bdsi-20210930
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Table of contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________
FORM 10-Q
__________________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
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)
__________________________________
Delaware35-2089858
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
4131 ParkLake Ave., Suite 225, Raleigh, NC
27612
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number (including area code): 919-582-9050
__________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading
Symbol(s)
Name of each exchange
on which registered
Common stock, par value $0.001BDSIThe Nasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer”, “accelerated
filer” and “smaller reporting company”, or “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer
Accelerated Filer
Non-Accelerated FilerSmaller Reporting Company
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  ☒
As of November 3, 2021, there were 102,061,623 shares of company Common Stock issued and 98,795,939 shares of company Common Stock outstanding.



Table of contents
BioDelivery Sciences International, Inc. and Subsidiaries
Quarterly Report on Form 10-Q
TABLE OF CONTENTS
Page
Certifications
We own various trademark registrations and applications, and unregistered trademarks, including BioDelivery Sciences International, Inc., BEMA, BELBUCA, ELYXYB, 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.

From time to time, we may use our website, our Facebook page at Facebook.com/BioDeliverySI, our Twitter at @BioDeliverySI and our LinkedIn at linkedin.com/company/biodeliverysciencesinternational to distribute material information. 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, our LinkedIn page and our Twitter posts are not incorporated into, and does not form a part of, this Quarterly Report.


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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements

BIODELIVERY SCIENCES INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(U.S. DOLLARS, IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(Unaudited)
September 30,
2021
December 31,
2020
ASSETS
Current assets:
Cash and cash equivalents$100,710 $111,584 
Accounts receivable, net57,572 48,150 
Inventory, net23,075 17,443 
Prepaid expenses and other current assets6,904 5,208 
Total current assets188,261 182,385 
Property and equipment, net1,525 1,418 
Goodwill2,715 2,715 
License and distribution rights, net63,569 53,376 
Total assets$256,070 $239,894 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities$74,580 $52,995 
Notes payable, current3,077  
Total current liabilities77,657 52,995 
Notes payable, less current maturities55,638 78,452 
Other long-term liabilities 213 
Total liabilities133,295 131,660 
Commitments and contingencies (Note 10)
Stockholders’ equity:
Preferred Stock, 5,000,000 shares authorized; Series B Non-Voting Convertible Preferred Stock, $0.001 par value, 443 shares outstanding at September 30, 2021 and December 31, 2020, respectively.
  
Common Stock, $0.001 par value; 235,000,000 shares authorized at September 30, 2021 and December 31, 2020, respectively; 102,057,290 and 101,417,441 shares issued; 98,791,606 and 101,354,447 shares outstanding at September 30, 2021 and December 31, 2020, respectively.
104 104 
Additional paid-in capital454,738 449,264 
Treasury stock, at cost, 3,265,684 and 62,994 shares, as of September 30, 2021 and December 31, 2020, respectively.
(12,155)(252)
Accumulated deficit(319,912)(340,882)
Total stockholders’ equity122,775 108,234 
Total liabilities and stockholders’ equity$256,070 $239,894 
See notes to condensed consolidated financial statements
1

Table of contents

BIODELIVERY SCIENCES INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(U.S. DOLLARS, IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(Unaudited)
Three months ended September 30,Nine months ended September 30,
2021202020212020
Revenues:
Product sales, net$41,072 $38,785 $122,398 $112,946 
Product royalty revenues20 658 1,151 1,358 
Total revenues:41,092 39,443 123,549 114,304 
Cost of sales6,365 5,376 16,470 16,371 
Expenses:
Selling, general and administrative25,468 22,461 79,007 77,408 
Total expenses:25,468 22,461 79,007 77,408 
Income from operations9,259 11,606 28,072 20,525 
Interest expense, net(1,984)(2,010)(5,962)(4,997)
Other (expense)/income, net (2)(1)6 
Income before income taxes$7,275 $9,594 $22,109 $15,534 
Income tax provision(606)(211)(1,139)(19)
Net income attributable to common stockholders$6,669 $9,383 $20,970 $15,515 
Basic
Weighted average common stock shares outstanding98,699,857 101,031,317 99,485,399 99,377,748 
Basic earnings per share $0.07 $0.09 $0.21 $0.16 
Diluted
Weighted average common stock shares outstanding102,430,883 105,783,568 103,473,967 104,836,493 
Diluted earnings per share$0.07 $0.09 $0.20 $0.15 
See notes to condensed consolidated financial statements

2

Table of contents
BIODELIVERY SCIENCES INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(U.S. DOLLARS, IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(Unaudited)
Preferred Stock
Series A
Preferred Stock
Series B
Common StockAdditional
Paid-In
Capital
Treasury
Stock
Accumulated
Deficit
Total
Stockholders’
Equity
SharesAmountSharesAmountSharesAmount
Balances, January 1, 20202,093,155 $2 618 $ 96,189,074 $96 $436,306 $(47)$(366,593)$69,764 
Stock-based compensation— — — — — — 1,520 — — 1,520 
Stock option exercises— — — — 107,287 — 338 — — 338 
Restricted stock awards— — — — 459,670 — — — — — 
Series A conversion to common stock(2,093,155)(2)— — 2,093,155 2 (1)— — (1)
Series B conversion to common stock— — (175)— 972,222 1 — — — 1 
Net income— — — — — — — — 4,966 4,966 
Balances, March 31, 2020  443 $ 99,821,408 99 438,163 (47)(361,627)76,588 
Stock-based compensation— — — — — — 4,786 — — 4,786 
Stock option exercises— — — — 983,437 — 2,231 — — 2,231 
Restricted stock awards— — — — 111,666 — — — — — 
Net income— — — — — — — — 1,165 1,165 
Balances, June 30, 2020  443  100,916,511 99 445,180 (47)(360,462)84,770 
Stock-based compensation— — — — — — 1,539 — — 1,539 
Stock option exercises— — — — 68,623 1 191 — — 192 
Restricted stock awards— — — — 141,318 — — — — — 
Net income— — — — — — — — 9,384 9,384 
Balances, September 30, 2020  443  101,126,452 100 446,910 (47)(351,078)95,885 
Stock-based compensation— — — — — — 1,750 — — 1,750 
Stock option exercises— — — — 240,656 1 608 — — 609 
Restricted stock awards— — — — 50,333 3 (4)— — (1)
Share repurchase— — — — — — — (205)— (205)
Net income— — — — — — — — 10,196 10,196 
Balances, December 31, 2020  443  101,417,441 104 449,264 (252)(340,882)108,234 
Stock-based compensation— — — — — — 1,490 — — 1,490 
Stock option exercises— — — — 16,619 — 40 — — 40 
Restricted stock awards— — — — 268,174 — — — — — 
Share repurchase— — — — — — — (6,147)— (6,147)
Net income— — — — — — — — 5,237 5,237 
Balances, March 31, 2021  443  101,702,234 104 450,794 (6,399)(335,645)108,854 
Stock-based compensation— — — — — — 1,697 — — 1,697 
Stock option exercises— — — — 25,828 — 59 — — 59 
Restricted stock awards— — — — 66,668 — — — — — 
Share repurchase— — — — — — — (5,756)— (5,756)
Net income— — — — — — — — 9,064 9,064 
Balances, June 30, 2021  443  101,794,730 104452,550(12,155)(326,581)113,918
Stock-based compensation— — — — — — 1,837 — — 1,837 
Stock option exercises— — — — 113,243 — 351 — — 351 
Restricted stock awards— — — — 149,317 — — — — — 
Net income— — — — — — — — 6,669 6,669 
Balances, September 30, 2021 $ 443 $ 102,057,290 $104 $454,738 $(12,155)$(319,912)$122,775 

See notes to condensed consolidated financial statements
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BIODELIVERY SCIENCES INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. DOLLARS, IN THOUSANDS)
(Unaudited)
Nine months ended September 30,
20212020
Operating activities:
Net income$20,970 $15,515 
Adjustments to reconcile net income to net cash flows from operating activities
Depreciation97 467 
Accretion of debt discount and loan costs264 231 
Amortization of intangible assets5,262 5,248 
Provision for/(release of) inventory obsolescence1,100 (297)
Stock-based compensation expense5,024 7,845 
Net change in operating lease assets and liabilities(30) 
Changes in assets and liabilities:
Accounts receivable(9,422)(5,040)
Inventories(6,731)(7,278)
Prepaid expenses and other assets(1,856)(1,985)
Accounts payable and accrued liabilities12,005 (701)
Taxes payable606 (40)
Net cash flows provided by operating activities27,289 13,965 
Investing activities:
Product acquisitions(6,456) 
Acquisitions of property, plant and equipment(415) 
Net cash flows used in investing activities(6,871) 
Financing activities:
Payment on notes payable(20,000) 
Proceeds from notes payable 20,000 
Proceeds from exercise of stock options611 2,761 
Payment on share repurchase(11,903) 
Payment on deferred financing fees (437)
Net cash flows (used in)/provided by financing activities(31,292)22,324 
Net change in cash and cash equivalents(10,874)36,289 
Cash and cash equivalents at beginning of period111,584 63,888 
Cash and cash equivalents at end of period$100,710 $100,177 
Cash paid for interest$5,726 $5,037 
Cash paid for taxes$1,275 $318 
See notes to condensed consolidated financial statements

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BIODELIVERY SCIENCES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
1. Organization, basis of presentation and summary of significant policies:

Overview
BioDelivery Sciences International, Inc., together with its subsidiaries (collectively, the “Company”) is a rapidly growing specialty pharmaceutical company dedicated to patients living with serious and complex chronic conditions. The Company has built a portfolio of products that includes utilizing its novel and proprietary BioErodible MucoAdhesive ("BEMA") drug-delivery technology to develop and commercialize new applications of proven therapies aimed at addressing important unmet medical needs. The Company commercializes its products in the U.S. using its own sales force while working in partnership with third parties to commercialize its products outside the U.S.
The accompanying unaudited condensed consolidated financial statements include all adjustments (consisting of normal and recurring adjustments) necessary for a fair presentation of these financial statements. The condensed consolidated balance sheet at December 31, 2020 has been derived from the Company’s audited consolidated financial statements included in its annual report on Form 10-K for the year ended December 31, 2020. Certain footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the Securities and Exchange Commission rules and regulations. It is recommended that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2020.
As used herein, the Company’s common stock, par value $0.001 per share, is referred to as the “Common Stock” and the Company’s preferred stock, par value $0.001 per share, is referred to as the “Preferred Stock”.
Principles of consolidation
The condensed consolidated financial statements include the accounts of the Company, Arius Pharmaceuticals, Inc. and Arius Two, Inc. All significant inter-company balances and transactions have been eliminated.
Use of estimates in financial statements
The preparation of the accompanying condensed 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 condensed consolidated financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. The Company reviews all significant estimates affecting the condensed consolidated financial statements on a recurring basis and records the effect of any necessary adjustments prior to their issuance. Significant estimates made by the Company include: revenue recognition associated with sales allowances such as government program rebates, customer voucher redemptions, commercial contracts, rebates and chargebacks; sales returns reserves; sales bonuses; stock-based compensation; and deferred income taxes.
Cash and cash equivalents
Cash and cash equivalents consist of operating and money market accounts. Cash equivalents are carried at cost which approximates fair value due to their short-term nature. The Company considers all highly-liquid investments with an original maturity of 90 days or less to be cash equivalents.
The Company maintains cash equivalent balances with financial institutions that management believes are of high credit quality. The Company’s cash and cash equivalents accounts at times may exceed federally insured limits. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk from cash and cash equivalents.
Inventory
Inventories are stated at the lower of cost or net realizable value with costs determined for each batch under the first-in, first-out method. Inventory consists of raw materials, work in process and finished goods. Raw materials include amounts of active pharmaceutical ingredient for a product to be manufactured; work in process includes the bulk inventory of laminate (the
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
Company’s drug delivery film) prior to being packaged for sale; and finished goods include pharmaceutical products ready for commercial sale.
On a quarterly basis, the Company analyzes its inventory levels and records allowances for inventory that has become obsolete, inventory that has a cost basis in excess of the expected net realizable value and inventory that is in excess of expected demand based upon projected product sales. Inventory obsolescence reserves at September 30, 2021 and December 31, 2020 were $3.4 million and $2.3 million, respectively.
Revenue recognition
Product sales
Product sales amounts relate to sales of BELBUCA and Symproic. Product sales for the nine months ended September 30, 2020 also included sales of BUNAVAIL. Product sales for BUNAVAIL during the three months ended September 30, 2020 were related to the release of gross to net reserves. The Company recognizes revenue on product sales when control of the promised goods is transferred to its customers in an amount that reflects the consideration expected to be received in exchange for transferring those goods. The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. When determining whether the customer has obtained control of the goods, the Company considers any future performance obligations. Generally, there is no post-shipment obligation on product sold.
Product royalty revenues
Product royalty revenue amounts are based on sales revenue of the PAINKYL™ product under the Company’s license agreement with TTY Biopharm Co., Ltd., ("TTY") and the BREAKYL™ product under the Company’s license agreement with Meda AB, which was acquired by Mylan N.V. and later acquired by Viatris, Inc. (which we refer to herein as Viatris). Product royalty revenues are recognized when control of the product is transferred to the license partner in an amount that reflects the consideration expected to be received. Supplemental sales-based product royalty revenue may also be earned upon the subsequent sale of the product at agreed upon contractual rates.

Performance obligations
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The majority of the Company’s product sales contracts have a single performance obligation as the promise to transfer the individual goods is not separately identifiable from other promises in the contracts and, therefore, not distinct. Shipping and handling activities are considered to be fulfillment activities and are not considered to be a separate performance obligation. The Company has assessed the existence of a significant financing component in the agreements with its customers. The trade payment terms with its customers do not exceed one year and therefore the Company has elected to apply the practical expedient and no amount of consideration has been allocated as a financing component.

Transaction price, including variable consideration
Revenue from product sales is recorded at the net sales price, which includes estimates of variable consideration for which reserves are established. Components of variable consideration include trade discounts and allowances, product returns, government chargebacks, discounts and rebates, and other incentives, such as voucher programs, and other fee for service amounts that are detailed within contracts between the Company and its customers relating to the Company’s sale of its products.
The Company establishes allowances for estimated rebates, chargebacks and product returns based on numerous qualitative and quantitative factors, including:
specific contractual terms of agreements with customers;
estimated levels of inventory in the distribution channel;
historical rebates, chargebacks and returns of products;
direct communication with customers;
anticipated introduction of competitive products or generics;
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
anticipated pricing strategy changes by the Company and/or its competitors;
analysis of prescription data gathered by third-party prescription data providers;
the impact of changes in state and federal regulations; and
the estimated remaining shelf life of products.
In its analyses, the Company uses prescription data purchased from a third-party data provider to develop estimates of historical inventory channel sell-through. The Company utilizes an internal analysis to compare historical net product shipments to estimated historical prescriptions written. Based on that analysis, management develops an estimate of the quantity of product in the channel which may be subject to various rebate and chargeback exposures. To estimate months of ending inventory in the Company’s distribution channel, the Company divides estimated ending inventory in the distribution channel by the Company’s recent prescription data, not considering any future anticipated demand growth beyond the succeeding quarter. Monthly for each product line, the Company prepares an internal estimate of ending inventory units in the distribution channel by adding estimated inventory in the channel at the beginning of the period, plus net product shipments for the period, less estimated prescriptions written for the period, and less units included in the sales returns reserve expected to be returned. This is done for each product line by applying a rate of historical activity for rebates and chargebacks, adjusted for relevant quantitative and qualitative factors discussed above, to the potential exposed product estimated, net of reserved return units, to be in the distribution channel. In addition, the Company receives daily information from the major wholesalers regarding their sales and actual on-hand inventory levels of the Company’s products. This enables the Company to execute accurate provisioning procedures.
Revenue from product sales is recorded after considering the impact of the following variable consideration amounts at the time of revenue recognition:
Product returns-Consistent with industry practice, the Company offers contractual return rights that allow its customers to return the products within an 18-month period that begins six months prior to and ends twelve months after expiration of the products. The Company estimates product returns reserves based upon historical return rates adjusted for qualitative factors and are applied to open product batches that are currently eligible for returns, or will be eligible in the future, within company policy. Other factors considered include expected marketplace changes and the remaining shelf life of product batches. Product returns reserves for newly launched products are based on historical rates of similar products or pre-determined percentage.
Government rebates and chargebacks-Government rebates and chargebacks include mandated discounts under Medicaid, Medicare, U.S. Department of Veterans Affairs and other government agencies ("Government Payors"). The Company estimates the rebates and chargebacks to Government Payors based upon a combination of historical experience, product pricing, estimated payor mix, product growth, and the mix of contract and agreement terms. These reserves are recorded in the same period the revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability, which is included in accrued expenses and other current liabilities on the condensed consolidated balance sheets. In addition, the pricing of covered products under Medicaid is subject to complex calculations and involves interpretation of government rules, regulations and policies as well as adjustments based on current trends in utilization. For Medicare, the Company also estimates the number of patients in the prescription drug coverage gap for whom the Company will owe an additional liability under the Medicare Part D program. The Company estimates the rebates and chargebacks that it will provide to Government Payors based upon (i) the government-mandated discounts applicable to government-funded programs, (ii) information obtained from its customers and (iii) information obtained from other third parties regarding the payor mix for its products. The Company’s liability for these rebates consists of estimates of claims for the current quarter and estimated future claims that will be made for product shipments that have been recognized as revenue, but remain in the distribution channel inventories at the end of each reporting period.
Commercial Contracts-The Company estimates the rebates to commercial contracts based upon a combination of historical experience, product pricing, estimated payor mix, product growth, and the mix of contract and agreement terms. These reserves are recorded in the same period the revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability, which is included in accrued expenses and other current liabilities on the condensed consolidated balance sheets.
Patient Assistance Voucher program-The Company, from time to time, offers certain promotional product-related incentives to eligible patients. The Company has voucher programs for BELBUCA and Symproic whereby the Company offers a point-of-sale subsidy to retail consumers. The Company estimates its liabilities for these voucher programs based on the current utilization and historical redemption rates as reported to the Company by a third-party claims processing organization. The
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
Company accounts for the costs of these special promotional programs as price adjustments, which are a reduction of gross revenue.
Trade discounts and distribution fees-Trade discounts relate to prompt settlement discounts provided to customers. In addition, the Company compensates its customers for distribution of its products and the provision of data. The Company has determined that such services received to date are not distinct from its sale of products and may not reasonably represent fair value for these services. Therefore, estimates of these payments are recorded as a reduction of revenue based on contractual terms.
There can be a significant lag between the Company's establishment of an estimate and the timing of the invoicing or claim. The Company believes it has made reasonable estimates for future rebates and claims, however, these estimates involve assumptions pertaining to contractual utilization and performance, and payor mix. If the performance or mix across third-party payors is different from the Company’s estimates, the Company may be required to pay higher or lower total price adjustments and/or chargebacks than it had estimated.
Cost of sales
Cost of sales includes the direct costs attributable to the production of BELBUCA and Symproic. It includes raw materials, production costs at the Company’s contract manufacturing sites, quality testing directly related to the products, inventory reserves, and depreciation on equipment that the Company has purchased to produce BELBUCA, Symproic and formerly BUNAVAIL. It also includes any batches not meeting specifications and raw material yield losses. Yield losses and the costs related to batches not meeting specifications are expensed as incurred. Cost of sales is recognized when sold to the wholesaler from our distribution center.
For BREAKYL and PAINKYL (the Company’s out-licensed breakthrough cancer pain therapies), cost of sales includes all costs related to creating the product at the Company’s contract manufacturing location in Germany. The Company’s contract manufacturer bills the Company for the final product, which includes materials, direct labor costs, quality testing, and certain overhead costs as outlined in applicable supply agreements.
Cost of sales also includes royalty expenses that the Company owes to third parties.
Measurement of credit losses of financial instruments
The Company is exposed to credit losses primarily through its product sales. The Company assesses each counterparty’s ability to pay for the products it sells by conducting a credit review. The credit review considers the Company's expected billing exposure and timing for payment and the counterparty’s established credit rating or the Company's assessment of the counterparty’s creditworthiness based on the Company's analysis of their financial statements when a credit rating is not available. The Company also considers contract terms and conditions, and business strategy in its evaluation. A credit limit is established for each counterparty based on the outcome of this review.
The Company monitors its ongoing credit exposure through active review of counterparty balances against contract terms and due dates. The Company's activities include timely account reconciliations, dispute resolution and payment confirmations. The Company may employ collection agencies and legal counsel to pursue recovery of defaulted receivables.
As of September 30, 2021, the Company reported $57.6 million of trade receivables within accounts receivable. Based on an aging analysis at September 30, 2021, 96% of the Company's accounts receivable were outstanding less than 30 days. There was no change to the allowance for doubtful accounts and credit losses between September 30, 2021 and December 31, 2020. The Company writes off accounts receivable when management determines they are uncollectible and credits payments subsequently received on such receivables to bad debt expense in the period received.
New Accounting Pronouncements, adopted
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740)—Simplifying the Accounting for Income Taxes, which is intended to simplify accounting for income taxes. It removes certain exceptions to the general principles in Topic 740 and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020 and early adoption is permitted. The Company adopted Topic 740 during the nine months ended September 30, 2021 and determined that the new guidance did not have a material impact on its consolidated financial statements.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
The Company has reviewed other new accounting pronouncements that were issued as of September 30, 2021 and does not believe that these pronouncements are applicable to the Company, or that they will have a material impact on its financial position or results of operations.

Fair Value of Financial Instruments
The Company 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. The Company considers the carrying amount of its cash and cash equivalents to approximate fair value due to short-term nature of this instrument. GAAP describes three levels of inputs that may be used to measure fair value:
Level 1 – quoted prices in active markets for identical assets or liabilities
Level 2 – quoted prices for similar assets and liabilities in active markets or inputs that are observable
Level 3 – inputs that are unobservable (for example cash flow modeling inputs based on assumptions)
The following table summarizes the financial instruments measured at fair value on a recurring basis as of September 30, 2021:
Level 1Level 2Level 3Balance at September 30, 2021
Cash and cash equivalents$100,710 $ $100,710 
The cash and cash equivalent balance as of September 30, 2021 includes investments in various money market accounts and cash held in interest bearing accounts.
2. Inventory, net:
The following table represents the components of inventory as of:
September 30,
2021
December 31,
2020
Raw materials $4,143 $3,389 
Work-in-process6,765 9,949 
Finished goods15,520 6,359 
Obsolescence reserve(3,353)(2,254)
Total inventories, net$23,075 $17,443 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
3. Accounts payable and accrued liabilities:
The following table represents the components of accounts payable and accrued liabilities as of:
September 30,
2021
December 31,
2020
Accounts payable$7,033 $4,213 
Accrued rebates38,179 34,247 
Accrued compensation and benefits6,832 5,488 
Accrued returns8,009 5,128 
Accrued royalties1,138 704 
Taxes payable583 1,026 
Accrued legal1,819 515 
Accrued regulatory expenses294 397 
Product rights payable9,000  
Accrued other1,693 1,277 
Total accounts payable and accrued liabilities$74,580 $52,995 

4. Property and equipment:
Property and equipment, summarized by major category, consist of the following as of:
September 30,
2021
December 31,
2020
Machinery & equipment$4,849 $4,683 
Right of use, building lease260 471 
Computer equipment & software640 272 
Office furniture & equipment174 174 
Leasehold improvements43 43 
Idle equipment679 679 
Construction in progress 119 
Total6,645 6,441 
Less accumulated depreciation and amortization(5,120)(5,023)
Total property and equipment, net$1,525 $1,418 
Depreciation expense for the three-month periods ended September 30, 2021 and September 30, 2020, was approximately $0.04 million and $0.2 million, respectively. Depreciation expense for the nine-month periods ended September 30, 2021 and September 30, 2020, was approximately $0.1 million and $0.5 million, respectively. Depreciation expense for the nine- month period ended September 30, 2020 includes a $0.3 million one-time charge due to BUNAVAIL equipment write-off.





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BIODELIVERY SCIENCES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
5. Intangible assets:
Other intangible assets, net, consisting of product rights and licenses are summarized as follows:
September 30, 2021Gross Carrying
Value
Accumulated
Amortization
Intangible Assets,
net
Weighted Average Useful Life
BELBUCA license and distribution rights45,000 (21,375)23,625 5.5
Symproic license and distribution rights30,636 (6,087)24,549 10.5
ELYXYB product rights15,455 (60)15,395 14.8
Total intangible assets$91,091 $(27,522)$63,569 8.8
December 31, 2020Gross Carrying
Value
Accumulated
Amortization
Intangible Assets,
net
Weighted Average Useful Life
Product rights$6,050 $(6,050)$ 
BELBUCA license and distribution rights45,000 (18,000)27,000 6.0
Symproic license and distribution rights30,636 (4,260)26,376 10.8
Total intangible assets$81,686 $(28,310)$53,376 7.9

6. Acquired product rights:
On August 3, 2021, (the “Effective Date”), the Company and Dr. Reddy’s Laboratories Limited, a company incorporated under the laws of India (“DRL”), entered into an asset purchase agreement (the “Asset Purchase Agreement”) for the acquisition by the Company from DRL of certain patents, trademarks, regulatory approvals and other rights related to ELYXYB™ (celecoxib oral solution) (the “Product”) and its commercialization in the United States and Canada (the “Territory”). The closing of the transactions contemplated by the Asset Purchase Agreement occurred on September 9, 2021 (the "Closing").
Pursuant to the terms of the Asset Purchase Agreement, the Company paid DRL a $6 million up-front payment at the Closing. In addition, the Company will pay DRL $9 million on the twelve-month anniversary of the Effective Date and up to an additional $9 million upon achievement of certain regulatory milestones and quarterly earn-out payments on potential sales of the Product in the Territory that range from high single digits to the low double digits (subject to reduction in certain circumstances) of net sales based on volume of sales. DRL will also be entitled to one-time payments upon the achievement of six escalating sales milestones, which range from $4 million to be paid upon the achievement of $50 million in net sales in a calendar year to $100 million to be paid upon the achievement of $1 billion in net sales in a calendar year up to a total of $262 million.
The Company accounted for the ELYXYB purchase as an asset acquisition under ASC 805-10-55-5b, which provides guidance for asset acquisitions. Under the guidance, if substantially all the acquisition is made up of one asset or several similar assets, then the acquisition is an asset acquisition. The Company believes that the asset purchase agreement and other assets acquired from DRL are similar and considers them all to be intangible assets.
The total purchase price was allocated to the acquired asset based on their relative estimated fair values, as follows:
ELYXYB acquired product rights$15,000
Transaction expenses455
Total value$15,455
The $9 million twelve-month anniversary payment has been recorded in accounts payable and accrued liabilities in the accompanying condensed consolidated balance sheet.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
7. Notes payable:
On May 23, 2019, the Company entered into a Loan Agreement with BPCR LIMITED PARTNERSHIP (the successor-in-interest to Biopharma Credit PLC), for a senior secured credit facility consisting of a term loan of $60.0 million (the “Term Loan”), with the ability to draw an additional $20.0 million within twelve months of the closing date, which the Company drew down on May 22, 2020.
The loan facility carries a 72-month term with interest only payments on the term loan for the first 36 months. The Term Loan will mature in May 2025 and bears an interest rate of 7.5% plus the LIBOR rate on the first day for the quarter, with a floor of 2% for the LIBOR rate (LIBOR effective rate as of July 1, 2021 was 0.14%.) The Term Loan is subject to mandatory prepayment provisions that require prepayment upon change of control.
On September 23, 2021, the Company elected to repay $20 million plus accrued interest of $1.5 million, representing a portion of the first tranche. The Term loan includes the option for the Company to paydown up to $20 million of tranche A without incurring any prepayment penalties after the 24 month anniversary of the loan. As a result, no prepayment penalty was incurred in connection with this prepayment.
The debt balance has been categorized within Level 2 of the fair value hierarchy. The notes payable debt balance as of September 30, 2021 approximates its fair value based on prevailing interest rates as of the balance sheet date.
The following table represents future maturities of the notes payable obligation as of September 30, 2021:
2021 
20224,615 
202318,462 
202424,615 
202512,308 
Total maturities$60,000 
Unamortized discount and loan costs(1,285)
Total notes payable obligation$58,715 

8. Net sales by product:
The Company’s business is classified as a single reportable segment.
However, the following table presents net sales by product:
Three months ended September 30,
Nine months ended September 30,
2021202020212020
BELBUCA$36,930 $34,758 $109,836 $100,572 
     % of net product sales90 %90 %90 %89 %
Symproic4,142 3,453 12,562 11,046 
     % of net product sales10 %9 %10 %10 %
BUNAVAIL 574  1,328 
     % of net product sales %1 % %1 %
Net product sales$41,072 $38,785 $122,398 $112,946 


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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
9. Stockholders’ equity:
Common Stock
On November 4, 2020, the Board of Directors authorized the repurchase of up to $25 million of the Company's shares of Common Stock. The timing and amount of any shares purchased on the open market will be determined based on the Company's evaluation of market conditions, share price and other factors. The Company plans to utilize existing cash on hand to fund the share repurchase program.

During the nine months ended September 30, 2021, a cumulative total of 3,202,690 shares, with a weighted average price of $3.72, for a value of $11.9 million,were repurchased and recorded as Treasury Stock in the condensed consolidated balance sheet.
Stock-based compensation
During the nine months ended September 30, 2021, a total of 3,192,505 options to purchase Common Stock, with an aggregate fair market value of approximately $12.9 million, were granted to employees, executive officers and Board of Directors of the Company. Options have a term of 10 years from the grant date. Options granted to employees and officers will vest ratably over a three-year period. Options granted to Board of Directors vest one half immediately and the remaining half on the anniversary of grant.
The fair value of each option award is estimated on the grant date using the Black-Scholes valuation model that uses assumptions for expected volatility, expected dividends, expected term, expected rate of forfeiture and the risk-free interest rate. Expected volatilities are based on implied volatilities from historical volatility of the Common Stock, and other factors estimated over the expected term of the options.
Expected term of options granted is derived using the “simplified method” which computes expected term as the average of the sum of the vesting term plus contract term. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for the period of the expected term.
The key assumptions used in determining the fair value of options granted during the nine months ended September 30, 2021 follows:
Expected price volatility
53.70%-59.87%
Risk-free interest rate
0.50%-1.17%
Weighted average expected life in years6 years
Dividend yield 
Option activity during the nine months ended September 30, 2021 was as follows:
Number of
shares
Weighted average
exercise price per
share
Aggregate
intrinsic
value
Outstanding at January 1, 20217,060,966 $4.55 $2,831 
Granted in 2021:
Officers and Directors1,345,292 3.83 
Employees1,847,213 4.20 
Exercised(155,690)2.90 
Forfeitures(539,802)4.72 
Outstanding at September 30, 20219,557,979 $4.40 $8,589 
During the nine months ended September 30, 2021 and 2020, Company employees and directors exercised approximately 155,690 and 1,159,347 stock options, respectively, with net proceeds to the Company of approximately $0.5 million and
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BIODELIVERY SCIENCES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
$2.8 million, respectively. The intrinsic value of options exercised during the nine months ended September 30, 2021 and 2020 was approximately $0.1 million and $3.1 million, respectively.
As of September 30, 2021, options exercisable totaled 4,153,242. There are approximately $9.3 million of unrecognized compensation costs related to non-vested share-based compensation awards, including options and restricted stock units (“RSUs”) granted. These costs will be expensed through 2024.
Restricted stock units
During the nine months ended September 30, 2021, a cumulative total of 278,369 RSUs were granted to the Company’s executive officers, members of senior management and the Board of Directors, with a fair market value of approximately $1.1 million. The fair value of restricted units is determined using quoted market prices of the Common Stock and the number of shares expected to vest. RSU grants are time-based, all of which generally vest from a one to three-year period.
Restricted stock activity during the nine months ended September 30, 2021 was as follows:
Number of
restricted
shares
Weighted
average fair
market value
per RSU
Outstanding at January 1, 2021940,759 $3.71 
Granted:
Officers and Directors242,562 3.83 
Employees35,807 3.84 
Vested(484,159)3.84 
Forfeitures  
Outstanding at September 30, 2021734,969 $4.08 
Warrants

The Company has granted warrants to purchase shares of Common Stock. Warrants may be granted to affiliates in connection with certain agreements.

As of September 30, 2021, a cumulative total of 2,051,033 warrants, with exercise prices ranging from $2.38 to $3.42, remain exercisable and outstanding. The warrants were valued using the Black-Scholes Model, which a cumulative fair value of approximately $4.5 million. There were no warrants granted or exercised during the nine months ended September 30, 2021.

Preferred Stock
As of September 30, 2021, 443 shares of Series B Preferred Stock (“Series B”) are outstanding. There were no conversions of Series B during the nine months ended September 30, 2021.
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Table of Contents
BIODELIVERY SCIENCES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
Earnings Per Share
Three months ended September 30,Nine months ended September 30,
2021202020212020
Basic:
Net income attributable to common stockholders, basic$6,669 $9,383 $20,970 $15,515 
Weighted average common shares outstanding98,699,857 101,031,317 99,485,399 99,377,748 
Basic earnings per common share$0.07 $0.09 $0.21 $0.16 
Diluted:
Effect of dilutive securities:
Net income attributable to common stockholders, diluted$6,669 $9,383 $20,970 $15,515 
Weighted average common shares outstanding98,699,857 101,031,317 99,485,399 99,377,748 
Effect of dilutive options and warrants3,731,026 4,752,251 3,988,568 5,458,745 
Dilutive weighted average common shares outstanding102,430,883 105,783,568 103,473,967 104,836,493 
Diluted earnings per common share$0.07$0.09$0.20$0.15
10. Commitments and contingencies:
The Company is involved from time to time in routine legal matters incidental to our business. Based upon available information, the Company believes that the resolution of such matters will not have a material adverse effect on its condensed consolidated financial position or results of operations. Except as discussed below, the Company is not the subject of any pending legal proceedings and, to the knowledge of management, no proceedings are presently contemplated against the Company by any federal, state or local governmental agency.
Indivior (formerly RB Pharmaceuticals Ltd.) and Aquestive Therapeutics (formerly MonoSol Rx)
The following disclosure regarding the Company’s ongoing litigations with Aquestive Therapeutics, Inc. (formerly MonoSol Rx, “Aquestive”) and Indivior PLC (formerly RB Pharmaceuticals Limited, “Indivior”) is intended to provide some background and an update on the matter as per disclosure requirements of the SEC. Additional details regarding the past procedural history of the matter can be found in the Company’s previously filed periodic filings with the SEC.

Litigation related to BUNAVAIL
On October 29, 2013, Reckitt Benckiser, Inc., Indivior, and Aquestive (collectively, the “RB Plaintiffs”) filed an action against the Company relating to its BUNAVAIL product in the United States District Court for the Eastern District of North Carolina (“EDNC”) for alleged patent infringement. BUNAVAIL is a drug approved for the maintenance treatment of opioid dependence. The RB Plaintiffs claim that the formulation for BUNAVAIL, which has never been disclosed publicly, infringes its US Patent No. 8,475,832 (the “‘832 Patent”). On May 21, 2014, the Court granted the Company’s motion to dismiss.
On January 22, 2014, Aquestive initiated an inter partes review (“IPR”) on U.S. Patent No. 7,579,019, the (“‘019 Patent”). The PTAB upheld all claims of the Company’s ‘019 Patent in 2015 and this decision was not appealed by Aquestive.