Collegium Pharmaceutical
Annual Report 2016

Plain-text annual report

Table of Contents04 UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the year ended December 31, 2016 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 001-37372Collegium Pharmaceutical, Inc.(Exact name of registrant as specified in its charter) Virginia(State or other jurisdiction ofincorporation or organization) 03-0416362(I.R.S. EmployerIdentification Number) 780 Dedham Street, Suite 800Canton, MA(Address of principal executive offices) 02021(Zip Code) (781) 713-3699(Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of exchange on which registered:Common stock, par value $0.001 per share The 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 suchshorter 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 and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule405 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 and post such files). Yes ☒ No ☐ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant'sknowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of "large accelerated filer," "acceleratedfiler" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Accelerated filer ☒ Non-accelerated filer ☐(Do not check ifsmaller reporting company) Smaller reporting company ☐ Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒ As of June 30, 2016, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the registrant’s common stock held by non-affiliates of theregistrant was approximately $197 million, based on the closing price of the registrant’s common stock on The NASDAQ Global Select Market on June 30, 2016 of $11.85 per share. Shares of theregistrant’s common stock held by each officer and director and each person known to the registrant to own 10% or more of the outstanding common stock of the registrant have been excluded in thatsuch persons may be deemed affiliates. This determination of affiliate status is not a determination for other purposes. As of March 1, 2017, there were 29,448,609 shares of the registrant's common stock, par value, $0.001 per share, outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's definitive proxy statement for its 2017 Annual Meeting of Shareholders (the "Proxy Statement"), to be filed within 120 days of the registrant's year ended December 31, 2016,are incorporated by reference in Part II and Part III of this Report on Form 10-K. Except with respect to information specifically incorporated by reference in this Form 10-K, the Proxy Statement is notdeemed to be filed as part of this Form 10-K Table of ContentsTABLE OF CONTENTS Page No. PART I Item 1.Business 4 Item 1A.Risk Factors 33 Item 1B.Unresolved Staff Comments 72 Item 2.Properties 72 Item 3.Legal Proceedings 72 Item 4.Mine Safety Disclosures 73 PART II Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases ofEquity Securities 73 Item 6.Selected Financial Data 76 Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations 77 Item 7A.Quantitative and Qualitative Disclosures about Market Risk 88 Item 8.Financial Statements and Supplementary Data 88 Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 88 Item 9A.Controls and Procedures 88 Item 9B.Other Information 89 PART III Item 10.Directors, Executive Officers and Corporate Governance 89 Item 11.Executive Compensation 89 Item 12.Security Ownership of Certain Beneficial Owners and Management and Related StockholderMatters 90 Item 13.Certain Relationships and Related Transactions, and Director Independence 90 Item 14.Principal Accountant Fees and Services 90 PART IV Item 15.Exhibits and Financial Statement Schedules 90 Item 16.Form 10-K Summary 93 SIGNATURES 94 2 Table of ContentsForward-Looking Information This Annual Report on Form 10-K, or this Form 10-K, includes forward-looking statements. These statements relate to futureevents or to our future financial performance and involve known and unknown risks, uncertainties and other importantfactors which may cause our actual results, performance or achievements to be materially different from any future results,performance or achievements expressed or implied by the forward-looking statements. Forward-looking statements include,but are not limited to, statements about: ·our ability to obtain and maintain regulatory approval of our products and product candidates, and any relatedrestrictions, limitations, and/or warnings in the label of an approved product;·our plans to commercialize our product candidates and grow sales of our products;·the size and growth potential of the markets for our products and product candidates, and our ability to service thosemarkets;·the success of competing products that are or become available;·our ability to obtain reimbursement and third-party payor contracts for our products;·the costs of commercialization activities, including marketing, sales and distribution;·our ability to develop sales and marketing capabilities, whether alone or with potential future collaborators;·the rate and degree of market acceptance of our products and product candidates;·changing market conditions for our products and product candidates;·the outcome of any patent infringement or other litigation that may be brought against us, including litigation withPurdue Pharma, L.P.;·our ability to attract collaborators with development, regulatory and commercialization expertise;·the success, cost and timing of our product development activities, studies and clinical trials;·our ability to obtain funding for our operations;·regulatory developments in the United States and foreign countries;·our expectations regarding our ability to obtain and adequately maintain sufficient intellectual property protectionfor our products and product candidates;·our ability to operate our business without infringing the intellectual property rights of others;·the performance of our third-party suppliers and manufacturers;·our ability to comply with stringent U.S. and foreign government regulation in the manufacture of pharmaceuticalproducts, including U.S. Drug Enforcement Agency, or DEA, compliance;·the loss of key scientific or management personnel;·our expectations regarding the period during which we qualify as an emerging growth company under the JOBS Act;and·the accuracy of our estimates regarding expenses, revenue, capital requirements and need for additional financing. In some cases, you can identify these statements by terms such as “aim,” “anticipate,” “believe,” “estimate,” “expect,”“forecast,” “intend,” “outlook,” “plan,” “potential,” “project,” “projection,” “seek,” “may,” “could,” “would,” “should,”“can,” “can have,” “likely,” the negatives thereof and other words and terms of similar meaning. These forward-lookingstatements reflect our management's beliefs and views with respect to future events and are based on estimates andassumptions as of the date of this Form 10-K and are subject to risks and uncertainties. We discuss many of these risks ingreater detail under the heading “Risk Factors.” Moreover, we operate in a very competitive and rapidly changingenvironment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assessthe impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual resultsto differ materially from those contained in any forward-looking statements we may make. Given these uncertainties, youshould not place undue reliance on these forward-looking statements. Any forward-looking statements that we make in thisForm 10-K speak only as of the date of such statement, and we undertake no obligation to update such statements to reflectevents or circumstances after the date of this Form 10-K or to reflect the occurrence of unanticipated events. Comparisons ofresults for current and any prior periods are not intended to express any future trends or indications of future performance,unless expressed as such, and should only be viewed as historical data. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update thereasons actual results could differ materially from those anticipated in these forward-looking statements, even if newinformation becomes available in the future.3 Table of ContentsWe obtained the industry, market and competitive position data in this Form 10-K from our own internal estimates andresearch as well as from industry and general publications and research surveys and studies conducted by third parties. Webelieve this data is accurate in all material respects as of the date of this Form 10-K. In addition, projections, assumptions andestimates of the future performance of the industry in which we operate and our future performance are necessarily subject toa high degree of uncertainty and risk due to a variety of factors, including those described in “Risk Factors.” PART I Item 1. Business Overview We are a specialty pharmaceutical company developing and commercializing next-generation abuse-deterrent products thatincorporate our patented DETERx platform technology for the treatment of chronic pain and other diseases. Our first product,Xtampza, is an abuse-deterrent, extended-release, oral formulation of oxycodone, a widely prescribed opioid medication. InApril 2016, the U.S. Food and Drug Administration, or FDA, approved our new drug application, or NDA, filing for Xtampzafor the management of pain severe enough to require daily, around-the-clock, long-term opioid treatment and for whichalternative treatment options are inadequate. Certain human abuse potential studies are included in the approved label, aswell as data supporting the administration of the product as a sprinkle or administered through feeding tubes. In June 2016,we announced the commercial launch of Xtampza. In October 2016, we announced the submission of a New DrugSubmission to Health Canada seeking marketing approval of Xtampza for the same indication for which we obtainedapproval from the FDA. Xtampza has the same active ingredient as OxyContin OP, which is the largest selling abuse-deterrent, extended-releaseopioid in the United States by dollars, with $2.1 billion in U.S. sales in 2016. We conducted a comprehensive preclinical andclinical program for Xtampza consistent with FDA guidance on abuse-deterrence. These studies and clinical trialsdemonstrated that chewing, crushing and/or dissolving Xtampza, and then taking it orally or smoking, snorting, or injectingit did not meaningfully change its drug release profile or safety characteristics. By contrast, clinical trials performed by usand others — including head-to-head clinical trials comparing Xtampza with OxyContin OP — have shown that drug abuserscan achieve rapid release and absorption of the active ingredient by manipulating OxyContin OP using common householdtools and methods commonly available on the Internet. In October 2016, we announced the submission of a SupplementalNew Drug Application to the FDA for Xtampza to include comparative oral pharmacokinetic data from a recently completedclinical study evaluating the effect of physical manipulation by crushing Xtampza compared with OxyContin OP and acontrol (oxycodone hydrochloride immediate-release). In addition, our preclinical studies and clinical trials have shown that the contents of the Xtampza capsule can be removedfrom the capsule and sprinkled on food or into a cup, and then directly into the mouth, or administered through feedingtubes, without compromising their drug release profile, safety or abuse-deterrent characteristics. By contrast, OxyContin OP,which is formulated in hard tablets, has a black box warning label stating that crushing, dissolving, or chewing can causerapid release and absorption of a potentially fatal dose of the active ingredient. We believe that Xtampza can address the painmanagement needs of the approximately 11 million patients in the United States who suffer from chronic pain and havedifficulty swallowing. In May 2016, we entered into a License and Development Agreement with BioDelivery Science International, Inc. whichgrants us an exclusive license to make, use, sell, offer for sale, import, develop and commercialize Onsolis in the UnitedStates. Onsolis is a Transmucosal Immediate-Release Fentanyl film indicated for the management of breakthrough pain incancer patients 18 years of age and older, who are already receiving and who are tolerant to opioid therapy for theirunderlying persistent cancer pain. We plan to commercialize Onsolis upon receipt of FDA approval of a Prior ApprovalSupplement for the manufacturing transfer. Subject to such approval, we expect to launch Onsolis in the first half of 2018. 4 Table of ContentsSince 2010, when we divested our former subsidiary, Onset Therapeutics, LLC, to PreCision Dermatology, Inc., we havedevoted substantially all of our resources to the development of our patented DETERx platform technology, the preclinicaland clinical advancement of our product candidates, pre-commercialization activities and the creation and protection ofrelated intellectual property. Since 2011, we have not generated any significant revenue from product sales and we continueto incur significant research, development and other expenses related to our ongoing operations. Prior to our initial publicoffering of common stock, or IPO, in May 2015, we funded our operations primarily through the private placement ofpreferred stock, convertible notes and commercial bank debt. Since our IPO, we have funded our operations primarilythrough the proceeds of public offerings and sale of our equity securities. Background on Chronic Pain and Opioid Abuse Patients Suffering from Chronic Pain Chronic pain, typically defined as pain that lasts beyond the healing of an injury or that persists longer than three months, isa worldwide problem with serious health and economic consequences. According to the National Institutes of Health, or NIH,chronic pain represents a public health crisis of epidemic proportions affecting approximately 100 million people in theUnited States and 20‑30% of the population worldwide — more than heart disease, cancer and diabetes combined. Commontypes of chronic pain include lower back pain, arthritis, headache, and face and jaw pain. The prevalence of chronic pain isexpected to rise in the future, as the incidence of associated illnesses such as diabetes, arthritis and cancer increases in theaging population. Chronic pain leads to over $560 billion in healthcare and productivity costs each year according to the Institute of Medicine.Prescription opioids remain the primary treatment for chronic pain. Chronic pain patients often start treatment withimmediate release opioids, but change to extended‑release opioids to achieve more convenient dosing with more consistentblood levels of the active drug. Extended‑release opioids incorporate a large amount of opioid with a time‑releasemechanism designed to deliver steady amounts of opioid, typically over 12 to 24 hours. Annual sales from extended‑release and long‑acting opioids represent approximately $5.7 billion (24 million prescriptions)of the approximately $14 billion U.S. opioid market in 2016. OxyContin OP generated U.S. sales of $2.1 billion in 2016,which represents approximately a 16% U.S. market share of all extended‑release and long‑acting opioid prescriptions. Prescription Opioid Abuse is an Epidemic in the United StatesAbusers tamper with extended‑release opioid drugs to achieve the euphoria that results from rapid increases in the bloodconcentration of the active ingredient, a potentially fatal activity known as dose dumping. The U.S. Centers for DiseaseControl and Prevention, or CDC, described abuse of prescription drugs in the United States as a growing and deadlyepidemic. Deaths in the United States from prescription opioid overdose have grown from approximately 4,000 in 1999 toapproximately 16,000 in 2013. According to a 2012 study conducted by the CDC, annually there are 144,000 treatment admissions for abuse or misuse ofopioids, 560,000 emergency room visits for misuse or abuse of opioids, over 2.5 million individuals who abuse or aredependent on opioids and over 7.3 million non‑medical users who use opioids without prescriptions or for non‑therapeuticeffects. The American Journal of Managed Care estimated in a 2013 report that opioid abuse costs public and privatehealthcare payors over $72 billion annually in direct healthcare costs, including costs of emergency room visits,rehabilitation and associated health problems. The FDA has estimated that nearly 35 million Americans have used prescription pain relievers, including opioid‑containingdrugs, for non‑prescription purposes at least once in their lifetime. A 2011 research report from the Substance Abuse andMental Health Services Administration estimated that between 1999 and 2009 there was a 430% increase in substance‑abusetreatment facility admissions resulting from the use of prescription pain relievers. According to a 2011 study by theUniversity of Michigan, one in 12 high school seniors reported non‑medical use of Vicodin, a combination ofacetaminophen and hydrocodone, and one in 20 high school seniors reported non‑medical use of OxyContin. 5 Table of ContentsDrug abusers find currently approved extended‑release opioids desirable because of the large amount of drug payload, whichthey attempt to release quickly into the bloodstream to create euphoria. It is difficult for drug abusers to achieve this rapidrelease and absorption into the bloodstream by taking multiple intact extended‑release opioid tablets or capsules becausedoing so often causes sleepiness and/or respiratory distress before euphoria is achieved. Instead, abusers attempt to defeat theextended‑release properties in order to achieve rapid release of the active ingredient.Despite the introduction of OxyContin OP in 2010 as the first FDA‑approved, abuse‑deterrent extended‑release opioidformulation, abuse of extended‑release opioids, including OxyContin OP, continues to be a major public health issue.OxyContin OP, even with its abuse‑deterrent formulation, remains vulnerable to abuse using common household objects,like pill crushers. Third party studies found that abusers of OxyContin OP use various routes of abuse — including snorting,injection and oral abuse — despite its abuse‑deterrent features. In a third party study of OxyContin abusers both before andafter OxyContin OP was introduced, researchers found that while the non‑oral route of administration of abuse of OxyContinOP (i.e., injection, snorting and smoking) decreased after its introduction, oral abuse of OxyContin OP increased fromapproximately 52% to 75% of OxyContin abusers. OxyContin OP Tablet + $6.39 Pill Crusher = Abuseable Fine Powder in 16 Seconds Legislative and Regulatory Actions In response to widespread prescription opioid abuse, the U.S. government and a number of state legislatures have introduced,and in some cases have enacted, legislation and regulations intended to encourage the development of abuse‑deterrent formsof pain medications. The FDA has stated that addressing prescription drug abuse is a priority, and the development ofabuse‑deterrent opioids is a key part of that strategy. In 2010, Purdue received approval for a new formulation of OxyContin, named OxyContin OP, designed to make it moredifficult to abuse. In April 2013, the FDA approved new product labeling for OxyContin OP, which, for the first timeincluded abuse‑deterrent product label claims consistent with the FDA’s January 2013 draft abuse‑deterrent product labelguidance. At the same time, the FDA withdrew the approval of the original, non‑abuse‑deterrent OxyContin formulation,thus preventing the commercialization of generic versions of the original OxyContin that did6 Table of Contentsnot have abuse‑deterrent properties. This decision by the FDA is consistent with its public statement that the development ofabuse‑deterrent opioid analgesics is a public health priority. Recent actions to address the opioid abuse epidemic include: ·STOPP Act: In July 2012, a bipartisan group of Congressional leaders introduced the STOPP (Stop the Tampering ofPrescription Pills) Act. Reintroduced in February 2013, this bill, if approved, would require thatnon‑abuse‑deterrent opioids be removed from the market if an abuse‑deterrent formulation of that opioid hasalready been approved for marketing by the FDA. Since being reintroduced in 2013, this bill was referred to the U.S.House of Representatives’ Subcommittee on Health and there has been no further action taken. This bill has sincebeen reintroduced in the U.S. House of Representatives and was referred to the Subcommittee on Health in May2015, with no further action taken since. ·FDA guidance: In January 2013, the FDA introduced draft guidance regarding studies and clinical trials that shouldbe conducted to demonstrate that a given formulation has abuse‑deterrent properties, how those studies and clinicaltrials will be evaluated, and what product labeling claims may be approved based on the results of those studies andclinical trials. The draft guidance described four categories of abuse‑deterrence studies and clinical trials:Categories 1, 2 and 3 consist of pre‑marketing studies and clinical trials designed to evaluate a product candidate’spotentially abuse‑deterrent properties under controlled conditions, while Category 4 post‑marketing clinical trialsand studies assess the real‑world impact of a potentially abuse‑deterrent formulation. These requirements werelargely adopted in the April 2015 final FDA guidance, which also provides examples of product label claims thatmay be made based on the results of the corresponding studies and clinical trials. ·48 state and territorial attorneys general support development of abuse‑deterrent opioids: In March 2013, theNational Association of Attorneys General urged the FDA to adopt standards requiring manufacturers and marketersof prescription opioids to develop abuse‑deterrent versions of those products. Their letter, signed by 48 state andterritorial attorneys general, commended the FDA for expeditiously proposing guidance that establishes clearstandards for manufacturers who develop and market abuse‑resistant opioid products, while considering incentivesfor undertaking the research and development necessary to bring such products to market. It also encouraged theFDA to ensure that generic versions of such products are designed with similar abuse‑resistant features. ·FDA mandated product label changes: On September 10, 2013, the FDA announced its intention to require productlabel changes to all approved extended‑release and long‑acting opioids. In particular, the FDA announced itsintention to update the indications for these opioids so that they will be indicated only for the management of painsevere enough to require daily, around‑the‑clock, long‑term opioid treatment and for which alternative treatmentoptions are inadequate. On April 16, 2014, the FDA updated these indications. The FDA also requirespost‑marketing studies and clinical trials for any such opioids. ·29 state and territorial attorneys general speak out against the approval of non‑abuse‑deterrent narcotics: InDecember 2013, the attorneys general of 29 states and territories urged the FDA to reconsider its approval ofZohydro™ ER, an extended‑release hydrocodone formulation with no abuse‑deterrent properties, or alternativelyto set a rigorous timeline for reformulation of Zohydro ER in an abuse‑deterrent form, with significant limitationson prescriptions of Zohydro ER in the interim. In early 2014, members of Congress from three states introduced abill to revoke FDA approval of Zohydro ER and prevent the FDA from approving any new opioids that do not haveabuse‑deterrent features and the governor of Massachusetts signed an executive order (since overturned by a court)that attempted to ban the dispensing of Zohydro ER in Massachusetts. 7 Table of Contents ·Massachusetts and Maine approved laws to mandate that insurers cover abuse‑deterrent opioids: In August 2014and June 2015, the governors of Massachusetts and Maine, respectively, signed laws establishing a drug formularycommission charged with identifying drugs with a heightened public health risk due to their potential for abuse andformulations of abuse‑deterrent drugs that may be substituted for these drugs that have a heightened public healthrisk. When a prescriber writes a prescription for an opioid identified as having a heightened public health risk, thepharmacist must dispense an interchangeable abuse‑deterrent product from the formulary, if one exists, except whenthe prescriber indicates “no substitution.” The Massachusetts and Maine laws also require insurers to coverabuse‑deterrent opioid drugs on a basis not less favorable than corresponding non‑abuse‑deterrent drugs. Severalother states have enacted or are in the process of introducing similar legislation, including Florida, Maryland andWest Virginia. ·FDA held public meeting to discuss abuse‑deterrent opioid formulations: In September 2014, the FDA announced apublic meeting to discuss the development, assessment and regulation of opioid medications. In its public notice,the FDA stated that it “looks forward to a future in which all or substantially all opioid medications are lesssusceptible to abuse than the conventional formulations that dominate the market today.” In October 2014, the FDAheld the public meeting with key stakeholders to solicit input regarding three primary topics: how to makeabuse‑deterrent opioid formulations the standard of care, how to best incentivize the pharmaceutical industry todevelop next‑generation opioid products, and how to ensure that patients have access to affordable abuse‑deterrentopioids by implementing guidance for the release of generic abuse‑deterrent opioids. ·Industry group letter to the FDA: In January 2015, two major trade associations of the drug industry, BiotechnologyIndustry Organization, or BIO, and Pharmaceutical Research and Manufacturers of America, or PhRMA, sent a letterto the FDA urging the agency to take two actions: decline to approve generic formulations of opioid medicationsthat lack abuse‑deterrent properties comparable to those of already‑approved branded formulations, and removefrom the market any generic, non‑abuse‑deterrent formulations of opioid medications with abuse‑deterrentformulations. ·FDA Opioids Action Plan: In February 2016, the FDA released an action plan to address the opioid abuse epidemicand reassess the FDA’s approach to opioid medications. The plan identifies FDA’s focus on implementing policiesto reverse the opioid abuse epidemic, while maintaining access to effective treatments. The actions set forth in theFDA’s plan include strengthening postmarketing 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 draftguidance setting forth approval standards for generic abuse-deterrent opioid formulations, and seeking input fromthe FDA’s Scientific Board to broaden the understanding of the public risks of opioid abuse. The FDA’s ScientificAdvisory Board met to address these issues on March 1, 2016. The FDA’s plan is part of a broader initiative led bythe U.S. Department of Health and Human Services, or HHS, to address opioid-related overdose, death anddependence. The HHS initiative’s focus is on improving physician’s use of opioids through education and resourcesto 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, andexpanding the use of Medication-Assisted Treatment, which couples counseling and behavioral therapies withmedication to address substance abuse. In March 2016, as part of the HHS initiative, the CDC released a newGuideline for Prescribing Opioids for Chronic Pain. The guideline is intended to assist primary care providerstreating adults for chronic pain in outpatient settings. The guideline provides recommendations to improvecommunications 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 opioidtherapy. Also, in March 2016, the FDA announced required enhanced warnings for immediate-release opioid painmedications related to risks of misuse, abuse, addiction, overdose, and death. The FDA also required safety labelingchanges across all prescription opioids related to potentially harmful drug interactions. In August 2016, the FDAannounced that it is requiring boxed warnings for prescription opioid analgesics, opioid-containing cough products,and benzodiazepines. 8 Table of Contents·U.S. Senate Passed Comprehensive Addiction and Recovery Act: In March 2016, the U.S. Senate passed theComprehensive Addiction and Recovery Act to address the national epidemics of prescription opioid abuse andheroin use. Consistent with the initiatives of HHS, this legislation would expand the availability of naloxone, whichcan counter the effects of opioid overdose, for law enforcement and other first responders. The legislation also callsfor HHS to convene an interagency task force to develop best practices for pain management with opioidmedications. The legislation would also provide resources to improve state monitoring of controlled substances,including opioids. Other initiatives include resources for treating opioid addiction in incarcerated persons andexpanding opioid abuse prevention education and treatment efforts. ·Passage of 21st Century Cures Act: In December 2016, the 21st Century Cures Act became law. Among itsprovisions, the Act provides $1 billion dollars in grants to states for opioid abuse prevention and treatment. Types of Abuse‑Deterrent Technologies In response to the opioid abuse epidemic, the pharmaceutical industry has created a number of abuse‑deterrent products andproduct candidates, using a variety of technologies. These strategies generally fall under the following categories: ·Physical/Chemical Barriers: Physical barriers are formulations designed to prevent chewing, crushing, cutting,grating or grinding for oral or nasal abuse. Physical and chemical barriers can make it difficult to extract the opioidfrom the formulation for IV abuse using common solvents such as water. For example, OxyContin OP uses a cured,thermoformed polymer to make the tablets harder to crush for oral or nasal abuse. When crushed, the product gels inthe presence of small injectable volumes of liquid, making it more difficult to draw into a syringe. ·Agonist/Antagonist Combinations: An opioid antagonist can be co‑formulated with an active opioid ingredient, oragonist, to interfere with or reduce the euphoria associated with abuse. ·The antagonist can be physically sequestered in the tablet (e.g., Pfizer’s Embeda®). When taken orally asdirected, the majority of the encapsulated antagonist is eliminated in the gastrointestinal, or GI, tract andnot absorbed into the bloodstream, allowing the active ingredient to work. However, when crushed ordissolved by an abuser or patient, the antagonist is released with the active ingredient and both areabsorbed into the bloodstream, with the intent of blunting the euphoric effects of the active ingredient. Aproblem with this approach is that if the tablet is crushed or dissolved, the antagonist can cause the patientor abuser to experience opioid withdrawal, with potentially serious consequences. ·Alternatively, the antagonist can be co‑formulated in a fixed ratio with the active ingredient (e.g., Purdue’sTarginiq™). When taken orally as directed, most of the antagonist is circulated directly to the liver andrendered ineffective, allowing the active ingredient to work. However, when snorted or injected, theantagonist is distributed in the bloodstream before it gets to the liver, with the intent of preventingeuphoria. A disadvantage with this approach is that it limits the amount of active ingredient a patient cantake, which may make it inadequate to control chronic pain. Further, the presence of the antagonist in theco‑formulated drug may precipitate withdrawal, with potentially serious consequences. Market research studies performed for us have shown that some physicians prefer not to use an abuse‑deterrentformulation with an opioid antagonist because such formulations may be less useful in addressing chronic pain andbecause their antagonist components may precipitate withdrawal. ·Prodrug approaches: A prodrug is a drug administered in an inactive, or less active, form designed to enable moreeffective delivery. The prodrug is then converted by the body into the active ingredient through a normal,metabolic process. In a prodrug opioid, the active ingredient is designed to be released if the drug is taken orally,but if an abuser or patient takes a large amount of the drug, the prodrug is not broken down or absorbed rapidlyenough to create euphoria. If injected or snorted, the prodrug is not broken down and the active ingredient is notreleased. No opioids using a prodrug approach are currently marketed. We believe Xtampza represents the best‑in‑class approach to an abuse‑deterrent extended‑release opioid formulation.9 Table of ContentsXtampza does not incorporate an opioid antagonist, is not a prodrug, and is resistant to abuse through physical or chemicalmanipulation. Chronic Pain with Dysphagia It is estimated that more than 10% of patients with chronic pain, or approximately 11 million patients, have dysphagia, ordifficulty in swallowing, because they have cancer, are elderly, have other medical problems or have difficulty swallowingwithout a known medical cause. The FDA recognized the unmet medical needs of this growing population in issuing draftguidance in December 2013, in which the FDA cited survey data that suggest that as many as 40% of Americans may havedifficulties swallowing tablets and capsules and noted that these difficulties can precipitate a number of adverse events andnoncompliance with treatment regimens. Except for Xtampza, all FDA‑approved, orally administered extended‑release opioids have a black box warning productlabel stating that “crushing, dissolving or chewing can cause rapid release and absorption of a potentially fatal dose of theactive drug,” making them unsuitable or unattractive for patients who suffer from chronic pain with dysphagia, or CPD.OxyContin OP’s product label states that “there have been post‑marketing reports of difficulty in swallowing OxyContintablets. These reports included choking, gagging, regurgitation and tablets stuck in the throat… Consider use of analternative analgesic in patients who have difficulty swallowing.” An external marketing study performed for us in 2013estimated that Xtampza has a peak revenue potential for U.S. patients with CPD in excess of $700 million annually. Our Solution: The DETERx Platform Technology Overview DETERx is a novel, proprietary, patented platform technology that is designed to maintain the extended‑release and safetyprofiles of highly abused drugs in the face of various methods of abuse and tampering, including chewing, crushing and/ordissolving, and then taking them orally or snorting or injecting them. The DETERx formulation consists of wax‑basedmicrospheres that are filled into a capsule. The microspheres are spherical micron‑sized beads that are prepared bycombining the active ingredient (oxycodone, in the case of Xtampza) with inactive ingredients. Each microsphere, whetherinside or outside the capsule, is designed to be abuse‑deterrent and extended‑release. The active ingredient is solubilizedand homogenously dispersed in each microsphere. Xtampza microspheres have a median particle size of approximately 300 microns and are comprised of the active ingredient(oxycodone), a fatty acid, and wax and surfactant excipients which are all Generally Recognized As Safe, or GRAS, by theFDA. The microspheres are formulated through a proprietary melt process in which the active ingredient, as a free base, iscombined with fatty acid and wax and surfactant excipients to form a molten solution in which the base is solubilized via anionic interaction with the fatty acid. The resulting homogenous liquid is spray congealed into small droplets using aproprietary spinning disk manufacturing process. The droplets rapidly congeal into solid wax‑based microspheres, which arethen filled into capsules. Differing product strengths are achieved by varying the weight of the microspheres loaded into acapsule. When administered orally as directed, the Xtampza formulation is designed to be administered every 12 hours andreleases oxycodone over an extended period of time in the GI tract by diffusion from the microspheres into gastrointestinalfluids.10 Table of Contents Because of our proprietary DETERx platform technology, each individual microsphere has extended‑release andabuse‑deterrent properties. The microspheres are designed to be administered in capsule form, sprinkled on food or into acup then directly in the mouth, or administered into the stomach via a gastric or nasogastric tube without compromising theirabuse‑deterrent, extended‑release profile. These features may make Xtampza uniquely suited to address the needs of patientssuffering from CPD. Abuse‑Deterrent Features Abusers often seek to accelerate the absorption of opioids into the bloodstream by crushing them in order to swallow, snort orsmoke the drug, or dissolving them in order to inject the drug. The wax‑based microspheres produced using the DETERxplatform technology have physical and chemical barriers that are intended to reduce the potential for these forms of abuse.We believe that microspheres made using our proprietary technology deter the most common methods of manipulatingopioids for abuse because of their features described in the table below.11 Table of ContentsAbuse‑Deterrent Features of DETERx Platform TechnologyMethod of Abuse Abuse‑Deterrent Feature: AdvantagesOral Particle Size, Matrix Composition andFusing Effect The microspheres are small and soft, so chewing or crushingthem to further reduce the particle size does not meaningfullyreduce the particle size or increase the surface area. Thehydrophobic excipient matrix of each microsphere iscomposed of soft, fatty, and wax‑based inactive ingredientsthat tend to agglomerate and fuse when crushed. Injection Less Soluble Salt Form We created a novel salt form of the active ingredient, which isless soluble in aqueous solutions (such as water) but readilydissolved in fatty excipients, such as those used in ourDETERx formulation. Matrix Composition The hydrophobic excipient matrix is designed to trap theactive ingredient, making it difficult for abusers to extract theopioid. High Melting Point Melting the waxy composition of the microspheres results inquick solidification when heat is removed, clogging a syringe. Snorting Matrix Composition The hydrophobic excipient matrix is designed to trap theactive ingredient, preventing the release of the opioid in thenose and causing temporary nasal side effects that makeXtampza undesirable for nasal abuse. PipelineWe have applied our DETERx platform technology to Xtampza as well as the product candidates in our pipeline, with theexception of Onsolis. We recently completed formulation development work for our extended‑release, abuse‑deterrenthydrocodone program. Based upon an assessment of the market opportunity and the potential to differentiate from currentlymarketed hydrocodone products as well as programs in development, we are prioritizing our abuse deterrent hydrocodoneprogram as our second product in development. We filed an investigational new drug application,12 Table of Contentsor IND, with the FDA in December 2015 and initiated a clinical trial in the first quarter of 2016. We also have anextended‑release, abuse‑deterrent oxymorphone program for the treatment of chronic pain for which we have filed an IND.This program has been granted Fast Track status by the FDA. In addition, we have other extended‑release, abuse‑deterrentproduct candidates that have completed preliminary preclinical studies, including morphine for pain and methylphenidatefor the treatment of attention deficit hyperactivity disorder, or ADHD. All of these product candidates share similarabuse‑deterrent qualities as Xtampza and are designed to be suitable for patients with difficulty swallowing. We own all ofthe rights to Xtampza and our DETERx-based product candidates. Each of our product candidates is being developed to seek FDA approval in accordance with Section 505(b)(2) of the FederalFood, Drug, and Cosmetic Act, or FD&C Act. Section 505(b)(2) permits an applicant to file an NDA that relies, in part, ondata not developed by or for the applicant and to which the applicant has not received a right of reference, such as the FDA’sfindings of safety and efficacy in the approval of a similar drug, or listed drug, or published literature in support of itsapplication. XtampzaOverview Our first FDA-approved product, Xtampza, is an abuse-deterrent, extended-release, oral formulation of oxycodone, a widelyprescribed opioid medication. In April 2016, the FDA approved our new NDA filing for Xtampza for the management of painsevere enough to require daily, around-the-clock, long-term opioid treatment and for which alternative treatment options areinadequate. Certain human abuse potential studies are included in the approved label, as well as data supporting theadministration of the product as a sprinkle or administered through feeding tubes. In June 2016, we announced thecommercial launch of Xtampza. In October 2016, we announced the submission of a New Drug Submission to Health Canadaseeking marketing approval of Xtampza for the same indication for which we obtained approval from the FDA. Xtampza has the same active ingredient as OxyContin OP, which is the largest selling abuse-deterrent, extended-releaseopioid in the United States by dollars, with $2.1 billion in U.S. sales in 2016. We conducted a comprehensive preclinical andclinical program for Xtampza consistent with FDA guidance on abuse-deterrence. These studies and clinical trialsdemonstrated that chewing, crushing and/or dissolving Xtampza, and then taking it orally or smoking, snorting, or injectingit did not meaningfully change its drug release profile or safety characteristics. By contrast, clinical trials performed by usand others — including head-to-head clinical trials comparing Xtampza with OxyContin OP — have shown that drug abuserscan achieve rapid release and absorption of the active ingredient by manipulating OxyContin OP using common householdtools and methods commonly available on the Internet. In October 2016, we announced the submission of a SupplementalNew Drug Application to the FDA for Xtampza to include comparative oral pharmacokinetic data from a recently completedclinical study evaluating the effect of physical manipulation by crushing Xtampza compared with OxyContin OP and acontrol (oxycodone hydrochloride immediate-release). In addition, our preclinical studies and clinical trials have shown that the contents of the Xtampza capsule can be removedfrom the capsule and sprinkled on food or into a cup, and then directly into the mouth, or administered through feedingtubes, without compromising their drug release profile, safety or abuse-deterrent characteristics. By contrast, OxyContin OP,which is formulated in hard tablets, has a black box warning label stating that crushing, dissolving, or chewing can causerapid release and absorption of a potentially fatal dose of the active ingredient. Market Opportunity We believe that Xtampza can capture a significant share of the $5.7 billion U.S. extended‑release opioid market, including aportion of the existing $2.1 billion OxyContin OP market. In addition, we believe that Xtampza can become a market leaderfor treating patients with chronic pain who have difficulty swallowing.OxyContin OP Extended‑Release Market Purdue launched OxyContin OP in 2010. In April 2013, the FDA determined that Purdue had been successful indemonstrating OxyContin OP’s abuse‑deterrent characteristics and permitted Purdue to amend its product label to includecertain abuse‑deterrent claims. Since the launch of OxyContin OP, there has been a reduction in the overall abuse ofOxyContin, primarily in the snorted and injected routes of administration.13 Table of Contents The FDA also concluded that the benefits of the previously‑approved non‑abuse‑deterrent OxyContin no longeroutweighed its risks and removed it from the list of drugs eligible to serve as a reference product for future generic or Section505(b)(2) approvals. As a result, we believe that all extended‑release oxycodone products, including generic products, maybe required to have abuse‑deterrent claims as part of the FDA approval process. Despite OxyContin OP’s commercial success, it carries with it a well‑documented abuse stigma both for physicians whoprescribe it and for patients who use it to treat chronic pain. In a market research study conducted for us in 2013, 35% ofpatients surveyed who were taking OxyContin OP indicated concern that their friends or family have a negative perceptionof OxyContin OP. Of the 1,021 patients surveyed in the study, 11% of chronic pain patients responded that they have hadtheir opioid medication stolen, most often from their home, and 76% indicated an interest in switching to a pain medicationsimilar to OxyContin OP but that was more abuse‑deterrent. A market research study of 30 physicians conducted for us in2015 concluded that while physicians view OxyContin OP as an effective and valuable option, one third reportedprescribing it less often than they would like because of patients’ reticence to use OxyContin OP because of its reputation foraddiction and abuse. Further, in a third party study of post‑marketing data on misuse and diversion of prescription opioid analgesics, the initialdecline in abuse of OxyContin OP by patients who reported abusing the non‑abuse‑deterrent OxyContin 30 days prior toentering treatment for opioid abuse disorder, plateaued at 25% to 30%, with no further decreases from 2012 to studyconclusion in 2014. A sub‑population of participants was surveyed to investigate their continued abuse of OxyContin.Among the 88 participants who abused both non‑abuse‑deterrent OxyContin and OxyContin OP, their continued abuse ofOxyContin OP was explained by: (i) a transition from non‑oral routes of administration to oral use (approximately 43%); (ii)successful efforts to defeat the abuse‑deterrent formulation mechanism leading to a continuation of inhaled or injected use(approximately 34%); and (iii) exclusive use of the oral route independent of formulation type (approximately 23%).Representative comments of participants who continued to abuse OxyContin OP demonstrated that participants were able toidentify methods of circumventing the abuse deterrent properties using the internet. Other Extended‑Release Opioids While OxyContin OP is the largest selling extended‑release opioid in the United States by dollars in 2016, there areapproximately 20 million additional prescriptions for non‑abuse‑deterrent extended‑release opioids annually in the UnitedStates. Many of these opioids include active ingredients, such as morphine, that are commonly perceived as having greateradverse side effects than oxycodone‑based formulations. Because of the abuse stigma associated with OxyContin OP andnon‑abuse‑deterrent opioid formulations, we believe that Xtampza offers physicians treating chronic pain an attractivealternative to the existing options. Our market research also demonstrates that payors recognize the prevalence of opioidabuse and its corresponding economic burden. This research indicates that “brand” prices would be acceptable for productsthat are differentiated. As such, we aim to achieve broad Tier 3 payor coverage on commercial plans and contract withMedicare and Medicaid. In a market research study conducted for us, 83% of disease specialists (such as oncologists andneurologists) and 67% of pain specialists surveyed indicated that they would prescribe Xtampza for patients withoutdysphagia. Chronic Pain with Dysphagia In a market research survey conducted for us, of 1,021 patients with chronic pain, 30% of the patients reported that they havetrouble swallowing or do not like to swallow pills, and 65% of the patients did not realize that cutting, crushing or grindingextended‑release opioids can change the drug release profile. Most of the currently approved abuse‑deterrent opioid drugsdo not have an FDA product label that permits the sprinkling of the product on food or into a cup, and then directly in themouth and administration through feeding tubes for use by patients with CPD, creating an unmet medical need due to thelack of adequate treatment options. Further, in an effort to make them easier to swallow, some patients with CPD — and 47 ofthe 1,021 patients participating in the survey conducted for us — crush their prescribed extended‑release opioids and caninadvertently harm themselves because of the rapid immediate‑release of the active ingredient. Because our Xtampzamicrospheres are designed to be able to be removed from the capsule and still retain their abuse‑deterrent andextended‑release properties, we believe that Xtampza is an effective pain‑management solution for14 Table of Contentspatients with CPD. An external marketing study performed for us in 2013 estimated that Xtampza has a peak revenuepotential for U.S. patients with CPD in excess of $700 million annually. Onsolis In May 2016, we licensed the U.S. rights to develop and commercialize Onsolis from BioDelivery Sciences International, Inc.Onsolis is a Transmucosal Immediate-Release Fentanyl (TIRF) film indicated for the management of breakthrough pain incancer patients 18 years of age and older, who are already receiving and who are tolerant to opioid therapy for theirunderlying persistent cancer pain. Onsolis incorporates BioDelivery Sciences’ BioErodible MucoAdhesive (BEMA)technology for rapid and controlled delivery of fentanyl, a Schedule II controlled substance, via buccal (inner cheek)administration. Onsolis was originally approved by the FDA in 2009 and voluntarily removed from the market in 2011 to addressappearance-related issues. A reformulation of Onsolis was approved by the FDA in 2015. We plan to launch Onsolis after thecompletion of the transfer of manufacturing and submission to the FDA of a Prior Approval Supplement, which requiresapproval prior to launch. We estimate that approval will occur in the first half of 2018. Manufacturing Overview Xtampza and our product candidates created with our DETERx technology platform are manufactured using a proprietaryprocess. This process is reproducible, scalable and cost‑efficient, and we believe that the microsphere formulation — and therelated manufacturing process — is unique in the extended‑release opioid market. To date, we have produced Xtampza at our contract manufacturing organization, Patheon. The existing Patheon facility hasthe capacity to support our commercialization of Xtampza during the first several years after commercial launch. We areworking with Patheon to build dedicated manufacturing capacity at Patheon’s existing facility. Patheon has an establishedrecord of manufacturing products approved in the United States, including controlled substances. We own all of the intellectual property, including know‑how and specialized manufacturing equipment, necessary to be ableto replicate the manufacturing equipment currently located at Patheon’s facility at an alternative location (and with analternative vendor) if necessary. Drug Substances The active ingredient used in Xtampza, oxycodone base, is an odorless white crystalline powder. We currently procure thisactive ingredient pursuant to a supply agreement with a single U.S.‑based manufacturer. If our current supplier is unable tosupply oxycodone base in the quantities and at the times we require it, we are aware of other suppliers who we would expectto be able to satisfy our commercial orders. Oxycodone base is classified as a narcotic controlled substance under U.S. federal law. Xtampza is, and we expect that ourproduct candidates will be, classified by the U.S. Drug Enforcement Administration, or DEA, as Schedule II controlledsubstances, meaning that they have a high potential for abuse and dependence among drugs that are recognized as having anaccepted medical use. Consequently, we expect that the manufacturing, shipping, dispensing and storing of our productcandidates will be subject to a high degree of regulation, as described in more detail under the caption “— GovernmentalRegulation — DEA Regulation.” Marketing and Commercialization We are in the process of commercializing Xtampza in the United States with a direct sales force. We plan to exploreout‑licensing partnerships for Xtampza in other international markets, such as Canada, Australia and Japan, as well ascountries in Latin America and Europe. The members of our management team who are leading the commercialization of Xtampza have substantial experience inpharmaceutical sales and marketing. We have a dedicated field sales force, consisting of approximately 120 salesprofessionals, to call on the approximately 10,400 physicians who write approximately 60% of the branded15 ®Table of Contentsextended‑release oral opioid prescriptions in the United States, with a primary focus on pain specialists. In addition, wedeploy a focused sales force of approximately 25 specialty sales representatives to call on institutions where patients requireextended‑release opioids, such as skilled nursing or hospice facilities and hospitals. In addition, we employ medical salesliaisons, or MSLs, to respond to clinician inquiries about Xtampza. We also employ a market‑access team to support ourformulary approval and payor contracting. We are continuing to execute our commercialization strategy with the input of key opinion leaders in the field of painmanagement, as well as healthcare practitioners. We have developed positioning and messaging campaigns, a publicationstrategy, initiatives with payor organizations, and distribution and national accounts strategies. Our marketing strategyincludes increasing awareness of the differentiated features of Xtampza, the hazards of opioids that are not abuse‑deterrent,and increasing awareness of solutions for patients with CPD who require or would benefit from extended‑release opioids. Intellectual Property We regard the protection of patents, designs, trademarks and other proprietary rights that we own or license as critical to oursuccess and competitive position. Our patent portfolio directed toward Xtampza and our DETERx technology consists ofeight issued patents in the United States (five of which claim compositions of matter, one of which claims both compositionsof matter and methods of use, and two that claim methods of use), two pending applications in the European Union, twoissued patents in Canada, and one issued patent in each of Japan and Australia. Finally, we have six patent applicationspending in the United States, one pending patent application in each of Canada and Japan, and one pending PCTapplication. Our issued U.S. patents are projected to expire in 2023 and 2025, and our pending patent applications in theUnited States, if issued, would be projected to expire in 2023, 2025, 2030, and 2036. In addition, we use a unique andproprietary process to manufacture our products that requires significant know‑how, which we currently protect as tradesecrets. Our policy is to patent the technology, inventions and improvements that we consider important to the development of ourbusiness, but only in those cases in which we believe that the costs of obtaining patent protection is justified by thecommercial potential of the technology, and typically only in those jurisdictions that we believe present significantcommercial opportunities to us. We have concluded that some of our technology is best protected as proprietary know‑how,rather than through obtaining patents. In some cases, we publish the invention such that it becomes prior art in order for us tosecure freedom to operate and to prevent a third party from patenting the invention before us. Our technology and productsare not in‑licensed from any third party, and we own all of the rights to Xtampza and our product candidates. We believe wehave freedom to operate in the United States and other countries, but there can be no assurance that other companies, knownand unknown, will not attempt to assert their intellectual property against us. We also rely on trademarks and trade designs to develop and maintain our competitive position. We have received trademarkregistration for Collegium Pharmaceutical, Inc., DETERx, and Xtampza ER in the United States. We also depend upon the skills, knowledge and experience of our scientific and technical personnel, as well as that of ouradvisors, consultants and other contractors. To help protect our proprietary know‑how that is not patentable, we rely on tradesecret protection and confidentiality agreements to protect our interests. To this end, we generally require our employees,consultants and advisors to enter into confidentiality agreements prohibiting the disclosure of confidential information and,in some cases, requiring disclosure and assignment to us of the ideas, developments, discoveries and inventions important toour business. Additionally, these confidentiality agreements require that our employees, consultants and advisors do notbring to us, or use without proper authorization, any third party’s proprietary technology. Our Strategy Our goal is to become the leading marketer of abuse‑deterrent extended‑release opioids and other commonly abusedproducts. Key elements of our strategy to achieve this goal are to: ·Commercialize Xtampza in the United States ourselves. We continue to strengthen our commercial organization,including our sales force and commercial manufacturing capacity for U.S. commercialization of Xtampza. Ourmanagement team has extensive experience commercializing pharmaceutical products, and we are in the process ofestablishing sales, marketing and reimbursement functions to commercialize Xtampza in16 Table of Contentsthe United States. We are detailing Xtampza to approximately 10,400 physicians who write approximately 60% ofthe branded extended‑release oral opioid prescriptions in the United States with a sales team of approximately 120sales representatives. We believe that this physician group also represents a significant portion of the top prescribersof extended‑release and long‑acting opioids (including drugs formulated with fentanyl and methadone) currentlyused to treat patients with CPD. In addition, we deploy a separate, focused sales team of approximately 25 specialtysales representatives to detail Xtampza to nursing homes, hospices, and other institutions treating large populationsof the elderly and other patients who need chronic pain relief and have difficulty swallowing. ·Establish Xtampza as the treatment of choice for patients with CPD. Xtampza has been approved with productlabeling for sprinkling Xtampza microspheres on soft foods or into a cup, and then directly into the mouth, orthrough a gastrostomy or nasogastric feeding tube. ·Establish strategic collaborations to accelerate and maximize the potential of our products and productcandidates worldwide. We intend to seek strategic collaborations with other pharmaceutical companies tocommercialize Xtampza and our product candidates outside the United States and to develop certain of our productcandidates that are outside of our core therapeutic focus. ·Advance other product candidates that incorporate our DETERx platform technology. We have begun advancingour development program for COL‑195, an abuse‑deterrent, extended‑release hydrocodone for the treatment ofchronic pain. We initiated clinical trials for our hydrocodone product candidate in the first quarter of 2016. We alsohave an IND application on file for COL‑172, an abuse‑deterrent, extended‑release oxymorphone for the treatmentof chronic pain, which has been granted Fast Track status by the FDA. In addition, we have COL‑171, a proprietarypreclinical DETERx extended‑release, abuse‑deterrent methylphenidate formulation for the treatment of ADHD. ·Acquire additional products and product candidates. We may identify and license, co‑promote or acquire productsor product candidates being developed for pain indications and other complementary products. In May 2016, weentered into a License and Development Agreement with BioDelivery Science International, Inc. which grants us anexclusive license to make, use, sell, offer for sale, import, develop and commercialize Onsolis in the UnitedStates. We plan to commercialize Onsolis upon receipt of FDA approval of a Prior Approval Supplement for themanufacturing transfer. Subject to such approval, we expect to launch Onsolis in the first half of 2018. Our commercialization strategy for Xtampza continues to evolve, and as part of that evolution, we are developingpositioning and messaging campaigns, a publication strategy, initiatives with payor organizations, and distribution andnational accounts strategies. Competition Our industry is characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietaryproducts. We face competition and potential competition from a number of sources, including pharmaceutical andbiotechnology companies, generic drug companies, drug delivery companies and academic and research institutions. Most ofthe existing and potential competitors have significantly more financial and other resources than we do. Currently, the only opioid drugs on the market for chronic pain relief that have an abuse‑deterrent product label areOxyContin OP and Hysingla®, both of which are marketed by Purdue, and Embeda, which is marketed by Pfizer. Hysingla isa once a day hydrocodone product. Embeda is a combination of morphine and naltrexone, an opioid antagonist that can besprinkled on soft food but contains a boxed warning on its product label stating that “the capsules are not to be crushed,dissolved, or chewed due to the risk of rapid release and absorption of a potentially fatal dose of morphine.” In addition, there are five other approved extended-release opioids that have abuse‑deterrent product labeling, Vantrela ERfrom Teva, Targiniq from Purdue, Troxyca ER from Pfizer, MorphaBond™ ER from Inspirion Delivery Technologies, LLCand Arymo from Egalet, none of which are currently on the market. Vantrela ER is a twice daily17 Table of Contentshydrocodone product. Targiniq is a combination of oxycodone and naloxone, an opioid antagonist. Troxyca ER is acombination of oxycodone and naltrexone, an opioid antagonist. MorphaBond ER is a twice daily morphine productformulated with a hard tablet and gelling polymers. Arymo is an extended-release morphine product formulated as a hardtablet which is expected to be available in the first quarter of 2017. A number of other large and small companies aredeveloping abuse‑deterrent drugs for chronic pain. Many other companies have products for the treatment of chronic painwhich do not have abuse-deterrent claims in their labels, including Endo Pharmaceuticals, Pernix and Mallinckrodt, as wellas several generic companies. We believe the key competitive factors that will affect the development and commercial success of our products and productcandidates include their degree of abuse deterrence, bioavailability, therapeutic efficacy, and convenience of dosing anddistribution, as well as their safety, cost and tolerability profiles. Xtampza may also face competition from commerciallyavailable generic and branded extended‑release and long‑acting opioid drugs other than oxycodone, including fentanyl,hydromorphone, oxymorphone and methadone, as well as opioids that are currently in clinical development. Xtampza competes against all extended‑release opioids, including Purdue’s OxyContin OP for the treatment of patientsexperiencing pain severe enough to require around‑the‑clock analgesia. Although no generic oxycodone extended‑releaseproducts are currently commercially available, and although the FDA has not issued guidance on the regulatory pathway forgeneric abuse‑deterrent products, it is possible that generic forms of OxyContin OP could become available, in which caseXtampza would compete with any such generic oxycodone extended‑release products. Additionally, we are aware of companies with abuse‑deterrent oxycodone product candidates in late-stage development,including Egalet, Intellipharmaceutics and Pain Therapeutics. If these products are successfully developed, approved formarketing and become commercially available, they could represent significant competition for Xtampza. It is also possiblethat a company that has developed an abuse‑deterrent technology could initiate an abuse‑deterrent oxycodone program atany time. 18 Table of ContentsGovernment Regulation FDA Approval Process In the United States, pharmaceutical products are subject to extensive regulation by the FDA. The FD&C Act and otherfederal and state statutes and regulations, govern, among other things, the research, development, testing, manufacture,storage, recordkeeping, approval, labeling, promotion and marketing, distribution, post‑approval monitoring and reporting,sampling, and import and export of pharmaceutical products. Failure to comply with applicable U.S. requirements maysubject a company to a variety of administrative or judicial sanctions, such as warning or untitled letters, product recalls,product seizures, total or partial suspension of production or distribution, withdrawal of the product from the market,injunctions, fines, civil penalties, and criminal prosecution. Failure to meet FDA requirements for approval would also resultin a medication not being approved for marketing.The process of developing a pharmaceutical and obtaining FDA approval to market the medication in the United Statestypically involves: ·completion of preclinical laboratory and animal testing and formulation studies in compliance with the FDA’s goodlaboratory practices, or GLP, regulation; ·submission to the FDA of an IND for human clinical testing, which must become effective before human clinicaltrials may begin in the United States; ·approval by an independent institutional review board, or IRB, at each clinical trial site before each trial may beinitiated; ·performance of adequate and well‑controlled human clinical trials in accordance with current good clinicalpractices, or GCP, to establish the safety and efficacy of the proposed drug product for each indication for whichFDA approval is sought; ·satisfactory completion of an FDA pre‑approval inspection of the facility or facilities at which the product ismanufactured to assess compliance with the FDA’s cGMP regulations; ·submission to the FDA of an NDA; ·satisfactory completion of a potential review by an FDA advisory committee, if applicable; and ·FDA review and approval of the NDA. Satisfaction of FDA pre‑market approval requirements typically takes many years and the actual time required may varysubstantially based upon the type, complexity, and novelty of the product or disease. Preclinical tests include laboratory evaluation of product chemistry, formulation, stability and toxicity, as well as animalstudies to assess the characteristics and potential safety and efficacy of the product. The conduct of the preclinical tests mustcomply with federal regulations and requirements, including GLPs. The results of preclinical testing are submitted to theFDA as part of an IND along with other information, including information about product chemistry, manufacturing andcontrols, and a proposed clinical trial protocol. Long‑term preclinical tests, such as animal tests of reproductive toxicity andcarcinogenicity, may continue after the IND is submitted. The IND automatically becomes effective 30 days after receipt by FDA unless, within the 30‑day time period, the FDA raisesconcerns or questions relating to one or more proposed clinical trials and places the clinical trial on hold, including concernsthat human research subjects will be exposed to unreasonable health risks. In such a case, the IND sponsor and the FDA mustresolve any outstanding concerns before the clinical trial can begin. 19 Table of ContentsClinical trials involve the administration of the investigational new drug to healthy volunteers or subjects under thesupervision of a qualified investigator. Clinical trials must be conducted: (i) in compliance with federal regulations,including GCP, an international standard meant to protect the rights, safety and wellbeing of subjects and to define the rolesof clinical trial sponsors, administrators, and monitors; and (ii) under protocols detailing, among other things, the objectivesof the trial, the parameters to be used in monitoring safety, and any effectiveness criteria to be evaluated. Each protocolinvolving testing on U.S. subjects and subsequent protocol amendments must be submitted to the FDA as part of the IND. GCP requirements include that all research subjects provide their informed consent in writing for their participation in anyclinical trial. An independent IRB for each site proposing to conduct the clinical trial must review and approve the informedconsent information as well as the clinical trial protocol before the trial commences at that site, and must monitor the studyuntil completed. The FDA or the IRB may order the temporary or permanent discontinuation of a clinical trial at any time andon various grounds, particularly upon the belief that the clinical trial either is not being conducted in accordance with FDArequirements or presents an unacceptable risk to the clinical trial subjects, or impose other conditions. Clinical trials to support NDAs for marketing approval are typically conducted in three sequential phases, but the phases mayoverlap or be combined. In Phase 1, the drug is initially introduced into healthy human subjects or patients, and is tested toassess safety, dose tolerance, absorption, metabolism, PK, pharmacological actions, side effects associated with increasingdoses, and, if possible, early evidence on effectiveness. Phase 2 usually involves trials in a limited patient population todetermine the effectiveness of the drug for a particular indication, dosage tolerance, and optimum dosage, and to identifycommon AEs and safety risks. Multiple Phase 2 trials may be conducted by the sponsor to obtain information prior tobeginning larger and more extensive Phase 3 clinical trials. If a compound demonstrates evidence of effectiveness and anacceptable safety profile in Phase 2 evaluations, Phase 3 trials are undertaken to obtain the additional information aboutclinical efficacy and safety in a larger number of subjects, typically at geographically dispersed clinical trial sites, to permitthe FDA to evaluate the overall benefit‑risk relationship of the drug and to provide adequate information for the labeling ofthe drug. In most cases, the FDA requires two adequate and well controlled Phase 3 clinical trials to demonstrate the efficacyof the drug. A single Phase 3 trial with other confirmatory evidence may be sufficient in rare instances where the clinical trialis a large multicenter trial demonstrating internal consistency and a statistically very persuasive finding of a clinicallymeaningful effect on mortality, irreversible morbidity or prevention of a disease with a potentially serious outcome andconfirmation of the result in a second trial would be practically or ethically impossible. Sponsors of clinical trials generallymust register and report key parameters of certain clinical trials at the NIH‑maintained website ClinicalTrials.gov. After completion of the required clinical testing, an NDA is prepared and submitted to the FDA. FDA approval of the NDA isrequired before marketing of the product may begin in the United States. The NDA must include the results of all preclinical,clinical, and other testing and a compilation of data relating to the product’s pharmacology, chemistry, manufacture, andcontrols. The cost of preparing and submitting an NDA is substantial. The submission of most NDAs is additionally subjectto a substantial application user fee, currently set at $2,038,100, and the manufacturer and/or sponsor under an approved newdrug application are also subject to annual product and establishment user fees, currently set at $97,750 per product and$512,200 per establishment. These fees are typically increased annually. The FDA has 60 days from its receipt of an NDA to determine whether the application will be accepted for filing based on theagency’s threshold determination that it is sufficiently complete to permit substantive review. Rather than accept an NDA forfiling, then FDA may request additional information. In this event, the NDA must be resubmitted with the additionalinformation and may be subject to payment of additional user fees. The resubmitted application is also subject to reviewbefore the FDA accepts it for filing. Once the submission is accepted for filing, the FDA begins an in‑depth substantivereview. The FDA has established certain performance goals for the review of new drug applications. The agency endeavors toreview applications for standard review drug products within 10 to 12 months of the acceptance for filing, and aims to reviewapplications for drugs granted priority review, which may apply to drugs that the FDA determines offer major advances intreatment or provide a treatment where no adequate therapy exists, within six to eight months. The review process for bothstandard and priority review may be extended by FDA for three additional months to consider certain late‑submittedinformation, or information intended to clarify information already provided in the submission. 20 Table of ContentsThe FDA may also refer applications for novel drug products, or drug products that present difficult questions of safety orefficacy, to an advisory committee — typically a panel that includes clinicians and other experts — for review, evaluation,and a recommendation as to whether the application should be approved and under what conditions. The FDA is not boundby the recommendation of an advisory committee, but it generally follows such recommendations. In addition, beforeapproving an NDA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP. Additionally,the FDA will inspect the facility or the facilities at which the drug is manufactured. The FDA will not approve the productunless compliance with cGMP is satisfactory and the NDA contains data that provide substantial evidence that the drug issafe and effective in the indication studied. After the FDA evaluates the NDA and the manufacturing facilities, it issues either an approval letter or a complete responseletter to indicate that the review cycle for an application is complete and that the application is not ready for approval. Acomplete response letter generally outlines the deficiencies in the submission and may require substantial additional testing,or information, in order for the FDA to reconsider the application. Even with submission of this additional information, theFDA may ultimately decide that an application does not satisfy the regulatory criteria for approval. If, and when, thosedeficiencies have been addressed to the FDA’s satisfaction in a resubmission of the NDA, the FDA will issue an approvalletter. The FDA has committed to reviewing such resubmissions in two or six months depending on the type of informationincluded. An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications.Changes to certain of the conditions established in an approved application, including changes in indications, labeling, ormanufacturing processes or facilities, require submission and FDA approval of a new NDA or NDA supplement before thechange can be implemented, which may require us to develop additional data or conduct additional preclinical studies andclinical trials. An NDA supplement for a new indication typically requires clinical data similar to that in the originalapplication, and the FDA uses similar procedures and actions in reviewing NDA supplements as it does in reviewing NDAs. REMS The FDA has the authority to require a Risk Evaluation and Mitigation Strategy, or REMS, as a condition of the approval ofan NDA or after approval to ensure that the benefits of a drug outweigh its risks. In determining whether a REMS is necessary,the FDA must consider the size of the population likely to use the drug, the seriousness of the disease or condition to betreated, the expected benefit of the drug, the duration of treatment, the seriousness of known or potential adverse events, andwhether the drug is a new molecular entity. If the FDA determines a REMS is necessary for a new drug, the drug sponsor mustsubmit a proposed REMS plan as part of its NDA prior to approval. The FDA may also impose a REMS requirement on a drugalready on the market if the FDA determines, based on new safety information, that a REMS is necessary to ensure that thedrug’s benefits continue to outweigh its risks. A REMS can include medication guides, communication plans for healthcareprofessionals, and Elements To Assure Safe Use, or ETASU. ETASU can include, but are not limited to, special training orcertification for prescribing or dispensing, dispensing only under certain circumstances, special monitoring, and the use ofpatient registries. In addition, the REMS must include a timetable to periodically assess the strategy, at a minimum, at 18months, three years, and seven years after the REMS approval. The requirement for a REMS can materially affect thepotential market and profitability of a drug. In February 2009, the FDA informed manufacturers of certain opioid products that it would require a REMS for their opioiddrug products. Subsequently, the FDA initiated efforts to develop a new standardized REMS for these opioid medications toensure their safe use, and in July 2012, approved a class‑wide REMS for extended‑release and long‑acting opioid products.Extended‑release formulations of oxycodone, morphine, hydrocodone and hydromorphone, for example, are required tohave a REMS. Manufacturers subject to this class‑wide REMS must work together to implement the REMS as part of a singleshared system to reduce the burden of the REMS on the healthcare system. The central component of the extendedrelease/long acting opioid REMS program is an education program for prescribers and patients. Specifically, the REMSincludes a Medication Guide available for distribution to patients who are dispensed the drug, as well as a number of ETASU.These ETASU include training for healthcare professionals who prescribe the drug; information provided to prescribers thatthey can use to educate patients in the safe use, storage, and disposal of opioids; and information provided to prescribers ofthe existence of the REMS and the need to successfully complete the necessary training. Prescriber training required as partof the REMS is conducted by accredited, independent continuing education providers, without cost to healthcareprofessionals, under unrestricted grants funded21 Table of Contentsby the opioid analgesic manufacturers. Moreover, REMS assessments must be submitted on an annual basis to assess theextent to which the ETASU are meeting the goals of the REMS and whether the goals or elements should be modified. As part of the FDA’s Opioid Action Plan, the agency intends to update the extended-release and long-acting opioid REMSafter having evaluated existing requirements and considered recommendations from the joint meeting of the Drug Safety andRisk Management Advisory Committee and the Anesthetic and Analgesic Drug Products Advisory Committee on May 3-4,2016. The recommendations from that meeting included: extending training to other health care professionals involved inthe management of patients with pain; expanding the REMS requirements to include the immediate-release opioid analgesicdrug manufacturers; and evaluating the best approach to implementing mandatory prescriber education on pain management. Advertising and Promotion The FDA and other federal regulatory agencies closely regulate the marketing and promotion of drugs through, among otherthings, standards and regulations for direct‑to‑consumer advertising, communications regarding unapproved uses,industry‑sponsored scientific and educational activities, and promotional activities involving the Internet. A product cannotbe commercially promoted before it is approved. After approval, product promotion can include only those claims relating tosafety and effectiveness that are consistent with the labeling approved by the FDA. Healthcare providers are permitted toprescribe drugs for “off‑label” uses — that is, uses not approved by the FDA and therefore not described in the drug’slabeling — because the FDA does not regulate the practice of medicine. However, FDA regulations impose stringentrestrictions on manufacturers’ communications regarding off‑label uses. Failure to comply with applicable FDA requirementsand restrictions in this area may subject a company to adverse publicity and enforcement action by the FDA, the U.S.Department of Justice, or the Office of the Inspector General of the HHS, as well as state authorities. This could subject acompany to a range of penalties that could have a significant commercial impact, including civil and criminal fines andagreements that materially restrict the manner in which a company promotes or distributes drug products. Fast Track DesignationThe FDA has various programs to facilitate the development and expedite the review of drugs that are intended for thetreatment of a serious or life‑threatening condition for which there is no effective treatment and which demonstrate thepotential to address unmet medical needs for the condition. Under the Fast Track designation program, the sponsor of a newproduct candidate may request the FDA to designate the product for a specific indication as a Fast Track product concurrentwith or after the submission of the IND for the product candidate. The FDA must determine if the product candidate qualifiesfor Fast Track designation within 60 days after receipt of the sponsor’s request. In addition to other benefits, such as the ability to have more frequent interactions with the FDA, the FDA may initiate reviewof sections of a Fast Track product’s NDA before the application is complete. The FDA’s time period goal for reviewing a FastTrack application does not begin until the last section of the NDA is submitted. In addition, the Fast Track designation maybe withdrawn by the FDA if the FDA believes that the designation is no longer supported by data emerging in the clinicaltrial process. Post‑Approval Requirements Once an NDA is approved, a product will be subject to pervasive and continuing regulation by the FDA, including, amongother things, requirements relating to drug listing and registration, recordkeeping, periodic reporting, product sampling anddistribution, adverse event reporting and advertising, marketing and promotion restrictions. Adverse event reporting and submission of periodic reports is required following FDA approval of an NDA. The FDA alsomay require post‑market testing, known as Phase 4 testing, REMS, and surveillance to monitor the effects of an approvedproduct, or the FDA may place conditions on an approval that could restrict the distribution or use of the product. Inaddition, quality control, drug manufacture, packaging, and labeling procedures must continue to conform to cGMPs afterapproval. Drug manufacturers and certain of their subcontractors are required to register their establishments with FDA andcertain state agencies. Registration subjects entities to periodic announced or unannounced inspections by the FDA or thesestate agencies, during which the agency inspects manufacturing facilities to assess compliance with cGMPs. Accordingly,manufacturers must continue to expend time, money, and effort in the areas of production and quality control to maintaincompliance with cGMPs. Regulatory authorities may withdraw product22 Table of Contentsapprovals or request product recalls if a company fails to comply with regulatory standards, if it encounters problemsfollowing initial marketing, or if previously unrecognized problems are subsequently discovered. In addition, otherregulatory actions may be taken, including, among other things, warning letters, the seizure of products, injunctions, consentdecrees placing significant restrictions on or suspending manufacturing operations, refusal to approve pending applicationsor supplements to approved applications, civil penalties, and criminal prosecution. As part of the sales and marketing process, pharmaceutical companies frequently provide samples of approved drugs tophysicians. The Prescription Drug Marketing Act, or PDMA, and associated regulations, impose certain recordkeeping andreporting requirements and other limitations on the distribution of drug samples to physicians. The PDMA also requires thatstate licensing of distributors who distribute prescription drugs meet certain federal guidelines that include minimumstandards for storage, handling and record keeping. In addition, the PDMA and a growing majority of states also imposecertain drug pedigree requirements on the sale and distribution of prescription drugs. The PDMA sets forth civil and criminalpenalties for violations. In 2010, a statutory provision was enacted that required manufacturers and authorized distributors ofrecord to report on an annual basis certain information about prescription drug samples they distributed. The FDA issued adraft compliance policy guide on the reporting requirement. The FDA stated that it would exercise enforcement discretionwith regard to companies that have not submitted reports until the FDA finalizes the reporting requirement and/or providesnotice that it is revising its exercise of enforcement discretion. The FDA may require post‑approval studies and clinical trials if the FDA finds that scientific data, including informationregarding related drugs, deem it appropriate. The purpose of such studies would be to assess a known serious risk or signals ofserious risk related to the drug or to identify an unexpected serious risk when available data indicate the potential for aserious risk. The FDA may also require a labeling change if it becomes aware of new safety information that it believesshould be included in the labeling of a drug. The Hatch‑Waxman Amendments Orange Book Listing In seeking approval for a drug through an NDA, applicants are required to list with the FDA each patent whose claims coverthe applicant’s product. Upon approval of a drug, each of the patents listed in the application for the drug is then publishedin the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations, commonly known as the Orange Book.Drugs listed in the Orange Book can, in turn, be cited by potential generic competitors in support of approval of anabbreviated NDA, or ANDA. An ANDA provides for marketing of a drug product that has the same active ingredient in thesame strengths and dosage form as the listed drug and has been shown through bioequivalence testing to be therapeuticallyequivalent to the listed drug. Other than the requirement for bioequivalence testing, ANDA applicants are not required toconduct, or submit results of, preclinical or clinical tests to prove the safety or efficacy of their drug product. Drugs approvedin this way are commonly referred to as “generic equivalents” to the listed drug, and can often be substituted by pharmacistsunder prescriptions written for the original listed drug. The ANDA applicant is required to make certain certifications to the FDA concerning any patents listed for the approvedproduct in the FDA’s Orange Book. Specifically, the applicant must certify that: (i) the required patent information has notbeen filed; (ii) the listed patent has expired; (iii) the listed patent has not expired, but will expire on a particular date andapproval is sought after patent expiration; or (iv) the listed patent is invalid or will not be infringed by the new product. TheANDA applicant may also elect to submit a section viii statement certifying that its proposed ANDA label does not contain(or carves out) any language regarding the patented method‑of‑use rather than make certifications concerning a listedmethod‑of‑use patent. If the applicant does not challenge the listed patents, the ANDA application will not be approveduntil all the listed patents claiming the referenced product have expired. A certification that the new product will not infringe the already approved product’s listed patents, or that such patents areinvalid, is called a Paragraph IV certification. If the ANDA applicant has provided a Paragraph IV certification to the FDA,the applicant must also send notice of the Paragraph IV certification to the NDA and patent holders once the ANDA has beenaccepted for filing by the FDA. The NDA and patent holders may then initiate a patent infringement lawsuit in response tothe notice of the Paragraph IV certification. The filing of a patent infringement lawsuit within 45 days of the receipt of aParagraph IV certification automatically prevents the FDA from approving the ANDA until the earlier of 30 months,expiration of the patent, settlement of the lawsuit, or a decision in the infringement case that is favorable to the ANDAapplicant.23 Table of ContentsThe ANDA application also will not be approved until any applicable non‑patent exclusivity listed in the Orange Book forthe referenced product has expired. Exclusivity Upon NDA approval of a new chemical entity, or NCE, which is a drug that contains no active moiety that has been approvedby FDA in any other NDA, that drug receives five years of marketing exclusivity during which FDA cannot receive anyANDA seeking approval of a generic version of that drug or any Section 505(b)(2) NDA, discussed in more detail below, thatrelies on the FDA’s findings regarding that drug. A drug may obtain a three‑year period of exclusivity for a change to thedrug, such as the addition of a new indication to the labeling or a new formulation, during which FDA cannot approve anANDA or any Section 505(b)(2) NDA, if the supplement includes reports of new clinical trials (other than bioavailabilityclinical trials) essential to the approval of the supplement. An ANDA may be submitted one year before NCE exclusivity expires if a Paragraph IV certification is filed. If there is nolisted patent in the Orange Book, there may not be a Paragraph IV certification, and, thus, no ANDA may be filed before theexpiration of the exclusivity period. Section 505(b)(2) NDAs Generally, drug products obtain FDA marketing approval pursuant to an NDA or an ANDA. A third alternative is aSection 505(b)(2) NDA, which enables the applicant to rely, in part, on data not developed by the applicant, such as theFDA’s findings of safety and efficacy in the approval of a similar product or published literature in support of its application. Section 505(b)(2) NDAs may provide an alternate path to FDA approval for new or improved formulations or new uses ofpreviously approved products. Section 505(b)(2) permits the filing of an NDA where at least some of the information requiredfor approval comes from clinical trials not conducted by, or for, the applicant and for which the applicant has not obtained aright of reference. If the Section 505(b)(2) applicant can establish that reliance on FDA’s previous findings of safety andefficacy is scientifically appropriate, it may eliminate the need to conduct certain preclinical or clinical trials of the newproduct. The FDA may also require companies to perform additional clinical trials or provide additional materials to supportthe change from the approved product. The FDA may then approve the new product candidate for all, or some, of the labelindications for which the referenced product has been approved, as well as for any new indication sought by theSection 505(b)(2) applicant. To the extent that the Section 505(b)(2) applicant is relying on the FDA’s findings of safety and effectiveness for an alreadyapproved product, the applicant is required to certify to the FDA concerning any patents listed for the approved product inthe Orange Book to the same extent that an ANDA applicant would. Thus approval of a Section 505(b)(2) NDA can be stalleduntil all the listed patents claiming the referenced product have expired; until any non‑patent exclusivity, such asexclusivity for obtaining approval of a new chemical entity, listed in the Orange Book for the referenced product hasexpired; and, in the case of a Paragraph IV certification and subsequent patent infringement suit, until the earlier of30 months, settlement of the lawsuit or a decision in the infringement case that is favorable to the Section 505(b)(2)applicant. In the interim period, the FDA may grant tentative approval. Tentative approval indicates that the FDA hasdetermined that the applicant meets the standards for approval as of the date that the tentative approval is granted. Finalregulatory approval can only be granted if the FDA is assured that there is no new information that would affect finalregulatory/ approval. As with traditional NDAs, a Section 505(b)(2) NDA may be eligible for three‑year marketingexclusivity, assuming the NDA includes reports of new clinical trials (other than bioavailability clinical trials) essential tothe approval of the NDA. Disclosure of Clinical Trial Information Sponsors of clinical trials of FDA‑regulated products, including drugs, are required to register and disclose certain clinicaltrial information. Information related to the product, patient population, phase of investigation, clinical trial sites andinvestigators, and other aspects of the clinical trial is then made public as part of the registration. Sponsors are also obligatedto post certain information regarding the results of their clinical trials after completion. Disclosure of the results of these trialscan be delayed until the new product or new indication being studied has been approved. Competitors may use this publiclyavailable information to gain knowledge regarding the progress of development programs.24 Table of Contents DEA Regulation Our first product, Xtampza, is regulated as a “controlled substance” as defined in the Controlled Substances Act, or CSA,which establishes registration, security, recordkeeping, reporting, storage, distribution, importation, exportation and otherrequirements administered by the DEA. The DEA regulates the handling of controlled substances through a closed chain ofdistribution. This control extends to the equipment and raw materials used in their manufacture and packaging, in order toprevent loss and diversion into illicit channels of commerce. The DEA regulates controlled substances as Schedule I, II, III, IV or V substances. Schedule I substances by definition haveno established medicinal use, and may not be marketed or sold in the United States. A pharmaceutical product may be listedas Schedule II, III, IV or V, with Schedule II substances considered to present the highest risk of abuse and Schedule Vsubstances the lowest relative risk of abuse among such substances. Schedule II drugs are those that meet the followingcharacteristics: ·high potential for abuse; ·currently accepted medical use in treatment in the United States or a currently accepted medical use with severerestrictions; ·abuse may lead to severe psychological or physical dependence; and ·are considered “dangerous.” Xtampza, an abuse‑deterrent oral formulation of oxycodone, is listed by the DEA as a Schedule II controlled substance underthe CSA. Consequently, the manufacturing, shipping, storing, selling and using of the products is subject to a high degree ofregulation. Schedule II drugs are subject to the strictest requirements for registration, security, recordkeeping and reporting.Also, distribution and dispensing of these drugs are highly regulated. For example, all Schedule II drug prescriptions must besigned by a physician, physically presented to a pharmacist and may not be refilled without a new prescription. Annual registration is required for any facility that manufactures, distributes, dispenses, imports or exports any controlledsubstance. The registration is specific to the particular location, activity and controlled substance schedule. For example,separate registrations are needed for import and manufacturing, and each registration will specify which schedules ofcontrolled substances are authorized. The DEA typically inspects a facility to review its security measures prior to issuing a registration. Security requirementsvary by controlled substance schedule, with the most stringent requirements applying to Schedule I and Schedule IIsubstances. Required security measures include background checks on employees and physical control of inventory throughmeasures such as cages, surveillance cameras and inventory reconciliations. Records must be maintained for the handling ofall controlled substances, and periodic reports made to the DEA, for example distribution reports for Schedule I and IIcontrolled substances, Schedule III substances that are narcotics, and other designated substances. Reports must also be madefor thefts or losses of any controlled substance, and to obtain authorization to destroy any controlled substance. In addition,special permits and notification requirements apply to imports and exports of narcotic drugs. In addition, a DEA quota system controls and limits the availability and production of controlled substances in Schedule I orII. Distributions of any Schedule I or II controlled substance must also be accompanied by special order forms, with copiesprovided to the DEA. Because Xtampza is regulated as a Schedule II controlled substance, it will be subject to the DEA’sproduction and procurement quota scheme. The DEA establishes annually an aggregate quota for how much oxycodone maybe produced in total in the United States based on the DEA’s estimate of the quantity needed to meet legitimate scientificand medicinal needs. The limited aggregate amount of opioids that the DEA allows to be produced in the United States eachyear is allocated among individual companies, who must submit applications annually to the DEA for individual productionand procurement quotas. We and our contract manufacturers must receive an annual quota from the DEA in order to produceor procure any Schedule I or Schedule II substance, including oxycodone base for use in manufacturing Xtampza. The DEAmay adjust aggregate production quotas and individual production and procurement quotas from time to time during theyear, although the DEA has substantial discretion in25 Table of Contentswhether or not to make such adjustments. To enforce these requirements, the DEA conducts periodic inspections of registered establishments that handle controlledsubstances. Failure to maintain compliance with applicable requirements, particularly as manifested in loss or diversion, canresult in administrative, civil or criminal enforcement action that could have a material adverse effect on our business, resultsof operations and financial condition. The DEA may seek civil penalties, refuse to renew necessary registrations or initiateadministrative proceedings to revoke those registrations. In certain circumstances, violations could result in criminalproceedings. Individual states also independently regulate controlled substances. We and our contract manufacturers will be subject tostate regulation on distribution of these products. International Regulation In addition to regulations in the United States, we will be subject to a variety of foreign regulations regarding safety andefficacy and governing, among other things, clinical trials and commercial sales and distribution of our products. Whether ornot we obtain FDA approval for a product, we must obtain the necessary approvals by the comparable regulatory authoritiesof foreign countries before we can commence clinical trials or marketing of the product in those countries. The approvalprocess varies from country to country and can involve additional product testing and additional review periods, and thetime may be longer or shorter than that required to obtain FDA approval and, if applicable, DEA classification. Therequirements governing, among other things, the conduct of clinical trials, product licensing, pricing and reimbursementvary greatly from country to country. Regulatory approval in one country does not ensure regulatory approval in another, buta failure or delay in obtaining regulatory approval in one country may negatively impact the regulatory process in others. Many foreign countries are also signatories to the internal drug control treaties and have implemented regulations ofcontrolled substances similar to those in the United States. Our products will be subject to such regulation which may imposecertain regulatory and reporting requirements and restrict sales of these products in those countries. Under European Union regulatory systems, marketing authorizations may be submitted either under a centralized ordecentralized procedure. The centralized procedure provides for the grant of a single marketing authorization that is valid forall European Union member states. The decentralized procedure provides for mutual recognition of national approvaldecisions. Under this procedure, the holder of a national marketing authorization may submit an application to the remainingmember states. Within 90 days of receiving the applications and assessment report, each member state must decide whether torecognize approval. In addition to regulations in Europe and the United States, we will be subject to a variety of foreign regulations governing,among other things, the conduct of clinical trials, pricing and reimbursement and commercial distribution of our products. Ifwe fail to comply with applicable foreign regulatory requirements, we may be subject to fines, suspension or withdrawal ofregulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution. Other Healthcare Laws and Compliance Requirements In the United States, the research, manufacturing, distribution, sale and promotion of drug products and medical devices aresubject to regulation by various federal, state and local authorities in addition to the FDA, including the Centers forMedicare & Medicaid Services, other divisions of HHS (e.g., the Office of Inspector General), the DOJ, state AttorneysGeneral and other state and local government agencies. For example, sales, marketing and scientific/educational grantprograms must comply with fraud and abuse laws such as the federal Anti‑Kickback Statute, the federal False Claims Act, asamended and similar state laws. In order to participate in the Medicaid program, existing federal law requires pharmaceuticalmanufacturers to pay rebates to state governments, based on a statutory formula, on covered outpatient drugs reimbursed bythe Medicaid program as a condition of having their drugs paid for by Medicaid. Manufacturers are required to report AMPand best price for each of their covered outpatient drugs to the government on a regular basis. Additionally, some stateMedicaid programs have imposed a requirement for supplemental rebates over and above the formula set forth in federal law,as a condition for coverage. In addition to the Medicaid Rebate Program, federal law also requires that if a pharmaceuticalmanufacturer wishes to have its outpatient drugs covered under Medicaid as well as under Medicare Part B, it must sign a“Master Agreement” obligating it to provide a formulaic discount that results in a26 Table of Contentsfederal ceiling price, or maximum price that participating manufacturers may charge for covered drugs sold to the U.S.Departments of Defense (including the TRICARE retail pharmacy program), Veterans Affairs, the Public Health Service andthe Coast Guard, and also provide discounts through a drug pricing agreement meeting the requirements of Section 340B ofthe Public Health Service Act, for outpatient drugs sold to certain specified eligible health care organizations. The formulafor determining the discounted purchase price under the 340B drug pricing program is defined by statute and is based on theAMP and rebate amount for a particular product as calculated under the Medicaid Drug Rebate Program, discussed above. The federal Anti‑Kickback Statute prohibits any person from knowingly and willfully soliciting, receiving, offering orpaying remuneration, directly or indirectly, to induce or reward either the referral of an individual, or the furnishing,recommending or arranging for a good or service, for which payment may be made under a federal healthcare program such asthe Medicare and Medicaid programs. This statute has been interpreted to apply to arrangements between pharmaceuticalmanufacturers, on one hand, and prescribers, purchasers, and formulary managers, on the other. The term “remuneration” isnot defined in the federal Anti‑Kickback Statute and has been broadly interpreted to include the transfer of anything ofvalue, including for example, gifts, discounts, the furnishing of supplies or equipment, credit arrangements, payments ofcash, waivers of payments, ownership interests and providing anything at other than its fair market value. Although there area number of statutory exemptions and regulatory safe harbors protecting certain business arrangements from prosecution, theexemptions and safe harbors are drawn narrowly and practices that involve remuneration intended to induce prescribing,purchasing or recommending may be subject to scrutiny if they do not qualify for an exemption or safe harbor. Our practicesmay not meet all of the criteria for safe harbor protection from federal Anti‑Kickback Statute liability in all cases. The reachof the federal Anti‑Kickback Statute was broadened by the recently enacted Affordable Care Act, which, among other things,amends the intent requirement of the federal Anti‑Kickback Statute such that a person or entity no longer needs to haveactual knowledge of this statute or specific intent to violate it in order to have committed a violation. In addition, theAffordable Care Act provides that the government may assert that a claim including items or services resulting from aviolation of the federal Anti‑Kickback Statute constitutes a false or fraudulent claim for purposes of the federal False ClaimsAct (discussed below) or the civil monetary penalties statute, which imposes fines against any person who is determined tohave presented or caused to be presented claims to a federal healthcare program that the person knows or should know is foran item or service that was not provided as claimed or is false or fraudulent. Additionally, many states have adopted lawssimilar to the federal Anti‑Kickback Statute, some of which apply to referral of patients for healthcare items or servicesreimbursed by any third‑party payor, not only the Medicare and Medicaid programs in at least some cases, and do notcontain safe harbors. The federal False Claims Act imposes liability on any person or entity that, among other things, knowingly presents, orcauses to be presented, a false or fraudulent claim for payment by a federal healthcare program. The “qui tam” provisions ofthe False Claims Act allow a private individual to bring civil actions on behalf of the federal government alleging that thedefendant has submitted a false claim to the federal government, and to share in any monetary recovery. In recent years, thenumber of suits brought by private individuals has increased dramatically. In addition, various states have enacted falseclaims laws analogous to the False Claims Act. Many of these state laws apply where a claim is submitted to any third‑partypayor and not merely a federal healthcare program. There are many potential bases for liability under the False Claims Act.Liability arises, primarily, when an entity knowingly submits, or causes another to submit, a false claim for reimbursement tothe federal government. The False Claims Act has been used to assert liability on the basis of inadequate care, kickbacks andother improper referrals, improperly reported government pricing metrics such as Best Price or Average Manufacturer Price,improper promotion of off‑label uses not expressly approved by FDA in a drug’s label, and allegations as tomisrepresentations with respect to the services rendered. To the extent we participate in government healthcare programs, ourfuture activities relating to the reporting of discount and rebate information and other information affecting federal, state andthird party reimbursement of our products, and the sale and marketing of our products and our service arrangements or datapurchases, among other activities, may be subject to scrutiny under these laws. We are unable to predict whether we would besubject to actions under the False Claims Act or a similar state law, or the impact of such actions. However, the cost ofdefending such claims, as well as any sanctions imposed, could adversely affect our financial performance. Also, HIPAAcreated several new federal crimes, including healthcare fraud and false statements relating to healthcare matters. Thehealthcare fraud statute prohibits knowingly and willfully executing a scheme to defraud any healthcare benefit program,including private third‑party payors. The false statements statute prohibits knowingly and willfully falsifying, concealing orcovering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the deliveryof or payment for healthcare benefits, items or services. 27 Table of ContentsIn addition, we may be subject to, or our marketing activities in the future may be limited by, data privacy and securityregulation by both the federal government and the states in which we conduct our business. HIPAA and its implementingregulations established uniform standards for certain “covered entities,” which are healthcare providers, health plans andhealthcare clearinghouses, governing the conduct of specified electronic healthcare transactions and protecting the securityand privacy of protected health information. The American Recovery and Reinvestment Act of 2009, commonly referred toas the economic stimulus package, included expansion of HIPAA’s privacy and security standards through HITECH, whichbecame effective on February 17, 2010. Among other things, HITECH makes HIPAA’s privacy and security standards directlyapplicable to “business associates,” which are independent contractors or agents of covered entities that receive or obtainprotected health information in connection with providing a service on behalf of a covered entity. HITECH also increasedthe civil and criminal penalties that may be imposed against covered entities, business associates and possibly other persons,and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce thefederal HIPAA laws and seek attorney’s fees and costs associated with pursuing federal civil actions. Additionally, under the federal Open Payments program, created under Section 6002 of the Affordable Care Act and itsimplementing regulations, manufacturers of drugs for which payment is available under Medicare, Medicaid or theChildren’s Health Insurance Program (with certain exceptions) must report information related to “payments or other transfersof value” made or distributed to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors)and teaching hospitals, and manufacturers and applicable group purchasing organizations must report ownership andinvestment interests held by physicians (as defined above) and their immediate family members. Such reports are to be madeto the Centers for Medicare & Medicaid Services, or CMS, by the 90th day following the end of each subsequent year andCMS subsequently is to publish the reported information on a publicly available website. There are also an increasing number of state “sunshine” laws that require manufacturers to file reports with states on pricingand marketing information. Many of these laws contain ambiguities as to what is required to comply with the laws. Severalstates have enacted legislation requiring pharmaceutical companies to, among other things, establish marketing complianceprograms, file periodic reports with the state, make periodic public disclosures on sales, marketing, pricing, clinical trials andother activities and/or register their sales representatives. Such legislation also prohibits pharmacies and other healthcareentities from providing certain physician prescribing data to pharmaceutical companies for use in sales and marketing andprohibits certain other sales and marketing practices. These laws may affect our future sales, marketing and other promotionalactivities by imposing administrative and compliance burdens on us. In addition, given the lack of clarity with respect tothese laws and their implementation, our reporting actions could be subject to the penalty provisions of the pertinent stateand federal authorities. Because of the breadth of these laws and the narrowness of available statutory and regulatory exemptions, it is possible thatsome of our business activities could be subject to challenge under one or more of such laws. If our operations are found to bein violation of any of the federal and state laws described above or any other governmental regulations that apply to us, wemay be subject to penalties, including criminal and significant civil monetary penalties, damages, fines, imprisonment,exclusion from participation in government healthcare programs, injunctions, recall or seizure of products, total or partialsuspension of production, denial or withdrawal of pre‑marketing product approvals, private qui tam actions brought byindividual whistleblowers in the name of the government or refusal to allow us to enter into supply contracts, includinggovernment contracts and the curtailment or restructuring of our operations, any of which could adversely affect our abilityto operate our business and our results of operations. To the extent that any of our products are approved and sold in aforeign country, we may be subject to similar foreign laws and regulations, which may include, for instance, applicablepost‑marketing requirements, including safety surveillance, anti‑fraud and abuse laws, and implementation of corporatecompliance programs and reporting of payments or transfers of value to healthcare professionals. Third‑Party Payor Coverage and Reimbursement The commercial success of Xtampza and our product candidates, if approved, will depend, in part, upon the availability ofcoverage and adequate reimbursement from third‑party payors at the federal, state and private levels. Third‑party payorsinclude governmental programs such as Medicare or Medicaid, private insurance plans and managed care plans. Thesethird‑party payors may deny coverage or reimbursement for a product or therapy in whole or in part if they determine that theproduct or therapy was not medically appropriate or necessary. Also, third‑party payors have attempted to control costs bylimiting coverage through the use of formularies and other cost‑containment mechanisms and the amount of reimbursementfor particular procedures or drug treatments.28 Table of Contents The cost of pharmaceuticals and devices continues to generate substantial governmental and third‑party payor interest. Weexpect that the pharmaceutical industry will experience pricing pressures due to the trend toward managed healthcare, theincreasing influence of managed care organizations and additional legislative proposals. Our results of operations andbusiness could be adversely affected by current and future third‑party payor policies as well as healthcare legislative reforms. Some third‑party payors also require pre‑approval of coverage for new or innovative devices or drug therapies before theywill reimburse healthcare providers who use such therapies. While we cannot predict whether any proposedcost‑containment measures will be adopted or otherwise implemented in the future, these requirements or any announcementor adoption of such proposals could have a material adverse effect on our ability to obtain adequate prices for Xtampza andour product candidates and to operate profitably. In international markets, reimbursement and healthcare payment systems vary significantly by country, and many countrieshave instituted price ceilings on specific products and therapies. Healthcare Reform In the United States and foreign jurisdictions, there have been a number of legislative and regulatory changes to thehealthcare system that could affect our future results of operations. In particular, there have been and continue to be a numberof initiatives at the U.S. federal and state levels that seek to reduce healthcare costs. The Medicare Modernization Actimposed new requirements for the distribution and pricing of prescription drugs for Medicare beneficiaries. Under Part D,Medicare beneficiaries may enroll in prescription drug plans offered by private entities which will provide coverage ofoutpatient prescription drugs. Part D plans include both stand‑alone prescription drug benefit plans and prescription drugcoverage as a supplement to Medicare Advantage plans. Unlike Medicare Part A and B, Part D coverage is not standardized.Part D prescription drug plan sponsors are not required to pay for all covered Part D drugs, and each drug plan can develop itsown drug formulary that identifies which drugs it will cover and at what tier or level. However, Part D prescription drugformularies must include drugs within each therapeutic category and class of covered Part D drugs, though not necessarily allthe drugs in each category or class. Any formulary used by a Part D prescription drug plan must be developed and reviewedby a pharmacy and therapeutic committee. Government payment for some of the costs of prescription drugs may increasedemand for our products for which we receive marketing approval. However, any negotiated prices for our products coveredby a Part D prescription drug plan will likely be lower than the prices we might otherwise obtain. Moreover, while theMedicare Modernization Act applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicarecoverage policy and payment limitations in setting their own payment rates. Any reduction in payment that results fromMedicare Part D may result in a similar reduction in payments from non‑governmental payors. The American Recovery and Reinvestment Act of 2009 provides funding for the federal government to compare theeffectiveness of different treatments for the same illness. A plan for the research will be developed by HHS, the Agency forHealthcare Research and Quality and the National Institutes for Health, and periodic reports on the status of the research andrelated expenditures will be made to Congress. Although the results of the comparative effectiveness clinical trials are notintended to mandate coverage policies for public or private payors, it is not clear what effect, if any, the research will have onthe sales of any product, if any such product or the condition that it is intended to treat is the subject of a study. It is alsopossible that comparative effectiveness research demonstrating benefits in a competitor’s product could adversely affect thesales of our product candidates. If third‑party payors do not consider our products to be cost‑effective compared to otheravailable therapies, they may not cover our products as a benefit under their plans or, if they do, the level of payment maynot be sufficient to allow us to sell our products on a profitable basis.In March 2010, the Affordable Care Act was enacted, which includes measures to significantly change the way healthcare isfinanced by both governmental and private insurers. Among the provisions of the Affordable Care Act of importance to thepharmaceutical and biotechnology industry are the following: ·an annual, nondeductible fee on any entity that manufactures or imports certain branded prescription drugs andbiologic agents, apportioned among these entities according to their market share in certain government healthcareprograms; ·an increase in the rebates a manufacturer must pay under the Medicaid Drug Rebate Program to 23.1% and 13%29 Table of Contentsof the average manufacturer price for branded and generic drugs, respectively; ·a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50%point‑of‑sale discounts to negotiated prices of applicable brand drugs to eligible beneficiaries during theircoverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D; ·extension of manufacturers’ Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled inMedicaid managed care organizations; ·expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaidcoverage to additional individuals and by adding new mandatory eligibility categories for certain individuals withincome at or below 133% of the Federal Poverty Level, thereby potentially increasing manufacturers’ Medicaidrebate liability; ·expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program; ·a licensure framework for follow‑on biologic products; ·a new Patient‑Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparativeclinical effectiveness research, along with funding for such research; ·a new requirement to annually report drug samples that manufacturers and distributors provide to physicians; ·creation of the Independent Payment Advisory Board, which has authority to recommend certain changes to theMedicare program that could result in reduced payments for prescription drugs and those recommendations couldhave the effect of law even if Congress does not act on the recommendations (the IPAB has not yet been called uponto act as the annual determinations by the CMS Office of the Actuary have not identified a savings target forimplementation in years 2015 or 2016); and ·establishment of a Center for Medicare Innovation at CMS to test innovative payment and service delivery modelsto lower Medicare and Medicaid spending, potentially including prescription drug spending that began on January1, 2011. In addition, other legislative changes have been proposed and adopted since the Affordable Care Act was enacted. TheBudget Control Act of 2011, among other things, created the Joint Select Committee on Deficit Reduction to recommendproposals in spending reductions to Congress. The Joint Select Committee on Deficit Reduction did not achieve its targeteddeficit reduction of at least $1.2 trillion for the years 2012 through 2021, triggering the legislation’s automatic reductions toseveral government programs. These reductions include aggregate reductions to Medicare payments to providers of up to 2%per fiscal year, which went into effect in April 2013 and, due to the Bipartisan Budget Act of 2015, will remain in effectthrough 2025 unless additional action is taken by Congress. In January 2013, President Obama signed into law the AmericanTaxpayer Relief Act of 2012, which, among other things, reduced Medicare payments to several providers and increased thestatute of limitations period for the government to recover overpayments to providers from three to five years. These newlaws may result in additional reductions in Medicare and other healthcare funding, which could have a material adverseeffect on our customers and, accordingly, our financial operations. Other Regulatory Requirements We are also subject to various laws and regulations regarding laboratory practices, the experimental use of animals, and theuse and disposal of hazardous or potentially hazardous substances in connection with our research. In each of these areas, asabove, the FDA has broad regulatory and enforcement powers, including, among other things, the ability to levy fines andcivil penalties, suspend or delay issuance of approvals, seize or recall products, and withdraw approvals, any one or more ofwhich could have a material adverse effect on us. 30 Table of ContentsResearch and Development We incurred research and development expenses of $14.9 million, $8.0 million and $15.0 million for the years endedDecember 31, 2016, 2015 and 2014, respectively. Employees As of December 31, 2016, we had a total of 234 full‑time employees. Of these, 28 were engaged in full‑time research anddevelopment activities. None of our employees are represented by a labor organization or under any collective‑bargainingarrangements. We consider our employee relations to be good. Executive Officers of the Company The following table lists the positions, names and ages of our executive officers as of March 1, 2017:NameAgePosition(s)Executive Officers:Michael T. Heffernan, R.Ph. 52 Chairman, President and Chief ExecutiveOfficerPaul Brannelly44 Executive Vice President and ChiefFinancial OfficerBarry S. Duke57 Executive Vice President and ChiefCommercial OfficerAlison B. Fleming42 Chief Technology Officer Executive Officers Michael T. Heffernan, R.Ph., Chairman, President and Chief Executive Officer. Mr. Heffernan has served as our Presidentand Chief Executive Officer and as a member of our board of directors since October 2003. Mr. Heffernan has over twenty-five years of experience in the pharmaceutical and related healthcare industries. He was previously the Founder, Presidentand Chief Executive Officer of Onset Therapeutics, LLC, a dermatology-focused company that developed andcommercialized products for the treatment of skin-related illnesses and was responsible for the spin-off of the business fromthe Company to create PreCision Dermatology, Inc. which was acquired by Valeant Pharmaceuticals International, Inc. Mr.Heffernan has held prior positions as Co-Founder, President and Chief Executive Officer of Clinical Studies Ltd., apharmaceutical contract research organization that was sold to PhyMatrix Corp., and as President and Chief ExecutiveOfficer of PhyMatrix. Mr. Heffernan started his career at Eli Lilly and Company, where he served in numerous sales andmarketing roles. He serves on the board of directors of Keryx Biopharmaceuticals, Inc (NASDAQ: KERX) (July 2016 topresent) and Veloxis Pharmaceuticals A/S (CPH: VELO) (March 2015 to present). Mr. Heffernan previously served on theboard of directors and as Chairman of Ocata Therapeutics, Inc. (NASDAQ: OCAT), Cornerstone Therapeutics Inc. (nowknown as Chiesi USA, Inc.) (NASDAQ: CRTX) and numerous privately held companies. Mr. Heffernan graduated from theUniversity of Connecticut with a B.S. in Pharmacy in 1987 and is a Registered Pharmacist. Paul Brannelly, Executive Vice President and Chief Financial Officer. Mr. Brannelly has served as our Executive VicePresident and Chief Financial Officer since February 2015. Prior to joining us, Mr. Brannelly served as Senior Vice President,Finance and Administration, and Treasurer of Karyopharm Therapeutics Inc. (NASDAQ: KPTI) from June 2013 to August2014. From August 2014 to November 2014, Mr. Brannelly served as a consultant to Karyopharm. Prior to joiningKaryopharm, Mr. Brannelly served as Vice President, Finance, Treasurer and Secretary at Verastem, Inc. (NASDAQ: VSTM)from August 2010 to May 2013. From January 2010 to September 2011, Mr. Brannelly held the position of Chief FinancialOfficer at the Longwood Fund, a venture capital firm aimed at investing in, managing and building healthcare companies,where he set up the financial and operational infrastructure following the closing of its first fund and eventually served asChief Financial Officer of its two startup companies, Verastem and OvaScience, Inc. (NASDAQ: OVAS). From November2005 to September 2009, he served as Vice President, Finance at Sirtris Pharmaceuticals, Inc., a biopharmaceutical companywhich GlaxoSmithKline plc purchased for $720 million in 2008, where he managed the S-1 preparation and due diligenceprocess for Sirtris' initial public offering and managed the company's transition to being a public company. Mr. Brannellystarted his biopharmaceutical career at Dyax Corporation from September 1999 to May 2002, and subsequently moved on topositions of increasing responsibility at31 Table of ContentsCombinatoRx Inc. from May 2002 to November 2005, including as Vice President, Finance and Treasurer, where he led theinitial public offering process. Mr. Brannelly graduated from the University of Massachusetts at Amherst with a B.B.A. inAccounting in 1995. Barry S. Duke, Executive Vice President and Chief Commercial Officer. Mr. Duke has served as our Executive VicePresident and Chief Commercial Officer since March 2015. Prior to joining us, Mr. Duke was Vice President of Sales andMarketing — U.S. Biosurgery at Sanofi, Inc. (formerly Genzyme Corporation) from October 2011 to September 2014. FromSeptember 2014 to March 2015, Mr. Duke served as a sales and marketing consulting in the biopharmaceutical industry. Mr.Duke joined Sanofi in March 2005 as an area sales director and was promoted to Vice President of Sales — U.S. Biosurgery inNovember 2007, a position he held until September 2011, when he was promoted to Vice President of Sales and Marketing— U.S. Biosurgery. Prior to Sanofi, Mr. Duke was Senior Director of National Sales at Enzon Pharmaceuticals, Inc. (NASDAQ:ENZN) from November 2002 to March 2005. Prior to Enzon, Mr. Duke was Regional Sales Director at Élan Corporation, plc(now known as Élan Corporation Ltd) from March 2001 to November 2002. Over the course of his career, Mr. Duke has alsoheld various sales positions at The Liposome Company, Inc., Astra USA, Inc., Centocor, Inc. and The Upjohn Company.Alison B. Fleming, Ph.D., Chief Technology Officer. Dr. Fleming has served as or Chief Technology Officer since January2017. Prior to being our Chief Technology Officer, Dr. Fleming led our development team as our Vice President, ProductDevelopment since October 2002. Prior to joining us, Dr. Fleming's academic research focused on implantable drug deliverysystems for cancer therapy. Dr. Fleming is an inventor on several U.S. patents and pending patent applications, and hasauthored numerous scientific publications and poster presentations in the field of novel drug delivery systems. In 2001,Dr. Fleming was the recipient of the Jorge Heller Journal of Controlled Release Outstanding Paper Award. Dr. Fleminggraduated from the University of Massachusetts, Amherst in 1997 with a B.S. in Chemical Engineering and received a Ph.D.in Chemical and Biomolecular Engineering from Cornell University in 2002. Our Corporate Information Our predecessor was incorporated in Delaware in April 2002 under the name Collegium Pharmaceuticals, Inc. In October2003, our predecessor changed its name to Collegium Pharmaceutical, Inc. In 2010, our predecessor divested its subsidiary,Onset Therapeutics, LLC to PreCision Dermatology, Inc. In July 2014, we reincorporated in the Commonwealth of Virginiapursuant to a merger whereby Collegium Pharmaceutical, Inc., a Delaware corporation, merged with and into CollegiumPharmaceutical, Inc., a Virginia corporation, with the Virginia corporation surviving the merger. Since 2010, we havedevoted substantially all of our resources to the development of our patented DETERx platform technology, the preclinicaland clinical advancement of our product candidates, the commercialization of Xtampza and the creation and protection ofrelated intellectual property. Available Information We maintain a website at www.collegiumpharma.com. We make available, free of charge on our website, our annual report onForm 10‑K, quarterly reports on Form 10‑Q, current reports on Form 8‑K and all amendments to those reports filed orfurnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, assoon as reasonably practicable after we electronically file those reports with, or furnish them to, the Securities and ExchangeCommission, or the SEC. We also make available, free of charge on our website, the reports filed with the SEC by our officers,directors and 10% shareholders pursuant to Section 16 under the Exchange Act as soon as reasonably practicable after copiesof those filings are provided to us by those persons. The information contained on, or that can be accessed through, ourwebsite is not a part of or incorporated by reference in this Form 10‑K.32 Table of Contents Item 1A. Risk Factors.Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below, aswell as all other information included in this Quarterly Report on Form 10-Q, including our financial statements, the notesthereto and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results ofOperations.” If any of the following risks actually occurs, our business, financial condition, operating results, prospectsand ability to accomplish our strategic objectives could be materially harmed. As a result, the trading price of our commonstock could decline and you could lose all or part of your investment. Additional risks and uncertainties not presentlyknown to us or that we currently deem immaterial may also impair our business operations and the market price of ourcommon stock.Risks Related to Our Financial Position and Capital NeedsWe have incurred significant losses since our inception and anticipate that we will continue to incur losses in the future.We are an early commercial-stage pharmaceutical company. To date, we have focused on developing our first product,Xtampza. Investment in pharmaceutical product development is highly speculative because it entails substantial upfrontcapital expenditures and significant risk that a product candidate will fail to gain regulatory approval or becomecommercially viable. Since 2010, when we divested our former subsidiary, Onset Therapeutics, LLC, to PreCisionDermatology, Inc., we have not generated any material revenue from product sales, and we continue to incur significantresearch, development, commercialization and other expenses related to our ongoing operations. As a result, we are notprofitable and have incurred losses in each period since January 1, 2011. For the year ended December 31, 2016, we reporteda net loss of $94.2 million, and we had an accumulated deficit of $223.2 million at December 31, 2016.We expect to continue to incur losses for the foreseeable future as we continue to commercialize Xtampza and continue ourdevelopment of, and seek regulatory approvals for, our product candidates. We may encounter unforeseen expenses,difficulties, complications, delays and other unknown factors that may adversely affect our business. The size of our futurenet losses will depend, in part, on our ability to generate revenues and on the rate of future growth of our expenses. If any ofour product candidates fail in clinical trials or does not gain final regulatory approval, or if approved, fails to achieve marketacceptance, we may never become profitable. Even if we achieve profitability in the future, we may not be able to sustainprofitability in subsequent periods. Our prior losses and expected future losses have had and will continue to have an adverseeffect on our shareholders’ equity and working capital.We currently generate no material revenue from the sale of products and may never become profitable.We began the commercial sale of our first product, Xtampza, in June 2016 and have not generated any material revenue fromproduct sales. Our ability to generate additional revenue and become profitable depends upon our ability to successfullycommercialize Xtampza, our existing product candidates, and any other product candidates that we may in-license or acquirein the future. Even if we are able to successfully achieve regulatory approval for these product candidates, we do not knowwhen any of these product candidates will generate revenue for us, if at all. Our ability to generate revenue from our currentor future product candidates depends on a number of factors, including our ability to:·successfully commercialize Xtampza;·successfully satisfy FDA post-marketing requirements for Xtampza, including studies and clinical trials that havebeen required for other extended release/long acting opioid analgesics and individual studies and clinical trials ofXtampza;·set a commercially viable price for our products;·manufacture commercial quantities of our products at acceptable cost levels;·develop a commercial organization capable of sales, marketing and distribution for the products we intend to sellourselves in the markets in which we have retained commercialization rights;33 Table of Contents·find suitable distribution collaborators to help us market, sell and distribute our products, if approved, in marketsoutside the United States;·obtain coverage and adequate reimbursement from third parties, including government payors;·successfully complete development activities, including the necessary clinical trials, with respect to our productcandidates;·complete and submit NDAs to the FDA and obtain regulatory approval for indications for which there is acommercial market; and·complete and submit applications to, and obtain regulatory approval from, foreign regulatory authorities, if wechoose to commercialize our product candidates outside the United States.In addition, because of the numerous risks and uncertainties associated with product development, including that ourproduct candidates may not advance through development or achieve the safety and efficacy (including the efficacy of ourabuse-deterrent technology) endpoints of applicable clinical trials, we are unable to predict the timing or amount ofincreased expenses, or when or if we will be able to achieve or maintain profitability. Furthermore, we anticipate incurringsignificant costs associated with commercializing these products.Even if we are able to generate revenues from the sale of our products, we may not become profitable and may need to obtainadditional funding to continue operations. If we fail to become profitable or are unable to sustain profitability on acontinuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce our operations.If we require additional capital to fund our operations and we fail to obtain necessary financing, we may be unable tocomplete the development and commercialization of our product candidates.Our operations have consumed substantial amounts of cash. We expect to continue to spend substantial amounts to advancethe development of our product candidates and to commercialize Xtampza and any product candidates for which we mayreceive regulatory approval. We believe that our existing cash and cash equivalents and expected revenue contributions fromXtampza will be sufficient to fund our operations into 2019, including the commercialization of Xtampza, and thecontinuation of our development of our product candidates. However, we may require additional capital for the furtherdevelopment and commercialization of our product candidates and may also need to raise additional funds sooner in order tocontinue development of our product candidates.We cannot be certain that additional funding will be available on acceptable terms, or at all. If we are unable to raiseadditional capital in sufficient amounts, when required or on acceptable terms, we also could be required to:·significantly delay, scale back or discontinue the development or the commercialization of Xtampza, our productcandidates or one or more of our other research and development initiatives;·seek collaborators for Xtampza and/or one or more of our product candidates at an earlier stage than otherwise wouldbe desirable or on terms that are less favorable than might otherwise be available;·relinquish or license on unfavorable terms our rights to technologies, products or product candidates that weotherwise would seek to develop or commercialize ourselves; or·significantly curtail operations.Our forecast of the period of time through which our financial resources will be adequate to support our operations is aforward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number offactors, including the factors discussed elsewhere in this “Risk Factors” section. We have based this estimate on assumptionsthat may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. Our futurefunding requirements, both near and long-term, will depend on many factors, including, but not34 Table of Contentslimited to:·the ability to obtain and maintain abuse-deterrent claims in the product labels for our products and productcandidates;·our ability to successfully satisfy the FDA post-marketing requirements of Xtampza, including studies and clinicaltrials that have been required for other extended release/long acting opioid analgesics and individual studies andclinical trials of Xtampza;·clinical development plans for our product candidates;·the outcome, timing and cost of the regulatory approval process by the FDA and foreign regulatory authorities,including the potential for regulatory authorities to require that we perform more studies than those that we currentlyexpect;·the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights,including defending Purdue’s remaining patent infringement claims against us;·the cost and timing of completion of existing or expanded commercial-scale outsourced manufacturing activities;·the cost of maintaining, and if appropriate, expanding, sales, marketing and distribution capabilities for Xtampzaand any product candidates for which we may receive regulatory approval in regions where we choose tocommercialize our products; and·the initiation, progress, timing, costs and results of clinical trials for our product candidates and any future productcandidates we may in-license.Raising additional capital may cause dilution to our existing shareholders, restrict our operations or require us torelinquish rights to Xtampza, our technologies or product candidates.We may seek additional capital through a combination of private and public equity offerings, debt financings, receivables orroyalty financings, strategic collaborations and alliances and licensing arrangements. To the extent that we raise additionalcapital through the sale of equity or convertible debt securities, existing shareholders’ ownership interest will be diluted, andthe terms may include liquidation or other preferences that adversely affect the rights of existing shareholders. Debt,receivables and royalty financings may be coupled with an equity component, such as warrants to purchase stock, whichcould also result in dilution of our existing shareholders’ ownership. The incurrence of additional indebtedness beyond ourexisting indebtedness with Silicon Valley Bank could result in increased fixed payment obligations and could also result incertain restrictive covenants, such as limitations on our ability to incur further debt, limitations on our ability to acquire orlicense intellectual property rights and other operating restrictions that could have a material adverse effect on our ability toconduct our business and may result in liens being placed on our assets and intellectual property. If we were to default on anyof our indebtedness, we could lose such assets and intellectual property. If we raise additional funds through strategiccollaborations and alliances and licensing arrangements with third parties, we may have to relinquish valuable rights toXtampza or our product candidates, or grant licenses on terms that are not favorable to us. If we are unable to raise additionalfunds through equity or debt financing when needed, we may be required to delay, limit, reduce or terminate our productdevelopment or commercialization efforts or grant rights to develop and market our technologies that we would otherwiseprefer to develop and market ourselves.We have a limited operating history, which may make it difficult for you to evaluate the success of our business to date andto assess our future viability.Our predecessor was originally incorporated in Delaware in April 2002 under the name Collegium Pharmaceuticals, Inc. InOctober 2003, our predecessor changed its name to Collegium Pharmaceutical, Inc. In July 2014, we reincorporated in theCommonwealth of Virginia pursuant to a merger whereby Collegium Pharmaceutical, Inc., a Delaware corporation,35 Table of Contentsmerged with and into Collegium Pharmaceutical, Inc., a Virginia corporation, with the Virginia corporation surviving themerger. From 2002 until 2010, our operations focused primarily on marketing proprietary therapies to the wound care anddermatology industry through our former subsidiary, Onset Therapeutics, LLC, which was spun off and became a part ofPreCision Dermatology, Inc. in 2010. Since 2010, our operations have focused primarily on developing the DETERxtechnology platform and identifying and developing product candidates that utilize the DETERx technology, including ourfirst product, Xtampza. Although the FDA has approved Xtampza, we have not yet obtained final regulatory approval for anyof our product candidates or demonstrated an ability to commercialize a product successfully. Consequently, any predictionsabout our future success, performance or viability may not be as accurate as they could be if we had a longer operatinghistory.Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.As of December 31, 2016, we had a federal net operating loss, or NOL, carryforward of approximately $190.9 million andstate net operating loss carryovers of approximately $145.9 million, which are available to offset future taxable income. Wealso had U.S. federal tax credits of approximately $3.4 million, and state tax credits of approximately $0.5 million, these taxattributes are prior to consideration of annual limitations that may be imposed under Section 382 of the Internal RevenueCode of 1986, as amended, or Section 382. These carryforwards begin to expire in 2022. Under Section 382, if a corporationundergoes an “ownership change,” generally defined as a greater than 50% change (by value) in its equity ownership over athree-year period, the corporation’s ability to use its pre-change NOLs and other pre-change tax attributes (such as researchand development tax credits) to offset its post-change income may be limited. We may experience ownership changes in thefuture as a result of shifts in our stock ownership some of which are outside our control. We have not performed any currentanalyses under Section 382 and cannot forecast or otherwise rely on deriving benefit from our various federal or state taxattribute carryforwards. As a result, if we earn net taxable income, our ability to use our pre-change NOL carryforwards tooffset U.S. federal taxable income may be subject to limitations, which could potentially result in increased future taxliability to us. In addition, at the state level, there may be periods during which the use of NOLs is suspended or otherwiselimited, which could accelerate or permanently increase state taxes owed.Risks Related to our Products and Product CandidatesOur success depends in large part on the commercial success of our lead product, Xtampza.To date, we have invested substantial resources in the development of our lead product, Xtampza, which has been approvedby the FDA. Our business and future success are substantially dependent on our ability to successfully and timelycommercialize this product, which may never occur. We currently generate no material revenues from product sales and wemay never be able to commercialize Xtampza, or any product candidates that are approved by the FDA, successfully.Our ability to successfully commercialize Xtampza will depend on many factors, including but not limited to:·our ability to successfully satisfy FDA post-marketing requirements, including studies and clinical trials that havebeen required for other extended release/long acting opioid analgesics and individual studies and clinical trials ofXtampza;·the ability to manufacture commercial quantities of Xtampza at reasonable cost and with sufficient speed to meetcommercial demand;·our ability to build a sales and marketing organization to market Xtampza;·our success in educating physicians, patients and caregivers about the benefits, administration, use and coverage ofXtampza;·the availability, perceived advantages, relative cost, relative safety and relative efficacy of other abuse-deterrentproducts and treatments for chronic pain and chronic pain with dysphagia;36 Table of Contents·our ability to successfully defend any challenges to our intellectual property relating to Xtampza;·the availability of coverage and adequate reimbursement for Xtampza; and·a continued acceptable safety profile of Xtampza following approval.Many of these matters are beyond our control and are subject to other risks described elsewhere in this “Risk Factors”section. Accordingly, we cannot assure you that we will be able to successfully commercialize or generate revenue fromXtampza. If we cannot do so, or are significantly delayed in doing so, our business will be materially harmed.Despite receiving approval by the FDA, additional data may emerge that could change the FDA’s position on the productlabeling, and our ability to successfully market Xtampza may be adversely affected.It is estimated that the U.S. market includes approximately 11 million patients with chronic pain with dysphagia. OurXtampza microspheres are designed to be removed from the capsule and sprinkled on food or into a cup, and then directlyinto the mouth, or in feeding tubes, without compromising their extended-release properties. On April 26, 2016, the FDAgranted approval for the Xtampza NDA, including an approved product label. The FDA could change the product labeling. Ifthe product label for Xtampza is modified in the future so as to exclude the flexible dose administration options, includingthe ability to sprinkle the Xtampza microspheres on food or into a cup, then directly in the mouth, or in feeding tubes, or theFDA requires us to have a boxed warning similar to competitor product labeling stating that “crushing, dissolving orchewing can cause rapid release and absorption of a potentially fatal dose of the active drug,” it will limit our ability todifferentiate Xtampza from other abuse-deterrent opioid formulations on the basis of alternative dosing options, and we maynot be able to market Xtampza to patients with chronic pain with dysphagia. As a result, this may have an adverse effect onour business and our prospects for future growth.If the FDA does not conclude that our product candidates in development are sufficiently bioequivalent, or demonstratecomparable bioavailability to their respective listed drugs, or if the FDA otherwise does not conclude that our productcandidates satisfy the requirements for the Section 505(b)(2) approval pathway, the approval pathway for those productcandidates will likely take significantly longer, cost significantly more and entail significantly greater complications andrisks than anticipated, and the FDA may not approve those product candidates.A key element of our strategy is to seek FDA approval for our product candidates through the Section 505(b)(2) regulatorypathway. Section 505(b)(2) of the Federal Food, Drug, and Cosmetic Act, or FD&C Act, permits the filing of an NDA thatcontains full safety and efficacy reports but where at least some of the information required for approval comes from studiesnot conducted by or for the applicant, such as the FDA’s findings of safety and efficacy in the approval of a similar drug, andfor which the applicant has not obtained a right of reference and/or published literature. Such reliance is typically predicatedon a showing of bioequivalence or comparable bioavailability to an approved drug.If the FDA does not allow us to pursue the Section 505(b)(2) approval pathway for our product candidates, or if we cannotdemonstrate bioequivalence or comparable bioavailability of our product candidates to approved products, we may need toconduct additional clinical trials, provide additional data and information, and meet additional standards for regulatoryapproval. If this were to occur, the time and financial resources required to obtain FDA approval for these product candidateswould increase. Moreover, our inability to pursue the Section 505(b)(2) approval pathway could result in new competitiveproducts reaching the market sooner than our product candidates, which could have a material adverse effect on ourcompetitive position and our business prospects. Even if we are allowed to pursue the Section 505(b)(2) approval pathway,we cannot assure you that our product candidates will receive the requisite approvals for commercialization on a timelybasis, if at all.In addition, notwithstanding the approval of a number of products by the FDA under Section 505(b)(2) over the last fewyears, pharmaceutical companies and others have objected to the FDA’s interpretation of Section 505(b)(2). If the FDA’sinterpretation of Section 505(b)(2) is successfully challenged, the FDA may change its policies and practices with respect toSection 505(b)(2) regulatory approvals, which could delay or even prevent the FDA from approving any NDA that we submitunder Section 505(b)(2).Even if our product candidates are approved under Section 505(b)(2), the approval may be subject to limitations on the37 Table of Contentsindicated uses for which the products may be marketed or to other conditions of approval, or may contain requirements forcostly post-marketing testing and surveillance to monitor the safety or efficacy of the products, including additionalpreclinical studies and clinical trials.Our decision to seek approval of our product candidates, including Xtampza, under Section 505(b)(2) increases the riskthat a patent infringement suit may be filed against us, which would delay the FDA’s final regulatory approval of suchproduct candidates.In connection with any NDA that we file under Section 505(b)(2), we are required to notify the patent holders of the referencelisted drug that we have certified to the FDA that any patents listed for the listed drug in the FDA’s Orange Book publicationare invalid, unenforceable or will not be infringed by the manufacture, use or sale of our drug. If the patent holder files apatent infringement lawsuit against us within 45 days of its receipt of notice of our certification, the FDA is automaticallyprevented from approving our Section 505(b)(2) NDA until the earliest of 30 months, expiration of the patents, settlement ofthe lawsuit or a court decision in the infringement case that is favorable to us. Accordingly, we may invest significant timeand expense in the development of our product candidates only to be subject to significant delay and expensive and time-consuming patent litigation before our product candidates may be commercialized.Even if we are found not to infringe any potential plaintiff’s patent claims or the claims are found invalid or unenforceable,defending any such infringement claim could be expensive and time-consuming, and could delay the launch of our productcandidates and distract management from their normal responsibilities. The Court could decline to hear our summaryjudgment motion, could decline to act expeditiously to issue a decision or hold a trial, or could decline to find that all of thelisted patents are invalid or non-infringed. If we are unsuccessful in our defense of non-infringement and unable to proveinvalidity of the listed patents, the court could issue an injunction prohibiting the launch of our product candidates. If wewere to receive final regulatory approval by the FDA and launch any of our product candidates, , prior to a full and finaldetermination that the patents are invalid or non-infringed, we could be subject to substantial liability for damages if we donot ultimately prevail on our defenses to a claim of patent infringement.The regulatory approval processes of the FDA and foreign regulatory authorities are lengthy, time-consuming andunpredictable, and if we are ultimately unable to obtain regulatory approval for our product candidates, our business willbe substantially harmed.The time required to obtain approval by the FDA and foreign regulatory authorities is unpredictable, but typically takesmany years following the commencement of preclinical studies and clinical trials and depends upon numerous factors,including the substantial discretion of the regulatory authorities. In addition, approval policies, regulations or the type andamount of clinical data necessary to gain approval varies among jurisdictions and may change during the course of a productcandidate’s clinical development. Although the FDA has approved Xtampza, it is possible that none of our productcandidates or any future product candidates that we may in-license, acquire or develop will ever obtain final regulatoryapproval from the FDA or any foreign regulatory authority. Moreover, even after any product candidate receives finalregulatory approval, the FDA may require, as it has for Xtampza, costly post-marketing requirements. Successful and timelysatisfaction of these post-marketing requirements will be necessary for us to maintain regulatory approval.Our product candidates could fail to receive regulatory approval from the FDA or a foreign regulatory authority, or we maybe required to conduct more extensive studies and clinical trials in order to receive such approval, for many reasons,including, but not limited to:·the FDA and/or foreign regulatory authorities may disagree with or disapprove of the design or implementation ofour clinical trials;·failure to demonstrate that a product candidate is safe and effective for its proposed indication;·failure to demonstrate that a product candidate is bioequivalent to its listed drug;·failure of clinical trials to meet criteria required for approval;38 Table of Contents·failure to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks;·the FDA or foreign regulatory authorities may disagree with our interpretation of data from preclinical studies orclinical trials;·deficiencies in the manufacturing processes or failure of third-party manufacturing facilities with whom we contractfor clinical and commercial supplies to pass inspection;·the FDA or foreign regulatory authorities may not approve the manufacturing processes or facilities of third partymanufacturers with which we contract for clinical and commercial supplies; or·insufficient data collected from clinical trials of our product candidates or changes in the approval policies orregulations that render our preclinical and clinical data insufficient to support the submission and filing of an NDAor to obtain regulatory approval.The lengthy approval process, as well as the unpredictability of future clinical trial results, may result in our failing to obtainregulatory approval to market our product candidates, which would harm our business, results of operations and prospectssignificantly.In addition, even if we obtain approval, regulatory authorities may approve any of our product candidates for fewer or morelimited indications than we request, may not approve, with respect to certain foreign regulatory authorities, the price weintend to charge for our products, may grant approval contingent on the performance of costly post-marketing requirements,or may approve a product label that does not include the labeling claims necessary or desirable for the successfulcommercialization of that product. Any of the foregoing scenarios could have a material adverse effect on our business.The FDA or a foreign regulatory authority may require more information, including additional preclinical or clinical data tosupport approval, which may delay or prevent approval and our commercialization plans, or cause us to abandon thedevelopment program. Even if we obtain regulatory approval, our product candidates may be approved for fewer or morelimited indications than we request, such approval may be contingent on the performance of costly post-marketingrequirements, or we may not be allowed to include the labeling claims necessary or desirable for the successfulcommercialization of such product candidate.In order to market and sell our products outside the United States, we will likely need to obtain separate marketing approvalsand comply with numerous and varied regulatory requirements and regimes, which can involve additional testing, may takesubstantially longer than the FDA approval process, and still generally includes all of the risks associated with obtainingFDA approval. In addition, in many countries outside the United States, it is required that the product be approved forreimbursement before the product can be approved for sale in that country. FDA approval does not ensure approval byregulatory authorities in other countries or jurisdictions, and approval by one regulatory authority outside the United Statesdoes not ensure approval by the FDA or regulatory authorities in other countries or jurisdictions. We may not obtain anyregulatory approvals on a timely basis, if at all. We may not be able to file for marketing approvals and may not receivenecessary approvals to commercialize our products in any market. If we are unable to obtain approval of any of our productcandidates by regulatory authorities in countries outside the United States, the commercial prospects of that productcandidate may be significantly diminished and our business prospects could decline.Development of our product candidates is not complete, and we cannot be certain that our product candidates will becommercialized.We began the commercial launch of Xtampza, our first approved product, in June 2016. Accordingly, we have not generatingany material revenues from product sales. To be profitable, and in addition to commercializing Xtampza, we mustsuccessfully research, develop, obtain regulatory approval for, manufacture, launch, market and distribute product candidatesunder development. For each product candidate that we intend to commercialize, we must successfully meet a39 Table of Contentsnumber of critical developmental milestones, including:·selecting and developing a drug delivery technology to deliver the proper dose of drug over the desired period oftime;·determining the appropriate drug dosage that will be tolerated, safe and effective;·demonstrating the drug formulation will be stable for commercially reasonable time periods;·demonstrating that the drug is safe and effective in patients for the intended indication; and·completing the manufacturing development and scale-up to permit manufacture of our product candidates incommercial quantities and at acceptable prices.The time necessary to achieve these developmental milestones for any individual product candidate is long and uncertain,and we may not successfully complete these milestones for any of our product candidates in development. We may not beable to finalize the design or formulation of any product candidate. In addition, we may select components, solvents,excipients or other ingredients to include in our product candidates that have not been previously approved for use inpharmaceutical products, which may require us to perform additional studies and may delay clinical testing and regulatoryapproval of our product candidates. Even after we complete the design of a product candidate, the product candidate muststill be shown to be bioequivalent to an approved drug or safe and effective in required clinical trials before approval forcommercialization.We are continuing to test and develop our product candidates and may explore possible design or formulation changes toaddress bioavailability, safety, efficacy, manufacturing efficiency and performance issues. We may not be able to completedevelopment of any product candidates that will be safe and effective and that will have a commercially reasonable treatmentand storage period. If we are unable to complete development of our product candidates, we will not be able to earn revenuefrom them.Xtampza is, and we anticipate that our product candidates, if approved, will be, subject to mandatory REMS programs,which could increase the cost, burden and liability associated with the commercialization of such product and productcandidates.The FDA has approved a REMS for extended release, or ER, and long acting, or LA, opioid drugs formulated with the activeingredients fentanyl, hydromorphone, methadone, morphine, oxycodone, oxymorphone, and others as part of a federalinitiative to address prescription drug abuse and misuse, or the ER/LA opioid REMS. One of the primary goals of the ER/LAopioid REMS is to ensure that the benefits of these drugs continue to outweigh the risks.The ER/LA opioid REMS introduces new safety measures designed to reduce risks and improve the safe use of ER/LAopioids, while continuing to provide access to these medications for patients in pain. The ER/LA opioid REMS applies tomore than 20 companies that manufacture opioid analgesics. Under the ER/LA opioid REMS, companies are required tomake education programs available to prescribers based on the FDA Blueprint for Prescriber Education for Extended Releaseand Long Acting Opioid Analgesics. It is expected that companies will meet this obligation by providing educational grantsto continuing education providers, who will develop and deliver the training. The ER/LA opioid REMS also requirescompanies to distribute FDA-approved educational materials to prescribers and patients on the safe use of these drugs. Thecompanies must perform periodic assessments of the implementation of the ER/LA opioid REMS and the success of theprogram in meeting its goals. The FDA will review these assessments and may require additional elements to achieve thegoals of the program.If the FDA determines that a REMS is necessary during review of an application, the drug sponsor must agree to the REMSplan at the time of approval. As part of its approval of the Xtampza NDA, the FDA indicated that the REMS requirement forER/LA opioids will apply to Xtampza. The REMS includes a Medication Guide that is dispensed with each prescription,physician training based on FDA-identified learning objectives, audits to ensure that the FDA’s learning objectives areaddressed in the physician trainings, letters to prescribing physicians, professional organizations40 Table of Contentsand state licensing entities alerting each to the REMS, and the establishment of a call center to provide more informationabout the REMS. We anticipate that our future product candidates will also be subject to these REMS requirements. Theremay be increased cost, administrative burden and potential liability associated with the marketing and sale of these types ofproduct candidates subject to the ER/LA opioid REMS requirements, which could reduce the commercial benefits to us fromthe sale of these product candidates.If we fail to obtain the necessary final regulatory approvals, or if such approvals are limited, we will not be able tocommercialize our product candidates, and we will not generate product revenues.Even if we comply with all FDA pre-approval regulatory requirements, the FDA may determine that our product candidatesare not safe or effective, and we may never obtain final regulatory approval for such product candidates. If we fail to obtainfinal regulatory approval for some or all of our product candidates, we will have fewer commercial products, if any, andcorrespondingly lower product revenues, if any. Even if our product candidates receive final regulatory approval, such finalregulatory approval may involve limitations on the indications and conditions of use or marketing claims for our products, ormay not include certain abuse-deterrence claims or clinical trial data that we have sought, and will seek, to include in theproduct label. If we do not receive regulatory approval to include certain abuse-deterrence claims, or certain clinical data, inour product labels, our ability to successfully commercialize our products may be limited and our financial results may beadversely impacted. Further, later discovery of previously unknown problems or adverse events could result in additionalregulatory restrictions, including withdrawal of products and addition of warnings or other statements on the product label.The FDA is likely to require us to perform lengthy Phase 4 post-approval clinical efficacy or safety trials. As part of the FDA’sapproval of Xtampza, the FDA identified a number of studies that we will have to conduct, including required pediatricassessments and the post-marketing studies that have been required for other ER/LA opioid analgesics to estimate the seriousrisks of misuse, abuse, addiction, overdose, and death associated with long-term use of these medications for the managementof chronic pain. The FDA will also require studies specific to Xtampza, including: (i) an epidemiologic study to evaluatewhether the abuse-deterrent properties of Xtampza actually result in a significant and meaningful decrease in misuse andabuse, and their consequences with respect to addiction, overdose, and death; (ii) several long-term animal studies toevaluate the mixture of beeswax, carnauba wax, and myristic acid that is representative of Xtampza’s composition; (iii) astudy to characterize the levels of lead in Xtampza to inform a proposed release specification to adequately control levels oflead; and (iv) an evaluation of the beeswax employed in Xtampza’s composition for potential residual levels ofcontaminants. The FDA also requires us to participate, with other manufacturers of ER/LA opioid analgesics, in a clinicaltrial of at least a year in length that would assess the known serious risk of hyperalgesia, or increased sensitivity to pain, withER/LA opioid analgesics and the development of tolerance following use of these medications. The FDA may also imposeadditional post-marketing requirements, which will be very expensive to satisfy.In jurisdictions outside the United States, we must receive marketing authorizations from the appropriate regulatoryauthorities before commercializing our product candidates. Regulatory approval processes outside the United Statesgenerally include requirements and risks similar to, and in many cases in excess of, those associated with FDA approval.The FDA may not approve product labeling for our product candidates that would permit us to market and promote ourproducts in the United States by describing their abuse-deterrent features.We will invest substantial time and money conducting Category 1, Category 2 and Category 3 abuse deterrent studies toensure that our product candidates developed with our DETERx technology comply with the FDA’s April 2015 guidanceregarding opioid abuse deterrence. Our failure to achieve FDA approval of product labeling containing such information willprevent or substantiality limit our promotion of the abuse deterrent features of our product candidates in order to differentiatethem from other opioid products containing the same active ingredients. This would make our products less competitive inthe market. There can be no assurance that any of our product candidates will receive final FDA-approved product labelingthat describes the abuse deterrent features of such products. Furthermore, the FDA’s April 2015 final guidance on abusedeterrent opioids makes clear that the FDA expects sponsors to compare their formulations against approved abuse deterrentversions of the same opioid based on the relevant categories of testing. If a proposed product is less resistant to manipulationthan an approved product, the FDA has stated that the proposed product may not be eligible for product labeling regardingabuse deterrent properties. If the FDA does not approve product labeling containing abuse deterrence claims, we will not beable to promote such products based on their abuse deterrent features, may not be able to differentiate such products fromother opioid products containing the same active ingredients, and may need to lower the price of our products to the extentthat there are competing products with abuse41 Table of Contentsdeterrent claims on their product labels.Because the FDA closely regulates promotional materials and other promotional activities, even if the FDA initially approvesproduct labeling that includes a description of the abuse deterrent characteristics of our product, the FDA may object to ourmarketing claims and product advertising campaigns. This could lead to the issuance of warning letters or untitled letters,suspension or withdrawal of our products from the market, recalls, fines, disgorgement of money, operating restrictions,injunctions, and civil or criminal prosecution. Any of these consequences would harm the commercial success of ourproducts.Even if any of our product candidates are approved for marketing with certain abuse-deterrence claims, the April 2015 finalFDA guidance on abuse-deterrent opioids is not binding law and may be superseded or modified at any time. Also, if the FDAdetermines that our post-marketing data do not demonstrate that the abuse-deterrent properties result in reduction of abuse, ordemonstrate a shift to routes of abuse that present a greater risk, the FDA may find that product labeling revisions are needed,and potentially require the removal of our abuse-deterrence claims.Even if our product candidates receive regulatory approval, they will be subject to ongoing regulatory requirements, andwe may face regulatory enforcement action if we do not comply with the requirements.Even after a product is approved, we will remain subject to ongoing FDA and other regulatory requirements governing theproduct labeling, packaging, storage, distribution, safety surveillance, advertising, promotion, import, export, record-keepingand reporting of safety and other post-market information. If we experience delays in obtaining FDA approval of ouradvertising and promotional materials for Xtampza or any product candidate that receives marketing approval, or if FDAapproval of such materials is contingent upon substantial modifications, our promotional efforts relating to Xtampza and anyapproved product candidate may be impaired, and sales of such products may suffer.The holder of an approved NDA is obligated to monitor and report adverse events, or AEs, and any failure of a product tomeet the specifications in the NDA. In addition, manufacturers of drug products and their facilities are subject to payment ofuser fees and continual review and periodic inspections by the FDA and other regulatory authorities for compliance withcurrent good manufacturing practices, or cGMP, and other regulations. If we or a regulatory agency discover problems with aproduct which were previously unknown, such as adverse events of unanticipated severity or frequency, or problems with thefacility where the product is manufactured, a regulatory agency may impose restrictions on that product, the manufacturingfacility or us, including requiring product recall, notice to physicians, withdrawal of the product from the market orsuspension of manufacturing, among other things. If we, our product candidates or the manufacturing facilities for ourproduct candidates fail to comply with applicable regulatory requirements, a regulatory agency may:·issue warning letters or untitled letters;·mandate modifications to promotional materials or require us to provide corrective information to healthcarepractitioners;·require us to enter into a consent decree, which can include the imposition of various fines, reimbursements forinspection costs and penalties for noncompliance, and require due dates for specific actions;·seek an injunction or impose civil, criminal and/or administrative penalties, damages, monetary fines, requiredisgorgement, consider exclusion from participation in Medicare, Medicaid and other federal healthcare programsand require curtailment or restructuring of our operations;·suspend or withdraw regulatory approval;·suspend any ongoing clinical trials;·refuse to approve pending applications or supplements to applications filed by us;42 Table of Contents·suspend or impose restrictions on operations, including costly new manufacturing requirements;·seize or detain products, refuse to permit the import or export of products, or require us to initiate a product recall; or·refuse to allow us to enter into government contracts.Similar post-market requirements may apply in foreign jurisdictions in which we may seek approval of our products. Anygovernment investigation of alleged violations of law could require us to expend significant time and resources in responseand could generate negative publicity. The occurrence of any event or penalty described above may inhibit our ability tocommercialize our products and generate revenue and may cause a material adverse impact on our financial condition andcash flows.In addition, the FDA’s regulations, policies or guidance may change and new or additional statutes or governmentregulations in the United States and other jurisdictions may be enacted that could further restrict or regulate post-approvalactivities. We cannot predict the likelihood, nature or extent of adverse government regulation that may arise from pendingor future legislation or administrative action, either in the United States or abroad. If we are not able to achieve and maintainregulatory compliance, we may not be permitted to market our products and/or product candidates, which would adverselyaffect our ability to generate revenue and achieve or maintain profitability.Failure to comply with ongoing governmental regulations for marketing any product, including Xtampza, could delay orinhibit our ability to generate revenues from their sale and could also expose us to claims or other sanctions.Advertising and promotion of any product that obtains approval in the United States, including Xtampza, will be heavilyscrutinized by, among others, the FDA, the Department of Justice, or the DOJ, the Office of Inspector General of theDepartment of Health and Human Services, or HHS, state attorneys general, members of Congress and the public. Violations,including promotion of Xtampza, and any product for which we receive final regulatory approval, for unapproved or off-labeluses, are subject to enforcement letters, inquiries and investigations, and civil and criminal sanctions by the FDA or othergovernment agencies. Additionally, advertising and promotion of any product that obtains approval outside the UnitedStates will be heavily scrutinized by foreign regulatory authorities.In the United States, engaging in off-label promotion of Xtampza, or any products, can also subject us to false claimslitigation under federal and state statutes, and other litigation and/or investigation, which can lead to civil and criminalpenalties and fines and agreements that materially restrict the manner in which we promote or distribute our drug products.These false claims statutes include the federal False Claims Act, which allows any individual to bring a lawsuit against apharmaceutical company on behalf of the federal government alleging submission of false or fraudulent claims, or causing topresent such false or fraudulent claims, for payment by a federal program such as Medicare or Medicaid. If the governmentprevails in the lawsuit, the individual will share in any fines or settlement funds. Since 2004, these False Claims Act lawsuitsagainst pharmaceutical companies have increased significantly in volume and breadth, leading to several substantial civiland criminal settlements based on certain sales practices promoting off-label drug uses. This increased focus and scrutiny hasincreased the risk that a pharmaceutical company will have to defend a false claim action, pay settlement fines or restitution,agree to comply with burdensome reporting and compliance obligations, and be excluded from the Medicare, Medicaid andother federal and state healthcare programs.If we are found to have promoted such off-label uses, we may become subject to significant liability. The federal governmenthas levied large civil and criminal fines against companies for alleged off-label use and has enjoined several companies fromengaging in off-label promotion. The FDA has also requested that companies enter into consent decrees or permanentinjunctions under which specified promotional conduct is changed or curtailed. If we cannot successfully manage thepromotion of our products, we could become subject to significant liability, which could materially adversely affect ourbusiness and financial condition.In addition, later discovery of previously unknown problems with a product, manufacturer or facility, or our failure to updateregulatory files, may result in restrictions, including withdrawal of the product from the market. Any of the following or othersimilar events, if they were to occur, could delay or preclude us from further developing, marketing or realizing the fullcommercial potential of Xtampza and our product candidates:43 Table of Contents·failure to obtain or maintain requisite governmental approvals;·failure to obtain approvals of product labeling with abuse-deterrent claims; or·FDA required product withdrawals or warnings arising from identification of serious and unanticipated adverse sideeffects in our product candidates.Xtampza and our product candidates contain controlled substances, the manufacture, use, sale, importation, exportationand distribution of which are subject to regulation by state, federal and foreign law enforcement and other regulatoryagencies.Xtampza and our product candidates contain, and our future product candidates will likely contain, controlled substanceswhich are subject to state, federal and foreign laws and regulations regarding their manufacture, use, sale, importation,exportation and distribution. Xtampza’s active ingredient, oxycodone, is classified as a controlled substance under theControlled Substances Act of 1970, or CSA, and regulations of the U.S. Drug Enforcement Administration, or DEA. A numberof states also independently regulate these drugs, including oxycodone, as controlled substances. Controlled substances areclassified by the DEA as Schedule I, II, III, IV or V substances, with Schedule I substances considered to present the highestrisk of substance abuse and Schedule V substances the lowest risk. The active ingredient in Xtampza, oxycodone, is listed bythe DEA as a Schedule II controlled substance under the CSA. For our product candidates containing controlled substances,we and our suppliers, manufacturers, contractors, customers and distributors are required to obtain and maintain applicableregistrations from state, federal and foreign law enforcement and regulatory agencies and comply with state, federal andforeign laws and regulations regarding the manufacture, use, sale, importation, exportation and distribution of controlledsubstances. For example, all Schedule II drug prescriptions must be signed by a physician, physically presented to apharmacist and may not be refilled without a new prescription.Furthermore, the amount of Schedule II substances that can be obtained for clinical trials and commercial distribution islimited by the CSA and DEA regulations. We may not be able to obtain sufficient quantities of these controlled substances inorder to complete our clinical trials or meet commercial demand.In addition, controlled substances are also subject to regulations governing manufacturing, labeling, packaging, testing,dispensing, production and procurement quotas, recordkeeping, reporting, handling, shipment and disposal. Theseregulations increase the personnel needs and the expense associated with development and commercialization of Xtampzaand product candidates that include controlled substances. The DEA and some states conduct periodic inspections ofregistered establishments that handle controlled substances.Failure to obtain and maintain required registrations or to comply with any applicable regulations could delay or preclude usfrom developing and commercializing Xtampza and product candidates that contain controlled substances and subject us toenforcement action. The DEA may seek civil penalties, refuse to renew necessary registrations or initiate proceedings torevoke those registrations. In some circumstances, violations could lead to criminal proceedings. Because of their restrictivenature, these regulations could limit commercialization of products containing controlled substances.Clinical development is a lengthy and expensive process with an uncertain outcome, and failure can occur at any stage ofclinical development. If we are unable to design, conduct and complete clinical trials successfully, our product candidateswill not be able to receive regulatory approval.In order to obtain FDA approval for any of our product candidates, we must submit to the FDA an NDA with substantialevidence that demonstrates that the product candidate is both safe and effective in humans for its intended use. Thisdemonstration requires significant research, preclinical studies and clinical trials.Other than Xtampza, all of our product candidates are in preclinical and clinical development. Clinical trials are time-consuming, expensive and difficult to design and implement, in part because they are subject to rigorous requirements andtheir outcomes are inherently uncertain. Clinical testing may take many years to complete, and failure can occur at any timeduring the clinical trial process, even with active ingredients that have previously been approved by the FDA as being safeand effective. We could encounter problems that halt our clinical trials or require us to repeat such clinical44 Table of Contentstrials. If patients participating in clinical trials suffer drug-related adverse reactions during the course of such clinical trials, orif we or the FDA believe that patients are being exposed to unacceptable health risks, such clinical trials may be suspendedor terminated. Suspensions, termination or the need to repeat a clinical trial can occur at any stage.The clinical trial success of each of our product candidates depends on reaching statistically significant changes in patients’symptoms based on clinician-rated scales. There is a lack of consensus regarding standardized processes for assessing clinicaloutcomes based on clinician-rated scales. Accordingly, the scores from our clinical trials may not be reliable, useful oracceptable to the FDA or other regulatory agencies.Changes in standards related to clinical trial design could have a material adverse effect on our ability to design and conductclinical trials as planned. For example, we have conducted or will conduct clinical trials comparing our product candidates toboth placebo and other approved drugs, but regulatory authorities may not allow us to compare our product candidates to aplacebo in a particular clinical indication where approved products are available. In that case, both the cost and the amountof time required to conduct a clinical trial could increase. The FDA may disagree with our trial design and our interpretationof data from clinical trials, or may change the requirements for approval even after it has reviewed and commented on thedesign for our clinical trials. The FDA may also approve a product candidate for fewer or more limited indications than werequest, or may grant approval contingent on the performance of costly post-approval clinical trials. In addition, the FDAmay not approve the product labeling claims or removal of certain warnings that we believe are necessary or desirable for thesuccessful commercialization of our product candidates.Approval may be contingent on a REMS, which could have a material adverse effect on the product labeling, distribution orpromotion of a drug product.Any of these delays or additional requirements could cause our product candidates to not be approved, or if approved,significantly impact the timing of commercialization and significantly increase our overall costs of drug development.Because the results of preclinical studies and early-stage clinical trials are not necessarily predictive of future results, anyproduct candidate we advance into additional clinical trials may not continue to have favorable results or receiveregulatory approval.Other than Onsolis, all of our product candidates are in preclinical or early-stage clinical development. Success in preclinicalstudies and early clinical trials does not ensure that later clinical trials will generate adequate data to demonstrate theefficacy and safety of an investigational drug. Many companies in the pharmaceutical and biotechnology industries,including those with greater resources and experience, have suffered significant setbacks in clinical trials, even after positiveresults in earlier clinical trials. Despite preliminary preclinical studies for our other extended-release, abuse deterrent productcandidates, including hydrocodone and oxymorphone for pain, and methylphenidate for the treatment of ADHD, we do notknow whether the clinical trials we may conduct will demonstrate adequate efficacy and safety or otherwise provide adequateinformation to result in regulatory approval to market any of our product candidates in any particular jurisdiction. If later-stage clinical trials do not produce favorable results, our ability to achieve regulatory approval for any of our productcandidates may be compromised.Conducting clinical trials of Xtampza and our product candidates and any commercial sales of Xtampza and/or productcandidates may expose us to expensive product liability claims, and we may not be able to maintain product liabilityinsurance on reasonable terms or at all.We currently carry product liability insurance with coverage up to approximately $10 million. Product liability claims maybe brought against us by patients enrolled in our clinical trials, patients, healthcare providers or others using, administeringor selling our products. If we cannot successfully defend ourselves against claims that our products or product candidatescaused injuries, we could incur substantial liabilities. We may not be able to maintain insurance coverage at a reasonablecost or in an amount adequate to satisfy any liability that may arise. Regardless of merit or eventual outcome, liability claimsmay result in:·decreased demand for any product or product candidates that we may develop;·termination of clinical trial sites or entire trial programs;45 Table of Contents·injury to our reputation and significant negative media attention;·withdrawal of clinical trial participants;·significant costs to defend the related litigation;·substantial monetary awards to patients;·loss of revenue;·diversion of management and scientific resources from our business operations;·the inability to commercialize any products that we may develop; and·an increase in product liability insurance premiums or an inability to maintain product liability insurance coverage.Our inability to maintain sufficient product liability insurance at an acceptable cost to protect against potential productliability claims could prevent or inhibit the commercialization of Xtampza and our product candidates. Any agreements wemay enter into in the future with collaborators in connection with the development or commercialization of Xtampza and ourproduct candidates may entitle us to indemnification against product liability losses, but such indemnification may not beavailable or adequate should any claim arise. In addition, many of our agreements require us to indemnify third parties andthese indemnifications obligations may exceed the coverage under our product liability insurance policy.Xtampza and our product candidates may be associated with undesirable adverse reactions or have other properties thatcould delay or prevent their regulatory approval, limit the commercial profile of their approved product label, or result insignificant negative consequences following any marketing approval.Undesirable adverse reactions associated with Xtampza and our product candidates could cause us, our IRBs, clinical trialsites or regulatory authorities to interrupt, delay or halt clinical trials and could result in a restrictive product label or thedelay, denial or withdrawal of regulatory approval by the FDA or foreign regulatory authorities. For example, even thoughXtampza has generally been well tolerated by patients in our clinical trials, in some cases there were adverse reactions, one ofwhich was a serious adverse event, moderate in severity, of gastroesophageal reflux.If we or others identify undesirable adverse events associated with Xtampza or any product candidate for which we receivefinal regulatory approval, a number of potentially significant negative consequences could result, including:·we may be forced to suspend marketing of the product;·regulatory authorities may withdraw their approvals of the product or impose restrictions on its distribution;·regulatory authorities may require additional warnings or contradictions in the product label that could diminish theusage or otherwise limit the commercial success of the product;·we may be required to conduct additional post-marketing studies;·we could be sued and held liable for harm caused to patients; and·our reputation may suffer.Any of these events could prevent us from achieving or maintaining market acceptance of Xtampza or any of our46 Table of Contentsproduct candidates, if approved.Risks Related to Intellectual PropertyUnfavorable outcomes in intellectual property litigation could result in costly litigation and potentially limit our ability tocommercialize our products.Our commercial success depends upon our ability to develop product candidates and commercialize products withoutinfringing the intellectual property rights of others. Our current or future product candidates or products, or any uses of them,may now or in the future infringe third-party patents or other intellectual property rights. This is due in part to theconsiderable uncertainty within the pharmaceutical industry about the validity, scope and enforceability of many issuedpatents in the United States and elsewhere in the world and, to date, there is no consistency regarding the breadth of claimsallowed in pharmaceutical patents. We cannot currently determine the ultimate scope and validity of patents which may begranted to third parties in the future or which patents might be asserted to be infringed by the manufacture, use and sale ofour products. In part as a result of this uncertainty, there has been, and we expect that there will continue to be, significantlitigation in the pharmaceutical industry regarding patents and other intellectual property rights.Third parties may assert infringement claims against us, or other parties we have agreed to indemnify, based on existingpatents or patents that may be granted in the future. We are aware of third-party patents and patent applications related tooxycodone, oxymorphone, hydrocodone, morphine, and methylphenidate drugs and formulations, including those listed inthe FDA’s Orange Book for oxycodone products. Because of the delay between filing and publication of patent applications,and because applications can take several years to issue, there may be currently pending third-party patent applications thatare unknown to us, which may later result in issued patents. Because of the uncertainty inherent in intellectual propertylitigation, we could lose, even if the case against us was weak or flawed.If we are found to infringe a third party’s intellectual property rights, we could be required to obtain a license from such thirdparty to continue developing or commercializing Xtampza or our product candidates, products and technology. However, wemay not be able to obtain any required license on commercially reasonable terms or at all. Even if we are able to obtain alicense, it may be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. We could beforced, including by court order, to cease commercializing the infringing technology or product. In addition, in any suchproceeding or litigation, we could be found liable for monetary damages, including treble damages and attorneys’ fees, if weare found to have willfully infringed a patent. A finding of infringement could prevent us from commercializing Xtampza orour product candidates or force us to cease some of our business operations.In connection with any NDA that we file under Section 505(b)(2), including the NDA for Xtampza, we are required to notifythe patent holder of the reference listed drug that we identify in our NDA, that we have certified to the FDA that any patentslisted for the listed drug in the FDA’s Orange Book publication are invalid, unenforceable or will not be infringed by themanufacture, use or sale of our drug. If the patent holder files a patent infringement lawsuit against us within 45 days of itsreceipt of notice of our certification, the FDA is automatically prevented from approving our Section 505(b)(2) NDA until theearliest of 30 months after the lawsuit is filed, expiration of the patents, settlement of the lawsuit and a court decision in theinfringement case that is favorable to us. Accordingly, we may invest significant time and expense in the development of ourproduct candidates only to be subject to significant delay and patent litigation before our product candidates may becommercialized.If we are found by the court to have infringed a valid patent claim, we could be prevented from using the patentedtechnology or be required to pay the patent holder for the right to license the patented technology. If we decide to pursue alicense to use one or more of these patents, we may not be able to obtain a license on commercially reasonable terms, if at all,or the license we obtain may require us to pay substantial royalties or grant cross licenses to our patent rights. For example, ifthe relevant patent is owned by a competitor, such as Purdue, that competitor may choose not to license patent rights to us. Ifwe decide to develop alternative technology, we may not be able to do so in a timely or cost-effective manner, if at all.Even if we are found not to infringe or patent claims are found invalid or unenforceable, defending any such47 Table of Contentsinfringement claim would be expensive and time consuming, and could delay the approval or commercialization of ourproduct candidates and distract management from their normal responsibilities.Competitors may sue us as a way of delaying the introduction of our products. Any litigation, including any interference orderivation proceedings to determine priority of inventions, oppositions or other post-grant review proceedings to patents inthe United States or in countries outside the United States, or litigation against our collaborators may be costly and timeconsuming and could have a material adverse effect on our operating results, our ability to raise capital needed tocommercialize products and our overall financial condition. We expect that litigation may be necessary in some instances todetermine the validity and scope of our proprietary rights. Litigation may be necessary in other instances to determine thevalidity, scope or non-infringement of certain patent rights claimed by third parties to be pertinent to the manufacture, use orsale of our products. Ultimately, the outcome of such litigation could compromise the validity and scope of our patents orother proprietary rights or hinder our ability to manufacture and market our products.If we are unable to obtain or maintain intellectual property rights for our technology, products and product candidates, wemay lose valuable assets or experience reduced market share.We depend on our ability to protect our proprietary technology. We rely on patent and trademark laws, unpatented tradesecrets and know-how, and confidentiality, licensing and other agreements with employees and third parties, all of whichoffer only limited protection. Our success depends in large part on our ability to obtain and maintain patent protection in theUnited States and other countries with respect to our proprietary technology and product candidates.The steps we have taken to protect our proprietary rights may not be adequate to preclude misappropriation of ourproprietary information or infringement of our intellectual property rights, both inside and outside the United States. Therights already granted under any of our currently issued patents and those that may be granted under future issued patentsmay not provide us with the proprietary protection or competitive advantages we are seeking.The patent prosecution process is expensive and time-consuming, and we may not be able to file and prosecute allnecessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we will fail toidentify patentable aspects of inventions made in the course of our development and commercialization activities before itis too late to obtain patent protection on them.Given the amount of time required for the development, testing and regulatory review of product candidates, patentsprotecting such product candidates might expire before or shortly after such product candidates are commercialized. If we areunable to obtain and maintain patent protection for our technology and products, or if the scope of the patent protectionobtained is not sufficient, our competitors could develop and commercialize technology and products identical, similar orsuperior to ours, and our ability to successfully commercialize our technology and products may be adversely affected.With respect to patent rights, our patent applications may not issue into patents, and any issued patents may not provideprotection against competitive technologies, may be held invalid or unenforceable if challenged or may be interpreted in amanner that does not adequately protect our technology, product candidates or future product candidates. Even if our ownedpatent applications issue into patents, they may not issue in a form that will provide us with any meaningful protection,prevent competitors from competing with us, or otherwise provide us with any competitive advantage. The examinationprocess may require us to narrow the claims in our patents, which may limit the scope of patent protection that may beobtained. Our competitors may design around or otherwise circumvent patents issued to us or licensed by us.The scope of patent protection in the United States and in foreign jurisdictions is highly uncertain, and changes in U.S. andforeign patent law have increased that uncertainty and could diminish the value of patents in general, thereby impairingour ability to protect our product candidates and any future products.The patent position of pharmaceutical companies generally is highly uncertain, involves complex legal and factualquestions and has in recent years been the subject of much litigation. Changes in either the patent laws or interpretation ofthe patent laws in the United States and other countries may diminish the value of our patents or narrow the scope of ourpatent protection. The laws of foreign countries may not protect our rights to the same extent as the laws of the United States,and these foreign laws may also be subject to change.48 Table of ContentsPublications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in theUnited States and other jurisdictions typically are not published until 18 months after filing or, in some cases, not at all.Therefore, we cannot be certain that we were the first to make the inventions claimed in our owned or licensed patents orpending patent applications, or that we were the first to file for patent protection of such inventions. As a result, the issuance,scope, validity, enforceability and commercial value of our patent rights, both in the United States and abroad, are highlyuncertain.Recent patent reform legislation could increase the uncertainties and costs associated with the prosecution of our patentapplications and the enforcement or defense of our issued patents. The Leahy-Smith America Invents Act, or the Leahy-SmithAct, which was signed into law on September 16, 2011, made significant changes to U.S. patent law, including provisionsthat affect the way patent applications are prosecuted and litigated. Many of the substantive changes to patent law associatedwith the Leahy-Smith Act and, in particular, the “first to file” provisions described below, only became effective on March16, 2013. The Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding theprosecution of our patent applications and the enforcement or defense of our issued patents.Pursuant to the Leahy-Smith Act, the United States transitioned to a “first to file” system in which the first inventor to file apatent application will be entitled to the patent. In addition, third parties are allowed to submit prior art before the issuanceof a patent by the U.S. Patent and Trademark Office, or USPTO, and may become involved in opposition, derivation,reexamination, or inter partes review challenging our patent rights or the patent rights of others. Grounds for a validitychallenge could be an alleged failure to meet any of several statutory requirements, including novelty, nonobviousness andenablement. It is possible that prior art of which both we and the patent examiner were unaware during prosecution exists,which could render our patents invalid. Moreover, there may exist prior art of which we were or are aware, and which we didnot or do not consider relevant to our patents, but which could nevertheless be determined to render our patents invalid. Anadverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our patentrights, which could have a material adverse effect on our competitive position with respect to third parties.Because the issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, issued patents thatwe own or license from third parties may be challenged in the courts or patent offices in the United States and abroad. Suchchallenges may result in the loss of patent protection, the narrowing of claims in such patents, or the invalidity orunenforceability of such patents, which could limit our ability to stop others from using or commercializing similar oridentical technology and products, or limit the duration of the patent protection for our technology and products. Protectingagainst the unauthorized use of our patented technology, trademarks and other intellectual property rights is expensive,difficult and, may in some cases not be possible. In some cases, it may be difficult or impossible to detect third partyinfringement or misappropriation of our intellectual property rights, even in relation to issued patent claims, and proving anysuch infringement may be even more difficult.We may be forced to litigate to enforce or defend our intellectual property, which could be expensive, time consuming andunsuccessful, and result in the loss of valuable assets.We may be forced to litigate to enforce or defend our intellectual property rights against infringement and unauthorized useby competitors, and to protect our trade secrets. To counter infringement or unauthorized use, litigation may be necessary inthe future to enforce or defend our intellectual property rights, to protect our trade secrets or to determine the validity andscope of our own intellectual property rights. In so doing, we may place our intellectual property at risk of being invalidated,rendered unenforceable or limited or narrowed in scope.Further, this can be expensive and time consuming. Many of our current and potential competitors have the ability todedicate substantially greater resources to defend their intellectual property rights than we can.Accordingly, despite our efforts, we may not be able to prevent third parties from infringing upon or misappropriating ourintellectual property. Litigation could result in substantial costs and diversion of management resources, which could have amaterial adverse effect on our operating results, our ability to raise capital needed to commercialize products and our overallfinancial condition. In addition, an adverse result in any litigation proceeding could put one or more of our patents at risk ofbeing invalidated, held unenforceable or interpreted narrowly. Furthermore, because of the substantial amount of discoveryrequired in connection with intellectual property litigation, there is a risk that some of our confidential information could becompromised by disclosure during litigation. There could also be public49 Table of Contentsannouncements of the results of hearings, motions or other interim proceedings or developments. If securities analysts orinvestors perceive these results to be negative, it could have a material adverse effect on the price of shares of our commonstock.We may be subject to claims by third parties of ownership of what we regard as our own intellectual property orobligations to make compensatory payments to employees or others.While it is our policy to require our employees and contractors who may be involved in the development of intellectualproperty to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing or obtainingsuch an agreement with each party who, in fact, develops intellectual property that we regard as our own. In addition, theymay breach the assignment agreements or such agreements may not be self-executing, and we may be forced to bring claimsagainst third parties, or defend claims they may bring against us, to determine the ownership of what we regard as ourintellectual property. If we fail in prosecuting or defending any such claims, in addition to paying monetary damages, wemay lose valuable intellectual property rights or personnel. Such intellectual property rights could be awarded to a thirdparty, and we could be required to obtain a license from such third party to commercialize our technology or products. Such alicense may not be available on commercially reasonable terms or at all. Even if we are successful in defending against suchclaims, litigation could result in substantial costs and be a distraction to management.If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.In addition to seeking patents for some of our technology, products and product candidates, we rely on trade secrets,including unpatented know-how, technology and other proprietary information, to maintain our competitive position. Weseek to protect these trade secrets, in part, by entering into non-disclosure and confidentiality agreements with parties whohave access to them, such as our employees, corporate collaborators, outside scientific collaborators, contract manufacturers,consultants, advisors and other third parties. Despite these efforts, any of these parties may breach the agreements anddisclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies forsuch breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive andtime-consuming, and the outcome is unpredictable. In addition, some courts both within and outside the United States maybe less willing or unwilling to protect trade secrets. If any of our trade secrets were to be lawfully obtained or independentlydeveloped by a competitor, we would have no right to prevent such competitor, or those to whom they communicate with,from using that technology or information to compete with us. If any of our trade secrets were to be disclosed orindependently developed, our competitive position would be harmed.We may not be able to protect our intellectual property rights throughout the world.Filing, prosecuting and defending patents on all of our product candidates throughout the world would be prohibitivelyexpensive. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to developand sell their own products and, further, may export otherwise infringing products to territories where we have patentprotection but enforcement is not as strong as that in the United States. These products may compete with our products injurisdictions where we do not have any issued patents or our patent claims or other intellectual property rights may not beeffective or sufficient to prevent them from competing.Many companies have encountered significant problems in protecting and defending intellectual property rights in foreignjurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcementof patents and other intellectual property protection, particularly those relating to pharmaceuticals, which could make itdifficult for us to stop the infringement of our patents or the marketing of competing products in violation of our proprietaryrights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial cost and divertour efforts and attention from other aspects of our business.We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their formeremployers.Many of our employees, including our senior management, were previously employed at other biotechnology or50 Table of Contentspharmaceutical companies, including potential competitors. These employees typically executed proprietary rights, non-disclosure and non-competition agreements in connection with their previous employment. Although we try to ensure thatour employees do not use the proprietary information or know-how of others in their work for us, we may be subject to claimsthat we or these employees have used or disclosed intellectual property, including trade secrets or other proprietaryinformation, of any such employee’s former employer. We are not aware of any threatened or pending claims related to thesematters, but in the future litigation may be necessary to defend against such claims. If we fail in defending any such claims, inaddition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we aresuccessful in defending against such claims, litigation could result in substantial costs, damage our reputation and be adistraction to management.Obtaining and maintaining our patent protection depends on compliance with various procedural, document submissions,fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reducedor eliminated for non-compliance with these requirements.The USPTO and various foreign governmental patent agencies require compliance with a number of procedural,documentary, fee payment and other similar provisions during the patent application process. In addition, periodicmaintenance fees on issued patents are required to be paid to the USPTO and foreign patent agencies in several stages overthe lifetime of the patents. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other meansin accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse ofthe patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited to,failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize andsubmit formal documents. If we fail to maintain the patents and patent applications covering our product candidates, ourcompetitive position would be adversely affected.Risks Related to the Commercialization of Our Product CandidatesWe currently have limited sales and marketing capabilities and, if we are unable to expand our own sales and marketingcapabilities or enter into strategic alliances with marketing collaborators, we may not be successful in commercializingXtampza and our product candidates and may be unable to generate any material product revenue.Although our executive officers have experience marketing pharmaceutical products, we currently have limited sales,marketing or distribution capabilities. Our sales and marketing team has worked together for only a limited period of time.We cannot guarantee that we will be successful in marketing Xtampza or any of our product candidates which may beapproved for marketing. In addition, we will have to compete with other pharmaceutical and biotechnology companies withextensive and well-funded sales and marketing operations to recruit, hire, train and retain sales and marketing personnel. Ifwe are unable to establish adequate sales, marketing and distribution capabilities, whether independently or with thirdparties, we may not be able to generate material product revenue and may not become profitable. Factors that may inhibit ourefforts to commercialize our product candidates in the United States include:·our inability to recruit and retain adequate numbers of effective sales and marketing personnel;·the inability of sales personnel to obtain access to or persuade adequate numbers of physicians to prescribe Xtampzaand our product candidates;·the lack of complementary products to be offered by sales personnel, which may put us at a competitivedisadvantage relative to companies with more extensive product lines; and·unforeseen costs and expenses associated with creating and maintaining an independent sales and marketingorganization.If we are not successful in recruiting and retaining sales and marketing personnel or in building a sales and marketinginfrastructure or if we do not successfully enter into appropriate strategic alliances with marketing collaborators, agreementswith contract sales organizations or collaboration arrangements, we will have difficulty commercializing Xtampza or ourproduct candidates. To the extent we commercialize Xtampza or our product candidates by entering into51 Table of Contentsagreements with third-party collaborators, we may have limited or no control over the sales, marketing and distributionactivities of these third parties, in which case our future revenues would depend heavily on the success of the efforts of thesethird parties.If physicians, patients, healthcare payors and the medical community do not accept and use Xtampza or our productcandidates, we will not achieve sufficient product revenues and our business will suffer.Physicians, patients, healthcare payors and the medical community may not accept and use Xtampza or any of our productcandidates, for which we receive final regulatory approval. Acceptance and use of Xtampza and any product candidates forwhich we receive final regulatory approval will depend on a number of factors including:·the timing of market introduction of Xtampza and the product candidates as well as competitive products;·approved indications, warnings and precautions language that may be less desirable than anticipated;·perceptions by members of the healthcare community, including physicians, about the safety and efficacy ofXtampza and our product candidates, and, in particular, the relevance and efficacy of our abuse deterrent technologyin reducing potential risks of unintended use;·perceptions by physicians regarding the cost benefit of Xtampza and our product candidates in reducing potentialrisks of unintended use;·published studies demonstrating the cost-effectiveness of Xtampza and our product candidates relative to competingproducts;·the potential and perceived advantages of Xtampza and our product candidates over alternative treatments;·the convenience and ease of administration to patients of Xtampza and our product candidates;·actual and perceived availability of coverage and reimbursement for Xtampza and our product candidates fromgovernment or other third-party payors;·any negative publicity related to our or our competitors’ products that include the same active ingredient asXtampza and our product candidates;·the prevalence and severity of adverse side effects, including limitations or warnings contained in a product’s FDAapproved product labeling;·our ability to implement a REMS; and·effectiveness of marketing and distribution efforts by us and any licensees and distributors.If Xtampza or our product candidates for which we receive final regulatory approval, fail to achieve an adequate level ofacceptance by physicians, healthcare payors, patients or the medical community, we will not be able to generate significantrevenue, and we may not become or remain profitable. Because we expect to rely on sales generated by Xtampza forsubstantially all of our revenues for the foreseeable future, the failure of Xtampza to find market acceptance would harm ourbusiness prospects.Recently enacted and future legislation may increase the difficulty and cost for us to commercialize Xtampza and ourproduct candidates and may reduce the prices we are able to obtain for our products.In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and52 Table of Contentsproposed changes regarding the healthcare system that could prevent or delay marketing approval of our product candidates,restrict or regulate post-approval activities or affect our ability to profitably sell Xtampza or any product candidates forwhich we obtain marketing approval.In the United States, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or MedicareModernization Act, changed the way Medicare covers and pays for pharmaceutical products. The legislation expandedMedicare coverage for drug purchases by the elderly and introduced a new reimbursement methodology based on averagesales prices for physician administered drugs. In addition, this legislation provided authority for limiting the number of drugsthat will be covered in any therapeutic class. Cost reduction initiatives and other provisions of this legislation could decreasethe coverage and price that we receive for any approved products. While the Medicare Modernization Act applies only todrug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations insetting their own reimbursement rates. Therefore, any reduction in reimbursement that results from the MedicareModernization Act may result in a similar reduction in payments from private payors.The pricing of pharmaceutical products, in general, and specialty drugs, in particular, has also been a topic of concern in theU.S. government. There can be no assurance as to how this scrutiny on pricing of pharmaceutical products will impact futurepricing of our products or orphan drugs or pharmaceutical products generally.In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act, as amended by the HealthCare and Education Reconciliation Act, or collectively, the Affordable Care Act, a sweeping law intended to broaden accessto health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, addnew transparency requirements for health care and health insurance industries, impose new taxes and fees on the healthindustry and impose additional health policy reforms. Effective October 1, 2010, the Affordable Care Act revised thedefinition of “average manufacturer price” for reporting purposes, which could increase the amount of Medicaid drug rebatesto states. Further, the new law imposes a significant annual fee on companies that manufacture or import branded prescriptiondrug products. A significant number of provisions are not yet, or have only recently become, effective, but the AffordableCare Act is likely to continue the downward pressure on pharmaceutical pricing, especially under the Medicare program, andmay also increase our regulatory burdens and operating costs. We expect that the Affordable Care Act, as well as otherhealthcare reform measures that have been and may be adopted in the future, may result in more rigorous coverage criteria,new payment methodologies and in additional downward pressure on the price that we receive for any approved product, andcould seriously harm our future revenues. Any reduction in reimbursement from Medicare or other government programs mayresult in a similar reduction in payments from private payors. The implementation of cost containment measures or otherhealthcare reforms may compromise our ability to generate revenue, attain profitability or commercialize our products.Finally, there are ongoing efforts to modify or eliminate the ACA. It is unknown what form any such modifications or any lawproposed to replace the ACA would take, and how or whether it may affect our business in the future.Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales andpromotional activities for pharmaceutical products. We cannot be sure whether additional legislative changes will beenacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the impact of such changes onthe marketing approvals of our product candidates, if any, may be. In addition, increased scrutiny by the U.S. Congress of theFDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more stringentproduct labeling and post-marketing testing and other requirements.In addition, state pharmacy laws may permit pharmacists to substitute generic products for branded products if the productsare therapeutic equivalents, or may permit pharmacists and pharmacy benefit managers to seek prescriber authorization tosubstitute generics in place of Xtampza or our product candidates, which could significantly diminish demand for them andsignificantly impact our ability to successfully commercialize our products and generate revenues.Even if we are able to commercialize Xtampza and any of our product candidates, our products may become subject tounfavorable pricing regulations or third-party coverage and reimbursement policies, which could have a material adverseeffect on our business.The regulations that govern marketing approvals, pricing and reimbursement for new drug products vary widely from countryto country. Current and future legislation may significantly change the approval requirements in ways that could53 Table of Contentsinvolve additional costs and cause delays in obtaining approvals. Some countries require approval of the sale price of a drugbefore it can be marketed. In many countries, the pricing review period begins after marketing or product licensing approvalis granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental controleven after initial approval is granted. As a result, we might obtain marketing approval for a product in a particular country,but then be subject to price regulations that delay our commercial launch of the product, possibly for lengthy time periods,which could negatively impact the revenues we are able to generate from the sale of the product in that particular country.Pricing limitations may hinder our ability to recoup our investment in Xtampza and our product candidates even if ourproduct candidates obtain marketing approval.Our ability to commercialize any product successfully will also depend in part on the extent to which coverage and adequatereimbursement for these products and related treatments will be available from government health administration authorities,private health insurers and other organizations. Government authorities and third-party payors, such as private health insurersand health maintenance organizations, determine which medications they will cover and establish reimbursement levels. Aprimary trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and other third-partypayors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications.Increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list pricesand are challenging the prices charged for medical products. We cannot be sure that coverage and reimbursement will beavailable for any product that we commercialize and, if reimbursement is available, what the level of reimbursement will beand whether it will be satisfactory. Coverage and reimbursement may impact the demand for, or the price of, any productcandidate for which we obtain marketing approval. If coverage and reimbursement are not available or reimbursement isavailable only to limited levels, we may not be able to successfully commercialize any product candidate for which weobtain marketing approval.There may be significant delays in obtaining coverage and reimbursement for newly approved drugs, and coverage may bemore limited than the purposes for which the drug is approved by the FDA or foreign regulatory authorities. Moreover,eligibility for coverage and reimbursement does not imply that any drug will be paid for in all cases or at a rate that coversour costs, including research, development, manufacture, sale and distribution. Interim reimbursement levels for new drugs, ifapplicable, may also not be sufficient to cover our costs and may only be temporary. Reimbursement rates may varyaccording to the use of the drug and the clinical setting in which it is used, may be based on reimbursement levels already setfor lower cost drugs and may be incorporated into existing payments for other services. Net prices for drugs may be reducedby mandatory discounts or rebates required by government healthcare programs or private payors and by any futurerelaxation of laws that presently restrict imports of drugs from policy and payment limitations in setting their ownreimbursement policies. Our inability to promptly obtain coverage and profitable reimbursement rates from bothgovernment-funded and private payors for any approved products that we develop could have a material adverse effect onour operating results, our ability to raise capital needed to commercialize products and our overall financial condition.Social issues around the abuse of opioids, including law enforcement concerns over diversion of opioids and regulatoryefforts to combat abuse, could decrease the potential market for Xtampza and our product candidates.Media stories regarding prescription drug abuse and the diversion of opioids and other controlled substances arecommonplace. Law enforcement and regulatory agencies may apply policies and guidelines that seek to limit the availabilityor use of opioids. Such efforts may inhibit our ability to commercialize Xtampza and our product candidates.Aggressive enforcement and unfavorable publicity regarding, for example, the use or misuse of oxycodone or other opioiddrugs; the limitations of abuse-resistant formulations; the ability of drug abusers to discover previously unknown ways toabuse opioid drugs, including Xtampza; public inquiries and investigations into prescription drug abuse; litigation; orregulatory activity regarding sales, marketing, distribution or storage of opioid drugs could have a material adverse effect onour reputation. Such negative publicity could reduce the potential size of the market for Xtampza and our product candidatesand decrease the revenues we are able to generate from their sale. Similarly, to the extent opioid abuse becomes less prevalentor less urgent of a public health issue, regulators and third party payers may not be willing to pay a premium for abuse-deterrent formulations of opioids.Efforts by the FDA and other regulatory bodies to combat abuse of opioids may negatively impact the market for our productcandidates. In February 2016, the FDA released an action plan to address the opioid abuse epidemic and reassess54 Table of Contentsthe FDA’s approach to opioid medications. The plan identifies FDA’s focus on implementing policies to reverse the opioidabuse epidemic, while maintaining access to effective treatments. The actions set forth in the FDA’s plan includestrengthening post marketing study requirements to evaluate the benefit of long-term opioid use, changing the REMSrequirements to provide additional funding for physician education courses, releasing a draft guidance setting forth approvalstandards for generic-abuse deterrent opioid formulations, and seeking input from the FDA’s Scientific Board to broaden theunderstanding of the public risks of opioid abuse. The FDA’s Scientific Advisory Board met to address these issues on March1, 2016. The FDA’s plan is part of a broader initiative led by the HHS to address opioid-related overdose, death anddependence. The HHS initiative’s focus is on improving physician’s use of opioids through education and resources toaddress opioid over-prescribing, increasing use and development of improved delivery systems for naloxone, which canreverse overdose from both prescription opioids and heroin, to reduce overdose-related deaths, and expanding the use ofMedication-Assisted Treatment, which couples counseling and behavioral therapies with medication to address substanceabuse. Also as part of this initiative, the CDC has launched a state grant program to offer state health departments resources toassist with abuse prevention efforts, including efforts to track opioid prescribing through state-run electronic databases. InMarch 2016, as part of the HHS initiative, the CDC released a new Guideline for Prescribing Opioids for Chronic Pain. Theguideline is intended to assist primary care providers treating adults for chronic pain in outpatient settings. The guidelineprovides recommendations to improve communications between doctors and patients about the risks and benefits of opioidtherapy for chronic pain, improve the safety and effectiveness of pain treatment, and reduce the risks associated with long-term opioid therapy. The guideline states that no treatment recommendations about the use of abuse-deterrent opioids can bemade at this time. Many of these changes and others could cause us to expend additional resources in developing andcommercializing Xtampza and our product candidates to meet additional requirements. Advancements in development andapproval of generic abuse-deterrent opioids could also compete with and potentially impact physician use of our productcandidates and cause our product candidates to be less commercially successful.If the FDA or other applicable regulatory authorities approve generic products with abuse deterrent claims that competewith Xtampza or any of our product candidates, it could reduce our sales.Once an NDA, including a Section 505(b)(2) application, is approved, the product covered thereby becomes a “listed drug”which can, in turn, be cited by potential competitors in support of approval of an abbreviated NDA, or ANDA. The FD&CAct, FDA regulations and other applicable regulations and policies provide incentives to manufacturers to create modified,non-infringing versions of a drug to facilitate the approval of an ANDA or other application for generic substitutes. Thesemanufacturers might only be required to conduct a relatively inexpensive study to show that their product has the sameactive ingredients, dosage form, strength, route of administration, and conditions of use, or product labeling, as our productand that the generic product is absorbed in the body at the same rate and to the same extent as, or is bioequivalent to, ourproduct. These generic equivalents would be significantly less costly than ours to bring to market and companies thatproduce generic equivalents are generally able to offer their products at lower prices. Thus, after the introduction of a genericcompetitor, a significant percentage of the sales of any branded product are typically lost to the generic product.Accordingly, competition from generic equivalents to our products would substantially limit our ability to generate revenuesand therefore to obtain a return on the investments we have made in our product and product candidates.Guidelines and recommendations published by various organizations can reduce the use of our products, if approved.Government agencies promulgate regulations and guidelines directly applicable to us and to Xtampza and our productcandidates. In addition, professional societies, practice management groups, private health and science foundations andorganizations involved in various diseases from time to time may also publish guidelines or recommendations to thehealthcare and patient communities. Recommendations of government agencies or these other groups or organizations mayrelate to such matters as usage, dosage, route of administration and use of concomitant therapies. Recommendations orguidelines suggesting the reduced use of our products or the use of competitive or alternative products as the standard of careto be followed by patients and healthcare providers could result in decreased use of our products.Risks Related to Our Dependence on Third PartiesIf the third party manufacturer of Xtampza fails to devote sufficient time and resources to Xtampza, or its performance issubstandard, our costs may be higher than expected and could have a material adverse effect on our business.55 Table of ContentsWe do not own any manufacturing facilities and have limited experience in drug development and commercialmanufacturing. We currently have no plans to build our own clinical or commercial scale manufacturing facility. We lack theresources and expertise to manufacture and test, on a commercial scale, the technical performance of Xtampza and ourproduct candidates. We currently rely, and expect to continue to rely, on a limited number of experienced personnel and onecontract manufacturer for Xtampza and each product candidate, as well as other vendors to formulate, test, supply, store anddistribute Xtampza and our product candidates for our clinical trials and FDA registration, and we control only certainaspects of their activities. Although we have identified alternate sources for these services, it would be time-consuming, andrequire us to incur additional cost, to qualify these sources.Our reliance on a limited number of vendors and, in particular, Patheon, as our single manufacturer for Xtampza, exposes usto the following risks, any of which could delay FDA approval of our product candidates and commercialization of ourproducts, result in higher costs, or deprive us of potential product revenues:·our contract manufacturer, or other third parties we rely on, may encounter difficulties in achieving the volume ofproduction needed to satisfy commercial demand, may experience technical issues that impact quality orcompliance with applicable and strictly enforced regulations governing the manufacture of pharmaceuticalproducts, may experience shortages of qualified personnel to adequately staff production operations, mayexperience shortages of raw materials and may have difficulties finding replacement parts or equipment.·our contract manufacturer could default on its agreement with us to meet our requirements for commercial suppliesof Xtampza.·the use of alternate manufacturers may be difficult because the number of potential manufacturers that have thenecessary governmental licenses to produce narcotic products is limited. Additionally, the FDA and the DEA mustapprove any alternative manufacturer of Xtampza or any product candidate for which we receive regulatoryapproval, before we may use the alternative manufacturer to produce commercial supplies.·it may be difficult or impossible for us to find a replacement manufacturer on acceptable terms quickly, or at all. Ourcontract manufacturer and vendors may not perform as agreed or may not remain in the contract manufacturingbusiness for the time required to successfully produce, store and distribute our products.·if our contract manufacturer were to terminate our arrangement or fail to meet our commercial manufacturingdemands, we may be forced to delay our development and commercial programs.Our reliance on third parties reduces our control over our development and commercialization activities but does not relieveus of our responsibility to ensure compliance with all required legal, regulatory and scientific standards. The FDA and otherregulatory authorities require that Xtampza and our product candidates that we may eventually commercialize bemanufactured according to cGMP and similar foreign standards. Any failure by our third-party manufacturer to comply withcGMP or failure to scale up manufacturing processes, including any failure to deliver sufficient quantities of productcandidates in a timely manner, could lead to a delay in, or failure to obtain, regulatory approval of any of our productcandidates. In addition, such failure could be the basis for the FDA to issue a warning or untitled letter, withdraw approvalsfor products previously granted to us, or take other regulatory or legal action, including recall or seizure, total or partialsuspension of production, suspension of ongoing clinical trials, refusal to approve pending applications or supplementalapplications, detention or product, refusal to permit the import or export of products, injunction, imposing civil penalties orpursuing criminal prosecution.Because we currently rely on a sole supplier to manufacture the active pharmaceutical ingredient of Xtampza, anyproduction problems with our supplier could have a material adverse effect on us.We presently depend upon a single supplier for the active ingredient for Xtampza — oxycodone base — and we intend tocontract with this supplier, as necessary, for commercial supply of our products. Although we have identified an alternatesource for oxycodone base, it would be time-consuming and costly to qualify this source. Since we currently obtain ouractive ingredient from this manufacturer on a purchase-order basis, either we or our supplier may terminate our arrangement,without cause, at any time without notice. If our supplier were to terminate our arrangement or fail to meet our supply needs,we might incur substantial costs and be forced to delay our development or commercialization56 Table of Contentsprograms. Any such delay could have a material adverse effect on our business.We rely on third parties to conduct our clinical trials. If these third parties do not successfully carry out their contractualduties or meet expected deadlines, or if they terminate their agreement with us, we may not be able to obtain regulatoryapproval for or commercialize our product candidates and our business could suffer a material adverse effect.We have relied upon and plan to continue to rely upon contract research organizations, or CROs, to monitor and manage datafor our ongoing preclinical and clinical programs. We rely on these parties for execution of our clinical trials, and controlonly certain aspects of their activities. Nevertheless, we are responsible for ensuring that each of our studies and clinical trialsare conducted in accordance with the applicable protocol, legal, regulatory and scientific standards, and our reliance on theCROs does not relieve us of our regulatory responsibilities. We and our CROs are required to comply with federal regulationsand current Good Clinical Practices, or GCP, which are international standards meant to protect the rights and health ofpatients and to define the roles of clinical trial sponsors, advisors and monitors, enforced by the FDA, the CompetentAuthorities of the Member States of the European Economic Area, or EEA, and foreign regulatory authorities in the form ofInternational Conference on Harmonization, or ICH, guidelines for all of our product candidates in clinical development.Regulatory authorities enforce these GCP through periodic inspections of trial sponsors, principal investigators and trialsites. In addition, we and our CROs are required to comply with special regulations regarding the enrollment of recreationaldrug abusers in clinical trials. If we or any of our CROs fail to comply with applicable GCP and other regulations, includingas a result of any recent changes in such regulations, the clinical data generated in our clinical trials may be deemedunreliable and the FDA or foreign regulatory authorities may require us to perform additional clinical trials before approvingour marketing applications. We cannot assure you that upon inspection by a given regulatory authority, such regulatoryauthority will determine that any of our clinical trials comply with GCP requirements. In addition, our clinical trials must beconducted with product produced under cGMP requirements. While we have agreements governing activities of our CROs,we have limited influence over their actual performance. Failure to comply with applicable regulations in the conduct of theclinical trials for our product candidates may require us to repeat preclinical studies and clinical trials, which would delay theregulatory approval process.Our CROs are not our employees, and except for remedies available to us under our agreements with such CROs, we cannotcontrol whether or not they devote sufficient time and resources to our ongoing clinical and preclinical programs. If CROs donot successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or ifthe quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols,regulatory requirements or for other reasons, our clinical trials may be extended, delayed or terminated and we may not beable to obtain regulatory approval for or successfully commercialize our product candidates. As a result, the commercialprospects for our product candidates would be harmed, our costs could increase substantially and our ability to generaterevenue could be delayed.Switching or adding additional CROs involves additional cost and requires management time and focus, and there is alimited number of CROs that are equipped and willing to manage clinical trials that involve recreational drug abusers. OurCROs have the right to terminate their agreements with us in the event of an uncured material breach. In addition, some ofour CROs have an ability to terminate their respective agreements with us if it can be reasonably demonstrated that the safetyof the patients participating in our clinical trials warrants such termination, if we make a general assignment for the benefit ofour creditors or if we are liquidated. Identifying, qualifying and managing performance of third-party service providers canbe difficult, time-consuming and cause delays in our development programs. In addition, there is a natural transition periodwhen a new CRO commences work and the new CRO may not provide the same type or level of services as the originalprovider. Though we carefully manage our relationships with our CROs, there can be no assurance that we will not encounterchallenges or delays in the future or that these delays or challenges will not have a material adverse impact on our business,financial condition and prospects. If any of our relationships with our CROs terminate, we may not be able to enter intoarrangements with alternative CROs or to do so on commercially reasonable terms. As a result, delays may occur, which canmaterially impact our ability to meet our desired clinical development timelines.Our internal capacity to perform these functions is limited. Outsourcing these functions involves risks that third parties maynot perform to our standards, may not produce results in a timely manner or may fail to perform at all. In addition, the use ofthird-party service providers requires us to disclose our proprietary information to these parties, which could increase the riskthat this information will be misappropriated. We currently have a small number of employees, which57 Table of Contentslimits the internal resources we have available to identify and monitor our third-party providers. To the extent we are unableto identify and successfully manage the performance of third-party service providers in the future, our ability to advance ourproduct candidates through clinical trials will be compromised. There can be no assurance that we will not encounter similarchallenges or delays in the future or that these delays or challenges will not have a material adverse impact on our business,financial condition and prospects.In the future, we may depend on collaborations with third parties for the development and commercialization of Xtampzaand our product candidates. If those collaborations are not successful, we may not be able to capitalize on the marketpotential of these product candidates.We may not be successful in establishing development and commercialization collaborations which could adversely affect,and potentially prohibit, our ability to develop or commercialize Xtampza and our product candidates. These collaborations,including our license agreement for the development and marketing of Onsolis, pose the following risks to us:·collaborators may have significant discretion in determining the efforts and resources that they will apply to thesecollaborations.·collaborators may not pursue development and commercialization of our product or product candidates or may electnot to continue or renew development or commercialization programs based on clinical trial results, changes in thecollaborator’s strategic focus or available funding or external factors such as an acquisition that diverts resources orcreates competing priorities.·collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial orabandon our product or product candidate, repeat or conduct new clinical trials or require a new formulation of ourproduct or product candidate for clinical testing.·collaborators may conduct clinical trials inappropriately, or may obtain unfavorable results in their clinical trials,which may have an adverse effect on the development or commercialization of our product or product candidates.·collaborators could independently develop, or develop with third parties, products that compete directly orindirectly with our product or product candidates if the collaborators believe that competitive products are morelikely to be successfully developed or can be commercialized under terms that are more economically attractive thanours.·a collaborator with marketing and distribution rights to one or more products may not commit sufficient resources tothe marketing and distribution of such products.·collaborators may not properly maintain or defend our intellectual property rights or may use our proprietaryinformation in such a way as to invite litigation that could jeopardize or invalidate our proprietary information orexpose us to potential litigation.·disputes may arise between the collaborators and us that result in the delay or termination of the research,development or commercialization of our product and product candidates or that result in costly litigation orarbitration that diverts management attention and resources.·we may lose certain valuable rights under circumstances specified in our collaborations.·collaborations may be terminated and, if terminated, may result in a need for additional capital to pursue furtherdevelopment or commercialization of the applicable product or product candidates.·collaboration agreements may not lead to development or commercialization of products or product candidates inthe most efficient manner or at all. If a future collaborator of ours were to be involved in a business58 Table of Contentscombination, the continued pursuit and emphasis on our product development or commercialization program undersuch collaboration could be delayed, diminished or terminated. We may rely on collaborators to market and commercialize Xtampza and, if approved, our product candidates, who mayfail to effectively commercialize our products.We may utilize strategic collaborators or contract sales forces, where appropriate, to assist in the commercialization ofXtampza and our product candidates, if approved by the FDA. We currently possess limited resources and may not besuccessful in establishing collaborations or co-promotion arrangements on acceptable terms, if at all. We also facecompetition in our search for collaborators and co-promoters. If we enter into strategic collaborations or similar arrangements,we will rely on third parties for financial resources and for development, commercialization, sales and marketing andregulatory expertise. Our collaborators, if any, may fail to develop or effectively commercialize our products and productcandidates because they cannot obtain the necessary regulatory approvals, they lack adequate financial or other resources orthey decide to focus on other initiatives. Any failure of our third-party collaborators to successfully market andcommercialize our product and product candidates would diminish our revenues.Manufacturing issues may arise that could increase product and regulatory approval costs, delay commercialization orlimit commercial supply.As we scale up manufacturing of our products and product candidates and conduct required stability testing, we mayencounter product, packaging, equipment and process-related issues that may require refinement or resolution in order toproceed with our planned clinical trials, obtain regulatory approval for commercial marketing and build commercialsupplies. In the future, we may identify impurities, which could result in increased scrutiny by regulatory authorities, delaysin our clinical programs and regulatory approval, increases in our operating expenses, failure to obtain or maintain approvalor limitations in our commercial supply.Risks Related to Our Business and StrategyWe face substantial competition from other biotechnology and pharmaceutical companies, which may result in othersdiscovering, developing or commercializing products before or more successfully than we do.The biopharmaceutical industry is intensely competitive and subject to rapid and significant technological change. Inaddition, the competition in the pain and opioid market is intense. We have competitors both in the United States andinternationally, including major multinational pharmaceutical companies, biotechnology companies and universities andother research institutions.We face and will continue to face competition from other companies in the pharmaceutical and medical device industries.Our product candidates, if approved, will compete with currently marketed oral opioids, transdermal opioids, local anestheticpatches, stimulants and implantable and external infusion pumps that can be used for infusion of opioids and localanesthetics. Products of these types are marketed by Actavis, Depomed, Egalet, Endo, Mallinckrodt, Pernix, Pfizer, Purdue,Teva, and others. Some of these current and potential future competitors may be addressing the same therapeutic areas orindications as we are. Many of our current and potential future competitors have significantly greater research anddevelopment capabilities than we do, have substantially more marketing, manufacturing, financial, technical, human andmanagerial resources than we do, and have more institutional experience than we do. Mergers and acquisitions in thebiotechnology and pharmaceutical industries may result in even more resources being concentrated in our competitors.As a result of these factors, our competitors may obtain regulatory approval of their products more rapidly than we are able toor may obtain patent protection or other intellectual property rights that allow them to develop and commercialize theirproducts before us and limit our ability to develop or commercialize our product and product candidates. Our competitorsmay also develop drugs that are safer, more effective, more widely used and less costly than ours, and they may also be moresuccessful than us in manufacturing and marketing their products.59 Table of ContentsFurthermore, if the FDA approves a competitor’s 505(b)(2) application for a drug candidate before our application for asimilar drug candidate and grants the competitor a period of exclusivity, the FDA may take the position that it cannotapprove our NDA for a similar drug candidate. For example, several competitors have developed extended-releasehydrocodone products, and if the FDA grants exclusivity, we could be subject to a delay that would dramatically reduce theexpected market penetration for our hydrocodone product candidate. Additionally, even if our 505(b)(2) application isapproved for marketing, we may still be subject to competition from other hydrocodone products, including approvedproducts or other approved 505(b)(2) NDAs for different conditions of use that would not be restricted by any grant ofexclusivity to us.In addition, competitors have developed or are in the process of developing technologies that are, or in the future may be, thebasis for competitive products. Some of these products may have an entirely different approach or means of accomplishingsimilar therapeutic effects than our product candidates. Our competitors may develop products that are safer, more effectiveor less costly than our product candidates and, therefore, present a serious competitive threat to our product offerings.The widespread acceptance of currently available therapies with which our product and product candidates, if approved,compete may limit market acceptance of our product and product candidates even if commercialized. Oral medications,transdermal drug delivery systems, such as drug patches, injectable products and implantable drug delivery devices arecurrently available treatments for chronic pain, are widely accepted in the medical community and have a long history of use.These treatments will compete with our product and product candidates, if approved, and the established use of thesecompetitive products may limit the potential for our product and product candidates to receive widespread acceptance ifcommercialized.The use of legal and regulatory strategies by competitors with innovator products, including the filing of citizen petitions,may delay or prevent the introduction or approval of our product candidates, increase our costs associated with theintroduction or marketing of our products, or significantly reduce the profit potential of our product candidates.Companies with innovator drugs often pursue strategies that may serve to prevent or delay competition from alternatives totheir innovator products. These strategies include, but are not limited to:·filing “citizen petitions” with the FDA that may delay competition by causing delays of our product approvals;·seeking to establish regulatory and legal obstacles that would make it more difficult to demonstrate a product’sbioequivalence or “sameness” to the related innovator product;·filing suits for patent infringement that automatically delay FDA approval of products seeking approval based onthe Section 505(b)(2) pathway;·obtaining extensions of market exclusivity by conducting clinical trials of innovator drugs in pediatric populationsor by other methods;·persuading the FDA to withdraw the approval of innovator drugs for which the patents are about to expire, thusallowing the innovator company to develop and launch new patented products serving as substitutes for thewithdrawn products;·seeking to obtain new patents on drugs for which patent protection is about to expire; and·initiating legislative and administrative efforts in various states to limit the substitution of innovator products bypharmacies.These strategies could delay, reduce or eliminate our entry into the market and our ability to generate revenues from ourproduct and product candidates.60 Table of ContentsOur future success depends on our ability to retain our key personnel.We are highly dependent upon the services of our key personnel, including our President and Chief Executive Officer,Michael T. Heffernan, and our Chief Commercial Officer, Barry Duke. Each employee is employed by us at will and ispermitted to terminate his employment with us at any time pursuant to the terms of his employment agreement. We do notmaintain “key person” insurance for any of our executives or other employees. The loss of the services of Mr. Heffernan orMr. Duke could impede the achievement of our development and commercialization objectives.If we are unable to attract and retain highly qualified scientific and technical employees, we may not be able to groweffectively.Our future growth and success depend on our ability to recruit, retain, manage and motivate our scientific, clinical,manufacturing and commercial employees. The loss of any member of our senior management team or the inability to hire orretain experienced management personnel could compromise our ability to execute our business plan and harm our operatingresults. Because of the specialized scientific nature of our business, we rely heavily on our ability to attract and retainqualified personnel. The competition for qualified personnel in the pharmaceutical field is intense, and as a result, we may beunable to continue to attract and retain qualified personnel necessary for the development of our business or to recruitsuitable replacement personnel.We will need to grow the size of our organization, and we may experience difficulties in managing this growth.We have experienced a period of rapid growth. Our management, personnel and systems may not be adequate to support thisand future growth. We may not be able to effectively manage the expansion of our operations, which may result inweaknesses in our infrastructure, give rise to operational mistakes, loss of business opportunities, loss of employees andreduced productivity among remaining employees. Future growth could require significant capital expenditures and maydivert financial resources from other projects, such as the development of our existing or future product candidates. Futuregrowth would impose significant added responsibilities on members of management, including:·managing the commercialization of any FDA-approved products;·overseeing clinical trials effectively;·identifying, recruiting, maintaining, motivating and integrating additional employees, including any sales andmarketing personnel engaged in connection with the commercialization of any approved product;·managing our internal development efforts effectively while complying with our contractual obligations tolicensors, licensees, contractors and other third parties;·improving our managerial, development, operational and financial systems and procedures; and·developing our compliance infrastructure and processes to ensure compliance with regulations applicable to publiccompanies.As our operations expand, we will need to manage additional relationships with various strategic collaborators, suppliers andother third parties. Our future financial performance and our ability to commercialize our product and product candidates andto compete effectively will depend, in part, on our ability to manage any future growth effectively. To that end, we must beable to manage our development efforts and clinical trials effectively and hire, train and integrate additional management,administrative and sales and marketing personnel. We may not be able to accomplish these tasks, and our failure toaccomplish any of them could prevent us from successfully growing our company.We may acquire other assets or businesses, or form collaborations or make investments in other companies or technologies,that could have a material adverse effect on our operating results, dilute our shareholders’ ownership, increase our debt orcause us to incur significant expense.61 Table of ContentsAs part of our business strategy, we may pursue acquisitions of assets, including preclinical, clinical or commercial stageproducts or product candidates, businesses or strategic alliances and collaborations, to expand our existing technologies andoperations. We may not identify or complete these transactions in a timely manner, on a cost-effective basis, or at all, and wemay not realize the anticipated benefits of any such transaction, any of which could have a material adverse effect on ourfinancial condition, results of operations and cash flows. We have limited experience with acquiring other companies,products or product candidates, and limited experience with forming strategic alliances and collaborations. We may not findsuitable acquisition candidates, and if we make an acquisition, we may not integrate the acquisition successfully into ourexisting business and we may incur additional debt or assume unknown or contingent liabilities in connection therewith.Integration of an acquired company or assets may also disrupt ongoing operations, require the hiring of additional personneland the implementation of additional internal systems and infrastructure, especially the acquisition of commercial assets, andrequire management resources that would otherwise focus on developing our existing business. We may not be able to findsuitable strategic alliance or collaborators or identify other investment opportunities, and we may experience losses relatedto any such investments.To finance any acquisitions or collaborations, we may choose to issue debt or shares of our common or preferred stock asconsideration. Any such issuance of shares would dilute the ownership of our shareholders. If the price of our common stockis low or volatile, we may not be able to acquire other assets or companies or fund a transaction using our stock asconsideration. Alternatively, it may be necessary for us to raise additional funds for acquisitions through public or privatefinancings. Additional funds may not be available on terms that are favorable to us, or at all.Our employees, independent contractors, principal investigators, CROs, consultants and vendors may engage inmisconduct or other improper activities, including noncompliance with regulatory standards and requirements, whichcould cause significant liability for us and harm our reputation.We are exposed to the risk that our employees, independent contractors, principal investigators, CROs, consultants andvendors may engage in fraudulent conduct or other illegal activity. Misconduct by these parties could include intentional,reckless and/or negligent conduct or disclosure of unauthorized activities to us that violates:·FDA, DEA or similar regulations of foreign regulatory authorities, including those laws requiring the reporting oftrue, complete and accurate information to such authorities;·manufacturing standards;·federal and state healthcare fraud and abuse laws and regulations and similar laws and regulations established andenforced by foreign regulatory authorities; or·laws that require the reporting of financial information or data accurately.In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws andregulations intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations mayrestrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentiveprograms and other business arrangements. Activities subject to these laws also involve the improper use of informationobtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. Wehave adopted a Code of Ethics, but it is not always possible to identify and deter misconduct by employees and other thirdparties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown orunmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from afailure to be in compliance with such laws or regulations. If any such actions are instituted against us, and we are notsuccessful in defending ourselves or asserting our rights, those actions could have a material adverse effect on our businessand results of operations, including the imposition of civil, criminal and administrative penalties, damages, monetary fines,possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages,reputational harm, diminished profits and future earnings, and curtailment of our operations, any of which could have amaterial adverse effect on our ability to operate our business and our results of operations.Our relationships with customers and payors are subject to applicable anti-kickback, fraud and abuse, transparency,62 Table of Contentsand other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, exclusion fromgovernment healthcare programs, contractual damages, reputational harm, administrative burdens, and diminished profitsand future earnings.Healthcare providers, physicians and payors play a primary role in the recommendation and prescription of Xtampza and anyproduct candidates for which we may obtain marketing approval. Our future arrangements with payors and customers mayexpose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business orfinancial arrangements and relationships through which we market, sell and distribute Xtampza and any product candidatesfor which we may obtain marketing approval. Even though we do not and will not control referrals of healthcare services orbill directly to Medicare, Medicaid or other third-party payors, federal and state healthcare laws and regulations pertaining tofraud and abuse and patients’ rights are and will be applicable to our business. Restrictions under applicable federal, stateand foreign healthcare laws and regulations may affect our ability to operate and expose us to areas of risk, including:·the federal Anti-Kickback Statute, which prohibits, among other things, knowingly and willfully soliciting, offering,receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referralof an individual for, or the purchase, order or recommendation of, any good or service, for which payment may bemade under federal and state healthcare programs such as Medicare and Medicaid. A person or entity does not needto have actual knowledge of the statute or specific intent to violate it in order to have committed a violation;·the federal False Claims Act, which imposes criminal and civil penalties, including through civil whistleblower orqui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the federalgovernment, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or concealan obligation to pay money to the federal government. In addition, the government may assert that a claimincluding items and services resulting from a violation of the federal Anti-Kickback Statute constitutes a false orfraudulent claim for purposes of the False Claims Act;·the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which imposes criminal andcivil liability for executing a scheme to defraud any healthcare benefit program or making false statements relatingto healthcare matters. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actualknowledge of the statute to defraud any healthcare benefit program or specific intent to violate it in order to havecommitted a violation;·HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, orHITECH, and its implementing regulations, which also imposes obligations on certain covered entity healthcareproviders, health plans, and healthcare clearinghouses as well as their business associates that perform certainservices involving the use or disclosure of individually identifiable health information, including mandatorycontractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiablehealth information;·federal laws requiring drug manufacturers to report annually information related to certain payments and othertransfers of value made to physicians (defined to include doctors, dentists, optometrists, podiatrists andchiropractors) and teaching hospitals, as well as ownership or investment interests held by physicians and theirimmediate family members, including under the federal Open Payments program, commonly known as the SunshineAct, as well as other state and foreign laws regulating marketing activities and requiring manufacturers to reportmarketing expenditures, payments and other transfers of value to physicians and other healthcare providers;·federal government price reporting laws, which require us to calculate and report complex pricing metrics togovernment programs, where such reported prices may be used in the calculation of reimbursement and/or discountson our marketed drugs. Participation in these programs and compliance with the applicable requirements maysubject us to potentially significant discounts on our products, increased infrastructure costs, potential liability forthe failure to report such prices in an accurate and timely manner, and potentially limit our ability to offer certainmarketplace discounts; and63 Table of Contents·state and foreign equivalents of each of the above laws, including state anti-kickback and false claims laws, whichmay apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental payors, including private insurers; state laws which require pharmaceutical companies to comply withthe pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgatedby the federal government or otherwise restricting payments that may be made to healthcare providers; and state andforeign laws governing the privacy and security of health information in certain circumstances, many of which differfrom each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.While we do not submit claims and our customers will make the ultimate decision on how to submit claims, we may providereimbursement guidance and support regarding our products to our customers and patients. If a government authority were toconclude that we provided improper advice to our customers and/or encouraged the submission of false claims forreimbursement, we could face action by government authorities. Efforts to ensure that our business arrangements with thirdparties will comply with applicable healthcare laws and regulations will involve substantial costs. Nonetheless, it is possiblethat governmental authorities will conclude that our business practices may not comply with current or future statutes,regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations arefound to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subjectto significant civil, criminal and administrative penalties, damages, fines, imprisonment, exclusion from participation ingovernment funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of ouroperations.If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines orpenalties or incur significant costs.In connection with our research and development activities and our manufacture of materials and products and productcandidates, we 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 andwastes. Although we believe that we have complied with the applicable laws, regulations and policies in all material respectsand have not been required to correct any material noncompliance, we may be required to incur significant costs to complywith environmental and health and safety regulations in the future. Current or future laws and regulations may impair ourresearch, development or production efforts. Failure to comply with these laws and regulations also may result in substantialfines, penalties or other sanctions.Our research and development involves the use, generation and disposal of hazardous materials, including chemicals,solvents, agents and biohazardous materials. Although we believe that our safety procedures for storing, handling anddisposing of such materials comply with the standards prescribed by state and federal regulations, we cannot completelyeliminate the risk of accidental contamination or injury from these materials. We currently contract with third parties todispose of these substances that we generate, and we rely on these third parties to properly dispose of these substances incompliance with applicable laws and regulations. We cannot eliminate the risk of contamination or injury from thesematerials. If these third parties do not properly dispose of these substances in compliance with applicable laws andregulations, we may be subject to legal action by governmental agencies or private parties for improper disposal of thesesubstances. The costs of defending such actions and the potential liability resulting from such actions are often very large. Inthe event we are subject to such legal action or we otherwise fail to comply with applicable laws and regulations governingthe use, generation and disposal of hazardous materials and chemicals, we could be held liable for any damages that result,and any such liability could exceed our resources.Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries toour employees, this insurance may not provide adequate coverage against potential liabilities. We maintain insurance forenvironmental liability or toxic tort claims, but we may not continue to maintain such insurance in the future, and suchinsurance, to the extent maintained, may not be adequate to cover liabilities that may be asserted against us in connectionwith our storage or disposal of biological, hazardous or radioactive materials.Our business and operations would suffer in the event of computer system failures, accidents or security breaches.Despite the implementation of security measures, our internal computer systems, and those of our CROs, contractmanufacturing organization, or CMO, and other third parties on which we rely, are vulnerable to damage from computer64 Table of Contentsviruses, 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 ourcommercial and clinical activities and business operations, in addition to possibly requiring substantial expenditures ofresources to remedy. If such an event were to occur and cause interruptions in our operations, it could result in a materialdisruption of our commercialization and drug development programs. For example, the loss of clinical trial data fromcompleted or ongoing clinical trials could result in delays in our regulatory approval efforts and significantly increase ourcosts to recover or reproduce the data. To the extent that any disruption or security breach was to result in a loss of or damageto our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability andthe further development of our product candidates could be delayed.65 Table of ContentsRisks Related to Our Common StockThe price of our common stock may be volatile and you may lose all or part of your investment.The market price of our common stock is highly volatile and may be subject to wide fluctuations in response to variousfactors, some of which are beyond our control. In addition to the factors discussed in these Risk Factors, these factors include:·the success of competitive products or technologies;·regulatory actions with respect to our product and product candidates or our competitors’ products or productcandidates;·actual or anticipated changes in our growth rate relative to our competitors;·the outcome of any patent infringement or other litigation that may be brought against us, including the ongoingPurdue litigation;·announcements by us or our competitors of significant acquisitions, strategic collaborations, joint ventures,collaborations or capital commitments;·results of clinical trials of our product and product candidates or those of our competitors;·regulatory or legal developments in the United States and other countries;·developments or disputes concerning patent applications, issued patents or other proprietary rights;·the recruitment or departure of key personnel;·the level of expenses related to our product and product candidates or clinical development programs;·actual or anticipated variations in our quarterly operating results;·the number and characteristics of our efforts to in-license or acquire additional product candidates or products;·introduction of new products or services by us or our competitors;·failure to meet the estimates and projections of the investment community or that we may otherwise provide to thepublic;·actual or anticipated changes in estimates as to financial results, development timelines or recommendations bysecurities analysts;·variations in our financial results or those of companies that are perceived to be similar to us;·fluctuations in the valuation of companies perceived by investors to be comparable to us;·share price and volume fluctuations attributable to inconsistent trading volume levels of our shares;·announcement or expectation of additional financing efforts;·sales of our common stock by us, our insiders or our other shareholders;·changes in accounting practices;66 Table of Contents·significant lawsuits, including patent or shareholder litigation;·changes in the structure of healthcare payment systems;·market conditions in the pharmaceutical and biotechnology sectors;·general economic, industry and market conditions;·publication of research reports about us, our competitors or our industry, or positive or negative recommendations orwithdrawal of research coverage by securities or industry analysts; and·other events or factors, many of which are beyond our control.In addition, the stock market in general, and pharmaceutical and biotechnology companies in particular, have experiencedextreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance ofthese companies. Broad market and industry factors may negatively affect the market price of our common stock, regardlessof our actual operating performance. The realization of any of the above risks or any of a broad range of other risks statedabove could have a material adverse effect on the market price of our common stock.As we operate in the pharmaceutical and biotechnology industry, we are especially vulnerable to these factors to the extentthat they affect our industry or our products. In the past, securities class action litigation has often been initiated againstcompanies following periods of volatility in their stock price. This type of litigation could result in substantial costs anddivert our management’s attention and resources, and could also require us to make substantial payments to satisfyjudgments or to settle litigation.Sales of a substantial number of shares of our common stock in the public market could cause our stock price to fall.Sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales, or theperception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price ofour common stock. Holders of an aggregate of approximately 6.3 million shares of our common stock have rights, subject tocertain conditions, to require us to file registration statements covering their shares or to include their shares in registrationstatements that we may file for ourselves or other shareholders. Once we register these shares, they can be freely sold in thepublic market, subject to volume limitations applicable to affiliates.Actual or potential sales of our common stock by our directors or employees, including our executive officers, pursuant topre-arranged stock trading plans could cause our stock price to fall or prevent it from increasing for numerous reasons,and actual or potential sales by such persons could be viewed negatively by investors.In accordance with the guidelines specified under Rule 10b5-1 of the Exchange Act and our policies regarding stocktransactions, our directors and employees, including our executive officers, could adopt stock trading plans pursuant towhich they may sell shares of our common stock from time to time in the future. Generally, sales under such plans by ourexecutive officers and directors require public filings. Actual or potential sales of our common stock by such persons couldcause our common stock to fall or prevent it from increasing for numerous reasons. For example, a substantial number ofshares of our common stock becoming available (or being perceived to become available) for sale in the public market couldcause the market price of our common stock to fall or prevent it from increasing. Also, actual or potential sales by suchpersons could be viewed negatively by investors.Future issuances of our common stock or rights to purchase common stock, including pursuant to our equity incentiveplans, could result in additional dilution of the percentage ownership of our shareholders and could cause our stock priceto fall.We expect that significant additional capital will be needed in the future to continue our planned operations. To raisecapital, we may sell substantial amounts of common stock or securities convertible into or exchangeable for common stock.These future issuances of common stock or common stock-related securities, together with the exercise of outstandingoptions and any additional shares issued in connection with acquisitions, if any, may result in material dilution to ourinvestors. Such sales may also result in material dilution to our existing shareholders, and new investors67 Table of Contentscould gain rights, preferences and privileges senior to those of holders of our common stock.Our principal shareholders and management own a majority of our stock and have the ability to exert significant controlover matters subject to shareholder approval.As of December 31, 2016, our executive officers, directors, holders of 5% or more of our capital stock and their respectiveaffiliates beneficially owned a majority of our voting stock, including shares subject to outstanding options and warrants. Asa result, if these shareholders were to choose to act together, they would be able to significantly influence the outcome of allmatters requiring shareholder approval, including the election of directors, amendments of our organizational documents, orapproval of any merger, sale of assets or other major corporate transaction. This may prevent or discourage unsolicitedacquisition proposals or offers for our common stock that you may feel are in your best interest. The interests of this group ofshareholders may not always coincide with your interests or the interests of other shareholders and they may act in a mannerthat advances their best interests and not necessarily those of other shareholders, including seeking a premium value for theircommon stock, and might affect the prevailing market price for our common stock. Such concentration of ownership controlmay:·delay, defer or prevent a change in control;·entrench our management and/or the board of directors; or·impede a merger, consolidation, takeover or other business combination involving us that other shareholdersmay desire.In addition, persons associated with Longitude Capital Partners, LLC, Skyline Venture Partners V, L.P., and TPGBiotechnology Partners IV, L.P. currently serve on our board of directors. The interests of Longitude Capital Partners, LLC,Skyline Venture Partners V, L.P., and TPG Biotechnology Partners IV, L.P. may not always coincide with the interests of theother shareholders, and the concentration of control in Longitude Capital Partners, LLC, Skyline Venture Partners V, L.P.,and TPG Biotechnology Partners IV, L.P. limits other shareholders’ ability to influence corporate matters. We may also takeactions that our other shareholders do not view as beneficial, which may adversely affect our results of operations andfinancial condition and cause a decline in our stock price.We are subject to anti-takeover provisions in our amended and restated articles of incorporation and amended andrestated bylaws and under Virginia law that could delay or prevent an acquisition of our company, even if the acquisitionwould be beneficial to our shareholders.Certain provisions of Virginia law, the state in which we are incorporated, and our amended and restated articles ofincorporation and amended and restated bylaws could hamper a third party’s acquisition of us, or discourage a third partyfrom attempting to acquire control of us. These provisions include:·a provision allowing our board of directors to set the terms of and issue preferred stock with rights senior to those ofthe common stock without any vote or action by the holders of our common stock. The issuance of preferred stockcould adversely affect the rights and powers, including voting rights, of the holders of common stock;·advance written notice procedures and notice requirements with respect to shareholder proposals and shareholdernomination of candidates for election as directors;·a provision that only the board of directors, the chairman of the board of directors or the president may call a specialmeeting of the shareholders;·the application of Virginia law prohibiting us from entering into certain transactions with the beneficial owner ofmore than 10 percent of our outstanding voting stock for a period of three years after such person first reached thatlevel of stock ownership, unless certain conditions are met;·a provision dividing our board of directors into three classes, each serving three-year terms;68 Table of Contents·the requirement that the authorized number of our directors be changed only by resolution of our board of directors;·a provision that our board of directors shall fill any vacancies on our board of directors, including vacanciesresulting from a board of directors resolution to increase the number of directors;·limitations on the manner in which shareholders can remove directors from the board of directors;·the lack of cumulative voting in the election of directors; and·the prohibition on shareholders acting by less-than-unanimous written consent.These provisions also could limit the price that certain investors might be willing to pay in the future for shares of ourcommon stock. In addition, these provisions make it more difficult for our shareholders to remove our board of directors ormanagement or elect new directors to our board of directors.We may fail to qualify for continued listing on The NASDAQ Global Select Market which could make it more difficult forinvestors to sell their shares.Our common stock is listed on The NASDAQ Global Select Market (“NASDAQ”). As a NASDAQ listed company, we arerequired to satisfy the continued listing requirements of NASDAQ for inclusion in the Global Select Market to maintain suchlisting, including, among other things, the maintenance of a minimum closing bid price of $1.00 per share and shareholders’equity of at least $10.0 million. There can be no assurance that we will be able to maintain compliance with the continuedlisting requirements or that our common stock will not be delisted from NASDAQ in the future. If our common stock isdelisted by NASDAQ, we could face significant material adverse consequences, including:·a limited availability of market quotations for our securities;·reduced liquidity with respect to our securities;·a determination that our shares are a “penny stock,” which will require brokers trading in our shares to adhere tomore stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market forour shares;·a limited amount of news and analyst coverage for our company; and·a decreased ability to issue additional securities or obtain additional financing in the future.If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business,our stock price and trading volume could decline.The trading market for our common stock depends in part on the research and reports that securities or industry analystspublish about us or our business. If one or more of the analysts who cover us downgrade our stock or publish inaccurate orunfavorable research about our business, our stock price would likely decline. If one or more of these analysts cease coverageof our company or fail to publish reports on us regularly, demand for our stock could decrease, which might cause our stockprice and trading volume to decline.We are an “emerging growth company” and we intend to take advantage of reduced disclosure and governancerequirements applicable to emerging growth companies, which could result in our common stock being less attractive toinvestors and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies willmake our shares of common stock less attractive to investors.We are an “emerging growth company,” as defined in the JOBS Act, and may remain an emerging growth company for up tofive years. For so long as we remain an emerging growth company, we are permitted and intend to rely on certain exemptionsfrom various reporting requirements applicable to other public companies, but not to emerging growth69 Table of Contentscompanies, including, but not limited to, an exemption from the auditor attestation requirement of Section 404 of theSarbanes-Oxley Act, reduced disclosure about executive compensation arrangements pursuant to the rules applicable tosmaller reporting companies and no requirement to seek non-binding advisory votes on executive compensation or goldenparachute arrangements. We will remain an emerging growth company until the earliest of (i) December 31, 2020, (ii) the firstfiscal year after our annual gross revenue are $1.0 billion or more, (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities or (iv) the end of any fiscal year in which themarket value of our common stock held by non-affiliates exceeded $700 million as of the end of the second quarter of thatfiscal year.In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of theextended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accountingstandards. An emerging growth company can therefore delay the adoption of certain accounting standards until thosestandards would otherwise apply to private companies. However, we are choosing to “opt out” of such extended transitionperiod and, as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption ofsuch standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision toopt out of the extended transition period for complying with new or revised accounting standards is irrevocable.We cannot predict if investors will find our common stock less attractive as a result of our taking advantage of theseexemptions. If some investors find our common stock less attractive as a result of our choices, there may be a less activetrading market for our common stock and our stock price may be more volatile.If investors find our common stock less attractive as a result of our reduced reporting requirements, there may be a less activetrading market for our common stock and our stock price may be more volatile. We may also be unable to raise additionalcapital as and when we need it.If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accuratelyreport our financial condition, results of operations or cash flows, which may adversely affect investor confidence in usand, as a result, the value of our common stock.The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal control over financial reporting.Commencing with our annual report on Form 10-K for the year ended December 31, 2016, we will be required, underSection 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of ourinternal control over financial reporting. This assessment will need to include disclosure of any material weaknessesidentified by our management in our internal control over financial reporting. A material weakness is a control deficiency, orcombination of control deficiencies, in internal control over financial reporting that results in more than a reasonablepossibility that a material misstatement of annual or interim financial statements will not be prevented or detected on atimely basis. Section 404 of the Sarbanes-Oxley Act also generally requires an attestation from our independent registeredpublic accounting firm on the effectiveness of our internal control over financial reporting. However, for as long as we remainan emerging growth company as defined in the JOBS Act, we intend to take advantage of certain exemptions from variousreporting requirements that are applicable to other public companies that are not emerging growth companies including, butnot limited to, not being required to comply with the independent registered public accounting firm attestation requirement.Our compliance with Section 404 will require that we incur substantial accounting expense and expend significantmanagement efforts. We currently do not have an internal audit group, and we will need to hire additional accounting andfinancial staff with appropriate public company experience and technical accounting knowledge, and compile the systemand process documentation necessary to perform the evaluation needed to comply with Section 404. We may not be able tocomplete our evaluation, testing and any required remediation in a timely fashion, which could potentially subject us tosanctions or investigations by the SEC or other regulatory authorities. During the evaluation and testing process, if weidentify one or more material weaknesses in our internal control over financial reporting, we will be unable to assert that ourinternal control over financial reporting is effective. We cannot assure you that there will not be material weaknesses orsignificant deficiencies in our internal control over financial reporting in the future. Any failure to maintain internal controlover financial reporting could severely inhibit our ability to accurately report our financial condition, results of operations orcash flows. If we are unable to conclude that our internal control over financial reporting is effective, or if our independentregistered public accounting firm determines we have a material weakness or70 Table of Contentssignificant deficiency in our internal control over financial reporting once that firm begin its reviews, we could lose investorconfidence in the accuracy and completeness of our financial reports, the market price of our common stock could decline,and we could be subject to sanctions or investigations by NASDAQ, the SEC or other regulatory authorities. Failure toremedy any material weakness in our internal control over financial reporting, or to implement or maintain other effectivecontrol systems required of public companies, could also restrict our future access to the capital markets.Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.We are subject to the periodic reporting requirements of the Exchange Act. Our disclosure controls and procedures aredesigned to reasonably assure that information required to be disclosed by us in reports we file or submit under the ExchangeAct is accumulated and communicated to management, recorded, processed, summarized and reported within the timeperiods specified in the rules and forms of the SEC. We believe that any disclosure controls and procedures, no matter howwell conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control systemare met.These inherent limitations reflect the reality that judgments can be faulty, and that breakdowns can occur because of simpleerror or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two ormore people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our controlsystem, misstatements due to error or fraud may occur and not be detected.The exercise of options and warrants and other issuances of shares of common stock or securities convertible into orexercisable for shares of common stock will dilute your ownership interests and may adversely affect the future marketprice of our common stock.Sales of our common stock in the public market, either by us or by our current shareholders, or the perception that these salescould occur, could cause a decline in the market price of our securities. All of the shares of our common stock held by thoseof our current shareholders may be immediately eligible for resale in the open market either in compliance with an exemptionunder Rule 144 promulgated under the Securities Act, or pursuant to an effective resale registration statement that we havepreviously filed with the SEC. Such sales, along with any other market transactions, could adversely affect the market priceof our common stock.In addition, as of December 31, 2016, there were (a) outstanding options to purchase an aggregate of 2,326,801 shares of ourcommon stock at a weighted average exercise price of $13.07 per share, of which options to purchase 556,040 shares of ourcommon stock were then exercisable, and (b) 2,445 shares of common stock issuable upon the exercise of warrants topurchase common stock at a weighted-average exercise price of $12.27 per share. The exercise of options and warrants atprices below the market price of our common stock could adversely affect the price of shares of our common stock.Additional dilution may result from the issuance of shares of our common stock in connection with collaborations ormanufacturing arrangements or in connection with other financing efforts.Any issuance of our common stock that is not made solely to then-existing shareholders proportionate to their interests, suchas in the case of a stock dividend or stock split, will result in dilution to each shareholder by reducing his, her or itspercentage ownership of the total outstanding shares. Moreover, if we issue options or warrants to purchase our commonstock in the future and those options or warrants are exercised you may experience further dilution. Holders of shares of ourcommon stock have no preemptive rights that entitle them to purchase their pro rata share of any offering of shares of anyclass or series.We have broad discretion in the use of our cash and cash equivalents, and, despite our efforts, we may use them in amanner that does not increase the value of your investment.We have broad discretion in the use of our cash and cash equivalents, and investors must rely on the judgment of ourmanagement regarding the use of our cash and cash equivalents. Our management may not use cash and cash equivalents inways that ultimately increase the value of our common stock. Our failure to use our cash and cash equivalents effectivelycould result in financial losses that could have a material adverse effect on our business, cause the price of our common stockto decline and delay the commercialization or development of our product and product candidates.71 Table of ContentsWe may invest our cash and cash equivalents in short-term or long-term, investment-grade, interest-bearing securities. Theseinvestments may not yield favorable returns. If we do not invest or apply our cash and cash equivalents in ways that enhanceshareholder value, we may fail to achieve expected financial results, which could cause the price of our common stock todecline.Because we do not anticipate paying any cash dividends on our capital stock in the foreseeable future, capitalappreciation, if any, will be your sole source of gain.We have never declared or paid cash dividends on our common stock. We currently intend to retain all of our future earnings,if any, to finance the growth and development of our business and do not anticipate declaring or paying any cash dividendsfor the foreseeable future. In addition, the terms of any future debt agreements may preclude us from paying dividends. As aresult, capital appreciation, if any, of our capital stock will be your sole source of gain for the foreseeable future. Item 1B. Unresolved Staff Comments Not applicable. Item 2. Properties Our corporate headquarters are located in Canton, Massachusetts, where we lease 19,335 square feet of office space(including chemistry and pilot/formulation laboratories) under a lease agreement that was amended in March 2015. The leaseterm terminates on the date that is five years following August 2015, which is the date that the landlord delivered theexpansion space with certain improvements substantially completed. The lease term may be extended for an additional five-year term at our election.We believe that our existing facility is adequate for our current and expected future needs. We may seek to negotiate newleases or evaluate additional or alternate space for our operations. We believe that appropriate alternative space is readilyavailable on commercially reasonable terms. Item 3. Legal Proceedings We filed the NDA for Xtampza as a 505(b)(2) application, which allows us to reference data from an approved drug listed inthe FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations (commonly known as the Orange Book), inthis case OxyContin OP. The 505(b)(2) process requires that we certify to the FDA and notify Purdue, as the holder of theNDA and any other Orange Book-listed patent owners, that we do not infringe any of the patents listed for OxyContin OP inthe Orange Book, or that the patents are invalid. We made such certification and provided such notice on February 11, 2015and such certification documented why Xtampza does not infringe any of the 11 Orange Book listed patents for OxyContinOP, five of which have been invalidated in court proceedings. Under the Hatch-Waxman Act of 1984, Purdue had the optionto sue us for infringement and receive a stay of up to 30 months before the FDA could issue a final approval for Xtampza ER,unless the stay was earlier terminated. Purdue exercised its option and elected to sue us for infringement in the District of Delaware on March 24, 2015 assertinginfringement of three of Purdue’s Orange Book-listed patents (Patent Nos. 7,674,799, 7,674,800, and 7,683,072) and a non-Orange Book-listed patent (Patent No. 8,652,497), and accordingly, received a 30-month stay of FDA approval. The Delaware court transferred the case to the District of Massachusetts. After we filed a partial motion for judgment on thepleadings relating to the Orange Book-listed patents, the District Court of Massachusetts ordered judgment in our favor onthose three patents, and dismissed the claims asserting infringement of those patents with prejudice. Upon dismissal of thoseclaims, the 30-month stay of FDA approval was lifted. As a result, we were able to obtain final approval for Xtampza ER andlaunch the product commercially. In November 2015, Purdue filed a follow-on suit asserting infringement of another patent, Patent No. 9,073,933, which waslate-listed in the Orange Book and therefore could not trigger any stay of FDA approval. In June 2016, Purdue filed anotherfollow-on suit asserting infringement of another non-Orange Book listed patent, Patent No. 9,155,717. These suits wereconsolidated by the District of Massachusetts into the original action where Purdue’s infringement claim relating to the ’497patent remains pending. Purdue continues to assert infringement of these three patents against us,72 Table of Contentsnone of which is associated with any stay of FDA approval. All of Purdue’s pending patents claims against us are nowconsolidated into the action pending before the District of Massachusetts. Purdue has made a demand for monetary relief buthas not quantified their alleged damages. Purdue has also requested a judgment of infringement and an injunction on the saleof our products accused of infringement. We have denied all claims and seek a judgment that the patents are invalid and/ornot infringed by us; we are also seeking a judgment that the case is exceptional, with an award to us of our fees for defendingthe case. The parties are in the early stages of fact discovery. Written discovery has commenced with depositions expected tocommence during the first half of 2017. The parties are also in the claims construction stage of the patent litigation. Theparties have briefed their proposed constructions and are scheduled to argue their positions in front of the Court in thesecond quarter of 2017. We have also filed a fully dispositive motion for summary judgment that the asserted claims of the’933, ’497, and ’717 patents are invalid and not infringed. We are not able to predict with certainty when the Court willdecide our motion. No trial date has been scheduled. We are, and plan to continue, defending this case vigorously. At this stage, we are unable to evaluate the likelihood of anunfavorable outcome or estimate the amount or range of potential loss, if any. From time to time, we may be subject to various claims and legal proceedings. If the potential loss from any claim, asserted orunasserted, or legal proceeding is considered probable and the amount is reasonably estimated, we will accrue a liability forthe estimated loss. Item 4. Mine Safety Disclosures Not applicable. PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of EquitySecuritiesMarket InformationOur common stock is publicly traded on the NASDAQ Global Select Market under the symbol “COLL” since May 7, 2015.Prior to May 7, 2015, there was no public trading market for our common stock. The following table sets forth, for the periodsindicated, the high and low sales prices for our common stock as reported on NASDAQ:Year Ended December 31, 2016 High LowFirst quarter $28.47 $13.80Second quarter $20.03 $11.55Third quarter $20.25 $8.24Fourth quarter $20.55 $13.81 Year Ended December 31, 2015 High LowSecond quarter (from May 7, 2015) $20.62 $11.92Third quarter $24.88 $12.58Fourth quarter $30.58 $15.51 HoldersAs of March 1, 2017, there were 45 holders of record of our common stock. The number of holders of record does not includebeneficial owners whose shares are held by nominees in street name.DividendsWe have never declared or paid cash dividends on our common stock, and we do not expect to pay any cash dividends onour common stock in the foreseeable future.73 Table of ContentsStock Performance GraphThe following graph shows a comparison from May 7, 2015, the date on which our common stock first began trading on theNASDAQ Global Select Market, of the total cumulative shareholder return on an assumed investment of $100.00 in cash inour common stock as compared to the same investment in the NASDAQ Composite Index and the NASDAQ BiotechnologyIndex, all through December 31, 2016. Such returns are based on historical results and are not intended to suggest futureperformance. Data for the NASDAQ Composite Index and NASDAQ Biotechnology Index assume reinvestment of dividends,however no dividends have been declared on our common stock to date. December 31, December 31,$100 investment in stock or index May 7, 2015 2015 2016Collegium Pharmaceutical, Inc. (COLL) $100.00 $223.76 $126.69 NASDAQ Composite Index (IXIC) $100.00 $101.48 $109.84 NASDAQ Biotechnology Index (NBI) $100.00 $99.51 $79.90 The performance graph and related information shall not be deemed to be “soliciting material” or to be “filed” with the SEC,nor shall such information be incorporated by reference into any future filing under the Securities Act, except to the extentthat we specifically incorporate it by reference into such filing.Recent Sales of Unregistered SecuritiesThere were no unregistered sales of equity securities during the period covered by this Annual Report on Form 10-K.74 Table of ContentsUse of Proceeds Our IPO was effected through a Registration Statement on Form S-1 (File No. 333-203208) that was declared effective by theSEC on May 6, 2015, which registered an aggregate of 6,670,000 shares of our common stock. On May 12, 2015, 6,670,000shares of common stock were sold on our behalf at an IPO price of $12.00 per share, including 870,000 shares of commonstock upon the exercise by the underwriters of their option to purchase additional shares at the public offering price, foraggregate gross proceeds to us of $74.4 million. As of the date of filing this report, the offering has terminated, and all of thesecurities registered pursuant to the offering have been sold prior to termination. Jefferies LLC and Piper Jaffray & Co. actedas joint book-running managers. Wells Fargo Securities, LLC acted as lead manager and Needham & Company, LLC acted asco-manager in the offering. The net proceeds of the offering to us, after deducting underwriting discounts and commissions of $5.6 million and offeringexpenses of $2.4 million, were approximately $72.0 million. On May 12, 2015, the closing date of the offering, we receivedthe proceeds from the offering, all of which have been utilized for the development of our commercial infrastructure, researchand development of our other product candidates and general corporate purposes, including working capital. The foregoing expenses are a reasonable estimate of the expenses incurred by us in the offering and do not represent theexact amount of expenses incurred. All of the foregoing expenses were direct or indirect payments to persons other than(i) our directors, officers or any of their associates; (ii) persons owning 10% or more of our common stock; or (iii) ouraffiliates. There has been no material change in the use of proceeds from the IPO as described in the final prospectus filed with the SECon May 7, 2015 under “Use of Proceeds.” In January 2016, we issued and sold in a public offering an aggregate of 2,750,000 shares of its common stock at $20.00 pershare. We received net proceeds from this public offering of approximately $51.2 million, after deduction of underwritingdiscounts and commissions and expenses payable by us. In October 2016, we issued and sold in a public offering an aggregate of 5,750,000 shares of its common stock at $16.00 pershare, including 750,000 shares of common stock upon the exercise by the underwriters of their option to purchaseadditional shares at the public offering price. We received net proceeds from this public offering of approximately $86.2million, after deduction of underwriting discounts and commissions and estimated expenses payable by us. Purchases of Equity Securities by the Issuer and Affiliated Purchasers We did not repurchase any of our equity securities during the fourth quarter of the fiscal year ended December 31, 2016. 75 Table of Contents Item 6. Selected Financial DataYou should read the following selected financial data together with our consolidated financial statements and the relatednotes appearing elsewhere in this Form 10-K and “Management’s Discussion and Analysis of Financial Condition andResults of Operations” section of this Form 10-K . The selected historical financial information in this section is not intendedto replace our financial statements and the related notes thereto. Our historical results are not necessarily indicative of resultsto be expected in any period in the future. Years ended December 31, 2016 2015 2014 (in thousands, except share and per share amounts)Statement of Operations Data: Product revenues, net$1,711 $ — $ — Costs and expenses Cost of product revenues 213 — — Research and development 14,948 7,975 14,959 Selling, general and administrative 80,632 18,932 2,706 Total costs and expenses 95,793 26,907 17,665 Loss from operations (94,082) (26,907) (17,665) Interest expense, net 94 439 252 Gain on extinguishment of debt — (91) — Net loss$(94,176) $(27,255) $(17,917) Basic and diluted net loss per common share:$(3.88) $(1.48) $(22.72) Weighted-average shares used to compute loss per common share: 24,262,945 13,542,282 933,997 (1)See Note 3 to our consolidated financial statements included elsewhere in this Form 10-K for an explanation of themethod used to calculate net loss per common share attributable to common shareholders, including the method used tocalculate the number of shares used in the computation of the per share amount. As of December 31, 2016 2015 2014 Balance Sheet Data: Cash and cash equivalents $153,225 $95,697 $1,634 Working capital 132,979 88,451 (5,921) Total assets 162,017 97,718 5,090 Other long-term liabilities 1,513 4,214 6,914 Total shareholders’ equity (deficit) 134,908 85,072 (89,348) (1)Working capital is calculated as current assets minus current liabilities.76 (1)(1)(1)Table of Contents Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations You should read the following discussion and analysis of our financial condition and results of operations together with ourconsolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10‑K. The followingdiscussion contains forward‑looking statements that involve risks and uncertainties. Our actual results and the timing ofcertain events could differ materially from those anticipated in these forward‑looking statements as a result of certain factors,including those discussed below and as set forth under “Risk Factors.” Please also refer to the section under heading“Forward‑Looking Statements.”77 Table of ContentsOverviewWe are a specialty pharmaceutical company developing and commercializing next-generation abuse-deterrent products thatincorporate our patented DETERx platform technology for the treatment of chronic pain and other diseases. Our first product,Xtampza, is an abuse-deterrent, extended-release, oral formulation of oxycodone, a widely prescribed opioid medication. InApril 2016, the U.S. Food and Drug Administration, or FDA, approved our new drug application, or NDA, filing for Xtampzafor the management of pain severe enough to require daily, around-the-clock, long-term opioid treatment and for whichalternative treatment options are inadequate. Certain human abuse potential studies are included in the approved label, aswell as data supporting the administration of the product as a sprinkle or administered through feeding tubes. In June 2016,we announced the commercial launch of Xtampza. In October 2016, we announced the submission of a New DrugSubmission to Health Canada seeking marketing approval of Xtampza for the same indication for which we obtainedapproval from the FDA.Xtampza has the same active ingredient as OxyContin OP, which is the largest selling abuse-deterrent, extended-releaseopioid in the United States by dollars, with $2.1 billion in U.S. sales in 2016. We conducted a comprehensive preclinical andclinical program for Xtampza consistent with FDA guidance on abuse-deterrence. These studies and clinical trialsdemonstrated that chewing, crushing and/or dissolving Xtampza, and then taking it orally or smoking, snorting, or injectingit did not meaningfully change its drug release profile or safety characteristics. By contrast, clinical trials performed by usand others — including head-to-head clinical trials comparing Xtampza with OxyContin OP — have shown that drug abuserscan achieve rapid release and absorption of the active ingredient by manipulating OxyContin OP using common householdtools and methods commonly available on the Internet. In October 2016, we announced the submission of a SupplementalNew Drug Application to the FDA for Xtampza to include comparative oral pharmacokinetic data from a recently completedclinical study evaluating the effect of physical manipulation by crushing Xtampza compared with OxyContin OP and acontrol (oxycodone hydrochloride immediate-release).In addition, our preclinical studies and clinical trials have shown that the contents of the Xtampza capsule can be removedfrom the capsule and sprinkled on food or into a cup, and then directly into the mouth, or administered through feedingtubes, without compromising their drug release profile, safety or abuse-deterrent characteristics. By contrast, OxyContin OP,which is formulated in hard tablets, has a black box warning label stating that crushing, dissolving, or chewing can causerapid release and absorption of a potentially fatal dose of the active ingredient. We believe that Xtampza can address the painmanagement needs of the approximately 11 million patients in the United States who suffer from chronic pain and havedifficulty swallowing.In May 2016, we entered into a License and Development Agreement with BioDelivery Science International, Inc. whichgrants us an exclusive license to make, use, sell, offer for sale, import, develop and commercialize Onsolis in the UnitedStates. We plan to commercialize Onsolis upon receipt of FDA approval of a Prior Approval Supplement for themanufacturing transfer. Subject to such approval, we expect to launch Onsolis in the first half of 2018.Since 2010, when we divested our former subsidiary, Onset Therapeutics, LLC, to PreCision Dermatology, Inc., we havedevoted substantially all of our resources to the development of our patented DETERx platform technology, the preclinicaland clinical advancement of our product candidates, pre-commercialization activities and the creation and protection ofrelated intellectual property. Since 2011, we have not generated any significant revenue from product sales and we continueto incur significant research, development and other expenses related to our ongoing operations. Prior to our initial publicoffering of common stock, or IPO, in May 2015, we funded our operations primarily through the private placement ofpreferred stock, convertible notes and commercial bank debt. Since our IPO, we have funded our operations primarilythrough the proceeds of public offerings and sale of our equity securitiesOutlookWe expect to continue to incur significant commercialization expenses related to marketing, manufacturing, distribution,selling and reimbursement activities. Initially, we are detailing Xtampza to approximately 10,400 physicians who writeapproximately 60% of the branded extended-release oral opioid prescriptions in the United States with a sales team ofapproximately 120 sales representatives. In addition, we deploy a separate, focused sales team to detail Xtampza to78 Table of Contentsnursing homes, hospices and other institutions treating large populations of the elderly and other patients who need chronicpain relief and may have difficulty swallowing.We have never been profitable and have incurred net losses in each year since inception. We incurred net losses of$94.2 million, $27.3 million and $17.9 million for the years ended December 31, 2016, 2015 and 2014, respectively. As ofDecember 31, 2016, we had an accumulated deficit of $223.2 million. Substantially all of our net losses resulted from costsincurred in connection with our research and development programs and from selling, general and administrative costsassociated with our operations. We expect to continue to incur net losses in the foreseeable future as we continue tocommercialize Xtampza. Our net losses may fluctuate significantly from quarter to quarter and year to year. We expect ourexpenses will increase in connection with our ongoing activities as we:·expand our sales and marketing efforts for Xtampza, including hiring additional personnel to expand ourcommercial organization;·expand our regulatory and compliance functions;·conduct clinical trials of our product candidates;·continue scale-up and improvement of our manufacturing processes;·continue our research and development efforts;·manufacture preclinical study and clinical trial materials;·maintain, expand and protect our intellectual property portfolio;·seek regulatory approvals for our product candidates that successfully complete clinical trials;·hire additional clinical, quality control and technical personnel to conduct our clinical trials;·hire additional scientific personnel to support our product development efforts;·implement operational, financial and management systems; and·hire additional selling, general and administrative personnel to operate as a commercial stage public company. We believe that our cash and cash equivalents at December 31, 2016, together with expected cash inflows from thecommercialization of Xtampza, will enable us to fund our operating expenses, debt service and capital expenditurerequirements into 2019. In addition, we will seek in the future to fund our operations through additional public or privateequity or debt financings or other sources, including from net sales of our products. However, we may be unable to raiseadditional funds or enter into such other arrangements when needed on favorable terms or at all. If we are unable to obtainfinancing or increase profitability, the related lack of liquidity will have a material adverse effect on our operations andfuture prospects. Financial Operations OverviewProduct RevenuesProduct revenue to date has been generated from product sales of Xtampza. Product sales of Xtamzpa are recorded net ofestimated chargebacks, rebates, sales incentives and allowance, distribution service fees, as well as estimated product returns. Cost of Product RevenuesCost of product revenues include the cost of active pharmaceutical ingredient (API), the cost of producing finished goodsthat correspond with revenue for the reporting period, as well as certain period costs related to freight, packaging, stabilityand quality testing.Research and Development ExpensesResearch and development expenses consist of development costs associated with our DETERx platform technology andproduct candidates programs. These costs are expensed as incurred and include:·compensation and employee‑related costs, including stock‑based compensation;·costs associated with conducting our preclinical, clinical and regulatory activities, including fees paid to third‑partyprofessional consultants and service providers;·costs incurred under clinical trial agreements;79 Table of Contents·costs for laboratory supplies and laboratory equipment;·costs to acquire, develop and manufacture preclinical study and clinical trial materials; and·facilities, depreciation and other expenses including allocated expenses for rent and maintenance of facilities. We cannot determine with certainty the timing of initiation, the duration or the completion costs of current or futurepreclinical studies and clinical trials of our product candidates. At this time, due to the inherently unpredictable nature ofpreclinical and clinical development, and given the early stage of our product candidates, we are unable to estimate with anycertainty the costs we will incur and the timelines required for the development of our product candidates. Clinical andpreclinical development timelines, the probability of success and development costs can differ materially from expectations.In addition, we cannot forecast which product candidates may be subject to future collaborations, when such arrangementswill be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements.Our research and development has been focused primarily on developing our DETERx platform technology and Xtampza.Accordingly, historically we have not tracked research and development costs by project. In addition, we use our employeeand infrastructure resources across multiple research and development projects. We expect to track specific project costswhen additional product candidates enter clinical trials in humans.Selling, General and Administrative ExpensesSelling, general and administrative expenses consist primarily of salaries and employee‑related costs, including stock‑basedcompensation and travel expenses for our employees in executive, finance, sales and marketing and administrative functions.Other selling, general and administrative expenses include facility‑related costs and professional fees for directors,accounting and legal services, and expenses associated with obtaining and maintaining patents.We anticipate that our selling, general and administrative expenses will increase in the future as we increase ouradministrative headcount to support our continued research and development and potential commercialization of ourproduct candidates, in addition to the potential expansion of commercialization efforts for Xtampza. We also anticipateincreased expenses related to audit, legal, regulatory and tax‑related services associated with maintaining compliance withexchange listing and SEC requirements, director and officer insurance premiums, and investor relations costs associated withbeing a public company.Other Expense, NetOther expense, net consists of interest income and interest expense. Critical Accounting Policies and Significant Judgments and EstimatesOur management’s discussion and analysis of our financial condition and results of operations are based on our financialstatements, which have been prepared in accordance with generally accepted accounting principles in the United States(“GAAP”). The preparation of these financial statements requires us to make estimates and judgments that affect the reportedamounts of assets, liabilities, revenue and expenses and the disclosure of contingent assets and liabilities in our financialstatements. We evaluate our estimates and judgments on an ongoing basis. Estimates include revenue recognition, includingthe estimates of discounts and to commercial sales of Xtampza, estimates utilized in the valuation of inventory, estimates ofuseful lives with respect to intangible assets, accounting for stock-based compensation, contingencies, intangible assets, taxvaluation reserves and accrued expenses. We base our estimates on historical experience and on various other factors that webelieve are reasonable under the circumstances, the results of which form the basis for making judgments about the carryingvalue of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimatesunder different assumptions or conditions.While our significant accounting policies are described in more detail in the notes to our financial statements appearingelsewhere in this Form 10-K, we believe the following accounting policies to be most critical to the significant judgmentsand estimates used in the preparation of our financial statements.80 Table of ContentsRevenue RecognitionOur accounting policy for revenue recognition will have a substantial impact on reported results and relies on certainestimates. Revenue for product sales is recognized when there is persuasive evidence of an arrangement, title and risk of losshave passed to the customer, when estimated provisions for chargebacks, rebates, sales incentives and allowances,distribution service fees, and returns are reasonably determinable, and when collectability is reasonably assured. Productrevenue is recorded net of estimated chargebacks, rebates, sales incentives and allowance, distribution service fees, as well asestimated product returns.We sell Xtampza in the United States principally to customers, which in turn sell the product to healthcare providers for thetreatment of patients. We provide the right of return to our customers for unopened product for a limited time before and afterits expiration date. Given our limited sales history for Xtampza and the inherent uncertainties in estimating product returns,we have determined that the shipments of Xtampza made to our customers thus far do not meet the criteria for revenuerecognition at the time of shipment. Accordingly, we recognize revenue when the product is sold-through by our customers,provided all other revenue recognition criteria are met. We invoice customers upon shipment of Xtampza to them and recordaccounts receivable, with a corresponding liability for deferred revenue equal to the gross invoice price, less any realizedadjustments to the gross invoice price. We then recognize revenue when Xtampza is sold-through, or when product isprescribed directly to the patient. Healthcare providers to whom distributors sell Xtampza hold limited inventory that isdesignated for patients, thereby limiting the risk of return.InventoryUpon approval of Xtampza by the FDA in April 2016, we began capitalizing inventory costs for Xtampza in preparation forthe product launch. Prior to April 2016, we expensed costs associated with Xtampza, including raw materials, work in processand finished goods, as research and development expense. We have not capitalized inventory costs related to our other drugdevelopment programs.We have capitalized $1.3 million of inventory as of December 31, 2016. We expect sales of the capitalized units to occurduring the next twelve months. We expect costs of product revenues to increase due to the expected increases in net productsales of Xtampza and the fact that we had expensed all manufacturing costs as research and development expense in periodsprior to FDA approval of Xtampza. The impact on cost of product revenues as a result of inventory not capitalized prior toFDA approval is immaterialImpairment of Long‑Lived AssetsLong‑lived assets consist primarily of finite-lived intangible assets and property and equipment. We test long‑lived assets forpotential impairment whenever triggering events or circumstances present an indication of impairment. If the sum ofexpected undiscounted future cash flows of the long‑lived assets is less than the carrying amount of such assets, thelong‑lived assets would be written down to the estimated fair value, calculated based on the present value of expected futurecash flows. While our current and historical operating losses and negative cash flows are indicators of impairment, we believethat expected future cash flows to be received support the carrying value of our long‑lived assets and, accordingly, have notrecognized any impairment losses on long‑lived assets for the years ended December 31, 2016, 2015 and 2014.Accrued ExpensesAs part of the process of preparing our financial statements, we are required to estimate our accrued research and developmentexpenses. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identifyservices that have been performed on our behalf and estimating the level of service performed and the associated costincurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. The majority of ourservice providers invoice us monthly in arrears for services performed or when contractual milestones are met. We makeestimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstancesknown to us at that time. We periodically confirm the accuracy of our estimates with the service providers and makeadjustments if necessary. Examples of estimated accrued research and development expenses include fees payable to:·clinical research organizations and investigative sites in connection with clinical trials;81 Table of Contents·vendors in connection with preclinical development activities;·vendors related to product manufacturing, development, and distribution of clinical materials; and·professional service fees for consulting and related services. We base our expense accruals related to clinical trials on our estimates of the services received and efforts expended pursuantto our contractual arrangements. The financial terms of these agreements are subject to negotiation, vary from contract tocontract and may result in uneven payment flows and expense recognition. There may be instances in which payments madeto our service providers will exceed the level of services provided and result in a prepayment of the clinical expense.Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completionof clinical trial milestones. In accruing service fees, we estimate the time period over which services will be performed andthe level of effort to be expended in each period. If the actual timing of the performance of services or the level of effortvaries from our estimate, we adjust the accrual or prepaid accordingly.Although we do not expect our estimates to be materially different from amounts actually incurred, if our estimates of thestatus and timing of services performed differs from the actual status and timing of services performed, we may reportamounts that are too high or too low in any particular period. To date, there have been no material differences from ourestimates to the amount actually incurred.Stock‑Based CompensationWe account for grants of stock options and restricted stock to employees based on their grant date fair value and recognizecompensation expense over the vesting periods. We estimate the fair value of stock options as of the date of grant using theBlack‑Scholes option pricing model, and we estimate the fair value of restricted stock awards and restricted stock units basedon the fair value of the underlying common stock as determined by our board of directors or the value of the servicesprovided, whichever is more readily determinable. We account for stock options, restricted stock awards and restricted stockunits to non‑employees using the fair value approach. Stock options and restricted stock awards to non‑employees aresubject to periodic revaluation over their vesting terms.Stock‑based compensation expense represents the cost of the grant date fair value of employee stock option grantsrecognized over the requisite service period of the awards (usually the vesting period) on a straight‑line basis, net ofestimated forfeitures. We estimate the fair value of stock option grants using the Black‑Scholes option pricing model, whichrequires the input of subjective assumptions, including (i) the risk‑free interest rate, (ii) the expected volatility of our stock,(iii) the expected term of the award and (iv) the expected dividend yield. The risk‑free interest rates for periods within theexpected life of the option are based on the yields of zero‑coupon U.S. Treasury securities. Prior to our IPO, there was nopublic market for the trading of our common stock. Due to the lack of a public market for the trading of our common stockand a lack of Company‑specific historical and implied volatility data, we have based our estimate of expected volatility onthe historical volatility of a group of similar companies that are publicly traded. For these analyses, we have selectedcompanies with comparable characteristics to ours, including enterprise value, risk profiles, position within the industry, andwith historical share price information sufficient to meet the expected life of the stock‑based awards. We compute thehistorical volatility data using the daily closing prices for the selected companies’ shares during the equivalent period of thecalculated expected term of our stock‑based awards. We will continue to apply this process until a sufficient amount ofhistorical information regarding the volatility of our own stock price becomes available. The expected term represents theperiod of time that options are expected to be outstanding. Because there was not enough historical exercise behaviorthrough December 31, 2016, we determined the expected life assumption using the simplified method, which is an average ofthe contractual term of the option and the vesting period.Fair Value of Common Stock. After our stock began trading on NASDAQ on May 7, 2015, the fair value of common stockunderlying our options was determined by the closing price of our common stock on the date of the grant. Prior to the IPO,the fair value of the shares of our common stock underlying our stock options was determined by our board of directors.Because there was no public market for our common stock, our board of directors determined the fair value of our commonstock at the time of grant of the option by considering a number of objective and subjective factors,82 Table of Contentsincluding valuations of comparable companies, sales of our convertible preferred stock to unrelated third parties, ouroperating and financial performance and general and industry specific economic outlook.Net Operating Loss CarryforwardsUtilization of net operating loss, or NOL, and research and development credit carryforwards may be subject to a substantialannual limitation due to ownership change limitations that have occurred or that could occur in the future, as required bySection 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, as well as similar state and foreignprovisions. These ownership changes may limit the amount of NOL and research and development credit carryforwards thatcan be utilized annually to offset future taxable income and tax, respectively. In general, an ownership change, as defined bySection 382 of the Code, results from a transaction or series of transactions over a three‑year period resulting in an ownershipchange of more than 50 percent of the outstanding stock of a company by certain shareholders. We have not completed acurrent study to assess whether an ownership change has occurred or whether there have been multiple ownership changessince our formation.At December 31, 2016, we had U.S. federal NOL carryforwards of $190.9 million which may be available to offset futuretaxable income. The U.S. federal NOL carryforwards begin to expire in 2022.As of December 31, 2016 and 2015, we have provided a full valuation allowance for deferred tax assets.Income TaxesWe record uncertain tax positions on the basis of a two‑step process whereby (i) we determine whether it is more likely thannot that the tax positions will be sustained on the basis of the technical merits of the positions and (ii) for those tax positionsthat meet the more‑likely‑than‑not recognition threshold, we recognize the largest amount of tax benefit that is more than50% likely to be realized upon ultimate settlement with the related tax authority. We recognize interest and penalties relatedto unrecognized tax benefits within income tax expense. Any accrued interest and penalties are included within the relatedtax liability. There were no uncertain tax positions as of December 31, 2016, 2015 and 2014.Emerging Growth Company StatusSection 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transitionperiod provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Thus, anemerging growth company can delay the adoption of certain accounting standards until those standards would otherwiseapply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period and, as aresult, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards isrequired for companies that are not emerging growth companies. 83 Table of ContentsResults of Operations Comparison of the Years Ended December 31, 2016, 2015 and 2014The following table summarizes the results of our operations for the years ended December 31, 2016, 2015 and 2014: Years ended December 31, 2016 2015 2014 (in thousands)Product revenues, net$1,711 $ — $ — Cost of product revenues 213 — —Research and development 14,948 7,975 14,959Selling, general and administrative 80,632 18,932 2,706Other expense, net 94 348 252Net loss$(94,176) $(27,255) $(17,917)Comparison of the Years Ended December 31, 2016 and 2015Product revenues, net were $1.7 million for the year ended December 31, 2016, compared to zero for the year endedDecember 31, 2015. The $1.7 million increase was due to the commercial launch of Xtampza in June 2016. Cost of product revenues were $213,000 for the year ended December 31, 2016, compared to zero for the year endedDecember 31, 2015. The $213,000 increase was due to the commercial launch of Xtampza in June 2016. Research and development expenses were $14.9 million for the year ended December 31, 2016, compared to $8.0 million forthe year ended December 31, 2015. The $6.9 million increase was primarily related to:·an increase in clinical trial costs of $5.2 million due to clinical trials with Xtampza and the commencement ofclinical trials for our second product candidate;·an increase in salaries, wages and benefits of $1.6 million primarily due to headcount, bonuses and stockcompensation expense; and·an increase in manufacturing and transfer costs of $1.2 million primarily related to the development of amanufacturing process for Onsolis;·these increases were partially offset by a decrease in consulting costs of $1.1 million primarily due to the completionof FDA advisory committee preparation in 2015. Selling, general and administrative expenses were $80.6 million for the year ended December 31, 2016, compared to$18.9 million for the year ended December 31, 2015. The $61.7 million increase was primarily related to:·an increase in salaries, wages and benefits of $26.4 million primarily due to an increase from 35 to 206employees, including the addition of a sales force of approximately 150 employees, and an increase in stock-basedcompensation expense;·an increase in sales and marketing costs of $15.9 million primarily due to preparation for and support of thecommercial launch of Xtampza;·an increase in commercial costs of $9.0 million primarily due to consultant costs related to analytics and strategiesfor the commercialization of Xtampza;·an increase in Post Marketing Requirement and PDUFA costs required for Xtampza of $7.5 million;·an increase in professional fees of $1.2 million primarily due to audit, insurance, accounting, recruiting and board ofdirector fees;·an increase in distribution and commercial manufacturing costs of $1.0 million;·an increase in legal fees of $600,000 primarily due to costs related to litigation; and·an increase in amortization expense of $397,000 associated with the upfront fee for the Onsolis License Agreement. Comparison of the Years Ended December 31, 2015 and 2014Research and development expenses were $8.0 million for the year ended December 31, 2015, compared to $15.0 million forthe year ended December 31, 2014.The $7.0 million decrease was primarily related to:84 Table of Contents·a decrease in clinical trial costs of $9.9 million due to the completion of clinical trials for Xtampza during 2014;·an increase in consulting costs of $1.0 million mainly due to costs associated with preparation for the FDA JointAdvisory Committee meeting held in September 2015;·an increase in manufacturing costs of $1.0 million related to Xtampza; and·an increase in salaries, wages and benefits of $673,000 primarily due to headcount, bonuses and stock compensationexpense. Selling, general and administrative expenses were $18.9 million for the year ended December 31, 2015 compared to $2.7million for the year ended December 31, 2014. The $16.2 million increase was primarily related to:·an increase in commercial costs of $6.4 million primarily due to consultant costs related to analytics and strategiesfor commercialization of Xtampza;·an increase in salaries, wages and benefits of $6.0 million primarily due to headcount, bonuses and stockcompensation expense;·an increase in professional fees of $981,000 primarily due to audit, accounting, recruiting and board of director fees;·an increase in legal fees of $910,000 primarily due to costs related to litigation; and·an increase in insurance costs of $779,000 due to directors’ and officers’ liability insurance. Liquidity and Capital ResourcesSources of liquidityWe have incurred net losses and negative cash flows from operations since inception. Since inception, we have funded ouroperations primarily through the private placements of our preferred stock, public offerings of common stock, convertiblenotes and commercial bank debt. As of December 31, 2016, we had $153.2 million in cash and cash equivalents.In January 2016, we issued and sold in a public offering an aggregate of 2,750,000 shares of our common stock at $20.00 pershare. We received proceeds from this public offering of approximately $51.2 million, after deduction of underwritingdiscounts and commissions and expenses payable by us.In October 2016, we issued and sold in a public offering an aggregate of 5,750,000 shares of our common stock at $16.00 pershare, including 750,000 shares of common stock upon the exercise by the underwriters of their option to purchaseadditional shares at the public offering price. We received net proceeds from this public offering of approximately $86.2million, after deduction of underwriting discounts and commissions and estimated expenses payable by us.Although it is difficult to predict future liquidity requirements, we believe that our existing cash and cash equivalents, willbe sufficient to fund our operations into 2019. We have based this estimate on assumptions that may prove to be incorrectand we could use our available capital resources sooner than we currently expect. We may never become profitable, or if wedo, we may not be able to sustain profitability on a recurring basis.Cash flows Years ended December 31, 2016 2015 2014 (in thousands)Net cash used in operating activities $(75,053) $(21,567) $(17,947)Net cash used in investing activities (2,977) (362) (8)Net cash provided by financing activities 135,558 115,992 12,038 Operating activities. Cash used in operating activities was $75.1 million in the year ended December 31, 2016 and$21.6 million in the year ended December 31, 2015. The $53.5 million increase in cash used in operating activities wasprimarily due to the change in net loss partially offset by changes in the working capital accounts. We expect cash used85 Table of Contentsin operating activities to increase for the foreseeable future as we continue to commercialize Xtampza and fund research,development and clinical activities for additional product candidates.Cash used in operating activities was $21.6 million in the year ended December 31, 2015 and $17.9 million in the yearended December 31, 2014. The $3.7 million increase in cash used in operating activities was due primarily to the change innet loss partially offset by changes in the working capital accounts.Investing activities. Cash used in investing activities was $3.0 million in the year ended December 31, 2016 and $362,000 inthe year ended December 31, 2015. The increase in cash used in investing activities was primarily due to the payment of theupfront fee for the Onsolis License Agreement.Cash used in investing activities for the years ended December 31, 2015 and December 31, 2014 was $362,000 and $8,000respectively, and related to the purchase of property and equipment.Financing activities. Cash provided by financing activities for the year ended December 31, 2016 primarily represents netproceeds of $137.3 million from the issuance of common stock partially offset by the repayment of term notes of $2.7million. Cash provided by financing activities for the year ended December 31, 2015 primarily represents net proceeds from the IPOand from the sale of Series D convertible preferred stock of $72.0 million and $44.8 million, respectively.Cash provided by financing activities for the year ended December 31, 2014 primarily represents the $7.1 million drawdownof a term note payable and proceeds from a convertible bridgenote of $5.0 million.Funding requirementsSince 2011, we have not generated any significant revenue from product sales and we continue to incur significant research,development and other expenses related to our ongoing operations. We are in the early stages of commercialization ofXtampza. We anticipate that we will continue to incur losses in the near future as we commercialize Xtampza and continuethe development of, and seek regulatory approvals for, other product candidates. We are subject to all of the risks common tothe commercialization and development of new pharmaceutical products, and we may encounter unforeseen expenses,difficulties, complications, delays and other unknown factors that may adversely affect our business. We will also incuradditional costs associated with operating as a commercial stage public company. We anticipate that we will need substantialadditional funding in connection with our continuing operations.Until we can generate a sufficient amount of revenue from our pharmaceutical products, if ever, we expect to finance futurecash needs through public or private equity or debt offerings. Additional capital may not be available on reasonable terms, ifat all. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have tosignificantly delay, scale back or discontinue the development or commercialization of one or more of our productcandidates. If we raise additional funds through the issuance of additional debt or equity securities, it could result in dilutionto our existing shareholders, increased fixed payment obligations and the existence of securities with rights that may besenior to those of our common stock. If we incur indebtedness, we could become subject to covenants that would restrict ouroperations and potentially impair our competitiveness, such as limitations on our ability to incur additional debt, limitationson our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adverselyimpact our ability to conduct our business. Any of these events could significantly harm our business, financial conditionand prospects.86 Table of ContentsOur forecast of the period of time through which our financial resources will be adequate to support our operations is aforward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number offactors. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capitalresources sooner than we currently expect. The amount and timing of future funding requirements, both near- and long-term,will depend on many factors, including:·the cost of establishing sales, marketing and distribution capabilities for Xtampza and any other products for whichwe may receive regulatory approval;·the generation of reasonable levels of revenue from the sale of Xtampza;·the design, initiation, progress, size, timing, costs and results of preclinical studies and clinical trials for our productcandidates;·the outcome, timing and cost of regulatory approvals by the FDA and comparable foreign regulatory authorities,including the potential for the FDA or comparable foreign regulatory authorities to require that we perform morestudies than, or evaluate clinical endpoints other than those that we currently expect;·the timing and costs associated with manufacturing Xtampza and our product candidates for preclinical studies,clinical trials and, if approved, for commercial sale;·the number and characteristics of product candidates that we pursue;·the cost of patent infringement litigation, including the our litigation with Purdue Pharma, L.P., or Purdue, relatingto Xtampza or our product candidates, which may be expensive to defend and delay the commercialization of ourproduct candidates;·our need to expand our research and development activities, including our need and ability to hire additionalemployees;·our need to implement additional infrastructure and internal systems and hire additional employees to operate as apublic company;·our need to expand our regulatory and compliance functions; and·the effect of competing technological and market developments. If we cannot expand our operations or otherwise capitalize on our business opportunities because we lack sufficient capital,our business, financial condition and results of operations could be materially adversely affected.Contractual ObligationsThe following table summarizes our contractual obligations as of December 31, 2016 that will affect our future liquidity: Less than More than Total 1 year 1 - 3 years 3 - 5 years 5 years (in thousands) Operating lease obligations $865 $226 $475 $164 $— Long term debt (including interest) 4,146 2,667 1,479 — — Purchase obligations 12,000 3,000 6,000 3,000 — Total $17,011 $5,893 $7,954 $3,164 $ — Operating lease obligations represent future minimum lease payments under our non‑cancelable operating lease in effectas of December 31, 2016, reflecting remaining lease payments for our current facility in Canton, Massachusetts. Long‑term debt obligations represent future principal and interest payments under our Original Term Loan, as amendedas of December 31, 2016. Purchase obligations represent the minimum purchase obligations of up to $3.0 million under a manufacturing agreementas of December 31, 2016. The disclosed amounts represent the maximum amount that could be payable under theminimum purchase obligations. 87 (1)(2)(3)(1)(2)(3)Table of ContentsDue to the uncertain nature, the table above does not include potential milestone payments or royalties to BDSI for theOnsolis License Agreement. During the term of the License Agreement, milestone payments in the aggregate amount of $21.0million may become payable by us, subject to the satisfaction of certain commercialization, intellectual property, and netsales milestones, including $4.0 million upon the first commercial sale of the product in the U.S. We will be required to payroyalties in the upper teens based on annual net sales of the product in the U.S. In addition, we are contractually committedto reimburse BDSI up to a maximum of $2.0 million for its out-of-pocket expenses incurred in connection with themanufacturing transfer. We also have employment agreements with executive officers that would require us to make severance payments to them ifwe terminate their employment without cause or the executives resign for good cause. These payments are contingent uponthe occurrence of various future events, and the amounts payable under these provisions depend upon the level ofcompensation at the time of termination of employment, are therefore not calculable at this time, and, as a result, we have notincluded any such amounts in the table above. Off‑Balance Sheet Arrangements We did not have during the periods presented, and we do not currently have, any off‑balance sheet arrangements, as definedunder SEC rules. Item 7A. Quantitative and Qualitative Disclosures about Market Risks We are exposed to market risk related to changes in interest rates. As of December 31, 2016, we had cash and cashequivalents consisting of cash and money market funds of $153.2 million. Our primary exposure to market risk is interest ratesensitivity, which is affected by changes in the general level of U.S. interest rates, particularly because our money marketfunds are short-term highly liquid investments. Due to the short-term duration and the low risk profile of our investments, animmediate 10% change in interest rates would not have a material effect on the fair market value of our portfolio. Item 8. Consolidated Financial Statements and Supplementary DataOur consolidated financial statements, together with the reports of our independent registered public accounting firms, beginon page F‑1 of this Form 10‑K. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureNone. Item 9A. Controls and Procedures Evaluation of Disclosure Controls and ProceduresOur Chief Executive Officer and our Chief Financial Officer evaluated the effectiveness of our disclosure controls andprocedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by thisreport. The term “disclosure controls and procedures” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act,means controls and other procedures of a company that are designed to ensure that information required to be disclosed by usin the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the timeperiods specified in the SEC’s rules and forms. Based on this evaluation, our Chief Executive Officer and Chief FinancialOfficer concluded that our disclosure controls and procedures were effective as of December 31, 2016. Management’s Report on Internal Control Over Financial ReportingInternal control over financial reporting refers to the process designed by, or under the supervision of, our Chief ExecutiveOfficer and Chief Financial Officer, and effected by our board of directors, management and other personnel, to providereasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles, and includes those policies and procedures that: (1)pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositionsof our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financialstatements in accordance with generally accepted accounting principles, and that our88 Table of Contentsreceipts 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 thecompany’s assets that could have a material effect on the financial statements.Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectivesbecause of its inherent limitations. Internal control over financial reporting is a process that involves human diligence andcompliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control overfinancial reporting also can be circumvented by collusion or improper management override. Also, projections of anyevaluation of effectiveness of internal control over financial reporting to future periods are subject to the risk that controlsmay become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures maydeteriorate. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on atimely basis by internal control over financial reporting. However, these inherent limitations are known features of thefinancial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, thisrisk.Management is responsible for establishing and maintaining adequate internal control over our financial reporting, as suchterm is defined in Rules 13a 15(f) and 15d 15(f) under the Exchange Act. Under the supervision and with the participation ofour management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of theeffectiveness of our internal control over financial reporting. Management has used the framework set forth in the reportentitled “Internal Control—Integrated Framework (2013)” published by the Committee of Sponsoring Organizations of theTreadway Commission to evaluate the effectiveness of our internal control over financial reporting. Based on its evaluation,management has concluded that our internal control over financial reporting was effective at the reasonable assurance levelas of December 31, 2016, the end of our most recent fiscal year.Attestation Report of the Registered Public Accounting FirmThis Form 10-K does not include an attestation report of our registered public accounting firm due to an exemptionestablished by the JOBS Act for “emerging growth companies.”Changes in Internal Control Over Financial ReportingThere has been no change in our internal control over financial reporting occurred during the fiscal quarter ended December31, 2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information Not applicable. PART III Item 10. Directors, Executive Officers, and Corporate GovernanceOther than the information regarding our executive officers provided in Part I of this report under the heading “Business—Executive Officers of the Registrant,” the information required to be furnished pursuant to this item is incorporated herein byreference to our definitive proxy statement for the 2017 Annual Meeting of the Shareholders.Our board of directors has adopted a Code of Ethics applicable to all of our employees, executive officers and directors. TheCode of Ethics is available on our website at www.collegiumpharma.com. Our board of directors is responsible for overseeingcompliance with the Code of Ethics, and our board of directors or an appropriate committee thereof must approve anywaivers of the Code of Ethics for employees, executive officers or directors. Disclosure regarding any amendments to theCode of Ethics, or any waivers of its requirements, will be made on our website. Item 11. Executive CompensationThe information required by this Item 11 is incorporated herein by reference from our definitive proxy statement for the 2017Annual Meeting of Shareholders.89 Table of Contents Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersThe information required by this Item 12 is incorporated herein by reference from our definitive proxy statement for the 2017Annual Meeting of Shareholders. Item 13. Certain Relationships and Related Transactions, and Director IndependenceThe information required by this Item 13 is incorporated herein by reference from our definitive proxy statement for the 2017Annual Meeting of Shareholders. Item 14. Principal Accountant Fees and ServicesThe information required by this Item 14 is incorporated herein by reference from our definitive proxy statement for the 2017Annual Meeting of Shareholders. PART IV Item 15. Exhibits and Financial Statement Schedules Consolidated Financial Statements See Part II, Item 8 for the Financial Statements required to be included in this Form 10-K. Consolidated Financial Statement Schedules All financial statement schedules are omitted because they are not applicable or the required information is included in theconsolidated financial statements or notes thereto. ExhibitsExhibitNumberExhibit Description2.1†Agreement and Plan of Merger, dated July 10, 2014, by and between Collegium Pharmaceutical, Inc., aDelaware corporation, and Collegium Pharmaceutical, Inc., a Virginia corporation.(1)3.1†Second Amended and Restated Articles of Incorporation of Collegium Pharmaceutical, Inc.(2)3.2†Amended and Restated Bylaws of Collegium Pharmaceutical, Inc.(2)4.1†Eighth Amended and Restated Investor Rights Agreement, dated March 6, 2015, by and among CollegiumPharmaceutical, Inc. and certain of its shareholders.(1)4.2†Warrant to Purchase Stock, dated October 28, 2010, issued by Collegium Pharmaceutical, Inc. to ComericaBank.(1)10.1†Office Lease Agreement, dated August 28, 2012, by and between 780 Dedham Street Holdings, LLC andCollegium Pharmaceutical, Inc.(1)10.2†Loan and Security Agreement, dated August 28, 2012, by and between Silicon Valley Bank and CollegiumPharmaceutical, Inc.(1)10.3†First Amendment to Loan and Security Agreement, dated January 31, 2014, by and between Silicon ValleyBank and Collegium Pharmaceutical, Inc.(1)10.4†Assumption and Second Amendment to Loan and Security Agreement, dated August 12, 2014, by andbetween Silicon Valley Bank and Collegium Pharmaceutical, Inc.(1)10.5†Third Amendment to Loan and Security Agreement, dated September 25, 2014, by and between SiliconValley Bank and Collegium Pharmaceutical, Inc.(1)10.6†Fourth Amendment to Loan and Security Agreement, dated October 31, 2014, by and between Silicon ValleyBank and Collegium Pharmaceutical, Inc.(1)10.7†Subordination Agreement, dated November 14, 2014, by and among Collegium Pharmaceutical, Inc., SiliconValley Bank and the creditors named therein.(1)10.8†Subordination Agreement, dated December 2, 2014, by and among Collegium Pharmaceutical, Inc., SiliconValley Bank and the creditors named therein.(1)90 Table of Contents10.9+†Restricted Stock Award Agreement, dated June 13, 2012, by and between Collegium Pharmaceutical, Inc.and Michael T. Heffernan.(1)10.10+†Restricted Stock Award Agreement, dated July 18, 2012, by and between Collegium Pharmaceutical, Inc. andGino Santini.(1)10.11+†Restricted Stock Award Agreement, dated March 5, 2014, by and between Collegium Pharmaceutical, Inc.and Gino Santini.(1)10.12†Form of Confidentiality and Inventions Agreement.(1)10.13+†Offer Letter, dated January 29, 2015, by and between Collegium Pharmaceutical, Inc. and Garen Bohlin.(1)10.14†Series D Convertible Preferred Stock Purchase Agreement, dated March 6, 2015, by and among CollegiumPharmaceutical, Inc. and the purchasers thereto.(1)10.15†First Amendment to Lease, dated March 24, 2015, by and between Park at 95, LLC (as successor in interest to780 Dedham Street Holdings, LLC) and Collegium Pharmaceutical, Inc.(1)10.16+†2015 Employee Stock Purchase Plan.(3)10.17+†Performance Bonus Plan. (4)10.18(a)+†Amended and Restated 2014 Stock Incentive Plan. (3)10.18(b)+†Form of Incentive Stock Option Agreement under the Amended and Restated 2014 Stock Incentive Plan. (3)10.18(c)+†Form of Non-Qualified Stock Option Agreement under the Amended and Restated 2014 Stock IncentivePlan. (3)10.18(d)+†Form of Restricted Stock Award Agreement under the Amended and Restated 2014 Stock Incentive Plan. (3)10.19+†Restricted Stock Award Agreement, dated April 2, 2015, by and between Collegium Pharmaceutical, Inc. andMichael T. Heffernan. (4)10.20†Form of Indemnification Agreement. (4)10.21+†Employment Agreement, dated August 4, 2015, by and between Michael Heffernan and CollegiumPharmaceutical, Inc.(5)10.22+†Employment Agreement, dated August 4, 2015, by and between Paul Brannelly and CollegiumPharmaceutical, Inc.(5)10.23+†Employment Agreement, dated August 4, 2015, by and between Barry S. Duke and CollegiumPharmaceutical, Inc.(6)10.24† License and Development Agreement, dated as of May 11, 2016, by and between CollegiumPharmaceutical, Inc. and BioDelivery Systems International, Inc.(7)21.1 Subsidiaries of Collegium Pharmaceutical, Inc.23.1 Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm.23.2 Consent of Grant Thornton LLP, Independent Registered Public Accounting Firm.31.1 Certifying Statement of the Chief Executive Officer pursuant to Section 302 of the Sarbanes‑Oxley Act of2002.31.2 Certifying Statement of the Chief Financial Officer pursuant to Section 302 of the Sarbanes‑Oxley Act of2002.32.1 Certifying Statement of the Chief Executive Officer pursuant to Section 1350 of Title 18 of the United StatesCode.32.2 Certifying Statement of the Chief Financial Officer pursuant to Section 1350 of Title 18 of the United StatesCode.101 The following financial information from this Annual Report on Form 10-K for the year ended December 31,2016, formatted in XBRL: (i) Consolidated Balance Sheets as of December 31, 2016, 2015, (ii) ConsolidatedStatements of Operations for the years ended December 31, 2016, 2015 and 2014, (iii) ConsolidatedStatements of Convertible Redeemable Preferred Stock and Shareholders' Equity (Deficit) for the YearsEnded December 31, 2016, 2015 and 2014, (iv) Consolidated Statements of Cash Flows for the years endedDecember 31, 2016, 2015 and 2014, and (v) Notes to Consolidated Financial Statements, tagged as blocks oftext. †Previously filed.91 Table of Contents+Indicates management contract or compensatory plan.(1)Previously filed as an exhibit to the registrant’s Registration Statement on Form S-1 (File No. 333-203208) filed with theCommission on April 2, 2015.(2)Previously filed as an exhibit to the registrant’s Current Report on Form 8-K filed with the Commission on May 12, 2015.(3)Previously filed as an exhibit to the registrant’s Registration Statement on Form S-8 (File No. 333-207744) filed with theCommission on November 2, 2015.(4)Previously filed as an exhibit to the registrant’s Registration Statement on Form S-1/A (File No. 333-203208) filed withthe Commission on April 27, 2015.(5)Previously filed as an exhibit to the registrant’s Current Report on Form 8-K filed with the Commission on August 10,2015.(6)Previously filed as an exhibit to the registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30,2015 filed with the Commission on August 12, 2015.(7)Previously filed as an exhibit to the registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30,2016 filed with the Commission on August 11, 2016. 92 Table of ContentsItem 16. Form 10-K Summary None.93 Table of Contents SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned,thereunto duly authorized. COLLEGIUM PHARMACEUTICAL, INC. By: /s/ Michael T. Heffernan, R.Ph. Michael T. Heffernan, R.Ph. President and Chief Executive Officer March 10, 2017Signature Title Date /s/ Michael T. Heffernan, R.Ph.Michael T. Heffernan, R.Ph. President and Chief ExecutiveOfficer (Principal Executive Officer)and Director March 10, 2017/s/ Paul BrannellyPaul Brannelly Executive Vice President and ChiefFinancial Officer (Principal Financialand Accounting Officer) March 10, 2017/s/ Garen G. BohlinGaren G. Bohlin Director March 10, 2017/s/ John A. Fallon, M.D.John A. Fallon, M.D. Director March 10, 2017/s/ John G. Freund, M.D.John G. Freund, M.D. Director March 10, 2017/s/ David Hirsch, M.D., Ph.D.David Hirsch, M.D., Ph.D. Director March 10, 2017/s/ Eran Nadav, Ph.D.Eran Nadav, Ph.D. Director March 10, 2017/s/ Gino SantiniGino Santini Director March 10, 2017/s/ Theodore R. SchroederTheodore R. Schroeder Director March 10, 2017 Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report hasbeen signed by the following persons in the capacities and on the dates indicated 94 Table of ContentsCOLLEGIUM PHARMACEUTICAL, INC.Index to Consolidated Financial Statements Audited Financial StatementsPagesReports of Independent Registered Public Accounting Firms F-2Consolidated Balance Sheets as of December 31, 2016 and 2015 F-4 Consolidated Statements of Operations for the Years Ended December 31, 2016, 2015, and 2014F-5Consolidated Statements of Convertible Redeemable Preferred Stock and Shareholders' Equity (Deficit) for theYears Ended December 31, 2016, 2015 and 2014 F-6Consolidated Statements of Cash Flows for the Years Ended December 31, 2016, 2015 and 2014 F-7Notes to Consolidated Financial Statements F-8 F-1 Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders ofCollegium Pharmaceutical, Inc.Canton, Massachusetts We have audited the accompanying consolidated balance sheet of Collegium Pharmaceutical, Inc. and subsidiary (the"Company") as of December 31, 2016, and the related consolidated statements of operations, convertible redeemablepreferred stock and shareholders' equity (deficit), and cash flows for the year ended December 31, 2016. These financialstatements are the responsibility of the Company's management. Our responsibility is to express an opinion on thesefinancial statements based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (UnitedStates). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform,an audit of its internal control over financial reporting. Our audit included consideration of internal control over financialreporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose ofexpressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, weexpress no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosuresin the financial statements, assessing the accounting principles used and significant estimates made by management, as wellas evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for ouropinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position ofCollegium Pharmaceutical, Inc. and subsidiary as of December 31, 2016, and the results of their operations and their cashflows for the year ended December 31, 2016, in conformity with accounting principles generally accepted in the UnitedStates of America. /s/ Deloitte & Touche LLPBoston, MassachusettsMarch 10, 2017 F-2 Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and StockholdersCollegium Pharmaceutical Inc.We have audited the accompanying consolidated balance sheet of Collegium Pharmaceutical, Inc. (a Virginia Corporation)and subsidiary (the “Company”) as of December 31, 2015, and the related statements of operations, convertible redeemablepreferred stock and shareholders’ equity (deficit), and cash flows for the years ended December 31, 2015 and 2014. Thesefinancial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion onthese financial statements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (UnitedStates). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internalcontrol over financial reporting. Our audits included consideration of internal control over financial reporting as a basis fordesigning audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on theeffectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An auditalso includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,assessing the accounting principles used and significant estimates made by management, as well as evaluating the overallfinancial statement presentation. We believe that our audits provide a reasonable basis for our opinion.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financialposition of Collegium Pharmaceutical, Inc. and subsidiary as of December 31, 2015, and the results of their operations andtheir cash flows for the years ended December 31, 2015 and 2014 in conformity with accounting principles generallyaccepted in the United States of America. /s/ Grant Thornton LLPBoston, MassachusettsMarch 18, 2016 F-3 Table of Contents COLLEGIUM PHARMACEUTICAL, INC.CONSOLIDATED BALANCE SHEETS(In thousands, except share and per share data) December 31, 2016 2015 Assets Current assets Cash and cash equivalents $153,225 $95,697 Accounts receivable 2,129 — Inventory 1,316 — Prepaid expenses and other current assets 1,905 1,186 Total current assets 158,575 96,883 Property and equipment, net 1,038 738 Intangible assets, net 2,103 — Restricted cash 97 97 Other long-term assets 204 — Total assets $162,017 $97,718 Liabilities and shareholders' equity (deficit) Current liabilities Accounts payable $9,106 $3,537 Accrued expenses 8,879 2,228 Deferred revenue 4,944 — Current portion of term loan payable 2,667 2,667 Total current liabilities 25,596 8,432 Lease incentive obligation 34 68 Term loan payable, long-term 1,479 4,146 Total liabilities 27,109 12,646 Commitments and contingencies (see Note 9) Shareholders’ equity (deficit): Preferred stock, $0.001 par value; authorized shares - 5,000,000 at December 31, 2016 andDecember 31, 2015; issued and outstanding shares - none at December 31, 2016 and December 31, 2015 — — Common stock, $0.001 par value; authorized shares - 100,000,000 at December 31, 2016 andDecember 31, 2015; issued and outstanding shares - 29,364,100 at December 31, 2016 and 20,739,351 atDecember 31, 2015 29 21 Additional paid-in capital 358,063 214,062 Accumulated deficit (223,184) (129,008) Treasury stock — (3) Total shareholders’ equity 134,908 85,072 Total liabilities and shareholders’ equity $162,017 $97,718 The accompanying notes are an integral part of these consolidated financial statements. F-4 Table of ContentsCOLLEGIUM PHARMACEUTICAL, INC.CONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, except share and per share data) Years ended December 31, 2016 2015 2014Product revenues, net$1,711 $ — $ —Costs and expenses Cost of product revenues 213 — —Research and development 14,948 7,975 14,959Selling, general and administrative 80,632 18,932 2,706Total costs and expenses 95,793 26,907 17,665Loss from operations (94,082) (26,907) (17,665)Other expense (income) Interest expense, net 94 439 252Gain on extinguishment of debt — (91) —Total other expense, net 94 348 252Net loss$(94,176) $(27,255) $(17,917) Loss per share - basic and diluted$(3.88) $(1.48) $(22.72)Weighted-average shares - basic and diluted 24,262,945 13,542,282 933,997The accompanying notes are an integral part of these consolidated financial statements. F-5 Table of ContentsCOLLEGIUM PHARMACEUTICAL, INC.CONSOLIDATED STATEMENTS OF CONVERTIBLE REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS’ EQUITY (DEFICIT)(In thousands, except share data) Series A Series B Series C Series D Convertible Convertible Convertible Convertible Total Redeemable Redeemable Redeemable Redeemable Additional Treasury Shareholders’ Preferred Stock Preferred Stock Preferred Stock Preferred Stock Common Stock Paid- In Stock, Accumulated Equity Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Capital at cost Deficit (Deficit)Balance atDecember 31, 20139,232,334 $12,277 27,324,237 $49,376 8,658,008 $12,154 — $ — 962,960 $1 $12,313 $(3) $(80,536) $(68,225)Exercise ofcommon stockoptions — — — — — — — — 32,390 — 72 — — 72Issuance ofrestricted stockawards toemployees — — — — — — — — 10,869 — — — — —Accruals ofdividends andaccretion toredemptionvalue — 504 — 1,836 — 960 — — — — — — (3,300) (3,300)Stock-basedcompensationexpense — — — — — — — — — — 22 — — 22Net loss — — — — — — — — — — — — (17,917) (17,917)Balance atDecember 31, 20149,232,334 12,781 27,324,237 51,212 8,658,008 13,114 — — 1,006,219 1 12,407 (3) (101,753) (89,348)Exercise ofcommon stockoptions — — — — — — — — 173,251 — 517 — — 517Exercise ofwarrants — — — — — — — — 16,062 — 6 — — 6Issuance ofrestricted stockawards toemployees — — — — — — — — 194,694 — — — — —Issuance ofSeries Dconvertibleredeemablepreferred stock,net ofissuance costsof $193 — — — — — — 37,500,000 44,807 — — — — — —Conversion ofnotes to SeriesD convertibleredeemablepreferred stock — — — — — — 4,166,667 5,000 — — — — — —Extinguishmentof priorpreferred stockdividends — (3,733) — (23,341) — (4,110) — — — — 31,184 — — 31,184Accruals ofdividends andaccretion toredemptionvalue — 2,297 — 18,034 — 2,996 — 1,245 — — (24,572) — — (24,572)Conversion ofpreferred stockto commonstock(9,232,334) (11,345) (27,324,237) (45,905) (8,658,008) (12,000) (41,666,667) (50,000) 12,591,463 13 119,237 — — 119,250Initial PublicOffering, net ofissuance costsof $2,408 — — — — — — — — 6,670,000 7 72,022 — — 72,029Issuance ofcommon stockin payment ofSeries D accrueddividends — — — — — — — (1,052) 87,662 — 1,052 — — 1,052Stock-basedcompensationexpense — — — — — — — — — — 2,209 — — 2,209Net loss — — — — — — — — — — — — (27,255) (27,255)Balance atDecember 31, 2015 — — — — — — — — 20,739,351 21 214,062 (3) (129,008) 85,072Exercise ofcommon stockoptions — — — — — — — — 81,831 — 443 — — 443Issuance foremployee stockpurchase plan — — — — — — — — 42,918 — 442 — — 442Public offeringsof commonstock, net ofissuance costsof $845 — — — — — — — — 8,500,000 8 137,332 — — 137,340Retirement oftreasury stock — — (3) 3 — —Stock-basedcompensation — — — — — — — — — — 5,787 — — 5,787Net loss — — — — — — — — — — — — (94,176) (94,176)Balance atDecember 31, 2016 — $ — — $ — — $ — — $ — 29,364,100 $29 $358,063 $ — $(223,184) $134,908 The accompanying notes are an integral part of these consolidated financial statements. F-6 Table of ContentsCOLLEGIUM PHARMACEUTICAL, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands) Years ended December 31, Operating activities 2016 2015 2014Net loss $(94,176) $(27,255) $(17,917)Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 655 171 187Lease incentive (34) (34) (34)Stock-based compensation expense 5,787 2,209 22Non cash interest expense — 6 7Change in fair value of derivative liability — — 7Changes in operating assets and liabilities: Accounts receivable (2,129) — — Inventories (1,316) — — Prepaid expenses and other assets (923) (659) 183 Refundable PDUFA fee — 2,335 (2,335) Accounts payable 5,569 1,298 990 Accrued expenses 6,570 362 943 Deferred revenue 4,944 — —Net cash used in operating activities (75,053) (21,567) (17,947)Investing activities Purchase of intangible assets (2,500) — —Purchases of property and equipment (477) (362) (8)Net cash used in investing activities (2,977) (362) (8)Financing activities Proceeds from issuance of convertible bridge note — — 5,000Proceeds from issuances of common stock from public offerings, net of issuance costs of$845 and $2,408 137,340 72,029 —Proceeds from issuances of common stock from employee stock purchase plans 442 — —Proceeds from notes payable, net of original note payoff — — 7,056Proceeds from issuance of Series D convertible redeemable preferred stock, net ofissuance costs of $193 — 44,807 —Repayment of term note (2,667) (1,286) (28)Repayment of lease note payable — (59) (62)Restricted cash — (16) —Proceeds from the exercise of stock options 443 517 72Net cash provided by financing activities 135,558 115,992 12,038 Net increase (decrease) in cash and cash equivalents 57,528 94,063 (5,917)Cash and cash equivalents at beginning of period 95,697 1,634 7,551Cash and cash equivalents at end of period $153,225 $95,697 $1,634 Supplemental disclosure of cash flow information Cash paid for interest $284 $353 $181 Supplemental disclosure of non-cash activities Acquisition of property and equipment in accrued expenses $81 $ — $ —Preferred stock conversion to common stock $ — $120,302 $ —Extinguishment of preferred stock $ — $31,184 $ —Accruals of dividends and accretion to redemption value $ — $24,572 $3,300Conversion of bridge note to preferred stock $ — $5,000 $ —Repayment of term note with proceeds of notes payable $ — $— $944 The accompanying notes are an integral part of these consolidated financial statements.F-7 Table of ContentsCOLLEGIUM PHARMACEUTICAL, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(in thousands, except share and per share data) 1. NATURE OF BUSINESSOrganizationCollegium Pharmaceutical, Inc. (the “Company”) was incorporated in Delaware in April 2002 and then reincorporated inVirginia in July 2014. The Company has its principal operations in Canton, Massachusetts. The Company is a specialtypharmaceutical company developing and commercializing next-generation abuse-deterrent products that incorporate theCompany’s patented DETERx® technology platform for the treatment of chronic pain and other diseases. The Company’sfirst product, Xtampza ER®, or Xtampza, is an abuse-deterrent, extended-release, oral formulation of oxycodone, a widelyprescribed opioid medication. In April 2016, the U.S. Food and Drug Administration (“FDA”) approved the Company’s newdrug application (“NDA”) filing for Xtampza for the management of pain severe enough to require daily, around-the-clock,long-term opioid treatment and for which alternative treatment options are inadequate. In June 2016, the Companyannounced the commercial launch of Xtampza.The Company’s operations are subject to certain risks and uncertainties. The principal risks include inability to successfullycommercialize products, changing market conditions for products and product candidates (including development ofcompeting products), changing regulatory environment and reimbursement landscape, negative outcome of clinical trials,inability or delay in completing clinical trials or obtaining regulatory approvals, the need to retain key personnel and protectintellectual property, patent infringement litigation and the availability of additional capital financing on terms acceptableto the Company.Public Offerings of Common StockIn May 2015, the Company closed an initial public offering (“IPO”) of its common stock, which resulted in the sale of6,670,000 shares of its common stock at a public offering price of $12.00 per share, including 870,000 shares of commonstock upon the exercise by the underwriters of their option to purchase additional shares at the public offering price. TheCompany received proceeds from the IPO of approximately $72,029 after deducting underwriting discounts, commissionsand expenses payable by the Company.In April 2015, in connection with preparing for the IPO, the Company’s board of directors and shareholders approved aone‑for‑6.9 reverse split of the Company’s common stock. All common stock share and per share amounts in the financialstatements have been retroactively adjusted for all periods presented to give effect to the reverse split of the Company’scommon stock, including reclassifying an amount equal to the reduction in par value to additional paid‑in capital.In connection with the closing of the IPO, all of the Company’s outstanding convertible preferred stock and accrueddividends automatically converted to common stock in May 2015, resulting in an additional 12,591,463 shares of commonstock of the Company becoming outstanding. The significant increase in common stock outstanding in May 2015 impactedthe year-over-year comparability of the Company’s net loss per share calculations.In January 2016, the Company issued and sold in a public offering an aggregate of 2,750,000 shares of its common stock at$20.00 per share. The Company received net proceeds from this public offering of approximately $51,174, after deduction ofunderwriting discounts and commissions and expenses payable by the Company. In October 2016, the Company issued and sold in a public offering an aggregate of 5,750,000 shares of its common stock at$16.00 per share. The Company received net proceeds from this public offering of approximately $86,166, after deduction ofunderwriting discounts and commissions and expenses payable by the Company.F-8 Table of Contents Basis of AccountingThe consolidated financial statements include the accounts of Collegium Pharmaceutical, Inc. (a Virginia corporation) aswell as the accounts of Collegium Securities Corp. (a Massachusetts corporation), incorporated in December 2015, a wholly-owned subsidiary requiring consolidation, and are prepared in conformity with accounting principles generally accepted inthe United States of America. All intercompany balances and transactions have been eliminated in consolidation.LiquidityThe Company has experienced net losses and negative cash flows from operating activities since itsinception, and as of December 31, 2016 and December 31, 2015, had an accumulated deficit of$223,184 and $129,008, respectively. The Company expects to continue to incur net losses in theforeseeable future. A successful transition to profitable operations is dependent upon achieving a level ofrevenues adequate to support the Company’s cost structure.The Company believes that its cash and cash equivalents at December 31, 2016, together with expected cash inflows fromthe commercialization of Xtampza will enable the Company to fund its operating expenses, debt service and capitalexpenditure requirements into 2019. The Company may never achieve profitability, and unless and until it does, theCompany will continue to need to raise additional cash. Management intends to fund future operations through additionalprivate or public debt or equity offerings, and may seek additional capital through arrangements with strategic partners orfrom other sources. If the Company is unable to obtain financing or increase profitability, the related lack of liquidity willhave a material adverse effect on the Company’s operations and future prospects.2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of Estimates The preparation of the Company’s financial statements requires it to make estimates and assumptions that impact thereported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in theCompany’s financial statements and accompanying notes. The most significant estimates in the Company’s financialstatements relate to revenue recognition, including the estimates of units prescribed, discounts and allowances related tocommercial sales of Xtampza, estimates utilized in the valuation of inventory, estimates of useful lives with respect tointangible assets, accounting for stock-based compensation, contingencies, intangible assets, tax valuation reserves andaccrued expenses. The Company bases estimates and assumptions on historical experience when available and on variousfactors that it believes to be reasonable under the circumstances. The Company evaluates its estimates and assumptions on anongoing basis. The Company’s actual results may differ from these estimates under different assumptions or conditions. Fair Value Measurements Disclosures of fair value information about financial instruments are required, whether or not recognized in the balance sheet,for financial instruments with respect to which it is practicable to estimate that value. The carrying amounts reported in theCompany’s financial statements for cash and cash equivalents, accounts payable, term loan payable and accrued liabilitiesapproximate their respective fair values because of the relative short‑term nature of these accounts.Fair value measurements and disclosures describe the fair value hierarchy based on three levels of inputs, of which the firsttwo are considered observable and the last unobservable, that may be used to measure fair value, as follows: Level 1: Quoted prices in (unadjusted) active markets for identical assets or liabilitiesLevel 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directlyor indirectly.Level 3: Unobservable inputs that reflect the Company’s own assumptions about the assumptions market participants woulduse in pricing the asset or liability.F-9 Table of Contents Transfers are calculated on values as of the transfer date. There were no transfers between Levels 1, 2 and 3 during the yearsended December 31, 2016 and 2015. The following tables present the Company’s financial instruments carried at fair value using the lowest level input applicableto each financial instrument at December 31, 2016 and 2015. Significant QuotedPrices other Significant in active observable unobservable markets inputs inputs Description Total (Level 1) (Level 2) (Level 3) December 31, 2016 Money market funds, included in cash equivalents $125,515 $125,515 $ — $ — December 31, 2015 Money market funds, included in cash equivalents $94,912 $94,912 $ — $ — Concentration of Credit Risk Financial instruments, which potentially subject the Company to significant concentration of credit risk, consist primarily ofcash and cash equivalents and accounts receivable. The Company maintains deposits in federally insured financialinstitutions in excess of federally insured limits. Three customers comprised 10% or more of the Company’s accountsreceivable balance as of December 31, 2016. These customers comprised 44%, 27% and 21% of the accounts receivablebalance, respectively. Three customers comprised 10% or more of the Company’s revenue during the year ended December31, 2016. These customers comprised 35%, 28% and 27% of revenue, respectively. The Company has not experienced anylosses in such accounts and management believes that the Company is not exposed to significant credit risk due to thefinancial position of the financial institutions in which those deposits are held. The Company has no financial instrumentswith off‑balance sheet risk of loss. Cash and Cash Equivalents Cash and cash equivalents include cash in readily available checking and savings accounts and money market funds. TheCompany considers all highly liquid investments with an original maturity of three months or less from the date of purchaseto be cash equivalents. The Company’s cash equivalents, which consist of money market funds, are measured at fair value on a recurring basis. As ofDecember 31, 2016 and 2015, the carrying amount of cash equivalents was $125,515 and $94,912, respectively, whichapproximates fair value and was determined based upon Level 1 inputs. Money market funds are valued using quoted marketprices with no valuation adjustments applied. Accordingly, these securities are categorized as Level 1. Inventory Inventories are stated at the lower of cost or net realizable value. Inventory costs consist of costs related to the manufacturingof Xtampza, which are primarily the costs of contract manufacturing. The Company determines the cost of its inventories on aspecific identification basis, and removes amounts from inventories on a first-in, first-out basis. If the Company identifiesexcess, obsolete or unsalable items, inventories are written down to their realizable value in the period in which theimpairment is identified. These adjustments are recorded based upon various factors, including the level of productmanufactured by the Company, the level of product in the distribution channel, current and projected demand for theforeseeable future and the expected shelf-life of the inventory components. Estimates of excess inventory consider variousfactors, including inventory levels, the level of product in the distribution channel, the Company’s projected sales of theproduct, as well as the remaining shelf lives of the product. The Company recorded such adjustments of $100 in the yearended December 31, 2016, which were recorded as a component of cost of product revenues. Inventories that are notexpected to be used within one year are recorded as a non-current asset. F-10 Table of ContentsThe Company outsources the manufacturing of Xtampza to a sole contract manufacturer that produces the finished product.In addition, the Company currently relies on a sole supplier for the active pharmaceutical ingredient for Xtampza.Accordingly, the Company has concentration risk associated with its commercial manufacturing of Xtampza. Prior to the approval of Xtampza by the FDA in April 2016, the Company recorded all costs incurred related to themanufacturing of Xtampza as research and development expense. Subsequent to approval, the Company began capitalizingthese costs as inventory as they are incurred. The Company has capitalized $1,316 of inventory as of December 31, 2016. The Company expects sales of the capitalizedunits to occur during the next twelve months. The Company expects costs of product revenues to increase due to theexpected increases in net product sales of Xtampza and the fact that the Company had expensed all manufacturing costs asresearch and development expense in periods prior to FDA approval of Xtampza. The impact on cost of product revenues as aresult of inventory not capitalized prior to FDA approval is immaterial. Property and Equipment Property and equipment are recorded at historical cost. Maintenance and repair costs are expensed as incurred. Costs whichmaterially improve or extend the lives of existing assets are capitalized. The Company provides for depreciation andamortization using the straight‑line method over the estimated useful lives of the assets, which are as follows: Asset Category Estimated Useful Life Machinery and equipment 5years Computers and office equipment 3 - 5years Furniture and fixtures 7years Leasehold improvements Lesser of remaining lease term and estimated useful life Upon retirement or sale, the cost of assets disposed and the related accumulated depreciation are removed from the accountsand any resulting gain or loss is recorded in the statements of operations. Intangible Assets Intangible assets that are deemed to have a definite life are amortized over their useful lives and are evaluated separately forimpairment at least annually or whenever events or circumstances indicate that the carrying amount of an asset may not berecoverable (See Note 7). Amortization of intangible assets is recognized on a straight-line basis and the useful life of theCompany’s only intangible asset is approximately 3.7 years. Restricted Cash Restricted cash represents cash held in a depository account at a financial institution to collateralize a conditional stand‑byletter of credit related to the Company’s Canton, Massachusetts facility lease agreement. Restricted cash is reported asnon‑current unless the restrictions are expected to be released in the next twelve months. Revenue Recognition Revenue for product sales is recognized when there is persuasive evidence of an arrangement, title and risk of loss havepassed to the customer, when estimated provisions for chargebacks, rebates, sales incentives and allowances, distributionservice fees, and returns are reasonably determinable, and when collectability is reasonably assured. Product revenue isrecorded net of estimated chargebacks, rebates, sales incentives and allowance, distribution service fees, as well as estimatedproduct returns. The Company sells Xtampza in the United States principally to distributors and retailers (“customers”), which in turn sell theproduct to healthcare providers for the treatment of patients. The Company provides the right of return to its customers forunopened product for a limited time before and after its expiration date. Given the Company’s limited sales history forXtampza and the inherent uncertainties in estimating product returns, the Company has determined thatF-11 Table of Contentsthe shipments of Xtampza made to its customers thus far do not meet the criteria for revenue recognition at the time ofshipment. Accordingly, the Company recognizes revenue when the product is sold-through to patients, provided all otherrevenue recognition criteria are met. The Company invoices its customers upon shipment of Xtampza and records accountsreceivable, with a corresponding liability for deferred revenue equal to the gross invoice price, less any realized adjustmentsto the gross invoice price. The Company then recognizes revenue when Xtampza is sold-through, or when product isprescribed directly to the patient at which time the right of return has expired. Healthcare providers to whom distributors sellXtampza hold limited inventory that is designated for patients, thereby limiting the risk of return. Research and Development Costs Research and development costs are charged to expense as incurred and consist of costs incurred to further the Company’sresearch and development activities including salaries and employee related costs, costs associated with market research anddesign, costs associated with conducting preclinical, clinical and regulatory activities including fees paid to third‑partyprofessional consultants and service providers, costs incurred under clinical trial agreements, costs for laboratory suppliesand laboratory equipment, costs to acquire, develop and manufacture preclinical study and clinical trial materials, facilities,depreciation and other expenses including allocated expenses for rent and maintenance of facilities. Government grants arerecognized as a reduction of the qualifying cost being reimbursed. Patent Costs Costs related to filing and pursuing patent applications are recorded as selling, general and administrative expense asincurred since the recoverability of such expenditures is uncertain. Advertising and Product Promotion Costs Advertising and product promotion costs are included in selling, general and administrative expenses and were $16,328 inthe year ended December 31, 2016. Advertising and product promotion costs are expensed as incurred. Stock‑Based Compensation The Company accounts for grants of stock options, restricted stock awards and restricted stock units to employees, includingmembers of the board of directors, based on their grant date fair value and recognizes compensation expense over theirvesting period. The Company estimates the fair value of stock options as of the date of grant using the Black‑Scholes optionpricing model and restricted stock awards and restricted stock units based on the fair value of the underlying common stockas determined by management or the value of the services provided, whichever is more readily determinable. Stock‑based compensation expense represents the cost of the grant date fair value of employee stock option grantsrecognized over the requisite service period of the awards (usually the vesting period) on a straight‑line basis, net ofestimated forfeitures. The expense is adjusted for actual forfeitures as they occur. For stock option grants with performance‑based milestones, the expense is recorded over the remaining service period afterthe point when the achievement of the milestone is probable or the performance condition has been achieved. For stockoption grants with both performance‑based milestones and market conditions, expense is recorded over the derived serviceperiod after the point when the achievement of the performance‑based milestone is probable or the performance conditionhas been achieved. The Company accounts for stock options and restricted stock awards to non‑employees using the fair value approach. Stockoptions and restricted stock awards to non‑employees are subject to periodic revaluation over their vesting terms. There wereno non-employee grants in 2016 and there was one non-employee grant in 2015. F-12 Table of ContentsIncome Taxes The Company accounts for income taxes under the liability method, which requires the recognition of deferred tax assets andliabilities for the expected future tax consequences of events that have been included in the financial statements. Under thismethod, deferred tax assets and liabilities are determined on the basis of the differences between the financial statements andtax basis of assets and liabilities using enacted tax rates in effect for the years in which the differences are expected to reverse.The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes theenactment date. The Company recognizes net deferred tax assets to the extent that the Company believes these assets are more likely than notto be realized. In making such a determination, management considers all available positive and negative evidence,including future reversals of existing taxable temporary differences, projected future taxable income, tax‑planning strategiesand the absence of carryback available from results of recent operations. If management determines that the Company wouldbe able to realize its deferred tax assets in the future, in excess of its net recorded amount, management would make anadjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes. The Company records uncertain tax positions on the basis of a two‑step process whereby (i) management determines whetherit is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (ii) forthose tax positions that meet the more likely than not recognition threshold, management recognizes the largest amount oftax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. TheCompany will recognize interest and penalties related to uncertain tax positions within income tax expense. Any accruedinterest and penalties will be included within the related tax liability. As of December 31, 2016 and 2015, the Company hadno accrued interest or penalties related to uncertain tax positions and no amounts have been recognized in the Company’sstatements of operations. Net Loss per Common Share Basic net loss per common share is calculated by dividing the net loss attributable to common shareholders by theweighted‑average number of shares of common stock outstanding during the period, without consideration for potentiallydilutive securities. Diluted net loss per share is computed by dividing the net loss attributable to common shareholders bythe weighted‑average number of shares of common stock and potentially dilutive securities outstanding for the period. Forpurposes of the diluted net loss per share calculation, stock options, warrants, redeemable convertible preferred stock andunvested restricted stock are considered potentially dilutive securities. Because the Company has reported a net loss for theyears ended December 31, 2016, 2015 and 2014, diluted net loss per common share is the same as basic net loss per commonshare for those periods. Diluted earnings per share is computed using the more dilutive of (i) the two‑class method, or (ii) the if‑converted method.The Company allocates earnings first to preferred shareholders based on dividend rights and then to common and preferredshareholders based on ownership interests. The weighted‑average number of common shares included in the computation ofdiluted earnings (loss) gives effect to all potentially dilutive common equivalent shares, including outstanding stockoptions, warrants, convertible redeemable preferred stock and the potential issuance of stock upon the conversion of theCompany’s convertible notes. Common stock equivalent shares are excluded from the computation of diluted earnings (loss)per share if their effect is antidilutive. Recently Issued Accounting Pronouncements In May 2014, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2014-09(ASC 606), Revenue from Contracts with Customers, which affects any entity that either enters into contracts with customersto transfer goods and services or enters into contracts for the transfer of nonfinancial assets. In August 2015, the FASB issuedASU 2015-14, Revenue from Contracts with Customers, which defers the effective date of ASU 2014-09 for all entities byone year. ASU 2014-09, which has been codified with the Accounting Standards Codification as Topic 606, is now effectivefor public companies for annual reporting periods beginning after December 15, 2017, including interim periods within thosereporting periods. ASC 606 outlines a single comprehensive model for entities toF-13 Table of Contentsuse in accounting for revenue arising from contracts with customers and supersedes most current revenue recognitionguidance, including industry-specific guidance. In addition, ASC 606 provides guidance on accounting for certain revenue-related costs including, but not limited to, when to capitalize costs associated with obtaining and fulfilling a contract. ASC606 provides companies with two implementation methods. Companies can choose to apply the standard retrospectively toeach prior reporting period presented (full retrospective application) or retrospectively with the cumulative effect of initiallyapplying the standard as an adjustment to the opening balance of retained earnings of the annual reporting period thatincludes the date of initial application (modified retrospective application). Since ASU 2014-09 was issued, severaladditional ASUs have been issued and incorporated within ASC 606 to clarify various elements of the guidance. TheCompany anticipates that this standard will have a material impact on its consolidated financial statements with respect toinventory and deferred revenues and is continuing to assess all potential impacts of the standard, including evaluating theimpact of each potential method of adoption on the Company’s consolidated financial statements and the impact to thepattern with which the Company will recognize revenue. In August 2014, the FASB issued ASU No. 2014‑15, Disclosure of Uncertainties about an Entity’s Ability to Continue as aGoing Concern. ASU 2014‑15 requires management to evaluate, at each annual or interim reporting period, whether thereare conditions or events that exist that raise substantial doubt about an entity’s ability to continue as a going concern withinone year after the date the financial statements are issued and provide related disclosures. ASU 2014‑15 is effective forannual periods ending after December 15, 2016 and earlier application is permitted. The Company adopted this standardduring the three months ended December 31, 2016. The adoption of this ASU did not have a material impact on theCompany’s consolidated financial statements. In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory. ASU 2015-11 applies to allinventory, except for inventory measured using the last-in, first-out method or the retail inventory method. The guidanceallows an entity to measure inventory at the lower of cost and net realizable value. Net realizable value is the estimatedselling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.The amendments in ASU 2015-11 are effective for fiscal years beginning after December 15, 2016, including interim periodswithin those fiscal years, and may be applied prospectively with earlier adoption permitted. The Company adopted ASU2015-11 during the three months ended June 30, 2016. The adoption of this ASU did not have a material impact on theCompany’s consolidated balance sheets or statements of operations for the year ended and as of December 31, 2016. In March 2016, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2016-09,Compensation – Stock Compensation (Topic 718 Improvements to Employee Share-Based Payment Accounting). ASU 2016-09 simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting forincome taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows.Under this guidance, a company recognizes all excess tax benefits and tax deficiencies as income tax expense or benefit inthe income statement. ASU 2016-09 is effective for public companies for annual reporting periods beginning after December15, 2016, including interim periods within those annual reporting periods; however, early adoption is permitted. TheCompany has early adopted ASU 2016-09 for its year ended December 31, 2016. The adoption of ASU 2016-09 did not havea material impact on the Company’s effective tax rate. In addition, the Company no longer calculates an estimate ofexpected forfeitures and began recongizing forfeitures as they occur. The recognition of forfeitures, as well as the cumulative-effect decrease to retained earnings with the offset to increase additional paid-in capital recognized upon adoption did nothave a material impact on the Company’s consolidated balance sheets, statement of operations or cash flows for the yearended and as of December 31, 2016.F-14 Table of Contents In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 most significantly impacts lesseeaccounting and disclosures. First, this guidance requires lessees to identify arrangements that should be accounted for asleases. Under ASU 2016-02, for lease arrangements exceeding a 12-month term, a right-of-use asset and lease obligation isrecorded by the lessee for all leases, whether operating or financing, while the income statement will reflect lease expense foroperating leases and amortization/interest expense for financing leases. The balance sheet amount recorded for existingleases at the date of adoption of ASU 2016-02 must be calculated using the applicable incremental borrowing rate at the dateof adoption. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leasestoday. In addition, ASU 2016-02 requires the use of the modified retrospective method, which will require adjustment to allcomparative periods presented in the consolidated financial statements. This guidance is effective for public companies forfiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted forall entities. The Company has not chosen early adoption for this ASU and is currently evaluating its effect on the Company’sconsolidated financial statements. 3. NET LOSS PER COMMON SHAREFor the twelve months ended December 31, 2016, 2015 and 2014, these securities were anti‑dilutive due to the net losses inthose periods and, therefore, the number of shares used to compute basic and diluted earnings per share are the same for ofthose periods.The following table presents the computations of basic and dilutive net loss per share: Years ended December 31, 2016 2015 2014Net loss $(94,176) $(27,255) $(17,917)Extinguishment of preferred stock - see Note 12 — 31,806 —Accretion and dividends of prior preferred stock - See Note 12 — (23,327) (3,300)Accretion and dividends of Series D preferred stock — (1,245) —Loss attributable to common shareholders — basic and diluted $(94,176) $(20,021) $(21,217)Weighted-average number of common shares used in net loss per share -basic and diluted 24,262,945 13,542,282 933,997Loss per share - basic and diluted $(3.88) $(1.48) $(22.72) The following potentially dilutive securities outstanding have been excluded from the computations of dilutedweighted‑average shares outstanding because such securities have an antidilutive impact due to losses reported (in commonstock equivalent shares): Years ended December 31, 2016 2015 2014Outstanding stock options 2,326,801 1,452,149 281,029Warrants 2,445 2,445 18,809Redeemable convertible preferred stock — — 6,552,820Unvested restricted stock 82,512 75,718 15,387Restricted stock units 41,741 — —F-15 Table of Contents4. INVENTORY Inventory consisted of the following: As of December 31, 2016 Raw materials $294 Work in process 67 Finished goods 955 Total inventory $1,316 During the year ended December 31, 2016, the Company incurred aggregate charges of $100 related to excess inventory.These expenses were recorded as a component of cost of product revenues. 5. PREPAID EXPENSES AND OTHER CURRENT ASSETSPrepaid expenses and other current assets consisted of the following: As of December 31, 2016 2015 Prepaid regulatory fees $512 $ — Prepaid development costs 485 — Prepaid insurance 328 420 Other current assets 304 205 Other prepaid expenses 276 208 Deferred financing costs — 353 Prepaid expenses and other current assets $1,905 $1,186 6. PROPERTY AND EQUIPMENTProperty and equipment consisted of the following: As of December 31, 2016 2015 Machinery and equipment $863 $755 Leasehold improvements 700 678 Computers and office equipment 590 262 Furniture and fixtures 117 117 Construction-in-process 100 — Total property and equipment 2,370 1,812 Less: accumulated deprecation (1,332) (1,074) Property and equipment, net $1,038 $738 Depreciation expense related to property and equipment amounted to $258, $171 and $187 for the years endedDecember 31, 2016, 2015 and 2014, respectively. F-16 Table of Contents7. INTANGIBLE ASSETS In May 2016, the Company entered into an agreement with BioDelivery Sciences International, Inc. (“BDSI”) to license therights to develop, manufacture, and commercialize Onsolis® (fentanyl buccal soluble film), or Onsolis, in the UnitedStates. Onsolis is a Transmucosal Immediate-Release Fentanyl (“TIRF”) film indicated for the management of breakthroughpain in certain cancer patients. The Company expects to launch the product after the completion of the transfer ofmanufacturing and required submission to the FDA of a Prior Approval Supplement. Subject to FDA approval of the PriorApproval Supplement, the Company expects to launch Onsolis during the second half of 2017. In addition, during the termof the License Agreement, milestone payments in the aggregate amount of $21,000 may become payable by the Companysubject to the satisfaction of certain commercialization, intellectual property, and net sales milestones, including $4,000upon the first commercial sale of the product in the U.S. Finally, the Company will be required to pay royalties in the upperteens based on annual net sales of the product in the U.S. As of December 31, 2016, the Company has not satisfied thecriteria of any milestones or royalties payable under the License Agreement and has not recognized any liabilities for suchmilestones or royalties payable in its consolidated financial statements. The Company made an upfront payment of $2,500 and is contractually committed to reimburse BDSI up to a maximum of$2,000 for its out-of-pocket expenses incurred in connection with the manufacturing transfer. The Company recorded theupfront payment as an intangible asset on the Consolidated Balance Sheet and will amortize it on a straight-line basis overthe remaining patent life, a period of approximately 3.7 years. During the year ended December 31, 2016, the Companyrecognized amortization of expense of $397 related to the Onsolis intangible asset, which also represents the accumulatedamortization to date. As of December 31, 2016, the remaining amortization period is approximately 3.1 years and estimatedremaining amortization for 2017, 2018, 2019 and 2020 is expected to be $682, $682, $682, $57. F-17 Table of Contents8. ACCRUED EXPENSESAccrued expenses consisted of the following: As of December 31, 2016 2015 Accrued bonuses $2,210 $1,474 Accrued incentive compensation 1,160 — Accrued development costs 2,485 80 Accrued payroll and related benefits 1,217 93 Accrued sales and marketing 801 157 Accrued other operating costs 572 186 Accrued audit and legal 416 209 Accrued interest 18 29 Total accrued expenses $8,879 $2,228 9. COMMITMENTS AND CONTINGENCIESLegal Proceedings From time to time, the Company may face legal claims or actions in the normal course of business. Except as disclosedbelow, the Company is not currently a party to any litigation and, accordingly, does not have any amounts recorded for anylitigation related matters. The Company’s NDA filing for Xtampza is a 505(b)(2) application, which allows the Company to reference data from anapproved drug listed in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations (commonly known asthe ‘‘Orange Book’’), in this case OxyContin OP. In connection with the 505(b)(2) process, the Company certified to the FDAand notified Purdue Pharma, L.P. (‘‘Purdue’’), as the holder of the NDA and any other Orange Book-listed patent owners, thatthe Company does not infringe any of the patents listed for OxyContin OP in the Orange Book. Under the Hatch-WaxmanAct of 1984 (the ‘‘Hatch-Waxman Act’’), Purdue had the option to sue the Company for infringement and receive a stay of upto 30 months before the FDA could issue a final regulatory approval for Xtampza, unless the stay was earlier terminated.Purdue exercised its option and elected to sue the Company for infringement in the District of Delaware in March 2015asserting infringement of three of Purdue’s Orange Book‑listed patents and one non-Orange Book-listed patent. In October2015, the Delaware case was transferred to Massachusetts. After the Company filed a partial motion for judgment on thepleadings relating to the Orange Book-listed patents, the District Court of Massachusetts ordered judgment in favor of theCompany on those three patents, and dismissed the claims asserting infringement of those patents with prejudice. Upondismissal of those claims, the 30-month stay of FDA approval was lifted. As a result, the Company obtained final approval ofits Xtampza ER products and has launched the products commercially. In November 2015, Purdue filed a follow-on suit asserting infringement of another patent, Patent No. 9,073,933, which waslate-listed in the Orange Book and therefore could not trigger any stay of FDA approval. In June 2016, Purdue filed anotherfollow-on suit asserting infringement of another non-Orange Book listed patent, Patent No. 9,155,717. These suits wereconsolidated by the District of Massachusetts into the original action where Purdue’s infringement claim relating to the ’497patent remains pending. Purdue continues to assert infringement of these three patents against the Company, none of whichis associated with any stay of FDA approval. Purdue has made a demand for monetary relief but has not quantified theiralleged damages. Purdue has also requested a judgment of infringement and an injunction on the sale of the Company’sproducts accused of infringement. The Company has denied all claims and seeks a judgment that the patents are invalidand/or not infringed by the Company, and seeks a judgment that the case is exceptional, with an award to the Company of itsfees for defending the case. F-18 Table of ContentsThe parties are in the early stages of fact discovery. Written discovery has commenced with depositions expected tocommence in the first half of 2017. The parties are also in the claims construction stage of the patent litigation. The partieshave briefed their proposed constructions and will argue their positions in front of the Court in the second quarter of 2017.The Company has also filed a motion for summary judgment that the asserted claims of the ’933, ’497, and ’717 patents areinvalid and not infringed. The Company is not able to predict with certainty when the Court will decide the Company’smotion. No trial date has been scheduled. The Company is, and plans to continue, defending this case vigorously. At this stage, we are unable to evaluate thelikelihood of an unfavorable outcome or estimate the amount or range of potential loss, if any. At this time the Company isunable to provide meaningful quantification of how this potential litigation may impact its future financial condition, resultsof operations, or cash flows. Operating LeasesThe Company leases its office and research facility under a non‑cancellable operating lease. Terms of the agreement providefor an initial two‑month rent‑free period and future rent escalation, and provide that in addition to minimum lease rentalpayments, the Company is responsible for a pro‑rata share of operating expenses and taxes. In March 2015, the Companyamended its lease to include an additional 9,660 square feet of space for a total of 19,335 square feet. In addition, the leaseterm was extended and now terminates on August 30, 2020. At the Company’s election, the lease term may be extended foran additional 5 -year term.Aggregate minimum annual lease commitments of the Company under its non‑cancellable operating lease as ofDecember 31, 2016 are as follows: 2017 $226 2018 234 2019 241 2020 164 Total minimum lease payments $865 Rent expense under the operating lease agreement amounted to approximately $182, $112 and $69 for the years endedDecember 31, 2016, 2015 and 2014, respectively. In addition, the Company maintained a stand‑by letter of credit inconnection with the Canton facility lease of $97 at December 31, 2016 and December 31, 2015. This amount is classified asrestricted cash in the balance sheets.Amounts provided by the lessor related to tenant improvements are considered inducements to enter into the lease. TheCompany has recorded these costs in the balance sheet as leasehold improvements, with the corresponding liabilities asdeferred lease incentive and lease note payable. These liabilities are amortized on a straight‑line basis over the term of thelease.10. TERM LOAN PAYABLEOn August 28, 2012, the Company entered into a loan agreement (“Original Term Loan”) with Silicon Valley Bank (“SVB”)to borrow up to a maximum amount of $1,000. In August 2012, October 2012 and February 2013, the Company borrowed$250, $250 and $500, respectively. The Original Term Loan bore interest at a rate per annum of 2.25% above the prime ratefixed at the time of advance of the Original Term Loan (5.50%). The Original Term Loan provided for interest‑only paymentsfor the first 12 months based on the date of each borrowing, and, thereafter, 36 monthly payments of principal and interest. Inconnection with the Original Term Loan, the Company granted SVB a warrant to purchase 11,850 shares of common stock atan exercise price of $0.07 per share (See Note 11).In January 2014, the Original Term Loan was amended (“Amendment No. 1”) to provide for the following: borrowings of upto $6,000, repayment in full of the Original Term Loan balance outstanding, and an adjustment of the variable interest ratefrom 2.25% above the prime rate to 1.75% above the prime rate. In February 2014, the Company borrowedF-19 Table of Contents$2,000. The proceeds from the initial borrowing were used to pay down the Original Term Loan balance outstandingresulting in the Company receiving $1,056. Borrowings under Amendment No. 1 bore interest at a rate of 5.0%. AmendmentNo. 1 provided for interest‑only payments for the first 12 months based on the date of each borrowing, and thereafter, 36monthly payments of principal and interest. In connection with Amendment No. 1, the Company granted to SVB a warrant topurchase 14,430 shares of common stock with an exercise price of $0.05 per share (See Note 11).In August 2014 the Original Term Loan was further amended (“Amendment No. 2”) to provide for total borrowings of up to$8,000. In August 2014 and September 2014 the Company drew down $3,000 and $3,000, respectively. Pursuant toAmendment No. 2, interest‑only payments are to be made for the first 12 months based on the date of each borrowing;thereafter, 36 monthly payments of principal and interest are to be made. Borrowings under Amendment 2 bear interest at therate of 5.0%. The warrant agreement contains a performance clause that the Company met, resulting in additional financingextended and issuance of a warrant to purchase 86,580 additional shares of common stock with an exercise price of $0.05 pershare (See Note 11).In September 2014, the Original Term Loan was further amended (“Amendment No. 3”) to extend the loan draw period.In November and December of 2014 the Company entered into a Note Purchase Agreement (the “Bridge Notes”) allowing forthe issuance of $5,000 of convertible promissory notes to a group of investors (the “Holders”) bearing interest at a rate perannum of 6.0%. The Holders are related parties of the Company. In March 2015, in connection with the Series D convertiblepreferred stock financing, the Bridge Notes converted into 4,166,667 shares of Series D convertible preferred stock. Upon theconversion, the Company recognized a gain on extinguishment of $91. The accrued interest on the Bridge Notes waswaived. As of December 31, 2016, future payments under the Company’s term loan are as follows:2017 $2,667 2018 1,479 Balance $4,146 11. WARRANTSIn November 2010, the Company issued a warrant to Comerica Bank. The warrant represents the right to purchase 2,445shares of common stock with an exercise price of $12.27. The warrant expires in October 2017.In connection with the Term Loan Financings with Silicon Valley Bank, the Company issued warrants to purchase a total of16,357 shares of common stock. In June 2015, SVB exercised all of its warrants.12. EQUITYCommon StockAs of December 31, 2016 and 2015, the Company had reserved the following shares of common stock for the issuance ofcommon stock for the exercise of stock options and warrants and the issuance of shares under the 2015 Employee StockPurchase Plan (in thousands): As of December 31, 2016 2015Options to purchase common stock 3,348 2,642Employee stock purchase plan 364 200Warrants 2 2Total 3,714 2,844 F-20 Table of ContentsConvertible Redeemable Preferred Stock Series A, B and Series C Redeemable Convertible Preferred StockAs of December 31, 2014, 54,481,000 shares of preferred stock were authorized, designated as Series A, Series B and Series CPreferred Stock of which 9,232,334, 27,324,237 and 8,658,008 were issued and outstanding, respectively.In March 2015, the Company sold 41,666,667 shares of Series D convertible preferred stock for aggregate consideration of$50,000, comprised of $45,000 in cash and conversion of $5,000 in convertible notes with related parties. The convertiblenotes converted into 4,166,667 shares of Series D convertible preferred stock. The accrued interest on the convertible noteswas waived. In this financing, the mandatory conversion for all series of preferred stock was modified so as to occur upon aninitial public offering with gross proceeds in excess of $50,000. 13. STOCK‑BASED COMPENSATIONStock Options, Restricted Stock Awards and Restricted Stock UnitsIn May 2015, the Company adopted the Amended and Restated 2014 Stock Incentive Plan (the “Plan”), under which anaggregate of 2,700,000 shares of common stock were authorized for issuance to employees, officers, directors, consultantsand advisors of the Company, plus an annual increase to be added on the first day of each fiscal year until the expiration ofthe Plan equal to 4% of the total number of outstanding shares of common stock on December 31 of the immediatelypreceding calendar year (or a lower amount as otherwise determined by the board of directors prior to January 1). As ofDecember 31, 2016, 1,021,509 shares of common stock were available for issuance pursuant to the Plan. The Plan providesfor granting of both Internal Revenue Service qualified incentive stock options (“ISOs”) and non‑qualified options (“NQs”),restricted stock awards (“RSAs”) and restricted stock units (“RSUs”). Stock options generally vest over a four year period ofservice; however, certain options contain performance conditions. The options generally have a ten year contractual life and,upon termination, vested options are generally exercisable between one and three months following the termination date,while unvested options are forfeited immediately.Stock option activity under the Plan is summarized as follows: Weighted- Weighted- Average Average Remaining Aggregate ExercisePrice Contractual Intrinsic Shares per Share Term (inyears) Value Outstanding at December 31, 2015 1,452,149 $10.37 10.4 $24,887 Granted 1,063,981 16.46 Exercised (81,831) 5.41 Cancelled (107,498) 16.05 Outstanding at December 31, 2016 2,326,801 $13.07 8.7 $7,927 Exercisable at December 31, 2016 556,040 $9.19 8.0 $3,917 Vested and expected to vest at December 31, 2016 2,291,971 $13.11 8.7 $8,090 The total intrinsic value of stock options exercised for the year ended December 31, 2016 was $952. As ofDecember 31, 2016, the unrecognized compensation cost related to outstanding options was $14,499, and is expected to berecognized as expense over approximately 2.8 years.As of December 31, 2016, the weighted average fair value of vested options was $6.35. The weighted-average grant date fairvalue of options granted during the year ended December 31, 2016 was $10.98. The fair value of options that vested duringthe year ended December 31, 2016 was $7.37.F-21 ststTable of Contents Restricted stock awards under the Plan are summarized as follows: Weighted-Average Purchase Price Shares per ShareUnvested at December 31, 2015 75,718 $5.73Granted — —Vested (32,453) 5.73Unvested at December 31, 2016 (1) 43,265 $5.73(1) Excludes 39,247 shares of unvested restricted stock remaining from the early exercise of stock options as ofDecember 31, 2016.The total fair value of restricted stock awards vested during the years ended December 31, 2016, was $186. As ofDecember 31, 2016, the unrecognized compensation cost related to restricted stock awards was $233, and is expected to berecognized as expense over approximately 1.2 years. Restricted stock units under the Plan are summarized as follows: Weighted-Average Shares Grant Date FairValueOutstanding at December 31, 2015 — $ —Granted 41,741 16.15Settled — —Forfeited — —Outstanding at December 31, 2016 41,741 $16.15As of December 31, 2016, the unrecognized compensation cost related to restricted stock units was $509, and is expected tobe recognized as expense over approximately 3.0 years. Employee Stock Purchase Plan The Company’s 2015 Employee Stock Purchase Plan allows employees as designated by the Company’s Board of Directorsto purchase shares of the Company’s common stock. The purchase price is equal to 85% of the lower of the closing price ofour common stock on (1) the first day of the purchase period or (2) the last day of the purchase period. The first purchaseperiod commenced in the year ended December 31, 2016. The expense for the year ended December 31, 2016 was $457. Stock‑Based Compensation ExpenseThe Company granted stock options to employees for the years ended December 31, 2016, 2015 and 2014. The Companyestimates the fair value of stock options as of the date of grant using the Black‑Scholes option pricing model and restrictedstock awards and restricted stock units based on the fair value of the award. Stock options and restricted stock issued tonon‑board member, non‑employees are accounted for using the fair value approach and are subject to periodic revaluationover their vesting terms.F-22 Table of ContentsStock‑based compensation for all stock options, restricted stock awards, restricted stock units and for the employee stockpurchase plan are reported within: Years ended December 31, 2016 2015 2014Research and development $638 $223 $12Selling, general and administrative 5,149 1,986 10Total stock-based compensation expense $5,787 $2,209 $22 The weighted‑average assumptions used in the Black‑Scholes option pricing model to determine the fair value of theemployee stock option grants were as follows: Years ended December 31, 2016 2015 2014 Risk-free interest rate 1.5% 1.7% 1.8%Volatility 76.3% 77.0% 77.1%Expected term (years) 6.02 6.20 6.25 Expected dividend yield —% —% —%Risk‑free Interest Rate. The risk‑free interest rate assumption is based on observed interest rates appropriate for the expectedterm of the stock option grants.Expected Volatility. Due to the Company’s limited operating history and lack of company‑specific historical or impliedvolatility, the expected volatility assumption is based on historical volatilities of a peer group of similar companies whoseshare prices are publicly available. The peer group was developed based on companies in the biotechnology andpharmaceutical industries. In evaluating similarity, we consider factors such as industry, stage of life cycle and size.Expected Term. The expected term represents the period of time that options are expected to be outstanding. Because theCompany does not have historical exercise behavior, through December 31, 2016 it determined the expected life assumptionusing the simplified method, which is an average of the contractual term of the option and its vesting period.Expected Dividend Yield. The expected dividend yield assumption is based on the fact that the Company has never paidcash dividends and has no present intention to pay cash dividends.14. INCOME TAXES For the years ended December 31, 2016 and 2015, the Company did not record a current or deferred income tax expense or(benefit) due to current and historical losses incurred by the Company. The Company's losses before income taxes consistsolely of domestic losses.The Company has early adopted the provisions of ASU 2016-09, Compensation – Stock Compensation (Topic 718Improvements to Employee Share-Based Payment Accounting), for its year ended December 31, 2016. ASU 2016-09 requirescompanies to include the benefit of an option deduction in its net operating loss carryforward deferred tax asset. Prior to itsadoption of ASU 2016-09, the Company’s excess tax benefits associated with option deductions were maintained in theCompany’s APIC pool of windfall tax benefits, which was tracked off balance sheet and not included in its deferred taxassets. As a result of the Company’s adoption of ASU 2016-09, it will track option deductions in its net operating lossdeferred tax asset on a modified retrospective basis, and has included the option deductions in the December 31, 2016deferred tax assets. The gross deferred tax asset and valuation allowance as of December 31, 2016 increased $406 as a resultof the cumulative effect of adoption of ASU 2016-09. The Company has not recast its December 31, 2015 and December 31,2014 deferred tax assets or its rate reconciliation, and therefore the option deductions in 2015 and 2014 are not included inthe net operating loss deferred tax asset as originally reported. Since theF-23 Table of ContentsCompany has historically maintained a full valuation allowance on its net worldwide deferred tax asset, there is no netimpact to retained earnings from the adoption of ASU 2016-09.A reconciliation of income tax expense (benefit) computed at the statutory federal income tax rate to income taxes asreflected in the consolidated financial statements is as follows: As of December 31, 2016 2015 2014 Federal income tax expense at statutory rate 34.00% 34.00% 34.00%(Increase) decrease income tax (benefit) resulting from: State income tax, net of federal benefit 3.43 5.29 — Permanent differences (1.45) (1.70) (0.17) Research and development credit 0.27 0.89 3.74 Change in valuation allowance (36.25) (38.48) (37.57) Effective income tax rate 0.00% 0.00%0.00% Deferred taxes are recognized for temporary differences between the basis of assets and liabilities for financial statement andincome tax purposes. The significant components of the Company’s deferred tax assets and liabilities are comprised of thefollowing: As of December 31, 2016 2015 Deferred tax assets: U.S. and state net operating loss carryforwards $71,049 $38,405 Research and development credits 3,712 3,421 Accruals and other 1,541 144 Depreciation and amortization 261 94 Total deferred tax assets 76,563 42,064 Valuation allowance (76,563) (42,064) Net deferred tax assets $— $— The Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets. As ofDecember 31, 2016 and 2015, based on the Company's history of operating losses, the Company has concluded that it is notmore likely than not that the benefit of its deferred tax assets will be realized. Accordingly, the Company has provided a fullvaluation allowance for deferred tax assets as of December 31, 2016 and 2015. The valuation allowance increased $34,499and $10,539, during the years ended December 31, 2016 and 2015 respectively, due primarily to net operating lossesgenerated.As of December 31, 2016, 2015 and 2014, the Company had U.S. federal net operating loss carryforwards of $190,926,$104,888 and $78,276, respectively, which may be available to offset future income tax liabilities and expire at various datesthrough 2036. As of December 31, 2016, 2015, and 2014, the Company also had U.S. state net operating loss carryforwards of$145,902, $59,875, and $34,184 respectively, which may be available to offset future income tax liabilities and expire atvarious dates through 2036. Included in the federal and state net operating loss carryforwards are approximately $1,539,$1,064, and $0, respectively, of deductions related to the exercise of stock options. As stated above, the company is electingto early adopt ASU 2016-09 on a modified retrospective basis. Therefore, the $1,539 of option deductions is included in thecompany’s net operating loss deferred tax asset at December 31, 2016. The company is not recasting its net operating lossdeferred tax asset at December 31, 2015 and December 31, 2014, and therefore the option deduction of $1,064 and $0,respectively, is not included in the Company’s deferred tax assets.As of December 31, 2016, 2015 and 2014, the Company had federal research and development tax credit carryforwards ofapproximately $3,367, $3,110, and $2,868, respectively, available to reduce future tax liabilities which expire at variousdates through 2036. As of December 31, 2016, 2015 and 2014 the Company had state research and developmentF-24 Table of Contentstax credit carryforwards of approximately $522, $469 and $226, respectively, available to reduce future tax liabilities whichexpire at various dates through 2031.Under the provisions of the Internal Revenue Code, the net operating loss and tax credit carryforwards are subject to reviewand possible adjustment by the Internal Revenue Service and state tax authorities. Net operating loss and tax creditcarryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownershipinterest of significant shareholders over a three-year period in excess of 50 percent, as defined under Sections 382 and 383 ofthe Internal Revenue Code, respectively, as well as similar state provisions. This could limit the amount of tax attributes thatcan be utilized annually to offset future tax liabilities. The amount of the annual limitation is determined based on the valueof the Company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitationin future years. The Company has completed numerous financings since its inception which may have resulted in a change incontrol as defined by Sections 382 and 383 of the Internal Revenue Code, or could result in a change in control in the future.For all years through December 31, 2016, the Company generated research credits but has not conducted a study todocument the qualified activities. This study may result in an adjustment to the Company’s research and development creditcarryforwards; however, until a study is completed and any adjustment is known, no amounts are being presented as anuncertain tax position for these two years. A full valuation allowance has been provided against the Company’s research anddevelopment credits and, if an adjustment is required, this adjustment would be offset by an adjustment to the deferred taxasset established for the research and development credit carryforwards and the valuation allowance.The Company files income tax returns in the United States and in several states. The federal and state income tax returns aregenerally subject to tax examinations for the tax years ended December 31, 2013 through December 31, 2016. To the extentthe Company has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted uponexamination by the Internal Revenue Service or state tax authorities to the extent utilized in a future period.15. EMPLOYEE BENEFITSThe Company has a retirement savings plan, which is qualified under section 401(k) of the Code, for its employees. The planallows eligible employees to defer, at the employee’s discretion, pretax compensation up to the Internal Revenue Serviceannual limits. Employees become eligible to participate after completing 3 months of service. The Company is not requiredto contribute to this plan. Total expense for contributions made by the Company the years ended December 31, 2016, 2015and 2014 was $613, $44 and $35 respectively.F-25 Table of Contents16. UNAUDITED QUARTERLY OPERATING RESULTSThe following is a summary of unaudited quarterly results of operations for the years ended December 31, 2016 and 2015: First Second Third FourthYear ended December 31, 2016 Quarter Quarter Quarter QuarterProduct revenues, net $ - $ - $408 $1,303 Costs and expenses Cost of product revenues - - 29 184Research and development 4,062 4,301 3,254 3,331Selling, general and administrative 11,525 20,173 23,567 25,367Total costs and expenses 15,587 24,474 26,850 28,882 Loss from operations $(15,587) $(24,474) $(26,442) $(27,579)Other (expense) income, net (66) (46) (2) 20Net loss $(15,653) $(24,520) $(26,444) $(27,559) Weighted-average shares - basic and diluted 23,130,153 23,417,378 23,460,340 27,100,231Loss per share - basic and diluted $(0.68) $(1.05) $(1.13) $(1.02) First Second Third FourthYear ended December 31, 2015 Quarter Quarter Quarter QuarterCosts and expenses Research and development $1,445 $1,641 $3,358 $1,531Selling, general and administrative 2,186 2,934 5,907 7,905Total costs and expenses 3,631 4,575 9,265 9,436 Loss from operations $(3,631) $(4,575) $(9,265) $(9,436)Other expense, net (63) (99) (97) (89)Net loss $(3,694) $(4,674) $(9,362) $(9,525) Shares used in computing net loss per share-basic 1,001,704 11,791,546 20,531,406 20,558,205Shares used in computing net loss per share-diluted 7,554,524 11,791,546 20,531,406 20,558,205Net income (loss) per share-basic $0.34 $(0.45) $(0.46) $(0.46)Net loss per share-diluted $(0.65) $(0.45) $(0.46) $(0.46) 17. SUBSEQUENT EVENTSThe Company has concluded that no subsequent events have occurred that require disclosure. F-26 Table of Contents INDEX TO EXHIBITSExhibit NumberExhibit Description 21.1 Subsidiaries of Collegium Pharmaceutical, Inc.23.1 Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm.23.2 Consent of Grant Thornton LLP, Independent Registered Public Accounting Firm.31.1 Certifying Statement of the Chief Executive Officer pursuant to Section 302 of the Sarbanes‑Oxley Act of2002.31.2 Certifying Statement of the Chief Financial Officer pursuant to Section 302 of the Sarbanes‑Oxley Act of2002.32.1 Certifying Statement of the Chief Executive Officer pursuant to Section 1350 of Title 18 of the UnitedStates Code.32.2 Certifying Statement of the Chief Financial Officer pursuant to Section 1350 of Title 18 of the UnitedStates Code.101 The following financial information from this Annual Report on Form 10-K for the year ended December31, 2016, formatted in XBRL: (i) Consolidated Balance Sheets as of December 31, 2016 and 2015, (ii)Consolidated Statements of Operations for the years ended December 31, 2016, 2015 and 2014, (iii)Consolidated Statements of Convertible Redeemable Preferred Stock and Shareholders' Equity (Deficit)for the Years Ended December 31, 2016, 2015 and 2014, (iv) Consolidated Statements of Cash Flows forthe years ended December 31, 2016, 2015 and 2014, and (v) Notes to Consolidated Financial Statements,tagged as blocks of text. Exhibit 21.1 Subsidiaries of Collegium Pharmaceutical, Inc. SubsidiaryJurisdiction of IncorporationCollegium Securities CorporationMassachusetts Exhibit 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in Registration Statement No. 333-213964 on Form S-3 and RegistrationStatement No. 333-207744 on Form S-8 of our report dated March 10, 2017, relating to the consolidated financialstatements of Collegium Pharmaceutical, Inc. and subsidiary, appearing in this Annual Report on Form 10-K ofCollegium Pharmaceutical, Inc. for the year ended December 31, 2016. /s/ Deloitte & Touche LLPBoston, MassachusettsMarch 10, 2017 Exhibit 23.2 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We have issued our report dated March 18, 2016 with respect to the consolidated financial statements included in theAnnual Report of Collegium Pharmaceutical, Inc. on Form 10-K for the years end December 31, 2015 and December 31,2014. We consent to the incorporation by reference of said report in the Registration Statements of CollegiumPharmaceutical, Inc. on Form S-3 (File No. 333-213964), and on Form S-8 (File No. 333-207744). /s/ Grant Thornton LLPBoston, MassachusettsMarch 10, 2017 /s/ MICHAEL T. HEFFERNANMichael T. HeffernanPresident and Chief Executive Officer Exhibit 31.1CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANTTO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002I, Michael T. Heffernan, certify that:1. I have reviewed this annual report on Form 10-K of Collegium Pharmaceutical, Inc.;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material factnecessary to make the statements made, in light of the circumstances under which such statements were made, not misleadingwith respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present inall material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periodspresented in this report;4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (asdefined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to bedesigned under our supervision, to ensure that material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities, particularly during theperiod in which this report is being prepared;(b)Designed such internal control over financial reporting, or caused such internal control over financialreporting to be designed under our supervision, to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles;(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in thisreport our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of theperiod covered by this report based on such evaluation; and(d)Disclosed in this report any change in the registrant’s internal control over financial reporting thatoccurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case ofan annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’sinternal control over financial reporting; and5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control overfinancial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or personsperforming the equivalent functions):(a)All significant deficiencies and material weaknesses in the design or operation of internal control overfinancial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significantrole in the registrant’s internal control over financial reporting. Dated: March 10, 2017/s/ PAUL BRANNELLYPaul BrannellyExecutive Vice President and Chief Financial OfficerExhibit 31.2CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANTTO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002I, Paul Brannelly, certify that:1. I have reviewed this annual report on Form 10-K of Collegium Pharmaceutical, Inc.;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material factnecessary to make the statements made, in light of the circumstances under which such statements were made, not misleadingwith respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present inall material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periodspresented in this report;4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (asdefined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to bedesigned under our supervision, to ensure that material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities, particularly during theperiod in which this report is being prepared; (b)Designed such internal control over financial reporting, or caused such internal control over financialreporting to be designed under our supervision, to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles;(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in thisreport our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of theperiod covered by this report based on such evaluation; and(d)Disclosed in this report any change in the registrant’s internal control over financial reporting thatoccurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case ofan annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’sinternal control over financial reporting; and5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control overfinancial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or personsperforming the equivalent functions):(a)All significant deficiencies and material weaknesses in the design or operation of internal control overfinancial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significantrole in the registrant’s internal control over financial reporting. Dated: March 10, 2017/s/ MICHAEL T. HEFFERNANMichael T. HeffernanPresident and Chief Executive OfficerExhibit 32.1CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the annual report on Form 10-K of Collegium Pharmaceutical, Inc. (the “Company”) for the fiscal yearended December 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), theundersigned, Michael T. Heffernan, President and Chief Executive Officer of the Company, hereby certifies, pursuant to 18U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Actof 1934; and(2)The information contained in the Report fairly presents, in all material respects, the financial conditionand results of operations of the Company.Date: March 10, 2017/s/ PAUL BRANNELLYPaul BrannellyExecutive Vice President and Chief Financial OfficerExhibit 32.2CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the annual report on Form 10-K of Collegium Pharmaceutical, Inc. (the “Company”) for the fiscal yearended December 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), theundersigned, Paul Brannelly, Executive Vice President and Chief Financial Officer of the Company, hereby certifies,pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to hisknowledge:(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Actof 1934; and(2)The information contained in the Report fairly presents, in all material respects, the financial conditionand results of operations of the Company. Date: March 10, 2017

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