that has been approved by the board. Our board of directors has also, from time to time, appointed non-standing committees to assist the board in its duties to our company. The charters for each of our board committees are available at http://ir.bdsi.com/corporate-governance/governance-overview.
Audit Committee
Our board of directors has an Audit Committee, composed of William M. Watson, Peter S. Greenleaf and Todd C. Davis, all of whom are independent directors as defined in accordance with section 3(a)(58)(A) of the Exchange Act and the rules of NASDAQ. Mr. Watson serves as chairman of the committee. The board of directors has determined that Mr. Watson is an “audit committee financial expert” as defined in Item 407(d)(5)(ii) of Regulation S-K. The Audit Committee met seven times during 2019. Each member of the Audit Committee was present at 100% of the Audit Committee meetings held during such director’s tenure in 2019 as a member of the Audit Committee.
Our Audit Committee oversees our corporate accounting, financial reporting practices and the audits and reviews of financial statements. For this purpose, the Audit Committee has a charter (which is reviewed annually). As summarized below, the Audit Committee:
evaluates the independence and performance of, and assesses the qualifications of, our independent registered public accounting firm and engages such independent registered public accounting firm;
approves the plan and fees for the annual audit, quarterly reviews, tax and other audit-related services and approves in advance any non-audit service and fees therefor to be provided by the independent registered public accounting firm;
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monitors the independence of the independent registered public accounting firm and the rotation of partners of the independent registered public accounting firm on our engagement team as required by law;
reviews the financial statements to be included in our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q and reviews with management and the independent registered public accounting firm the results of the annual audit and reviews of our quarterly financial statements;
oversees all aspects of our systems of internal accounting and financial reporting control; and
provides oversight in connection with legal, ethical and risk management compliance programs established by management and the board, including compliance with requirements of Sarbanes-Oxley and makes recommendations to the board of directors regarding corporate governance issues and policy decisions.
Nominating and Corporate Governance Committee
Our board of directors has a Nominating and Corporate Governance Committee composed of Kevin Kotler, W. Mark Watson and Todd C. Davis. Kevin Kotler serves as the chairman of the committee. The Nominating and Corporate Governance Committee is charged with the responsibility of reviewing our corporate governance policies and with proposing potential director nominees to the board of directors for consideration. The Nominating and Corporate Governance Committee met five times in 2019 and has a charter which is reviewed annually. All members of the Nominating and Corporate Governance Committee are independent directors as defined by the rules of the NASDAQ Stock Market. The Nominating and Corporate Governance Committee will consider director nominees recommended by security holders. To recommend a nominee please write to the Nominating and Corporate Governance Committee c/o James Vollins, BioDelivery Sciences International, Inc, 4131 ParkLake Avenue. Suite #225, Raleigh, NC 27612. The Nominating and Corporate Governance Committee has established nomination criteria by which board candidates are to be evaluated. The Nominating and Corporate Governance Committee will assess all director nominees using the same criteria. During 2019, we did not pay any fees to any third parties to assist in the identification of nominees.
The Nominating and Corporate Governance Committee has adopted a set of criteria by which it will seek to evaluate candidates to serve on our board of directors. The evaluation methodology includes a scored system based on criteria including items such as experience in the biotechnology sector, experience with public companies, executive managerial experience, operations and commercial experience, fundraising experience and contacts in the investment banking industry, personal and skill set compatibility with current board members, industry reputation, knowledge of our company generally, independence and ethnic and gender diversity. While diversity is considered as a board qualification criteria, it would not be weighted any more or less in an evaluation process than any other criteria. The established criteria do not distinguish board candidates based on whether the candidate is recommended by a stockholder of our company.
Compensation Committee
Our board of directors also has a Compensation Committee, which reviews or recommends the compensation arrangements for our management and employees and also assists the board of directors in reviewing and approving matters such as company benefit and insurance plans, including monitoring the performance thereof. The Compensation Committee has a charter (which is reviewed annually) and is composed of four members: Todd C. Davis, Peter S. Greenleaf, Kevin Kotler and Dr. Vanila Singh. Todd C. Davis serves as chairman of this committee. The Compensation Committee met five times during 2019.
On November 22, 2019, upon the recommendation of its Nominating and Corporate Governance Committee, the Board appointed Dr. Vanila Singh to join the Board, effective as of November 22, 2019. The Board determined that Dr. Singh is independent under the listing standards of Nasdaq. Dr. Singh was also appointed to serve on the Compensation Committee of the Board. Effective as of November 22, 2019, the Compensation Committee of the Board is composed of Dr. Singh, Todd C. Davis, Peter S. Greenleaf and Kevin Kotler.
The Compensation Committee has the authority to directly engage, at our expense, any compensation consultants or other advisers as it deems necessary to carry out its responsibilities in determining the amount and form of employee, executive and director compensation. In 2019, the Compensation Committee engaged Willis Towers Watson (or "WTW") to obtain market data against which it has measured the competitiveness of our compensation programs. In determining the amount and form of employee, executive and director compensation, the Compensation Committee has reviewed and discussed historical salary information as well as salaries for similar positions at comparable companies. We paid consultant fees to WTW of $0.009 million in 2019.

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Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires that our directors and executive officers and persons who beneficially own more than 10% of our common stock (referred to herein as the “reporting persons”) file with the SEC various reports as to their ownership of and activities relating to our common stock. Such reporting persons are required by the SEC regulations to furnish us with copies of all Section 16(a) reports they file.
Based solely upon a review of copies of Section 16(a) reports and representations received by us from reporting persons, and without conducting any independent investigation of our own, in fiscal year 2019, all Forms 3, 4 and 5 were timely filed with the SEC by such reporting person, with the exception of Dr. Vanila Singh, who filed a Form 3, which was due December 2, 2019 on December 3, 2019, and a Form 4, which was due on November 26, 2019, on December 9, 2019.
Code of Ethics
We have adopted a code of ethics that applies to all employees, as well as each member of our board. Our code of ethics is posted on our website, and we intend to satisfy any disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or waiver from, a provision of our code of ethics by posting such information on our website, www.bdsi.com. A copy of our code of ethics is also available in print, without charge, upon written request to 4131 ParkLake Avenue, Suite #225, Raleigh, NC 27612. Attn: James Vollins.
Involvement in Certain Legal Proceedings
None.
Item 11. Executive Compensation.
The following table sets forth all compensation paid to our named executive officers at the end of the fiscal years ended December 31, 2019, 2018 and 2017. Individuals we refer to as our “named executive officers” include our Chief Executive Officer, our Chief Financial Officer, our former Chief Financial Officer who served as Principle Accounting Officer, and our most highly compensated executive officers whose salary and bonus for services rendered in all capacities exceeded $100,000 during the fiscal year ended December 31, 2019.
Summary Compensation Table
Name and principal
 position
YearSalary
($)
Bonus
($)
Stock
Awards
($)(10)
Option
Awards
($)(10)
Non-Equity
Incentive
Plan
Compensation
($)
Nonqualified
Deferred
Compensation
Earnings
($)
All Other
Compensation
($)
Total
($)
Herm Cukier, Chief Executive Officer and Director
2019582,496  —  433,125  1,549,800  —  355,135  (1)16,966  (2)2,937,522  
2018359,539  50,000  (3)526,000  1,288,000  —  231,050  14,459  2,469,048  
Terry Coelho, Chief Financial officer and Treasurer2019362,022  —  235,400  282,768  —  190,575  (1) 34,198  (4)1,104,963  
Scott M. Plesha, President and Chief Commercial Officer 
2019375,669  —  184,800  703,150  —  205,200  (1)35,040  (5)1,503,859  
2018371,080  —  332,813  —  —  180,675  34,423  918,991  
2017296,920  —  92,500  —  —  83,138  32,466  505,024  
Thomas Smith, M.D., Chief Medical Officer
2019352,564  —  106,260  373,100  —  156,200  (1) 25,326  (6)1,013,450  
2018139,327  25,000  (3)—  165,944  —  50,094  3,441  383,806