Collegium Pharmaceutical
Annual Report 2018

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, 2018 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) 100 Technology Center DriveStoughton, MA(Address of principal executive offices) 02072(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, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) duringthe preceding 12 months (or for such shorter period that the registrant was required to submit 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, a smaller reporting company, or an emerging growth company. See the definitions of“large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐(Do not check ifsmaller reporting company) Smaller reporting company ☐Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standardsprovided pursuant to Section 13(a) of the Exchange Act. ☐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, 2018, 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 $725 million, based on the closing price of the registrant’s common stock on The NASDAQ Global Select Market on June 30, 2018 of $23.83 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 January 31, 2019, there were 33,305,011 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 2019 Annual Meeting of Shareholders (the "Proxy Statement"), to be filed within 120 days of the registrant's year ended December 31, 2018,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 3 Item 1A.Risk Factors 20 Item 1B.Unresolved Staff Comments 54 Item 2.Properties 54 Item 3.Legal Proceedings 54 Item 4.Mine Safety Disclosures 57 PART II Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchasesof Equity Securities 57 Item 6.Selected Financial Data 60 Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations 62 Item 7A.Quantitative and Qualitative Disclosures about Market Risk 72 Item 8.Consolidated Financial Statements and Supplementary Data 72 Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 72 Item 9A.Controls and Procedures 72 Item 9B.Other Information 75 PART III Item 10.Directors, Executive Officers and Corporate Governance 75 Item 11.Executive Compensation 75 Item 12.Security Ownership of Certain Beneficial Owners and Management and Related StockholderMatters 75 Item 13.Certain Relationships and Related Transactions, and Director Independence 75 Item 14.Principal Accountant Fees and Services 75 PART IV Item 15.Exhibits and Financial Statement Schedules 75 Item 16.Form 10-K Summary 78 SIGNATURES 79 1 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 commercialize and grow sales of our products;·our ability to effectively commercialize in-licensed products and manage our relationships with licensors, includingour ability to satisfy our royalty payment obligations in connection with such products;·our ability to obtain and maintain regulatory approval of our products and any product candidates, and any relatedrestrictions, limitations, and/or warnings in the label of an approved product;·the size of the markets for our products and any product candidates, and our ability to service those markets;·the success of competing products that are or become available;·our ability to obtain and maintain reimbursement and third-party payor contracts for our products;·the costs of commercialization activities, including marketing, sales and distribution;·the rate and degree of market acceptance of our products;·changing market conditions for our products;·the outcome of any patent infringement, opioid-related or other litigation that may be brought by or against us,including litigation with Purdue Pharma, L.P. and Teva Pharmaceuticals USA, Inc.;·the performance of our third-party suppliers and manufacturers;·our ability to secure adequate supplies of active pharmaceutical ingredient for each of our products and tomanufacture adequate quantities of commercially salable inventory;·our ability to attract collaborators with development, regulatory and commercialization expertise;·our ability to obtain funding for our operations and business development;·regulatory developments in the United States;·our expectations regarding our ability to obtain and maintain sufficient intellectual property protection for ourproducts and any product candidates; ·our ability to operate our business without infringing the intellectual property rights of others;·our ability to comply with stringent government regulations relating to the manufacturing and marketing ofpharmaceutical products, including U.S. Drug Enforcement Agency, or DEA, compliance;·the loss of key commercial, scientific or management personnel;·our customer concentration, which may adversely affect our financial condition and results of operations;·the accuracy of our estimates regarding expenses, revenue, capital requirements and need for additional financing;and·the other risks, uncertainties and factors discussed under the heading “Risk Factors” in this Form 10-K. 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.2 Table of Contents We 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 committed to being the leader in responsible pain management. Our firstproduct, Xtampza ER, is an abuse-deterrent, extended-release, oral formulation of oxycodone. In April 2016, the U.S. Foodand Drug Administration, or FDA, approved our New Drug Application, or NDA, for Xtampza ER for the management of painsevere enough to require daily, around-the-clock, long-term opioid treatment and for which alternative treatment options areinadequate. In June 2016, we announced the commercial launch of Xtampza ER. Our product portfolio also includes Nucynta ER and Nucynta IR, or the Nucynta Products. In December 2017, we enteredinto a Commercialization Agreement with Assertio Therapeutics, Inc. (formerly known as Depomed), or Assertio, pursuant towhich we acquired the right to commercialize the Nucynta Products in the United States and began marketing the NucyntaProducts in February 2018. Nucynta ER is an extended-release, or ER, formulation of tapentadol that is indicated for themanagement of pain severe enough to require daily, around the clock, long term opioid treatment, including neuropathicpain associated with diabetic peripheral neuropathy in adults, and for which alternate treatment options are inadequate.Nucynta IR is an immediate-release formulation of tapentadol that is indicated for the management of acute pain severeenough to require an opioid analgesic and for which alternative treatments are inadequate in adults. For the fiscal year ended December 31, 2018, we generated $280.4 million in net revenues, comprised of $69.4 million fromsales of Xtampza ER and $211.0 million from sales of the Nucynta Products. We are headquartered in Stoughton, Massachusetts and our common stock trades on the NASDAQ Global Select Market, orNASDAQ, under the trading symbol “COLL.” Pain, Pain Management and Opioid Abuse in the United States Acute and Chronic Pain Pain can be classified along many different variables, including severity, duration and etiology. There are two broadcategories of pain based on duration: acute pain, or pain that is self-limited and generally requires treatment for no more thanup to a few weeks, and chronic pain, or pain that lasts beyond the healing of an injury or that persists longer than 3-6 months.Chronic pain affects between 50-100 million U.S. adults annually, with as many as 19.6 million of those adults experiencinghigh impact chronic pain, defined as pain that interferes with daily life or work activities. Acute pain is even more prevalentand can occur after an injury, burn, or trauma or after surgery. Moreover, acute pain and chronic pain are closely related:nearly all cases of chronic pain begin as acute pain. Chronic pain leads to over $560 billion in healthcare and productivity costs each year according to the Institute of Medicine.Patients with chronic pain make an estimated ten more physician visits per year than those without chronic pain and see moredoctors. In addition, studies suggest that healthcare costs for people suffering from chronic pain are higher, and oftensubstantially higher, than for those without chronic pain. The Role of Prescription Opioids in the Treatment of Pain Prescription opioids continue to serve as important tools in the treatment of acute and chronic pain where alternativetreatments have been inadequate. Prescription opioids are available in immediate-release formulations as well as in3 Table of Contentsextended-release formulations, which incorporate a time-release mechanism designed to deliver steady amounts of opioid,typically over 12 to 24 hours. Extended-release opioids are designed to offer more convenient dosing with a longer period ofconsistent blood levels of the active drug as compared to immediate-release formulations. In 2018, there were approximately 189 million prescriptions for opioids written in the United States, representing a 12 %decline from 2017 levels and including approximately 4.3 million prescriptions for branded extended-release opioids,approximately 16 million prescriptions for generic extended-release opioids, and greater than 168 million prescriptions forimmediate-release opioids. Increasingly, practitioners and regulators are focusing on multidisciplinary, multimodal approaches to pain management,including opioid and nonopioid medications, physical and psychotherapy, and exercise. Recognizing the role that opioidtherapy continues to play in effective pain management, these groups are advocating for best practices that supportappropriate opioid prescribing practices that may minimize risk of addiction and other adverse events to patients. Prescription Opioid Abuse is an Epidemic in the United StatesPrescription opioids of all kinds, including both immediate-release and extended-release formulations, are subject tomanipulation, misuse, and abuse. Abuse-deterrent technologies, including the DETERx platform that is incorporated inXtampza ER, have emerged to reduce the risk of abuse of prescription opioids, but these technologies do not eliminate thepossibility of misuse and abuse. Extended-release opioids, with their large payload of active pharmaceutical ingredient, may be especially attractive topotential abusers, who tamper with these formulations to overcome the extended-release mechanism and achieve theeuphoria that results from rapid increases in the blood concentration of the active pharmaceutical ingredient, a potentiallyfatal activity known as dose dumping. The U.S. Centers for Disease Control and Prevention, or CDC, described abuse of prescription drugs in the United States as avast and deadly epidemic. According to a 2018 CDC report, there were a record-high 63,632 drug overdose deaths in theUnited States in 2017, representing a rate of 19.8 per 100,000 persons. Prescription and/or illicit opioids were involved in42,249, or 66.4%, of these drug overdose deaths, with over 17,000 of these fatalities attributed to prescription opioids alone.Although the most recent data available suggests that overdose fatalities in the United States are now declining from theirpeak in 2017, the CDC reports that there were still 46,151 drug overdose deaths relating to prescription and/or illicit opioidsduring the twelve months ended May 2018. The opioid epidemic has, in addition to its death toll, imposed significant burdens on the U.S. healthcare system. In 2015, anestimated 78,840 hospitalizations occurred for opioid-related poisonings in the U.S. In addition, 2015 saw an estimated140,077 emergency department visits for opioid-related poisonings in the U.S. A nonprofit group that studies the healtheconomy recently estimated that the opioid epidemic has cost the U.S. more than a trillion dollars since 2001, based on CDCmortality data through June of 2017. The greatest financial cost of the epidemic, according to the report, is in lost earningsand productivity losses to employers. Despite the reduction in opioid prescriptions and the heightened awareness of the risks associated with opioid use, abuse ofprescription opioids, including extended-release formulations, continues to be a major public health issue. In 2016, anestimated 11,824,000, or 4.4% of persons aged 12 and older, reported opioid misuse in the prior year. In response to issuessurrounding abuse of prescription opioids, pharmaceutical companies have developed novel, abuse-deterrent formulationstrategies. Abuse-deterrent formulations target the known or expected routes of abuse, such as crushing in order to snort ordissolving in order to inject, for the specific opioid drug substance. The FDA has encouraged the development ofprescription opioids with abuse-deterrent formulations to help combat the opioid crisis, and expanding access to abusedeterrent formulations is part of the FDA’s comprehensive Opioids Action Plan. Legislative and Regulatory Actions In response to widespread prescription opioid abuse, the U.S. government and a number of state legislatures have enactedlegislation and regulations intended to fight the opioid epidemic. The number and scope of legislative and regulatoryactions, particularly in the last three years, emphasize the severity of the opioid epidemic and its impact on our society. TheFDA has stated that addressing prescription drug abuse is a priority and has reaffirmed that the development of abuse-deterrent opioids is a key part of that strategy.4 Table of Contents Recent actions to address the opioid abuse epidemic include: ·FDA guidance: In April 2015, the FDA adopted final guidance regarding studies and clinical trials that should beconducted 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 guidance describes four categories of abuse-deterrence studies and clinical trials: Categories 1, 2and 3 consist of pre-marketing studies and clinical trials designed to evaluate a product candidate’s potentiallyabuse-deterrent properties under controlled conditions, while Category 4, post-marketing clinical trials and studies,assesses the real-world impact of abuse-deterrent formulations. The final guidance also provides examples ofproduct label claims that may be made based on the results of the corresponding studies and clinical trials. ·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 FDA’s plan is part of a broader initiative led by the U.S.Department of Health and Human Services, or HHS, to address opioid-related overdose, death and dependence. Aspart of the HHS initiative: oCDC Prescribing Guidelines: In March 2016, the CDC released a new Guideline for Prescribing Opioidsfor Chronic Pain intended to assist primary care providers treating adults for chronic pain in outpatientsettings. The guideline provides recommendations to improve communications between doctors andpatients about the risks and benefits of opioid therapy for chronic pain, improve the safety andeffectiveness of pain treatment, and reduce the risks associated with long-term opioid therapy. oEnhanced Warnings and Safety Labeling: In March 2016, the FDA announced required enhancedwarnings for immediate-release opioid pain medications related to risks of misuse, abuse, addiction,overdose, and death. Subsequently, there have been several class-wide labeling changes, including theaddition of boxed warnings relating to serious risks of using certain opioids medications along withbenzodiazepines and other central nervous system depressants, including alcohol (Decembers 2016); andadditional information relating to the new class-wide REMS (Septembers 2018). ·Passage of the Comprehensive Addiction and Recovery Act (CARA and CARA 2.0): In 2016, the ComprehensiveAddiction and Recovery Act, or CARA, was enacted to address the national epidemics of prescription opioid abuseand heroin use. Consistent with the initiatives of HHS, this legislation sought to, among other things, expand theavailability of naloxone for law enforcement and other first responders; form an interagency task force to developbest practices for pain management with opioid medications; and provide resources to improve state monitoring ofcontrolled substances, including opioids. In 2018, CARA 2.0 was introduced as follow-up legislation to limit initialprescriptions for opioids to 3 days, while exempting initial prescriptions for chronic care, cancer care, hospice or endof life care, and palliative care. CARA 2.0 also increased civil and criminal penalties for opioid manufacturers thatfail to report suspicious orders for opioids or fail to maintain effective controls against diversion of opioids. ·Passage of the Substance Use-Disorder Prevention that Promotes Opioid Recovery and Treatment for Patients andCommunities Act (SUPPORT Act): In November 2018, the SUPPORT Act was enacted as a comprehensive legislativeresponse to the continuing opioid epidemic. It includes a number of measures directed towards regulation andimprovement of treatment for substance use-disorder and increased coverage by CMS of medically-assistedtreatment options. In addition, the SUPPORT Act requires HHS to report to Congress on existing barriers to access toabuse-deterrent opioid formulations by Medicare Part C and D beneficiaries. The Collegium Portfolio Our mission is to be the leader in responsible pain management. We have leveraged our research and development efforts aswell as licensing relationships with third parties, to develop a portfolio of meaningfully differentiated products for use in thetreatment of moderate to severe pain. 5 Table of ContentsXtampza ERIn April 2016, the FDA approved our NDA for Xtampza ER (extended-release oxycodone) for the management of pain severeenough to require daily, around-the-clock, long-term opioid treatment and for which alternative treatment options areinadequate. The approved labeling for Xtampza ER includes human abuse potential studies, as well as data supporting theadministration of the product as a sprinkle or administered through feeding tubes. In June 2016, we launched Xtampza ER inthe United States. Xtampza ER is formulated using our novel abuse-deterrent technology platform, DETERx, which providesextended-release delivery, while also providing barriers to common methods of abuse and misuse (e.g., crushing, chewing,heating and injecting). This technology combines an active opioid ingredient with a fatty acid and waxes to formmicrospheres that are filled into a capsule – these wax-based microspheres are designed to resist particle size reduction anddose dumping when subjected to physical and chemical manipulation. Xtampza ER’s label indicates a dosing regimen of onecapsule every 12 hours and it must be taken with food. Xtampza ER, OxyContin OP from Purdue, and the authorized generic version of OxyContin (which is identical to thebranded version) are the only extended-release oxycodone products marketed in the United States as of January 2019. In2018, the extended-release oxycodone (OER) market generated approximately $1.8 billion in U.S. sales and there wereapproximately 3.4 million prescriptions written. OxyContin is the largest selling extended-release oxycodone (and largest-selling branded extended-release opioid) in the United States by dollars and prescription volume, with approximately $1.5billion in U.S. sales and approximately 2.6 million prescriptions written in 2018. Relative to 2017, dollars generated by salesfor OxyContin and its authorized generic forms written in the United States in 2018 declined 19 %, with a 21% declineprescription volume. In 2018, there were approximately 327,000 prescriptions of Xtampza ER written. Xtampza ER and OxyContin OP (along with its authorized generic) feature the same active pharmaceutical ingredient andfeature abuse-deterrent technologies – though the abuse deterrent technologies are designed differently. In November 2017,we announced FDA approval of a Supplemental New Drug Application, or sNDA, for Xtampza ER to include comparativeoral pharmacokinetic data from a clinical study evaluating the effect of physical manipulation by crushing Xtampza ERcompared with OxyContin OP and a control (oxycodone hydrochloride immediate-release). In the study, Xtampza ERmaintained its extended-release pharmacokinetic profile when crushed, while OxyContin OP showed a rapid release ofoxycodone when crushed with common household tools; crushed OxyContin OP was bioequivalent to crushed oxycodoneIR. The sNDA also added results from an oral human abuse potential study and an oral abuse deterrent claim to the label,making Xtampza ER the only single-agent extended-release oxycodone with oral, intranasal, and intravenous abuse-deterrent labeling. We believe Xtampza ER represents an abuse-deterrent extended-release oxycodone formulation and is well-positioned tocapture a significant share of extended-release oxycodone market. Nucynta ER and Nucynta IR In December 2017, we entered into the Nucynta Commercialization Agreement, pursuant to which Assertio agreed to grant usa sublicense of certain of its intellectual property related to the Nucynta Products for commercialization of such products inthe United States. On January 9, 2018, we amended the Nucynta Commercialization Agreement and consummated thetransactions contemplated thereby. Pursuant to the Nucynta Commercialization Agreement, we assumed all commercialization responsibilities, includingsales and marketing, for the Nucynta Products, while Assertio continues to control manufacturing of the Nucynta Products.We began shipping and recognizing product sales on the Nucynta Products on January 9, 2018 and we began commercialpromotion of the Nucynta Products in February 2018. The Nucynta Commercialization Agreement initially required us topay guaranteed minimum royalty of $135.0 million per year through December 2021, as well as a variable royalty basedon annual net sales over $233.0 million. On November 8, 2018, we announced an amendment to certain terms of theNucynta Commercialization Agreement, which adjusted the royalty structure such that beginning on January 1, 2019 andthereafter, we are obligated to make royalty payments to Assertio conditional upon net sales, and the $135.0 millionguaranteed minimum annual royalties were eliminated after 2018. Nucynta ER is an extended-release formulation of tapentadol that is indicated for the management of pain severe enoughto require daily, around-the-clock, long term opioid treatment, and for which alternate treatment options are inadequate.Nucynta ER is also the only extended-release opioid approved by the FDA for management of the6 Table of Contentsneuropathic pain associated with diabetic peripheral neuropathy. Nucynta IR is an immediate-release formulation oftapentadol that is indicated for the management of acute pain severe enough to require an opioid analgesic and for whichalternative treatments are inadequate in adults. Nucynta ER and Nucynta IR are the only tapentadol-based productsmarketed in the US and the drug substance is patent-protected. Nucynta ER’s label includes data from separate clinical trials that demonstrate its efficacy in improving pain intensity forpatients suffering from chronic low back pain and neuropathic pain associated with diabetic peripheral neuropathy. NucyntaIR’s label includes data from a clinical trial that demonstrates its efficacy in improving pain intensity for post-surgical acutepain. Manufacturing of Our Products Overview Xtampza ER is manufactured using a proprietary process. This process is reproducible, scalable and cost-efficient, and webelieve that the microsphere formulation — and the related manufacturing process — is unique in the extended-releaseopioid market. To date, we have produced Xtampza ER at a contract manufacturing organization, Patheon, a subsidiary ofThermo Fisher Scientific, Inc. Our microsphere production is currently conducted in an area of the manufacturing plant thatis shared with other clients. We are in the process of building out a dedicated manufacturing suite within the same Patheonsite. Patheon has an established record of manufacturing products approved in the United States, including productscontaining controlled substances. We own all of the intellectual property, including know-how and specializedmanufacturing equipment, necessary to be able to replicate the manufacturing equipment currently located at Patheon’sfacility at an alternative location (and with an alternative vendor) if necessary. Pursuant to our Nucynta Commercialization Agreement, Assertio is responsible for manufacturing and delivering to us theNucynta Products for commercialization in the United States. As part of our partnership with Assertio, we participate in aJoint Manufacturing Steering Committee with our counterparts at Assertio, through which we take part in decisions regardingthe commercial manufacturing of the Nucynta Products. Drug Substances The active pharmaceutical ingredient used in Xtampza ER, oxycodone base, is an odorless white crystalline powder. Wecurrently procure this active pharmaceutical ingredient pursuant to a supply agreement with a single U.S.-basedmanufacturer. We are aware of other suppliers who we would expect to be able to satisfy our commercial orders. The active pharmaceutical ingredient used in the Nucynta Products is tapentadol, which is supplied to Assertio, themanufacturer of the Nucynta Products, by a single U.S.-based manufacturer. Oxycodone base and tapentadol are classified as narcotic controlled substances under U.S. federal law. Accordingly,Xtampza ER and the Nucynta Products are classified by the DEA as Schedule II controlled substances, meaning that theyhave a high potential for abuse and dependence among drugs that are recognized as having an accepted medical use.Consequently, the manufacturing, shipping, dispensing and storing of our products are subject to a high degree of regulation,as described in more detail under the caption “— Governmental Regulation — DEA and Opioid Regulation.” Marketing and Commercialization We commercialize Xtampza ER and the Nucynta Products in the United States with a dedicated field sales force, consistingof approximately 150 sales representatives and managers, to call on the approximately 10,700 physicians who writeapproximately 60% of the branded extended-release opioid prescriptions in the United States, with a primary focus on painspecialists. In addition, we employ medical science liaisons, or MSLs, to respond to clinician inquiries about Xtampza ERand the Nucynta Products. We also employ a market‑access team to support our formulary approval and payor contracting. We have developed positioning and messaging campaigns, a publication strategy, initiatives with payor organizations, anddistribution and national accounts strategies. Our marketing strategy focuses on increasing awareness of the differentiatedfeatures of Xtampza ER and the Nucynta Products. 7 Table of ContentsWe primarily sell our products to wholesalers, retail drug store chains, supermarket chains, mass merchandisers, distributors,mail order accounts, hospitals and government agencies. Our wholesalers and distributors purchase productsfrom us and, in turn, supply products to retail drug store chains, independent pharmacies and managed healthcare organizations. Customers in the managed health care market include health maintenance organizations, nursinghomes, hospitals, clinics, pharmacy benefit management companies and mail order customers. Three of our customers comprised 10% or more of our revenue during the year ended December 31, 2018. These customers comprised 36%, 31%and 27% of revenue, respectively. Intellectual Property The protection of patents, designs, trademarks and other proprietary rights that we own or license are critical to our successand competitive position. Xtampza ER is protected by fourteen issued patents in the United States (seven of which claimcompositions of matter, three of which claim both compositions of matter and methods of use, and two that claim methods ofuse), one granted and two pending applications in the European Patent Office, two issued patents in Canada, and one issuedpatent in each of Japan and Australia. Finally, we have six patent applications pending in the United States, one pendingpatent application in each of Canada and Japan, and one pending PCT application. Our issued U.S. patents are projected toexpire in 2023, 2025, 2030, and 2036 and our pending patent applications in the United States, if issued, would be projectedto expire in 2023, and 2025. In addition, we use a unique and proprietary process to manufacture our products that requiressignificant know‑how, which we currently protect as trade secrets. We have concluded that some of our technology is best protected as proprietary know-how, rather than through obtainingpatents. Except for the licenses and sublicenses contained in our Nucynta Commercialization Agreement, pursuant to whichwe commercialize the Nucynta Products in the United States, the District of Columbia, and Puerto Rico, our technology andproducts are not in-licensed from any third party, and we own all of the rights to Xtampza ER. We believe we have freedom tooperate in the United States and other countries, but there can be no assurance that other companies, known and 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, and license the right to usetrademarks associated with the Nucynta Products. 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. 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. Xtampza ER Currently, the only extended-release opioid drugs on the market that have an abuse-deterrent product label, in addition toXtampza ER, are OxyContin OP and Hysingla®, both from Purdue, Embeda from Pfizer, and MorphaBond ER from DaiichiSankyo. Hysingla is a once a day hydrocodone product. Embeda is a combination of morphine and naltrexone, an opioidantagonist that contains a boxed warning on its product label stating that “the capsules are not to be crushed, dissolved, orchewed due to the risk of rapid release and absorption of a potentially fatal dose of morphine.” MorphaBond ER is a twicedaily morphine product formulated with a hard tablet and gelling polymers. 8 Table of ContentsIn addition, there are four other extended-release opioids that have been approved with abuse deterrent productlabeling Targiniq from Purdue, Arymo from Egalet, Vantrela ER from Teva, and Troxyca ER from Pfizer, none of which arecurrently on the market. In 2018, the NDAs for Vantrela ER and Troxyca ER were withdrawn by the FDA at the request of thesponsors. Targiniq is a combination of oxycodone and naloxone, an opioid antagonist. Vantrela ER is a twice dailyhydrocodone product. Troxyca ER is a combination of oxycodone and naltrexone, an opioid antagonist. A number of otherlarge and small companies are developing abuse deterrent drugs for pain. Many other companies have products indicated forthe treatment of moderate to severe, around-the-clock, long-term pain for which alternative treatments are not available, butthese products do not have abuse-deterrent claims in their labels, including Pernix and Mallinckrodt, as well as severalgeneric companies. We believe the key competitive factors that will affect the commercial success of Xtampza ER include the degree of abusedeterrence, bioavailability, therapeutic efficacy, and convenience of dosing and distribution, as well as their safety, cost andtolerability profiles. Xtampza ER may also face competition from commercially available generic and branded extended-release and long-acting opioid drugs other than oxycodone, including fentanyl, hydromorphone, oxymorphone andmethadone, as well as opioids that are currently in clinical development, including a generic version of Xtampza ER forwhich Teva recently submitted an Abbreviated New Drug Application, or ANDA, to the FDA and which is the subject ofpatent infringement litigation filed by us in February 2018. Xtampza ER competes against all extended-release opioids, including Purdue’s OxyContin OP and its authorized generics.Although no generic oxycodone extended-release products are currently commercially available, it is possible that genericforms of OxyContin OP could become available, in which case Xtampza ER would compete with any such genericoxycodone extended-release products. Additionally, we are aware of companies with oxycodone product candidates in late-stage development, includingIntellipharmaceutics, Nektar Therapeutics and Pain Therapeutics. If these products are successfully developed, approved formarketing and become commercially available, they could represent significant competition for Xtampza ER. It is alsopossible that a company that has developed an abuse-deterrent technology could initiate an abuse-deterrent oxycodoneprogram at any time. The Nucynta Products Nucynta ER competes against other long-acting opioid medications, including: OxyContin; Butrans; Belbuca; and Embeda. Nucynta IR competes primarily against short-acting opioids used for the management of moderate to severe acute pain inadults. There are numerous such medicines, including: generic hydrocodone acetaminophen; generic oxycodone; genericoxycodone acetaminophen; and generic tramadol. Government Regulation FDA Approval Process In the United States, pharmaceutical products are subject to extensive regulation by the FDA. The Federal Food, Drug,and Cosmetic Act, or the FD&C Act, and other federal and state statutes and regulations govern the research, development,testing, manufacture, storage, recordkeeping, approval, labeling, promotion and marketing, distribution, post-approvalmonitoring and reporting, sampling, and import and export of pharmaceutical products. Failure to comply with applicableU.S. requirements may subject a company to a variety of administrative or judicial sanctions, such as warning or untitledletters, product recalls, product seizures, total or partial suspension of production or distribution, withdrawal of the productfrom the market, injunctions, fines, civil penalties, and criminal prosecution. Failure to meet FDA requirements for approvalwould also result in a medication not being approved for marketing. The process of developing a pharmaceutical product and obtaining FDA approval to market the medication in the UnitedStates typically involves: ·completion of preclinical laboratory and animal testing and formulation studies in compliance with the FDA’s goodlaboratory practices, or GLP, regulation; 9 Table of Contents·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. Clinical 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. Clinical trials to support NDAs for marketing approval are typically conducted in three sequential phases, but the phases mayoverlap or be combined.·Phase 1: The drug is initially introduced into healthy human subjects or patients, and is tested to assess safety, dosetolerance, absorption, metabolism, PK, pharmacological actions, side effects associated with increasing doses, and, ifpossible, early evidence on effectiveness.·Phase 2: The drug is typically tested in a limited patient population to determine the effectiveness of the drug for aparticular indication, dosage tolerance, and optimum dosage, and to identify common AEs and safety risks. MultiplePhase 2 trials may be conducted by the sponsor to obtain information prior to beginning larger and more extensivePhase 3 clinical trials.·Phase 3: If a drug demonstrates evidence of effectiveness and an acceptable safety profile in Phase 2 evaluations,Phase 3 trials are undertaken to obtain the additional information about clinical efficacy and safety in a largernumber of subjects, typically at geographically dispersed clinical trial sites, to permit the FDA to evaluate theoverall benefit-risk relationship of the drug and to provide adequate information for the labeling of the drug. Inmost cases, the FDA requires two adequate and well controlled Phase 3 clinical trials to demonstrate the efficacy ofthe drug. A single Phase 3 trial with other confirmatory evidence may be sufficient in rare instances where theclinical trial is a large multicenter trial demonstrating internal consistency and a statistically very persuasive findingof a clinically meaningful effect on mortality, irreversible morbidity or prevention of a disease with a potentiallyserious outcome and confirmation of the result in a second trial would10 Table of Contentsbe practically or ethically impossible. Sponsors of clinical trials generally must register and report key parameters ofcertain 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. Pursuant to agreements reached duringreauthorization of the Prescription Drug User Fee Act, or PDUFA, the FDA has a goal of acting on most original NDAs withinsix months or ten months of the application submission or filing date (the FDA conducts a preliminary review of all NDAswithin the first 60 days after submission before accepting them for filing), depending on the nature of the drug. The FDA hasa number of programs intended to help expedite testing, review, and approval of drug candidates that meet the applicableeligibility criteria. The FDA may refer applications for novel drug products, or drug products that present difficult questionsof safety or efficacy, to an advisory committee — typically a panel that includes clinicians and other experts — for review,evaluation, and a recommendation as to whether the application should be approved and under what conditions. The FDA isnot bound by the recommendation of an advisory committee, but it generally follows such recommendations. If the FDA’s evaluations of the NDA and of the sponsor’s manufacturing facilities are favorable, the FDA will issue anapproval letter, and the sponsor may begin marketing the drug for the approved indications, subject to any post-approvalrequirements, described further below. If the FDA determines it cannot approve the NDA in its current form, it will issue acomplete response letter indicating that the application will not be approved in its current form. The complete response letterusually describes the specific deficiencies that the FDA identified in the application and may require additional clinical orother data or impose other conditions that must be met in order to obtain approval of the NDA. Addressing the deficienciesnoted by the FDA could be impractical, and it is possible that the sponsor could withdraw its application or approval may notbe obtained or may be costly and may result in significant delays prior to approval. Where a sponsor wishes to expand the originally approved prescribing information, such as adding a new indication, it mustsubmit and obtain approval of an sNDA. Changes to an indication generally require additional clinical studies, which can betime-consuming and require the expenditure of substantial additional resources. Under PDUFA, the target timeframe for thereview of an sNDA to add a new clinical indication is six or ten months from the receipt date, depending on whether or notthe sNDA has priority review. As with an NDA, if the FDA determines that it cannot approve an sNDA in its current form, itwill issue a complete response letter as discussed above. 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. If the FDA determines a REMS is necessaryfor a new drug, the drug sponsor must submit a proposed REMS plan as part of its NDA prior to approval. The FDA may alsoimpose a REMS requirement on a drug already on the market if the FDA determines, based on new safety information, that aREMS is necessary to ensure that the drug’s benefits continue to outweigh its risks. A REMS can include medication guides,communication plans for healthcare professionals, and Elements To Assure Safe Use, or ETASU. In addition, the REMS mustinclude a timetable to periodically assess the strategy, at a minimum, at 18 months, three years, and seven years after theREMS approval. The requirement for a REMS can materially affect the potential market and profitability of a drug. In July 2012, the FDA approved a class-wide REMS for extended-release and long-acting opioid products. Extended-releaseformulations of oxycodone, morphine, hydrocodone and hydromorphone, for example, are required to have a REMS.Manufacturers subject to this class-wide REMS must work together to implement the REMS as part of a single shared systemto reduce the burden of the REMS on the healthcare system. The central component of the extended-release/long actingopioid REMS program is an education program for prescribers and patients. Specifically, the REMS includes a MedicationGuide available for distribution to patients who are dispensed the drug, as well as a number of ETASU. These ETASU includetraining for healthcare professionals who prescribe the drug; information provided to prescribers that they can use to educatepatients in the safe use, storage, and disposal of opioids; and information provided to prescribers of the existence of theREMS and the need to successfully complete the necessary training. Prescriber training required as part of the REMS isconducted by accredited, independent continuing education providers, without cost to healthcare professionals, underunrestricted grants funded by the opioid analgesic manufacturers. Moreover, REMS assessments must be submitted on anannual basis to assess the extent to which the ETASU are meeting the goals of the REMS and whether the goals or elementsshould be modified. 11 Table of ContentsIn September 2018, and pursuant to its Opioids Action Plan, the FDA approved the final class-wide REMS, which includesseveral measures to facilitate communication of the risks associated with opioid pain medications to patients and health careprofessionals and, for the first time, applies to immediate-release and extended-release/long-acting opioid analgesicsintended for use in an outpatient setting. The new REMS requires that training be made available to health care providerswho are involved in the management of patients with pain (including nurses and pharmacists), and not only to prescribers,and requires that the education cover broader information about appropriate pain management, including alternatives toopioids for the treatment of pain. In connection with the new REMS, the FDA also approved new product labeling containinginformation about the health care provider education available through the new REMS. Advertising and Promotion The FDA and other federal regulatory agencies closely regulate the marketing and promotion of drugs through, among otherthings, guidance 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 cannot becommercially promoted before it is approved. After approval, product promotion can include only those claims relating tosafety and efficacy that are consistent with the labeling approved by the FDA. Healthcare providers are permitted to prescribedrugs for “off‑label” uses — that is, uses not approved by the FDA and therefore not described in the drug’s labeling —because the FDA does not regulate the practice of medicine. However, FDA regulations impose stringent restrictions onmanufacturers’ communications regarding off‑label uses. Failure to comply with applicable FDA requirements andrestrictions in this area may subject a company to adverse publicity and enforcement action by the FDA, the U.S. Departmentof Justice, or the Office of the Inspector General of the HHS, as well as state authorities. This could subject a company to arange of penalties that could have a significant commercial impact, including civil and criminal fines and agreements thatmaterially restrict the manner in which a company promotes or distributes drug products. 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, in addition to REMS discussed above, post-market testing, known as Phase 4 testing, and surveillance tomonitor the effects of an approved product, or the FDA may place conditions on an approval that could restrict thedistribution or use of the product. In addition, quality control, drug manufacture, packaging, and labeling procedures mustcontinue to conform to cGMPs after approval. Drug manufacturers and certain of their subcontractors are required to registertheir establishments with the FDA and certain state agencies. Registration subjects entities to periodic announced orunannounced inspections by the FDA or these state agencies, during which the agency inspects manufacturing facilities toassess compliance with cGMPs. Regulatory authorities may withdraw product approvals, request product recalls, or takeother punitive action if a company fails to comply with regulatory standards, if it encounters problems following initialmarketing, or if previously unrecognized problems are subsequently discovered. 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 an ANDA.An ANDA provides for marketing of a drug product that has the same active pharmaceutical 12 Table of Contentsingredient in the same strengths and dosage form as the listed drug and has been shown through bioequivalence testing to betherapeutically equivalent to the listed drug. Other than the requirement for bioequivalence testing, ANDA applicants are notrequired to conduct, or submit results of, preclinical or clinical tests to prove the safety or efficacy of their drug product.Drugs approved in this way are commonly referred to as “generic equivalents” to the listed drug, and can often be substitutedby pharmacists under 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 approved untilall 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.The ANDA application also will not be approved until any applicable non‑patent exclusivity listed in the Orange Book forthe referenced product has expired. For further detail regarding our litigation with Teva regarding the ANDA filed by Tevarelating to Xtampza ER, refer to “Item 3. Legal Proceedings”. 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 sponsor may obtain a three-year period of exclusivity for a change to anapproved drug, such as the addition of a new indication to the labeling or a new formulation, if the supplement includesreports of new clinical trials (other than bioavailability clinical 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. The FDA may then approve the new product candidate for all, or some, of the label indications for whichthe referenced product has been approved, as well as for any new indication sought by the Section 505(b)(2) applicant. 13 Table of ContentsTo 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 NCE, listed in the Orange Book for the referenced product has expired; and, in thecase of a Paragraph IV certification and subsequent patent infringement suit, until the earlier of 30 months, settlement of thelawsuit or a decision in the infringement case that is favorable to the Section 505(b)(2) applicant. In the interim period, theFDA may grant tentative approval. Tentative approval indicates that the FDA has determined that the applicant meets thestandards for approval as of the date that the tentative approval is granted. Final regulatory approval can only be granted ifthe FDA is assured that there is no new information that would affect final regulatory/ approval. As with traditional NDAs, aSection 505(b)(2) NDA may be eligible for three-year marketing exclusivity, assuming the NDA includes reports of newclinical trials (other than bioavailability clinical trials) essential to the approval of the NDA. For further detail regarding ourlitigation with Purdue regarding our Section 505(b)(2) NDA for Xtampza ER , refer to “Item 3. Legal Proceedings”. DEA and Opioid Regulation Our products are regulated as “controlled substances” as defined in the Controlled Substances Act, or CSA, which establishesregistration, security, recordkeeping, reporting, storage, distribution, importation, exportation and other requirementsadministered by the DEA. 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. Xtampza ER is listed by the DEA as a Schedule II controlled substance under the CSA. The Nucynta Products are also listedby the DEA as Schedule II controlled substances under the CSA. Consequently, the manufacturing, shipping, storing, sellingand using of our products is subject to a high degree of regulation. Schedule II drugs are subject to the strictest requirementsfor registration, security, recordkeeping and reporting. Also, distribution and dispensing of these drugs are highly regulated.For example, all Schedule II drug prescriptions must be signed by a physician, presented to a pharmacist and may not berefilled 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. In addition, a DEA quota system, which was amended in 2018 to require sponsors to strengthen controls over diversion ofcontrolled substances, controls and limits the availability and production of controlled substances in Schedule I or II. InNovember 2017, the DEA reduced the amount of almost every Schedule II opiate and opioid medication that may bemanufactured in the U.S. in calendar year 2018 by 20%. For 2019, the DEA proposed decreased manufacturing quotas for thesix most frequently misused opioids, including oxycodone, by an average of 10% as compared to the 2018 quotas. Distributions of any Schedule I or II controlled substance must also be accompanied by special order forms, with copiesprovided to the DEA. Because Xtampza ER and the Nucynta Products are regulated as a Schedule II controlled substances, they are subject to the DEA’s production and procurement quota scheme. The DEA establishes annually an aggregate quotafor how much active opioid ingredients, such as oxycodone and tapentadol, may be produced in total in the United Statesbased on the DEA’s estimate of the quantity needed to meet legitimate scientific and medicinal needs. The limited aggregateamount of opioids that the DEA allows to be produced in the United States each year is allocated among individualcompanies, who must submit applications annually to the DEA for individual production and procurement quotas. We andour contract manufacturers must receive an annual quota from the DEA in order to produce or procure any Schedule I orSchedule II substance, including oxycodone base for use in manufacturing Xtampza ER. In addition, Assertio and its contractmanufacturers must receive an annual quota from the DEA in order to produce or procure tapentadol for use in manufacturingthe Nucynta Products. The DEA may adjust aggregate production quotas14 Table of Contentsand individual production and procurement quotas from time to time during the year, although the DEA has substantialdiscretion in whether or not to make such adjustments. The DEA also requires drug manufacturers to design and implement a system that identifies suspicious orders of controlledsubstances, such as those of unusual size, those that deviate substantially from a normal pattern and those of unusualfrequency, prior to completion of the sale. A compliant suspicious order monitoring, or SOM, system includes well-defineddue diligence, “know your customer” efforts and order monitoring. 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 are subject to stateregulation on distribution of these products. Two new federal laws address the national epidemics of prescription opioid abuse and illicit opioid use. First, passed in2016, CARA expands the availability of naloxone for law enforcement and other first responders, forms an interagencytask force to develop best practices for pain management with opioid medications and provides resources to improvestate monitoring of opioids. The SUPPORT Act, which was signed into law in November 2018, includes a number ofmeasures directed towards regulation and improvement of treatment for substance use-disorder and increased coverage byCMS of medically-assisted treatment options. In addition, the SUPPORT Act requires HHS to report to Congress onexisting barriers to access to abuse-deterrent opioid formulations by Medicare Part C and D beneficiaries. Healthcare Fraud and Abuse Laws and Compliance Requirements We are subject to federal, state and local laws targeting fraud and abuse in the healthcare industry, violations of which canlead to civil and criminal penalties, including fines, imprisonment and exclusion from participation in federal healthcareprograms. These laws are potentially applicable to us as both a manufacturer and a supplier of products and they also applyto hospitals, physicians and other potential purchasers of our products. The applicable federal fraud abuse laws apply toproducts or services reimbursed by federal healthcare programs. Some states, however, have applicable fraud and abuse lawsthat apply more broadly to include products or services reimbursed by private payors. The federal Anti-Kickback Statute (42 U.S.C. § 1320a-7b(b)) prohibits persons from knowingly and willfully soliciting,receiving, offering or providing remuneration, directly or indirectly, to induce either the referral of an individual, or thefurnishing, recommending, or arranging for a good or service, for which payment may be made under a federal healthcareprogram such as the Medicare and Medicaid programs. Remuneration is not defined in the federal Anti-Kickback Statute andhas been broadly interpreted to include anything of value, including for example, gifts, discounts, coupons, the furnishing ofsupplies or equipment, credit arrangements, payments of cash, waivers of payments, ownership interests and providinganything at less than its fair market value. Under the federal Anti-Kickback Statute and the applicable criminal healthcarefraud statutes contained within 42 U.S.C. § 1320a-7b, a person or entity need not have actual knowledge of this statute orspecific intent to violate it in order to have committed a violation. In addition, the government may assert that a claim,including items or services resulting from a violation of 42 U.S.C. § 1320a-7b, constitutes a false or fraudulent claim forpurposes of the civil False Claims Act (discussed below) or the civil monetary penalties statute, which imposes fines againstany person who is determined to have presented or caused to be presented claims to a federal healthcare program that theperson knows or should know is for an item or service that was not provided as claimed or is false or fraudulent. The federalAnti-Kickback Statute and implementing regulations provide for certain exceptions for “safe harbors” for certaindiscounting, rebating or personal services arrangements, among other things. However, the lack of uniform courtinterpretation of the Anti-Kickback Statute makes compliance with the law difficult. Violations of the federal Anti-KickbackStatute can result in significant criminal fines, exclusion from participation in Medicare and Medicaid and follow-on civillitigation, among other things, for both entities and individuals. Other federal healthcare fraud-related laws also provide criminal liability for violations. The Criminal Healthcare Fraudstatute, 18 U.S.C. § 1347 prohibits knowingly and willfully executing a scheme to defraud any healthcare benefit15 Table of Contentsprogram, including private third-party payers. Federal criminal law at 18 U.S.C. § 1001, among other sections, prohibitsknowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious orfraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. The civil False Claims Act and similar state laws impose liability on any person or entity who, among other things,knowingly presents, or causes to be presented, a false or fraudulent claim for payment by a federal healthcare program. Thequi tam provisions of the False Claims Act and similar state laws allow a private individual to bring civil actions on behalf ofthe federal or state government and to share in any monetary recovery. The Federal Physician Payments Sunshine Act andsimilar state laws impose reporting requirements for various types of payments to physicians and teaching hospitals. Failureto comply with required reporting requirements under these laws could subject manufacturers and others to substantial civilmoney penalties. In addition, government entities and private litigants have asserted claims under state consumer protectionstatutes against pharmaceutical and medical device companies for alleged false or misleading statements in connection withthe marketing, promotion and/or sale of pharmaceutical and medical device products, including state investigations andlitigation by certain government entities regarding the Company’s marketing of opioid products. Third‑Party Payor Coverage and Reimbursement The commercial success of Xtampza ER and the Nucynta Products will depend, in part, upon the availability of coverage andadequate reimbursement from third-party payors at the federal, state and private levels. Third-party payors includegovernmental programs such as Medicare or Medicaid, private insurance plans and managed care plans. These third-partypayors may deny coverage or reimbursement for a product or therapy in whole or in part if they determine that the product ortherapy was not medically appropriate or necessary. Also, third-party payors have attempted to control costs by limitingcoverage through the use of formularies and other cost-containment mechanisms and the amount of reimbursement forparticular procedures or drug treatments. In addition, some third-party payors also require preapproval of coverage for new orinnovative devices or drug therapies before they will reimburse healthcare providers who prescribe such therapies. 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. While we cannot predict whether any proposed cost‑containment measures will be adopted or otherwise implemented in thefuture, these requirements or any announcement or adoption of such proposals could have a material adverse effect on ourability to obtain adequate prices for Xtampza ER, the Nucynta Products and any other products we may seek tocommercialize, and to operate profitably. Healthcare Reform In the United States, there have been a number of legislative and regulatory changes to the healthcare system that couldaffect our future results of operations. In particular, there have been and continue to be a number of initiatives at the U.S.federal and state levels that seek to reduce healthcare costs. The Medicare Modernization Act imposed new requirements forthe distribution and pricing of prescription drugs for Medicare beneficiaries. Under Part D, Medicare beneficiaries may enrollin prescription drug plans offered by private entities which will provide coverage of outpatient prescription drugs. Part Dplans include both stand‑alone prescription drug benefit plans and prescription drug coverage as a supplement to MedicareAdvantage plans. Unlike Medicare Part A and B, Part D coverage is not standardized. Part D prescription drug plan sponsorsare not required to pay for all covered Part D drugs, and each drug plan can develop its own drug formulary that identifieswhich drugs it will cover and at what tier or level. However, Part D prescription drug formularies must include drugs withineach therapeutic category and class of covered Part D drugs, though not necessarily all the drugs in each category or class.Any formulary used by a Part D prescription drug plan must be developed and reviewed by a pharmacy and therapeuticcommittee. Government payment for some of the costs of prescription drugs may increase demand for our products. However,any negotiated prices for our products covered by a Part D prescription drug plan will likely be lower than the prices wemight otherwise obtain. Moreover, while the Medicare Modernization Act applies only to drug benefits for Medicarebeneficiaries, private payors often follow16 Table of ContentsMedicare coverage policy and payment limitations in setting their own payment rates. Any reduction in payment that resultsfrom Medicare Part D may result in a similar reduction in payments from non-governmental payors. In March 2010, the Affordable Care Act was enacted, which significantly changed the way healthcare is financed by bothgovernmental and private insurers. Among the provisions of the Affordable Care Act of importance to the pharmaceutical andbiotechnology 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% ofthe average manufacturer price for branded and generic drugs, respectively; ·a Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-salediscounts to negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period,as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D; ·extension of manufacturers’ Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled 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 Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinicaleffectiveness research, along with funding for such research; ·a requirement to annually report drug samples that manufacturers and distributors provide to physicians; 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 lawsmay result in additional reductions in Medicare and other healthcare funding, which could have a material adverse effect onour customers and, accordingly, our financial operations. In December 2017, the Tax Cuts and Jobs Act, or the TCJA, repealed the shared responsibility payment for individuals whofail to maintain minimum essential coverage under section 5000A of the Internal Revenue Code, commonly referred to as theindividual mandate, beginning in 2019. The Joint Committee on Taxation estimates that the repeal will result in over 13million Americans losing their health insurance coverage over the next ten years, and is likely to lead to increases ininsurance premiums. It is uncertain how or whether this legislation may affect our customers and, accordingly, our financialoperations.17 Table of Contents 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 and other regulatory authorities have broad regulatory and enforcement powers, including, among otherthings, the ability to levy fines and civil penalties, suspend or delay issuance of approvals, seize or recall products, andwithdraw approvals, any one or more of which could have a material adverse effect on us. Employees As of December 31, 2018, we had a total of 266 full‑time employees. None of our employees are represented by a labororganization or under any collective‑bargaining arrangements. 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 February 27, 2019:NameAgePosition(s)Executive Officers:Joseph Ciaffoni47Director, President and Chief ExecutiveOfficerAlison Fleming44Executive Vice President and ChiefTechnology OfficerPaul Brannelly46Executive Vice President and ChiefFinancial OfficerScott Dreyer46Executive Vice President and ChiefCommercial OfficerShirley Kuhlmann35Executive Vice President and GeneralCounsel Executive Officers Joseph Ciaffoni, Director, President and Chief Executive Officer. Mr. Ciaffoni has served as our President and ChiefExecutive Officer since July 2018, and prior to that, served as our Executive Vice President and Chief Operating Officer sinceMay 2017. Prior to joining us, Mr. Ciaffoni served as President, U.S. Branded Pharmaceuticals of Endo International plc, aspecialty pharmaceutical company, from August 2016 to December 2016. Before that, from April 2012 to August 2016, Mr.Ciaffoni held various positions of increasing responsibility at Biogen Idec, including Senior Vice President, Global SpecialtyMedicines Group, Senior Vice President, U.S. Commercial and Vice President, U.S. Neurology Field Operations andMarketing. Prior to joining Biogen Idec, Mr. Ciaffoni was Executive Vice President and Chief Operating Officer of ShionogiInc. and President of Shionogi Pharmaceuticals from July 2008 to October 2010. Mr. Ciaffoni also previously served as VicePresident, Sales for Schering-Plough (now Merck) from May 2004 to June 2008, where he was responsible for the cholesterolfranchise, and has held several commercial leadership roles at Sanofi-Synthelabo (now Sanofi) from January 2002 to April2004 and Novartis from January 1994 to December 2001. Mr. Ciaffoni received a B.A. in Communications in 1993 and anM.B.A. in 2000, both from Rutgers, The State University of New Jersey. Alison Fleming, Ph.D., Chief Technology Officer. Dr. Fleming has served as our Executive Vice President and ChiefTechnology Officer since January 2017. Prior to being our Chief Technology Officer, Dr. Fleming led our development teamas our Vice President, Product Development since October 2002. Prior to joining us, Dr. Fleming's academic research focusedon implantable drug delivery systems for cancer therapy. Dr. Fleming is an inventor on several U.S. patents and pendingpatent applications, and has authored numerous scientific publications and poster presentations in the field of novel drugdelivery systems and abuse-deterrent opioid formulations. Dr. Fleming graduated 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 fromCornell University in 2002. 18 Table of ContentsPaul 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., a biopharmaceutical company, from June 2013to August 2014. 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. from August 2010 toMay 2013. From January 2010 to September 2011, Mr. Brannelly held the position of Chief Financial Officer at theLongwood Fund, a venture capital firm aimed at investing in, managing and building healthcare companies, where he set upthe financial and operational infrastructure following the closing of its first fund and eventually served as Chief FinancialOfficer of its two startup companies, Verastem and OvaScience, Inc. From November 2005 to September 2009, he served asVice President, Finance at Sirtris Pharmaceuticals, Inc., a biopharmaceutical company which GlaxoSmithKline plc purchasedfor $720 million in 2008. Mr. Brannelly started his biopharmaceutical career at Dyax Corporation from September 1999 toMay 2002, and subsequently moved on to positions of increasing responsibility at CombinatoRx Inc. from May 2002 toNovember 2005, including as Vice President, Finance and Treasurer, where he led the initial public offering process. Mr.Brannelly graduated from the University of Massachusetts at Amherst with a B.B.A. in Accounting in 1995. Scott Dreyer, Executive Vice President and Chief Commercial Officer. Mr. Dreyer has served as our Executive VicePresident and Chief Commercial Officer since August 2018, and joined us in January 2018 as Senior Vice President, Sales,Marketing and Training. Prior to joining us, Mr. Dreyer served as the Senior Vice President, Sales, Marketing andCommercial Operations at The Medicines Company, a biopharmaceutical company, from September 2016 to December2017; Vice President and Chief Marketing Officer – US at Biogen from June 2014 to September 2016; and Vice President,Business Development at Publicis Touchpoint Solutions, a healthcare commercialization company, from October 2013 toJune 2014. Mr. Dreyer began his career in the pharmaceutical industry at Merck & Co., where he held roles of increasingresponsibility from 1994 to 2013, including Vice President of Hospital and Oncology Sales from 2011 to 2012, and VicePresident of Primary Care Sales from 2012 until 2013. Mr. Dreyer holds a B.S. in Biology from Messiah College in 1994. Shirley Kuhlmann, Executive Vice President and General Counsel. Ms. Kuhlmann has served as our Executive VicePresident and General Counsel since March 2018. Prior to joining us, Ms. Kuhlmann was a corporate and securities attorneyat Pepper Hamilton LLP from September 2007 until March 2018. At Pepper Hamilton, where she was made a partner effectiveJanuary 2017, Ms. Kuhlmann advised private and public companies on a range of commercial and transactional matters,including financings, corporate governance and disclosure matters, and mergers and acquisitions and other businesscombination transactions. Ms. Kuhlmann holds a B.A. in Economics/Political Science from Columbia University in 2004and a J.D. from Emory University School of Law in 2007. Our Corporate Information Our predecessor was incorporated in Delaware in April 2002 under the name Collegium Pharmaceuticals, Inc. and in October2003, 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, mergedwith and into Collegium Pharmaceutical, Inc., a Virginia corporation, with the Virginia corporation surviving the merger. Available Information We maintain a website at www.collegiumpharma.com. We make available, free of charge on our website, our Form 10‑K,quarterly reports on Form 10‑Q, current reports on Form 8‑K and all amendments to those reports filed or furnished pursuantto Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, as soon as reasonablypracticable after we electronically file those reports with, or furnish them to, the Securities and Exchange Commission, or theSEC. 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 copies of those filings areprovided to us by those persons. The SEC also maintains a website, at www.sec.gov, that contains reports, proxy andinformation statements and other information regarding us, and other issuers that file electronically. The informationcontained on, or that can be accessed through, our website is not a part of or incorporated by reference in this Form 10‑K.19 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 Form 10-K, including our financial statements, the notes thereto and thesection entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” If any of thefollowing risks actually occurs, our business, financial condition, operating results, prospects and ability to accomplishour strategic objectives could be materially harmed. As a result, the trading price of our common stock could decline andyou could lose all or part of your investment. Additional risks and uncertainties not presently known to us or that wecurrently deem immaterial may also impair our business operations and the market price of our common stock.Risks Related to Our Financial Position and Capital NeedsAlthough we currently generate revenue from the sale of products, we may never become profitable. Our ability to generatesufficient revenue to become profitable is dependent upon our ability to successfully commercialize our products and anyproducts and product candidates that we may develop or acquire in the future on a timely basis, and to address allregulatory requirements applicable to the development and commercialization of our products and any productcandidates. Our failure to do so successfully could impair our growth strategy and plans and could have a material adverseeffect on our business, financial position, and operating results.We began the commercial sale of our first product, Xtampza ER, in June 2016 and assumed responsibility for the sales andmarketing of the Nucynta Products in January 2018. Our ability to generate sufficient revenue to become profitable dependsupon our ability to successfully commercialize our products and any other products and product candidates that we maydevelop, in-license or acquire in the future. Our ability to generate revenue from our current or future products and anyproduct candidates depends on a number of factors, including our ability to:·successfully commercialize our products;·successfully satisfy FDA post-marketing requirements for our products, including studies and clinical trials that havebeen required for other extended-release/long acting opioid analgesics and individual studies and clinical trials ofour products;·set a commercially viable price for our products;·manufacture commercial quantities of our products at acceptable cost levels;·grow and sustain a commercial organization capable of sales, marketing and distribution for the products we sell inthe markets in which we have retained or acquired commercialization rights;·obtain coverage and adequate reimbursement from third parties, including government payors;·complete and submit regulatory submissions to the FDA; and·comply with existing and changing laws and regulations that apply to the pharmaceutical industry, includingopioid manufacturers.In addition, because of the numerous risks and uncertainties associated with product development and commercialization, weare unable to predict the timing or amount of increased expenses, or when or if we will be able to achieve or maintainprofitability.Even though we are generating revenues from the sale of our products currently, we may not become profitable and may needto obtain additional 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. 20 Table of ContentsIf we require additional capital to fund our operations and we fail to obtain necessary financing, we may be unable tocomplete the commercialization of our products or the development and commercialization of our future productcandidates.Our operations have consumed substantial amounts of cash. We believe that our cash and cash equivalents atDecember 31, 2018 together with expected cash inflows from the commercialization of our products, will enable us to fundour operating expenses, debt service and capital expenditure requirements under our current business plan for the foreseeablefuture. However, certain economic or strategic factors may require us to seek additional cash through private or public debt orequity offerings.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 and/or the commercialization of our products or ourfuture product candidates or one or more of our other research and development initiatives;·seek collaborators for our products and/or one or more of our future product candidates at an earlier stage thanotherwise would be 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 future 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 not limited to:·the generation of sufficient levels of revenue from the sale of our products;·the cost of growing and maintaining sales, marketing and distribution capabilities for our products and any otherproducts we may acquire or develop;·the outcome, timing and cost of regulatory approvals by the FDA, including the potential for the FDA to require thatwe perform more studies than, or evaluate clinical endpoints other than those that we currently expect;·the timing and costs associated with manufacturing (1) our products, for commercial sale and clinical trials, and (2)our future product candidates for preclinical studies, clinical trials and, if approved, for commercial sale;·the cost of litigation relating to our products or future product candidates, including our patent infringementlitigation with each of Purdue and Teva, and ongoing litigation related to opioid marketing and distributionpractices, which may be expensive to defend;·the cost of implementing additional infrastructure and internal systems and hiring additional employees as ourorganization grows;·our need to expand our regulatory and compliance functions; and·the effect of competing technological and market developments.21 Table of ContentsRaising additional capital may cause dilution to our existing shareholders, restrict our operations or require us torelinquish rights to our products or technologies.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 could resultin increased fixed payment obligations and could also result in certain restrictive covenants, such as limitations on ourability to incur further debt, limitations on our ability to acquire or license intellectual property rights and other operatingrestrictions that could have a material adverse effect on our ability to conduct our business and may result in additional liensbeing placed on our assets and intellectual property. If we were to default on any of our indebtedness, we could lose suchassets and intellectual property. If we raise additional funds through strategic collaborations and alliances and licensingarrangements with third parties, we may have to relinquish valuable rights to our products, technologies or revenue streamsor grant licenses on terms that are not favorable to us. If we are unable to raise additional funds through equity or debtfinancings when needed, we may be required to delay, limit, reduce or terminate our commercialization or productdevelopment efforts or grant rights to develop and market our technologies that we would otherwise prefer to develop andmarket 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. andin October 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, mergedwith and into Collegium Pharmaceutical, Inc., a Virginia corporation, with the Virginia corporation surviving the merger.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 ER. We are currently in the early years of operating as a commercial stage company, and although wehave expanded our product portfolio, we have a limited track record of successful commercialization of these products.Consequently, any predictions about our future success, performance or viability may not be as accurate as they could be ifwe had a longer operating history.Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.As of December 31, 2018, we had a federal net operating loss, or NOL, carryforward of approximately $324.5 million andstate NOL carryovers of approximately $285.2 million, which are available to offset future taxable income. The U.S. federalNOL carryforwards begin to expire in 2022, and the state NOL carryforwards begin to expire in 2030. We also had U.S.federal tax credits of approximately $3.6 million, and state tax credits of approximately $885,000. These tax attributes aregenerally subject to a limited carryover/carryback period and are also subject to the annual limitations that may be imposedunder Section 382 of the Internal Revenue Code of 1986, as amended (Code), or Section 382. The federal R&D credit generally has a twenty-year carryover term, and our state R&D credit is generally available for afifteen-year carryover. Under Section 382, if a corporation undergoes an “ownership change,” generally defined as a greater than 50% change (byvalue) in its equity ownership over a three-year period, the corporation’s ability to use its pre-change NOLs and other pre-change tax attributes (such as research and development tax credits) to offset its post-change income may be limited. We mayexperience ownership changes in the future as a result of shifts in our stock ownership some of which are outside our control.We have not completed a current study to assess whether an ownership change has occurred or whether there have beenmultiple ownership changes since our formation. As a result, if we earn net taxable income, our ability to use our pre-changeNOL carryforwards to offset U.S. federal taxable income may be subject to limitations,22 Table of Contentswhich could potentially result in increased future tax liability to us. In addition, at the state level, there may be periodsduring which the use of NOLs is suspended or otherwise limited, which could accelerate or permanently increase state taxesowed. As of December 31, 2018, and December 31, 2017, we have provided a full valuation allowance for deferred tax assetsincluding NOL and tax credit carryovers. Risks Related to our ProductsIf we are unable to successfully commercialize Xtampza ER or the Nucynta Products, our business, financial condition andresults of operations may be materially adversely affected and the price of our common stock may decline.To date, we have invested substantial resources in the development of Xtampza ER, which has been approved by the FDA. InFebruary 2018, we began marketing the Nucynta Products. Our business and future success are substantially dependent onour ability to successfully and timely commercialize these products. We may never be able to successfully commercialize ourproducts. Our ability to successfully commercialize Xtampza ER 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 of Xtampza ER and itscomponents;·our ability to manufacture commercial quantities of Xtampza ER at reasonable cost and with sufficient speed to meetcommercial demand;·our ability to continue to build and retain a sales and marketing organization to market Xtampza ER;·our success in educating physicians, patients and caregivers about the benefits, administration, use and coverage ofXtampza ER;·the perceived availability and advantages, relative cost, relative safety and relative efficacy of other abuse-deterrentproducts and treatments with similar indications;·our ability to successfully defend any challenges to our intellectual property or suits asserting patent infringementrelating to Xtampza ER;·the availability of coverage and adequate reimbursement for Xtampza ER;·a continued acceptable safety profile of Xtampza ER; and·our ability to comply with applicable legal and regulatory requirements.Our ability to successfully commercialize the Nucynta Products will depend on many factors including, but not limited to,our ability to: ·develop and execute our sales and marketing strategies for the Nucynta Products; ·obtain and maintain adequate coverage, reimbursement and pricing from managed care, government and other third-party payers; 23 Table of Contents·maintain and manage the necessary sales, marketing, supply chain, managed markets and other capabilities andinfrastructure that are required to successfully integrate and commercialize the Nucynta Products; ·successfully defend any challenges to intellectual property or suits asserting patent infringement relating to theNucynta Products;·obtain adequate supply of Nucynta ER and Nucynta IR; and ·comply with applicable legal and regulatory requirements. The success of our efforts to commercialize the Nucynta Products may also depend on additional factors, including theoutcome of a pending appellate decision in litigation between Assertio and ANDA filers who are seeking to market a genericversion of the Nucynta Products in the United States. 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 sufficient revenuefrom our products. 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 of Xtampza ER and our ability to successfully market Xtampza ER may be adversely affected. The FDA can change the product labeling for Xtampza ER at any time. If the product label for Xtampza ER is modified in thefuture so as to exclude the flexible dose administration options, or the FDA requires us to have additional boxed warninglanguage similar to competitor product labeling stating that “crushing, dissolving or chewing can cause rapid release andabsorption of a potentially fatal dose of the active drug,” it will limit our ability to differentiate Xtampza ER from otherabuse-deterrent opioid formulations on the basis of flexible dosing options, and we may not be able to market Xtampza ERfor use by patients with dysphagia who have pain severe enough to require daily, around-the-clock, long-term opioidtreatment and for which alternative treatment options are inadequate. As a result, this may have an adverse effect on ourbusiness and our prospects for future growth.Xtampza ER was approved with label language describing abuse-deterrent properties of the formulation with respect to thenasal and IV routes of abuse, consistent with Guidance for Industry, “Abuse-Deterrent Opioids- Evaluation and Labeling”. InNovember 2017, the FDA approved an sNDA for Xtampza ER to include comparative oral pharmacokinetic data from aclinical study evaluating the effect of physical manipulation by crushing Xtampza ER compared with OxyContin OP and acontrol (oxycodone hydrochloride immediate-release), results from an oral human abuse potential study and the addition ofan oral abuse deterrent claim. Per FDA guidance, data that emerges from post-marketing studies or other sources couldprompt the FDA to withdraw or amend its approval of the product labeling describing the abuse deterrent properties of theformulation, which withdrawal or amendment could adversely impact our ability to successfully commercialize Xtampza ER.Xtampza ER and the Nucynta Products are subject to mandatory REMS programs, which could increase the cost, burdenand liability associated with the commercialization of these products.The FDA has approved REMS for extended-release and long acting, or LA, opioid drugs formulated with the activepharmaceutical ingredients fentanyl, hydromorphone, methadone, morphine, oxycodone, oxymorphone, and others as part ofa federal initiative to address prescription drug abuse and misuse, or the ER/LA opioid REMS. In September 2018, the FDAannounced that immediate-release, or IR, opioid drugs will be subject to the same REMS as ER/LA opioids (now called theOpioid Analgesic REMS). One of the primary goals of the REMS is to ensure that the benefits of these drugs continue tooutweigh the risks.The REMS introduces new safety measures designed to reduce risks and improve the safe use of opioids, while continuing toprovide access to these medications for patients in pain. The REMS applies to more than 20 companies that manufactureopioid analgesics. Under the REMS, companies are required to make education programs available to prescribers based onthe FDA’s Opioid Analgesic REMS Education Blueprint for Health Care Providers Involved in the24 Table of ContentsTreatment and Monitoring of Patients with Pain. It is expected that companies will meet this obligation by providingeducational grants to continuing education providers, who will develop and deliver the training. The 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 REMS and the success of the program in meetingits goals. The FDA will review these assessments and may require additional elements to achieve the goals of the program.At present, a physician does not have to complete the training offered under REMS as a prerequisite for ability toprescribe opioids; however, the FDA is considering circumstances where it would require some type of mandatory training asa precondition. Congress has also considered legislation that would require prescribers to have continuing medicaleducation on best practices in prescribing opioids. These requirements, if enacted, could impact the number of prescriptionswritten by physicians for our products.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. Xtampza ER and the Nucynta Products have been subject to the REMS requirement since theirapproval. 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 are addressed in the physician trainings,letters to prescribing physicians, professional organizations and state licensing entities alerting each to the REMS, and theestablishment of a call center to provide more information about the REMS. We anticipate that our future product candidateswill also be subject to these REMS requirements. There may be increased cost, administrative burden and potential liabilityassociated with the marketing and sale of these types of product candidates subject to the REMS requirements, which couldreduce the commercial benefits to us from the sale of these product candidates.If we fail to comply with our obligations in the Nucynta Commercialization Agreement or otherwise experience disruptionsto our business relationship with Assertio, we could lose license rights that are important to our business. The Nucynta Commercialization Agreement imposes various diligence, milestone, royalty and other obligations on us. If wefail to comply with the obligations under the Nucynta Commercialization Agreement, Assertio may have the right toterminate the license, in which event we would not be able to market the Nucynta Products.In addition, Assertio may terminate the Nucynta Commercialization Agreement under certain circumstances, regardless ofwhether we are compliant with the terms of such agreement. If annual net sales of the Nucynta Products are less than $180.0million in any 12-month period through January 1, 2022, or if they are less than $170.0 million in any 12-month periodcommencing on January 1, 2022, then Assertio will have the right to terminate the Nucynta Commercialization Agreementwithout penalty. Although Xtampza ER has been approved with abuse deterrent labeling, the FDA could require changes to such labelingor we could fail to promote such abuse deterrent claims in compliance with FDA regulations.Xtampza ER was developed in compliance with the FDA’s April 2015 guidance regarding opioid abuse deterrence and hasreceived FDA-approved product labeling that describes its abuse deterrent features, which allows us to promote those featuresand differentiate Xtampza ER from other opioid products containing the same active pharmaceutical ingredients. Becausethe FDA closely regulates promotional materials and other promotional activities, even though the FDA approved productlabeling that includes a description of the abuse deterrent characteristics of Xtampza ER, 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 XtampzaER. In addition, the April 2015 final FDA guidance on abuse-deterrent opioids is not binding law and may be superseded ormodified at any time. Also, if the FDA determines that our post-marketing data do not demonstrate that the abuse-deterrentproperties result in reduction of abuse, or demonstrate a shift to routes of abuse that present a greater risk, the FDA may findthat product labeling revisions are needed, and potentially require the removal of our abuse-deterrence claims, which wouldhave a material adverse effect on our ability to successfully commercialize Xtampza ER.25 Table of ContentsFailure to comply with ongoing governmental regulations for marketing any product, including Xtampza ER and theNucynta Products, could delay or inhibit our ability to generate revenues from their sale and could also expose us to claimsor other sanctions.Advertising and promotion of any product that has obtained approval in the United States, including Xtampza ER and theNucynta Products, is heavily scrutinized by, among others, the FDA, the Department of Justice, or the DOJ, the Office ofInspector General of HHS, state attorneys general, members of Congress and the public. Violations, including promotion ofour products for unapproved or off-label uses, are subject to enforcement letters, inquiries and investigations, and civil andcriminal sanctions by the FDA or other government agencies.In the United States, engaging in off-label promotion of our products, can also subject us to false claims litigation underfederal and state statutes, and other litigation and/or investigation, which can lead to civil and criminal penalties and finesand agreements that materially restrict the manner in which we promote or distribute our drug products. These false claimsstatutes include the federal False Claims Act, which allows any individual to bring a lawsuit against a pharmaceuticalcompany on behalf of the federal government alleging submission of false or fraudulent claims, or causing to present suchfalse or fraudulent claims, for payment by a federal program such as Medicare or Medicaid. If the government prevails in thelawsuit, the individual will share in any fines or settlement funds. False Claims Act lawsuits against pharmaceuticalcompanies have increased significantly in volume and breadth in recent years, leading to several substantial civil andcriminal 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. The failure to obtain ormaintain requisite governmental approvals, or FDA required product withdrawals or warnings arising from identification ofserious and unanticipated adverse side effects, could delay or preclude us from further developing, marketing or realizing thefull commercial potential of our products.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 commercialize products without infringing the intellectual propertyrights of others. Our current or future products, or any uses of them, may now or in the future infringe third-party patents orother intellectual property rights. This is due in part to the considerable uncertainty within the pharmaceutical industry aboutthe validity, scope and enforceability of many issued patents in the United States and, to date, there is no consistencyregarding the breadth of claims allowed in pharmaceutical patents. We cannot currently determine the ultimate scope andvalidity of patents which may be granted to third parties in the future or which patents might be asserted to be infringed bythe manufacture, use and sale of our products. In part as a result of this uncertainty, there has been, and we expect that therewill continue to be, significant litigation in the pharmaceutical industry regarding patents and other intellectual propertyrights.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 formulations, including those listed in the FDA’s Orange Book for oxycodone products. Because of the delaybetween filing and publication of patent applications, and because applications can take several years to issue, there may26 Table of Contentsbe currently pending third-party patent applications that are unknown to us, which may later result in issued patents. Becauseof the uncertainty inherent in intellectual property litigation, 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 our products and technology. However, we may not be able to obtain anyrequired license on commercially reasonable terms or at all. Even if we are able to obtain a license, it may be non-exclusive,thereby giving our competitors access to the same technologies licensed to us. We could be forced, including by court order,to cease commercializing the infringing technology or product. In addition, in any such proceeding or litigation, we could befound liable for monetary damages, including treble damages and attorneys’ fees, if we are found to have willfully infringed apatent. A finding of infringement could prevent us from commercializing our products or force us to cease some of ourbusiness operations.In connection with any NDA that we file under Section 505(b)(2), we are required to notify the patent holder of the referencelisted drug that we identify in our NDA, that we have certified to the FDA that any patents listed for the listed drug in theFDA’s Orange Book publication are invalid, unenforceable or will not be infringed by the manufacture, use or sale of ourdrug. If the patent holder files a patent infringement lawsuit against us within 45 days of its receipt of notice of ourcertification, the FDA is automatically prevented from approving our Section 505(b)(2) NDA until the earliest of 30 monthsafter the lawsuit is filed, expiration of the patents, settlement of the lawsuit and a court decision in the infringement case thatis favorable to us. Accordingly, we may invest significant time and expense in the development of our products only to besubject to significant delay and patent litigation before our products may be commercialized.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 such infringementclaim would be expensive and time consuming, and could delay the commercialization of our products and distractmanagement 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 litigation against our collaborators may be costly and time consuming and could have a materialadverse effect on our operating results, our ability to raise capital needed to commercialize products and our overall financialcondition. We expect that litigation may be necessary in some instances to determine the validity and scope of ourproprietary rights. Litigation may be necessary in other instances to determine the validity, scope or non-infringement ofcertain patent rights claimed by third parties to be pertinent to the manufacture, use or sale of our products Ultimately, theoutcome of such litigation, including our pending litigation with Purdue, could compromise the validity and scope of ourpatents or other 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 technologies, products or any future productcandidates which we may develop, we may lose valuable assets or be unable to compete effectively in our market. 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 with respect to our proprietary technology and products. 27 Table of ContentsThe 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 in the United States. The rights already grantedunder any of our currently issued patents and those that may be granted under future issued patents may not provide us withthe 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 or future product candidates. Even if our patent applications issueinto patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors fromcompeting with us, or otherwise provide us with any competitive advantage. The examination process may require us tonarrow the claims in our patents, which may limit the scope of patent protection that may be obtained. Our competitors maydesign around or otherwise circumvent patents issued to us or licensed by us.The scope of patent protection in the United States is highly uncertain, and changes in U.S. patent law have increased thatuncertainty and could diminish the value of patents in general, thereby impairing our ability to protect our products orfuture product candidates. 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 may diminish the value of our patents or narrow the scope of our patent protection.Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in theUnited States typically are not published until 18 months after filing or, in some cases, not at all. Therefore, we cannot becertain that we were the first to make the inventions claimed in our owned or licensed patents or pending 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, in the United States, are highly uncertain.Patent reform legislation could increase the uncertainties and costs associated with the prosecution of our patent applicationsand the enforcement or defense of our issued patents. The Leahy-Smith America Invents Act, or the Leahy-Smith Act, whichwas signed into law on September 16, 2011, made significant changes to U.S. patent law, including provisions that affect theway patent applications are prosecuted and litigated. Many of the substantive changes to patent law associated with theLeahy-Smith Act and, in particular, the “first to file” provisions described below, became effective in 2013. The Leahy-SmithAct and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applicationsand 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 were28 Table of Contentsor are aware, and which we did not or do not consider relevant to our patents, but which could nevertheless be determined torender our patents invalid. An adverse determination in any such submission, proceeding or litigation could reduce the scopeof, or invalidate, our patent rights, which could have a material adverse effect on our competitive position with respect tothird 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. Such challengesmay result in the loss of patent protection, the narrowing of claims in such patents, or the invalidity or unenforceability ofsuch patents, which could limit our ability to stop others from using or commercializing similar or identical technology andproducts, or limit the duration of the patent protection for our technology and products. Protecting against the unauthorizeduse of our patented technology, trademarks and other intellectual property rights is expensive, difficult and, may in somecases not be possible. In some cases, it may be difficult or impossible to detect third party infringement or misappropriationof our intellectual property rights, even in relation to issued patent claims, and proving any such infringement may be evenmore 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 public announcements of the results of hearings, motionsor other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it couldhave a material adverse effect on the price of shares of our common stock.We may not be responsible for or have control over the prosecution or enforceability of our licensed technology andhave to rely on the licensor to enforce or defend our intellectual property.In some cases, patent prosecution of our licenses is controlled solely by the licensor, like in certain circumstances under theNucynta Commercialization Agreement. If our licensors fail to obtain and maintain patent or other protection for theproprietary intellectual property we license from them, we could lose our rights to the intellectual property or our exclusivitywith respect to those rights, and our competitors could market competing products using the intellectual property. Licensingof intellectual property is of critical importance to our business and involves complex legal, business and scientific issuesand is complicated by the rapid pace of scientific discovery in our industry. Disputes may arise regarding intellectualproperty subject to a licensing agreement, including: ·the scope of rights granted under the license agreement and other interpretation-related issues; ·the extent to which our technology and processes infringe on intellectual property of the licensor that is not subjectto the licensing agreement; ·the sublicensing of patent and other rights under our collaborative development relationships;29 Table of Contents ·our diligence obligations under the license agreement and what activities satisfy those diligence obligations; ·the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by ourlicensors and us and our partners; and ·the priority of invention of patented technology. If disputes over intellectual property that we license prevent or impair our ability to maintain such licensing arrangements onacceptable terms, we may be unable to successfully develop and commercialize the affected products.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 and products, we rely on trade secrets, including unpatented know-how, technology and other proprietary information, to maintain our competitive position. We seek to protect these tradesecrets, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to them, such asour employees, corporate collaborators, outside scientific collaborators, contract manufacturers, consultants, advisors andother third parties. Despite these efforts, any of these parties may breach the agreements and disclose our proprietaryinformation, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. Enforcing aclaim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and theoutcome is unpredictable. In addition, some courts in the United States may be less willing or unwilling to protect tradesecrets. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would haveno right to prevent such competitor, or those to whom they communicate with, from using that technology or information tocompete with us. If any of our trade secrets were to be disclosed or independently developed, our competitive position wouldbe harmed.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 orpharmaceutical 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.30 Table of ContentsObtaining 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 requires compliance with a number of procedural, documentary, fee payment and other similar provisions duringthe patent application process. In addition, periodic maintenance fees on issued patents are required to be paid to the USPTOin several stages over the lifetime of the patents. While an inadvertent lapse can in many cases be cured by payment of a latefee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result inabandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevantjurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent application include, butare not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees and failure toproperly legalize and submit formal documents. If we fail to maintain the patents and patent applications covering ourproducts, our competitive position would be adversely affected.Risks Related to the Commercialization of Our ProductsIf we are unable to successfully develop and utilize our own sales and marketing capabilities or enter into strategicalliances with marketing collaborators, we may not be successful in commercializing our products and may be unable togenerate sufficient product revenue. Our commercial organization continues to grow and evolve, and in light of its short history and limited track record, wecannot guarantee that we will be successful in marketing our products that may be approved for marketing. In addition, wecompete with other pharmaceutical and biotechnology companies with extensive and well-funded sales and marketingoperations to recruit, hire, train and retain sales and marketing personnel. If we are unable to continue to grow and maintainadequate sales, marketing and distribution capabilities, whether independently or with third parties, we may not be able togenerate sufficient product revenue and may not become profitable. Factors that may inhibit our efforts to commercialize ourproducts 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 reach adequate numbers of physicians who may prescribe our products;·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 our products. To theextent we commercialize our products by entering into agreements with third-party collaborators, we may have limited or nocontrol over the sales, marketing and distribution activities of these third parties, in which case our future revenues woulddepend heavily on the success of the efforts of these third parties.If physicians, patients, healthcare payors and the medical community do not accept and use our products, we will notachieve sufficient product revenues and our business will suffer.Physicians, patients, healthcare payors and the medical community may not accept and use our products. Acceptance and useof our products will depend on a number of factors including:·the timing of market introduction of our products as well as the availability of competitive products;·approved indications, warnings and precautions language that may be less desirable than anticipated;31 Table of Contents·perceptions by members of the healthcare community, including physicians, about the safety and efficacy of ourproducts;·perceptions by members of the healthcare community, including physicians, about the relevance and efficacy of ourabuse deterrent technology;·the pricing and cost-effectiveness of our products relative to competing products;·the potential and perceived advantages of our products over alternative treatments;·the convenience and ease of administration to patients of our products;·actual and perceived availability of coverage and reimbursement for our products from government or other third-party payors;·any negative publicity related to our or our competitors’ products;·the prevalence and severity of adverse side effects, including limitations or warnings contained in a product’s FDAapproved product labeling;·FDA’s and HHS’s policy initiatives, including their plans and goals to reduce the overall rate of misuse and abuse ofopioid drugs;·our ability to implement a REMS; and·effectiveness of marketing and distribution efforts by us and any licensees and distributors.If our products fail to achieve an adequate level of acceptance by physicians, healthcare payors, patients or the medicalcommunity, we will not be able to generate sufficient revenue to become or remain profitable. Since we expect to rely onsales generated by Xtampza ER and the Nucynta Products for substantially all of our revenues for the foreseeable future, thefailure of Xtampza ER or the Nucynta Products to find market acceptance would harm our business prospects.Our products contain and our future product candidates may contain controlled substances, the manufacture, use, sale,importation, exportation and distribution of which are subject to regulation by state and federal law enforcement andother regulatory agencies.Our products contain and our future product candidates may contain, controlled substances that are subject to state andfederal laws and regulations regarding their manufacture, use, sale, importation, exportation and distribution. Xtampza ER’sactive ingredient, oxycodone, and the Nucynta Products’ active ingredient, tapentadol, are both classified as Schedule IIcontrolled substances under the CSA and regulations of the DEA. A number of states also independently regulate these drugs,including oxycodone and tapentadol, as controlled substances.We and our suppliers, manufacturers, contractors, customers and distributors are required to obtain and maintain applicableregistrations from state and federal law enforcement and regulatory agencies and comply with state and federal laws andregulations regarding the manufacture, use, sale, importation, exportation and distribution of controlled substances. Forexample, all Schedule II drug prescriptions must be signed by a physician, physically presented to a pharmacist and may notbe 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. In July 2018, the DEA published final guidelines strengthening the process forsetting controls over diversion of controlled substances and making other improvements in the quota management regulatorysystem. For 2019, the DEA has proposed decreased manufacturing quotas for the six most frequently misused opioids,including oxycodone, by an average of 10% as compared to the 2018 quotas. We may not be able to obtain32 Table of Contentssufficient quantities of these controlled substances in order to complete our clinical trials or meet commercial demand. Ifcommercial demand for Xtampza ER, or any of our other approved products, increases and we cannot meet such demand in atimely fashion because of our limited supply of its active pharmaceutical ingredient (in the case of Xtampza ER, oxycodone)then physicians may perceive such product as unavailable and may be less likely to prescribe it in the future. 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 ourproducts that include controlled substances. The DEA and some states conduct periodic inspections of registeredestablishments 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 our products that contain controlled substances and subject us to enforcement action.The DEA may seek civil penalties, refuse to renew necessary registrations or initiate proceedings to revoke thoseregistrations. In some circumstances, violations could lead to criminal proceedings. Because of their restrictive nature, theseregulations could limit commercialization of our products containing controlled substances.Recently enacted and future legislation may increase the difficulty and cost for us to commercialize our products and mayreduce the prices we are able to obtain for our products.In the United States, there have been a number of legislative and regulatory changes and proposed changes regarding thehealthcare system generally, and the manufacturing, distribution, and marketing of opioids in particular, that could preventor delay marketing approval of future product candidates, restrict or regulate post-approval activities or affect our ability toprofitably sell our products for which we obtain marketing approval.Laws intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhanceremedies against fraud and abuse, add new transparency requirements for health care and health insurance industries, imposenew taxes and fees on the health industry and impose additional health policy reforms may continue the downward pressureon pharmaceutical pricing, especially under the Medicare program, and may also increase our regulatory burdens andoperating costs.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 of our products may be. In addition, increased scrutiny by the U.S. Congress of the FDA’s approval processmay significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing testing and other requirements.On February 27, 2018, a bipartisan group of senators introduced Senate Bill 2456 (S.2456). S.2456 is characterized as“CARA 2.0,” in reference to the Comprehensive Addiction and Recovery Act of 2016. CARA 2.0 would limit initialprescriptions for opioids to three days, while exempting initial prescriptions for chronic care, cancer care, hospice or end oflife care, and palliative care. CARA 2.0 would also increase civil and criminal penalties for opioid manufacturers that fail toreport suspicious orders for opioids or fail to maintain effective controls against diversion of opioids. The bill would increasecivil fines from $10,000 to $100,000, and if a manufacturer fails to maintain effective controls or report suspicious orderswith knowledge or willful disregard, the bill would double criminal penalties from $250,000 to $500,000. If this bill weresigned into law, it could adversely affect our ability to successfully commercialize our products. In addition, in 2017 severalstates, including Indiana, Louisiana, and Utah, enacted laws that further limit or restrict opioid prescriptions.In October 2018, President Trump signed the Substance Use Disorder Prevention That Promotes Opioid Recovery andTreatment for Patients and Communities (SUPPORT) Act. Among other things, this legislation provides funding for researchand development of non-addictive painkillers that could potentially compete with our products. It also clarifies FDA’sauthority to require that certain opioids be dispensed in packaging that limits their abuse potential, makes changes toMedicare and Medicaid in an effort to limit over-prescription of opioid painkillers, and increases penalties againstmanufacturers and distributors related to the over-prescription of opioids, including the failure to report33 Table of Contentssuspicious orders and keep accurate records. The ultimate effect of this legislation is currently not known, but couldpotentially have a material adverse effect on our business.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 our products, which could significantly diminish demand for them and significantly impactour ability to successfully commercialize our products and generate revenues.Our products may become subject to unfavorable pricing regulations or third-party coverage and reimbursement policies,which could have a material adverse effect on our business. Such pricing regulations may address the rebates thatmanufacturers offer to pharmaceutical benefit managers, or the discounts that manufacturers provide others within thepharmaceutical distribution chain.The regulations that govern marketing approvals, pricing and reimbursement for new drug products can vary widely. Currentand future legislation may significantly change the approval requirements in ways that could involve additional costs andcause delays in obtaining approvals. Pricing limitations may hinder our ability to recoup our investment in our products.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 discounts and rebates from list pricesand are challenging the prices charged for medical products. We have agreed to provide such discounts and rebates to certainthird-party payors. We expect increasing pressure to offer larger discounts and rebates. Additionally, a greater number ofthird-party payors may seek discounts and rebates in order to offer or maintain access for our products. We cannot be sure thatcoverage and reimbursement will be available for any product that we commercialize and, if reimbursement is available, whatthe level of reimbursement will be and whether it will be satisfactory.In January 2019, as part of its cost containment efforts for government-reimbursed prescription medications, HHS released aproposed rule that (1) eliminates AKS safe harbor protection for rebates paid to prescription benefit managers; (2) creates anew safe harbor for discounts provided to beneficiaries at the point of sale; and (3) creates a new safe harborfor administrative fees paid by manufacturers to prescription benefit managers. The goal of the proposed safe harborchanges is to eliminate rebates from manufacturers to prescription benefit managers and replace them with point-of-salediscounts to beneficiaries. The proposed new rule only applies to Medicare, Medicare Advantage and Medicaid plans, not toprivate commercial insurance plans. The proposed regulation faces opposition from pharmacy benefit managers and otherswho do not believe it will have its intended effect of reducing overall costs to government beneficiaries. We cannot besure whether the proposed rule will be adopted either in its current form or in an amended form, and do not know whatimpact the uncertainty will have on our agreements and relationships with pharmacy benefit managers and other pertinentparties. If the rule is finalized, we will likely be required to alter our agreements with these parties to come into compliancewith the new rule, and it is uncertain what financial impact these alterations will have on our list prices, discounts,and reimbursement levels for our productsThere 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. Moreover, eligibility for coverage andreimbursement does not imply that any drug will be paid for in all cases or at a rate that covers our costs, including research,development, manufacture, sale and distribution. Interim reimbursement levels for new drugs, if applicable, may also not besufficient to cover our costs and may only be temporary. Reimbursement rates may vary according to the use of the drug andthe clinical setting in which it is used, may be based on reimbursement levels already set for lower cost drugs and may beincorporated into existing payments for other services. Net prices for drugs may be reduced by mandatory discounts orrebates required by government healthcare programs or private payors and by any future relaxation of laws that presentlyrestrict imports of drugs from policy and payment limitations in setting their own reimbursement policies. Our inability topromptly obtain coverage and profitable reimbursement rates from both34 Table of Contentsgovernment-funded and private payors for our products could have a material adverse effect on our operating results, ourability 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 our products. 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 our products.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 ER and the Nucynta Products; public inquiries and investigations into prescriptiondrug abuse; litigation; or regulatory activity regarding sales, marketing, distribution or storage of opioid drugs could have amaterial adverse effect on our reputation. Such negative publicity could reduce the potential size of the market for ourproducts and decrease the revenues we are able to generate from their sale. Similarly, to the extent opioid abuse becomes lessprevalent or less urgent of a public health issue, regulators and third party payers may not be willing to pay a premium forabuse-deterrent formulations of opioid.Many state legislatures have enacted legislation intended to reduce opioid abuse, for example by establishing prescriptiondrug monitoring programs and mandating prescriber education. The SUPPORT Act allows for sharing of this type of dataacross state lines. Efforts by the FDA and other regulatory and legislative bodies to combat abuse of opioids may negativelyimpact the market for our products. 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 the FDA’s focus on implementing policies toreverse the opioid abuse epidemic, while maintaining access to effective treatments. The actions set forth in the FDA’s planinclude strengthening post marketing study requirements to evaluate the benefit of long-term opioid use, changing theREMS requirements to provide additional funding for physician education courses, releasing a draft guidance setting forthapproval standards for generic-abuse deterrent opioid formulations, and seeking input from the FDA’s Science Board tobroaden the understanding of the public risks of opioid abuse. The FDA’s Science Board met to address these issues onMarch 1, 2016. In November 2017, FDA issued a final guidance addressing approval standards for generic abuse-deterrentopioid formulations, which included recommendations about the types of studies that companies should conduct todemonstrate that the generic drug is no less abuse-deterrent than its brand-name counterpart. The FDA’s plan is part of abroader initiative led by the HHS to address opioid-related overdose, death and dependence. The HHS initiative’s focus is onimproving physician’s use of opioids through education and resources to address opioid over-prescribing, increasing use anddevelopment of improved delivery systems for naloxone, which can reverse overdose from both prescription opioids andheroin, to reduce overdose-related deaths, and expanding the use of Medication-Assisted Treatment, which couplescounseling and behavioral therapies with medication to address substance abuse. As part of this initiative, the CDC haslaunched a state grant program to offer state health departments resources to assist with abuse prevention efforts, includingefforts to track opioid prescribing through state-run electronic databases. In March 2016, as part of the HHS initiative, theCDC released a Guideline 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 improve communicationsbetween doctors and patients about the risks and benefits of opioid therapy for chronic pain, improve the safety andeffectiveness of pain treatment, and reduce the risks associated with long-term opioid therapy. The guideline states that notreatment recommendations about the use of abuse-deterrent opioids can be made at this time. The SUPPORT Act, describedabove, also addresses opioid-related abuse by, among other things, seeking to increase access to and reimbursement foraddiction treatment, advancing new initiatives to promote education and awareness of appropriate pain treatment amonghealth care providers and improving coordination among federal agencies in relation to border checks.The FDA continues to evaluate extended-release and abuse-deterrent opioids in the post-market setting. In March 2017, theFDA’s Advisory Committee met to discuss OPANA ER (oxymorphone hydrochloride) extended-release tablets. A majority ofthe Advisory Committee voted that the benefits do not outweigh the risks of OPANA ER. Upon the FDA’s subsequent requestin June 2017, OPANA ER was removed from the market. Also, in July 2017, the FDA held a public workshop to discussavailable data and methods to assess the impact of opioid formulations with abuse-deterrent properties on misuse, abuse,addiction, overdose, and death in the post-market context. The FDA will continue to35 Table of Contentsscrutinize the impact of abuse-deterrent opioids and in the future could impose further restrictions to products currently onthe market, which may include changing labeling, imposing additional prescribing restrictions, or seeking a product’sremoval from the market.Recently, CVS Pharmacy announced it would only fill first-time opioid prescriptions for acute pain for a seven day supply. InJuly 2017, the Pharmaceutical Care Management Association, a trade association representing pharmacy benefit managers,wrote a letter to the commissioner of the FDA in which it expressed support for, among other things, the CDC guidelines anda seven-day limit on the supply of opioids for acute pain. In addition, states, including the Commonwealths of Massachusettsand Virginia and the States of New York, Ohio, Arizona, Maine, New Hampshire, Vermont, Rhode Island, Colorado,Wisconsin, Alabama, South Carolina, Washington and New Jersey, have either recently enacted, intend to enact, or havepending legislation or regulations designed to, among other things, limit the duration and quantity of initial prescriptions ofimmediate-release forms of opiates and mandate the use by prescribers of prescription drug databases and mandate prescribereducation. Also, at the state and local level, a number of states and cities have brought separate lawsuits against variouspharmaceutical companies marketing and selling opioid pain medications, alleging misleading or otherwise improperpromotion of opioid drugs to physicians and consumers. In addition, the attorneys general from several states haveannounced the launch of a joint investigation into the marketing and sales practices of drug companies that market opioidpain medications. We are currently subject to such lawsuits and investigations, as discussed under the heading “LegalProceedings” in this Form 10-K. Many of these changes and others could cause us to expend additional resources indeveloping and commercializing our products to meet additional requirements. Advancements in development and approvalof generic abuse-deterrent opioids could also compete with and potentially impact physician use of our products and causeour products to be less commercially successful.If the FDA or other applicable regulatory authorities approve generic products with abuse deterrent claims that competewith our products 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 ANDA. The FD&C Act, FDA regulationsand other applicable regulations and policies provide incentives to manufacturers to create modified, non-infringing versionsof a drug to facilitate the approval of an ANDA or other application for generic substitutes. These manufacturers might onlybe required to conduct a relatively inexpensive study to show that their product has the same active pharmaceuticalingredients, dosage form, strength, route of administration, and conditions of use, or product labeling, as our product and thatthe generic product is absorbed in the body at the same rate and to the same extent as, or is bioequivalent to, our product.These generic equivalents would be significantly less costly than ours to bring to market and companies that produce genericequivalents are generally able to offer their products at lower prices. Thus, after the introduction of a generic competitor, asignificant percentage of the sales of any branded product are typically lost to the generic product. Accordingly, competitionfrom generic equivalents to our products would substantially limit our ability to generate revenues and therefore to obtain areturn on the investments we have made in our products. In November 2017, FDA issued a final guidance to assist industry inthe development of generic versions of approved opioids with abuse-deterrent formulations, including recommendationsabout the types of studies that companies should conduct to demonstrate that the generic drug is no less abuse-deterrent thanits brand-name counterpart. In July 2018, the FDA posted three revised product-specific guidances related to generic abuse-deterrent opioid formulations, which recommend specific in vivo studies and in vitro study considerations for abusedeterrence evaluations. These guidances are part of FDA’s wider focus on assisting developers of generic abuse-deterrent formulations navigate the regulatory path to market more quickly. Earlier market entry of generic abuse-deterrent formulations could have a material adverse effect on our business. Guidelines and recommendations published by various organizations can reduce the use of our products. Government agencies promulgate regulations and guidelines directly applicable to us and to our products. In addition,professional societies, practice management groups, private health and science foundations and organizations involved invarious diseases from time to time may also publish guidelines or recommendations to the healthcare and patientcommunities. Recommendations of government agencies or these other groups or organizations may relate to such matters asusage, dosage, route of administration and use of concomitant therapies. Recommendations or guidelines suggesting thereduced use of our products or the use of competitive or alternative products as the standard of care to be followed bypatients and healthcare providers could result in decreased use of our products.36 Table of ContentsRisks Related to Our Dependence on Third Parties If the third-party manufacturer of Xtampza ER fails to devote sufficient time and resources to Xtampza ER, or itsperformance is substandard, and/or we encounter challenges in completing our dedicated facility at our third-partymanufacturer’s site, our costs may be higher than expected and could have a material adverse effect on our business. Ourcommercialization partner also relies on sole suppliers to manufacture the Nucynta Products, which presents a similarrisk. We 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 ER. Wecurrently rely, and expect to continue to rely, on a limited number of experienced personnel and contract manufacturers forour products, as well as other vendors to formulate, test, supply, store and distribute our products and we control only certainaspects of their activities. In 2016, we began the buildout of a dedicated facility for a portion of the XtampzaER manufacturing process, at a site operated by our contract manufacturing organization, Patheon. This dedicated facilityhas required significant capital expenditures and, when operational, is likely to result in significantly increased fixed costs.This dedicated facility requires the maintenance of additional regulatory approvals and entails other costs, all of which wewill need to absorb. We cannot guarantee that we will be able to successfully leverage the dedicated facility in a timely orprofitable manner, or within the budget that we currently project. If the demand for Xtampza ER and any future relatedproducts never meets our expectations and forecasts, or if we do not produce the output we plan, we may not be able torealize the return on investment we anticipated, which would have a negative impact on our financial condition and resultsof operations.Although we have identified alternate sources for these services, it would be time-consuming, and require us to incuradditional cost, to qualify these sources.Our reliance on a limited number of vendors and, in particular, Patheon N.V., as our single manufacturer for Xtampza ER,exposes us to the following risks, any of which could delay commercialization of our products, result in higher costs, ordeprive 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 (even after accounting for the increased capacity to be providedby the dedicated facility), may experience technical issues that impact quality or compliance with applicable andstrictly enforced regulations governing the manufacture of pharmaceutical products, may be affected by naturaldisasters that interrupt or prevent manufacturing of our products, may experience shortages of qualified personnel toadequately staff production operations, may experience shortages of raw materials and may have difficulties findingreplacement parts or equipment.·Our contract manufacturer could default on their agreement with us to meet our requirements for commercialsupplies of Xtampza ER and/or deliver the dedicated facility according to the currently agreed timeline.·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 ER, before we may use the alternative manufacturer to producecommercial 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.Failure to obtain the necessary active pharmaceutical ingredients, excipients or components necessary to manufactureXtampza ER could adversely affect our ability to commercialize the product, which could in turn adversely affect our37 Table of Contentsresults of operations and financial condition. Certain components of Xtampza ER are naturally derived products, for whichwe rely on sole suppliers. The inability of any of our raw material suppliers to provide components that meet ourspecifications and requirements could adversely impact our ability to manufacture our product.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 ER to be manufactured according to cGMP. Any failure by our third-partymanufacturer to comply with cGMP or failure to scale up manufacturing processes, including any failure to deliver sufficientquantities of products in a timely manner, could lead to a shortage of commercial product. In addition, such failure could bethe basis for the FDA to issue a warning or untitled letter, withdraw approvals for products previously granted to us, or takeother regulatory or legal action, including recall or seizure, total or partial suspension of production, suspension of ongoingclinical trials, refusal to approve pending applications or supplemental applications, detention or product, refusal to permitthe import or export of products, injunction, imposing civil penalties or pursuing criminal prosecution.Our commercialization partner for the Nucynta Products, Assertio, currently relies on a single supplier to manufacture each ofthe Nucynta Products. Any stock out, or failure to obtain sufficient supplies of each of the Nucynta Products, or the necessaryactive pharmaceutical ingredients, excipients or components necessary to manufacture each of the Nucynta Products, couldadversely affect our ability to commercialize the Nucynta Products, which could in turn adversely affect our results ofoperations and financial condition. Assertio experienced delays in the manufacture, packaging and delivery of certaindosage strengths of Nucynta ER in the third and fourth quarters of 2017 and the first quarter of 2018 following HurricanesIrma and Maria in Puerto Rico. We and our commercialization partner may continue to experience further outages in thefuture.Because we currently rely on a sole supplier to manufacture the active pharmaceutical ingredient of our products, anyproduction problems with our supplier could have a material adverse effect on us. We presently depend upon a single supplier for the active pharmaceutical ingredient for Xtampza ER (oxycodone base) andthe Nucynta Products (tapentadol) and we contract, either directly or indirectly, through Assertio with this supplier, asnecessary, for commercial supply of our products. Although we have identified an alternate source for oxycodone base forXtampza ER, it would be time-consuming and costly to qualify this source. Since we and, in the case of tapentadol, Assertio,currently obtain active pharmaceutical ingredients from this manufacturer on a purchase-order basis, either we, Assertio,and/or our supplier may terminate the arrangements, without cause, at any time without notice. If our supplier were toterminate an arrangement for an active pharmaceutical ingredient, or fail to meet our supply needs, we might incursubstantial costs and be forced to delay our development or commercialization programs. Any such delay could have amaterial adverse effect on our business.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 conduct required stability testing, we may encounter product, packaging,equipment and process-related issues that may require refinement or resolution in order to proceed with our planned clinicaltrials, obtain regulatory approval for commercial marketing and build commercial supplies. In the future, we may identifyimpurities, which could result in increased scrutiny by regulatory authorities, delays in our clinical programs and regulatoryapproval, increases in our operating expenses, failure to obtain or maintain approval or limitations in our commercialsupply. We depend on wholesale pharmaceutical distributors for retail distribution of our products; if we lose any of oursignificant wholesale pharmaceutical distributors, that loss may materially adversely affect our financial condition andresults of operations.A significant percentage of our product shipments are to a limited number of independent wholesale pharmaceuticaldistributors. Three of our wholesale pharmaceutical distributors represented 36%, 31% and 27% of our product shipments forthe year ended December 31, 2018. The loss by us of any of these wholesale pharmaceutical distributors’ accounts, or amaterial reduction in their purchases, could have a material adverse effect on our business, results of38 Table of Contentsoperations, financial condition and prospects. The significance of each wholesale pharmaceutical distributor account to ourbusiness adversely impacts our ability to negotiate favorable commercial terms with each such distributor, and as a result, wemay be forced to accept terms that adversely impact our results of operations. In addition, these wholesale customers comprise a significant part of the distribution network for pharmaceutical products inthe United States. This distribution network has undergone, and may continue to undergo, significant consolidation markedby mergers and acquisitions. As a result, a small number of large wholesale distributors control a significant share of themarket. Consolidation of drug wholesalers has increased, and may continue to increase, competitive and pricing pressures onpharmaceutical products. We cannot guarantee that we can manage these pricing pressures or that wholesaler purchases willnot fluctuate unexpectedly from period to period. Our products could be subject to post-marketing requirements, which requirements may, in some cases, not be capable oftimely or satisfactory completion without participation in consortia over which we have limited control.Our products are subject to a comprehensive regulatory scheme, including post-marketing requirements, or PMRs, toconduct epidemiological studies and clinical trials. We intend to fulfill our PMRs by virtue of our participation in the OpioidPMR Consortium, or OPC. Although we retain discretion in how to discharge such PMRs, the scale and scope of the studiesrequired by the FDA make it cost prohibitive to discharge these requirements other than by joining the OPC that was formedto conduct them. We are a member of OPC and engage in decision-making as a member of that organization, but do not havea majority. If the OPC fails to conduct sufficiently rigorous studies or is unable to achieve the patient enrollment or otherrequirements established by the FDA, we may be unable to satisfy our PMRs and the FDA may choose to withdraw orotherwise restrict its approval of our products. Such withdrawal or restriction would have an adverse impact on our businessand financial condition.In the future, we may depend on collaborations with third parties for the development and commercialization of ourproducts. If those collaborations are not successful, we may not be able to capitalize on the market potential of theseproducts.We may not be successful in establishing development and commercialization collaborations which could adversely affect,and potentially prohibit, our ability to develop or commercialize our products. These collaborations, including the NucyntaCommercialization Agreement, 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 may elect not to continue orrenew development or commercialization programs based on clinical trial results, changes in the collaborator’sstrategic focus or available funding or external factors such as an acquisition that diverts resources or createscompeting priorities.·Collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trialor abandon our product, repeat or conduct new clinical trials or require a new formulation of our product for clinicaltesting.·Collaborators may fail to obtain necessary regulatory approval, conduct clinical trials inappropriately, or mayobtain unfavorable results in their clinical trials, which may have an adverse effect on the development orcommercialization of our product.·Collaborators could independently develop, or develop with third parties, products that compete directly orindirectly with our product if the collaborators believe that competitive products are more likely to be successfullydeveloped or can be commercialized under terms that are more economically attractive than ours.·A collaborator with marketing and distribution rights to our products may not commit sufficient resources to themarketing and distribution of such products.39 Table of Contents·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 products or that result in costly litigation or arbitration that divertsmanagement 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 products.·Collaboration agreements may not lead to development or commercialization of products in the most efficientmanner or at all. If a future collaborator of ours were to be involved in a business combination, the continued pursuitand emphasis on our product development or commercialization program under such collaboration could bedelayed, diminished or terminated.·Our ability to successfully commercialize products pursuant to collaboration agreements may be adversely affectedby disputes or delays arising from supply and/or manufacturing agreements between such collaborators and thirdparties—agreements to which we may not be a party.We may rely on collaborators to market and commercialize our products, who may fail to effectively commercialize ourproducts. We may utilize strategic collaborators or contract sales forces, where appropriate, to assist in the commercialization of ourproducts. We currently possess limited resources and may not be successful in establishing collaborations or co-promotionarrangements on acceptable terms, if at all. We also face competition in our search for collaborators and co-promoters. If weenter into strategic collaborations or similar arrangements, we will rely on third parties for financial resources and fordevelopment, commercialization, sales and marketing and regulatory expertise. Our collaborators, if any, may fail to developor effectively commercialize our products because they cannot obtain the necessary regulatory approvals, they lack adequatefinancial or other resources or they decide to focus on other initiatives. Any failure of our third-party collaborators tosuccessfully market and commercialize our products would diminish our revenues.We rely on third parties to conduct our non-clinical and clinical trials. If these third parties do not successfully carry outtheir contractual duties or meet expected deadlines, or if they terminate their agreement with us, we may not be able tomaintain regulatory approval for our products 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 non-clinical and clinical programs. We rely on these parties for execution of our non-clinical and clinicaltrials, and control only certain aspects of their activities. Nevertheless, we are responsible for ensuring that each of our studiesand clinical trials are conducted in accordance with the applicable protocol, legal, regulatory and scientific standards, andour reliance on the CROs does not relieve us of our regulatory responsibilities. We and our CROs are required to comply withfederal regulations and current GCP, which are international standards meant to protect the rights and health of patients andto define the roles of clinical trial sponsors, advisors and monitors, enforced by the FDA, the Competent Authorities of theMember States of the European Economic Area, or EEA, and foreign regulatory authorities in the form of InternationalConference on Harmonization, or ICH, guidelines for all of our products. Regulatory authorities enforce these GCP throughperiodic inspections of trial sponsors, principal investigators and trial sites. In addition, we and our CROs are required tocomply with special regulations regarding the enrollment of recreational drug abusers in clinical trials. If we or any of ourCROs fail to comply with applicable GCP and other regulations, including as a result of any recent changes in suchregulations, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or foreign regulatoryauthorities may require us to perform additional clinical trials before approving our marketing applications. We cannotassure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of ourclinical trials comply with GCP requirements. In addition, our clinical trials must be conducted with product produced undercGMP requirements. While40 Table of Contentswe have agreements governing activities of our CROs, we have limited influence over their actual performance. Failure tocomply with applicable regulations in the conduct of the clinical trials for our products may require us to repeat preclinicalstudies and clinical trials, which would have an adverse impact on our commercial efforts.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 our products. As a result, the commercial prospects for our products would be harmed,our costs could increase substantially and our ability to generate revenue 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, which limits the internalresources we have available to identify and monitor our third-party providers. To the extent we are unable to identify andsuccessfully manage the performance of third-party service providers in the future, our ability to advance our productsthrough clinical trials will be compromised. There can be no assurance that we will not encounter similar challenges ordelays in the future or that these delays or challenges will not have a material adverse impact on our business, financialcondition and prospects.Risks Related to Our Business and Strategy We have been and may be the subject of litigation matters, including government investigations, for which we may beunable to obtain or maintain insurance adequate to cover potential liabilities. Our business exposes us to significant potential risk from litigation matters, including government investigations andlawsuits alleging violations of various federal and state laws in connection with the marketing and sale of opioids. Forexample, we, along with other manufacturers of prescription opioid medications, are or have been the subject of lawsuitsbrought by counties and localities in Arkansas, Massachusetts, Pennsylvania and Kentucky, in addition to a health systemand various member hospitals, regarding the sales and marketing of opioid medications. In addition to direct expenditures fordefense, settlement and damages, there is a possibility of adverse publicity, loss of revenues and disruption of business as aresult of such litigation matters. The resolution of these lawsuits may require lengthy and costly negotiations, and we mayincur substantial defense costs in addition to any settlement or other liabilities or restrictions that we may accept in order toresolve such matters. Further, we may be unable to obtain or maintain insurance on acceptable terms or with adequatecoverage against potential liabilities or other losses incurred in connection with certain litigation matters. The cost, effortand management attention required to resolve these lawsuits may adversely affect our financial condition and ability toconduct our business.41 Table of ContentsWe 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 products compete with currently marketed oral opioids, transdermal opioids, local anesthetic patches, stimulants andimplantable and external infusion pumps that can be used for infusion of opioids and local anesthetics. Products of thesetypes are marketed by Actavis, BioDelivery Sciences, Endo, Mallinckrodt, Pfizer, Purdue, Teva, and others. Some of thesecurrent and potential future competitors may be addressing the same therapeutic areas or indications as we are. Many of ourcurrent and potential future competitors have significantly greater research and development capabilities than we do, havesubstantially more marketing, manufacturing, financial, technical, human and managerial resources than we do, and havemore institutional experience than we do. Mergers and acquisitions in the biotechnology and pharmaceutical industries mayresult 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 products. Our competitors may also develop drugsthat are safer, more effective, more widely used and less costly than ours, and they may also be more successful than us inmanufacturing and marketing their products.Furthermore, 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. 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 products. Our competitors may develop products that are safer, more effective or lesscostly than our products and, therefore, present a serious competitive threat to our product offerings.The widespread acceptance of currently available therapies with which our products compete may limit market acceptance ofour products. Oral medications, transdermal drug delivery systems, such as drug patches, injectable products and implantabledrug delivery devices are currently available treatments for chronic pain, are widely accepted in the medical community andhave a long history of use. These treatments will compete with our products and the established use of these competitiveproducts may limit the potential for our products to receive widespread acceptance.The use of legal and regulatory strategies by competitors with innovator products may increase our costs associated withthe introduction or marketing of our products, or significantly reduce the profit potential of our products. 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:·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;42 Table of Contents·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 ourproducts.Our 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,Joseph Ciaffoni, our Chief Technology Officer, Alison Fleming, PhD, our Chief Financial Officer, Paul Brannelly, our ChiefCommercial Officer, Scott Dreyer, and our General Counsel, Shirley Kuhlmann. Each employee is employed by us at will andis permitted to terminate his or her employment with us at any time pursuant to the terms of his or her employmentagreement. We do not maintain “key person” insurance for any of our executives or other employees. The loss of the servicesof Mr. Ciaffoni, Dr. Fleming, Mr. Brannelly, Mr. Dreyer or Ms. Kuhlmann could impede the achievement of our developmentand commercialization objectives. If we are unable to attract and retain highly qualified employees, we may not be able to grow effectively. 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 nature of our business, we rely heavily on our ability to attract and retain qualifiedpersonnel. The competition for qualified personnel in the pharmaceutical field is intense, and as a result, we may be unable tocontinue to attract and retain qualified personnel necessary to execute business or to recruit suitable 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 would impose significant added responsibilities onmembers 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 to43 Table of Contentspublic companies.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 products and to compete effectivelywill depend, in part, on our ability to manage any future growth effectively. To that end, we must be able to manage ourdevelopment efforts and clinical trials effectively and hire, train and integrate additional management, administrative andsales and marketing personnel. We may not be able to accomplish these tasks, and our failure to accomplish any of themcould 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,which could have a material adverse effect on our operating results, dilute our shareholders’ ownership, increase our debtor cause us to incur significant expense. As part of our business strategy, we may pursue acquisitions of assets, including preclinical, clinical or commercial stageproducts or businesses, in-licensing or out-licensing of products or technologies, or other strategic alliances andcollaborations, to expand our existing technologies and operations. We may not identify or complete these transactions in atimely manner, on a cost-effective basis, or at all, and we may not realize the anticipated benefits of any such transaction, anyof which could have a material adverse effect on our financial condition, results of operations and cash flows. We havelimited experience with acquiring other companies, products or product candidates, and limited experience with licensingand forming strategic alliances and collaborations. We may not find suitable acquisition candidates, and if we make anacquisition, we may not integrate the acquisition successfully into our existing business and we may incur additional debt orassume unknown or contingent liabilities in connection therewith. Integration of an acquired company or assets may alsodisrupt ongoing operations, require the hiring of additional personnel and the implementation of additional internal systemsand infrastructure, especially the acquisition of commercial assets, and require management resources that would otherwisefocus on developing our existing business. We may not be able to find suitable strategic alliances or collaborators or identifyother investment opportunities, and we may experience losses related to any such investments.To finance any acquisitions, licenses or collaborations, we may incur significant transaction expenses and we may choose toissue debt or shares of our common or preferred stock as consideration. Any such issuance of shares would dilute theownership of our shareholders. If the price of our common stock is low or volatile, we may not be able to acquire, license, orotherwise obtain rights to other assets or companies or fund a transaction using our stock as consideration. Alternatively, itmay be necessary for us to raise additional funds for acquisitions through public or private financings. Additional funds maynot be available on terms that are favorable to us, or at all.Commercial sales of our products and clinical trials of our products and any future product candidates may expose us toexpensive product liability claims, and we may not be able to maintain product liability insurance on reasonable terms orat all.We currently carry product liability insurance. Product liability claims may be brought against us by patients, healthcareproviders, others using, administering or selling our products or patients enrolled in our clinical trials. If we cannotsuccessfully defend ourselves against claims that our products caused injuries, we could incur substantial liabilities. We maynot be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that mayarise. Regardless of merit or eventual outcome, liability claims may result in:·decreased demand for any products;·injury to our reputation and significant negative media attention;·significant costs to defend the related litigation;·substantial monetary awards to patients;·loss of revenue;44 Table of Contents·diversion of management and scientific resources from our business operations;·termination of clinical trial sites or entire trial programs;·withdrawal of clinical trial participants;·the inability to commercialize our products; 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 our products. Any agreements we may enter into in thefuture with collaborators in connection with the development or commercialization of our products may entitle us toindemnification against product liability losses, but such indemnification may not be available or adequate should any claimarise. In addition, many of our agreements require us to indemnify third parties and these indemnification obligations mayexceed the coverage under our product liability insurance policy.Our products may be associated with undesirable adverse reactions or have other properties that could result in significantnegative consequences.Undesirable adverse reactions associated with our products could cause us, our IRBs, clinical trial sites or regulatoryauthorities to interrupt, delay or halt clinical trials and could result in a restrictive product label or the delay, denial orwithdrawal of regulatory approval by the FDA. For example, even though Xtampza ER was generally well tolerated bypatients in our clinical trials, in some cases there were adverse reactions, one of which was a serious adverse event, moderatein severity, of gastroesophageal reflux.If we or others identify undesirable adverse events associated with our products, a number of potentially significant negativeconsequences 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 our products.Our employees, independent contractors, principal investigators, CROs, CMOs, wholesalers, distributors, consultants andvendors may engage in misconduct or other improper activities, including noncompliance with regulatory standards andrequirements, which could cause significant liability for us and harm our reputation. We are exposed to the risk that our employees, independent contractors, principal investigators, CROs, CMOs, wholesalers,distributors, consultants and vendors may engage in fraudulent conduct or other illegal activity. Misconduct45 Table of Contentsby these parties could include intentional, reckless and/or negligent conduct or disclosure of unauthorized activities to usthat 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 comply with such laws or regulations. If any such actions are instituted against us, and we are not successful indefending ourselves or asserting our rights, those actions could have a material adverse effect on our business and results ofoperations, including the imposition of civil, criminal and administrative penalties, damages, monetary fines, possibleexclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputationalharm, diminished profits and future earnings, and curtailment of our operations, any of which could have a material adverseeffect 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, andother 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 our products. Ourarrangements with payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws andregulations that may constrain the business or financial arrangements and relationships through which we market, sell anddistribute our products and any product candidates for which we may obtain marketing approval. Even though we do not andwill not control referrals of healthcare services or bill directly to Medicare, Medicaid or other third-party payors, federal andstate healthcare laws and regulations pertaining to fraud and abuse and patients’ rights are and will be applicable to ourbusiness. Restrictions under applicable federal and state healthcare laws and regulations may affect our ability to operate andexpose 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 Statute46 Table of Contentsconstitutes a false or fraudulent 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 laws regulating marketing activities and requiring manufacturers to report marketingexpenditures, 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; and·state equivalents of each of the above laws, including state anti-kickback and false claims laws, which may apply tosales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmentalpayors, including private insurers; state laws which require pharmaceutical companies to comply with thepharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated bythe federal government or otherwise restricting payments that may be made to healthcare providers; and state lawsgoverning the privacy and security of health information in certain circumstances, many of which differ from eachother 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, we are subject tofederal, state and local laws, rules, regulations and policies governing the use, generation, manufacture,47 Table of Contentsstorage, air emission, effluent discharge, handling and disposal of certain materials, biological specimens and wastes.Although we believe that we have complied with the applicable laws, regulations and policies in all material respects andhave not been required to correct any material noncompliance, we may be required to incur significant costs to comply withenvironmental and health and safety regulations in the future. Current or future laws and regulations may impair our research,development or production efforts. Failure to comply with these laws and regulations also may result in substantial fines,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 and other third parties on which we rely, are vulnerable to damage from computer viruses,unauthorized access, cyber-attacks and other malfeasance, natural disasters, terrorism, war and telecommunication andelectrical failures. System failures, accidents or security breaches could cause interruptions in our operations, and could resultin a material disruption of our commercial and clinical activities and business operations, in addition to possibly requiringsubstantial expenditures of resources to remedy. If such an event were to occur and cause interruptions in our operations, itcould result in a material disruption of our commercialization and drug development programs. For example, the loss ofclinical trial data from completed or ongoing clinical trials could result in delays in our regulatory approval efforts andsignificantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach was toresult in a loss of or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information,we could incur liability and the further commercialization of our products could be delayed.Risks 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 numerousfactors, 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 products or our competitors’ products;·actual or anticipated changes in our growth rate;48 Table of Contents·the outcome of any patent infringement or other litigation that may be brought by or against us, including theongoing Purdue and Teva litigation matters;·announcements by us or our competitors of significant acquisitions, strategic collaborations, joint ventures,collaborations or capital commitments;·results of clinical trials of our products or those of our competitors;·regulatory or legal developments in the United States;·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 products 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 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;·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; and49 Table of Contents·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.Actual or potential sales of our common stock by our directors or employees, including our executive officers, pursuant topre-arranged stock trading plans or otherwise could cause our stock price to fall or prevent it from increasing fornumerous 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. Significant additional capital may be needed in the future to continue our planned operations. To raise capital, we may sellsubstantial amounts of common stock or securities convertible into or exchangeable for common stock. These futureissuances of common stock or common stock-related securities, together with the exercise of outstanding options and anyadditional shares issued in connection with acquisitions, if any, may result in material dilution to our investors. Such salesmay also result in material dilution to our existing shareholders, and new investors could gain rights, preferences andprivileges senior to those of holders of our common stock.Our principal shareholders and management own a significant portion of our stock and have the ability to exert significantcontrol over matters subject to shareholder approval. Our executive officers, directors, holders of 5% or more of our capital stock and their respective affiliates beneficially own asignificant portion of our voting stock, including shares subject to outstanding options. As a result, if these shareholders wereto choose to act together, they would be able to significantly influence the outcome of all matters requiring shareholderapproval, including the election of directors, amendments of our organizational documents, or approval of any merger, saleof assets or other major corporate transaction. This may prevent or discourage unsolicited acquisition proposals or offers forour common stock that you may feel are in your best interest. The interests of this group of shareholders may not alwayscoincide with your interests or the interests of other shareholders and they may act in a manner that advances their bestinterests and not necessarily those of other shareholders, including seeking a premium value for their common stock, andmight affect the prevailing market price for our common stock. Such concentration of ownership control may:·delay, defer or prevent a change in control;50 Table of Contents·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.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;·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 compliance51 Table of Contentswith the continued listing requirements or that our common stock will not be delisted from NASDAQ in the future. If ourcommon stock is delisted 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.As of December 31, 2018, we are no longer an “emerging growth company” and, as a result, are required to comply withincreased disclosure and governance requirements.As the market value of our common stock held by non-affiliates was greater than $700 million as of the last business day ofthe most recent second quarter, we ceased to be an “emerging growth company” as defined in the JOBS Act as ofDecember 31, 2018. As a large accelerated filer, we are subject to certain requirements that apply to other public companiesbut did not previously apply to us. These requirements include:·the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that our independent registered publicaccounting firm provide an attestation report on the effectiveness of our internal control over financial reporting;·the requirement to provide detailed compensation discussion and analysis in proxy statements and reports filedunder the Exchange Act; and·the “say on pay” provisions (requiring a non-binding stockholder vote to approve compensation of certainexecutive officers) and the “say on golden parachute” provisions (requiring a non-binding stockholder vote toapprove golden parachute arrangements for certain executive officers in connection with mergers and certain otherbusiness combinations) of the Dodd-Frank Act and some of the disclosure requirements of the Dodd-Frank Actrelating to compensation of our chief executive officer.Therefore, this Annual Report is subject to Section 404(b) of the Sarbanes-Oxley Act, which requires that our independentregistered public accounting firm provide an attestation report on the effectiveness of our internal control over financialreporting. Compliance with Section 404 is expensive and time consuming for management and could result in the detectionof internal control deficiencies of which we are currently unaware. The loss of “emerging growth company” status andcompliance with the additional requirements substantially increases our legal and financial compliance costs and make someactivities more time consuming and costly.52 Table of ContentsIf 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. Weare required, under Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, theeffectiveness of our internal control over financial reporting. This assessment must include disclosure of any materialweaknesses identified by our management in our internal control over financial reporting. A material weakness is a controldeficiency, or combination of control deficiencies, in internal control over financial reporting that results in more than areasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detectedon a timely basis. Section 404 of the Sarbanes-Oxley Act also generally requires an attestation from our independentregistered public accounting firm on the effectiveness of our internal control over financial reporting.During the evaluation and testing process, if we identify one or more material weaknesses in our internal control overfinancial reporting, we will be unable to assert that our internal control over financial reporting is effective. We cannot assureyou that there will not be material weaknesses or significant deficiencies in our internal control over financial reporting inthe future. Any failure to maintain internal control over financial reporting could severely inhibit our ability to accuratelyreport our financial condition, results of operations or cash flows. If we are unable to conclude that our internal control overfinancial reporting is effective, or if our independent registered public accounting firm determines we have a materialweakness or significant deficiency in our internal control over financial reporting once that firm begin its reviews, we couldlose investor confidence in the accuracy and completeness of our financial reports, the market price of our common stockcould decline, and we could be subject to sanctions or investigations by NASDAQ, the SEC or other regulatory authorities.Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain othereffective control systems required of public companies, could also restrict our future access to the capital markets.Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud. 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.As of December 31, 2018, there were outstanding options to purchase an aggregate of 3,585,856 shares of our common stockat a weighted average exercise price of $16.20 per share, of which options to purchase 1,608,346 shares of our common stockwere then exercisable. In addition, as of December 31, 2018, the Company had an outstanding warrant53 Table of Contentswith Assertio to purchase 1,041,667 shares of our common stock at an exercise price of $19.20 per share. The exercise ofoptions and warrants at prices below the market price of our common stock could adversely affect the price of shares of ourcommon stock. Additional dilution may result from the issuance of shares of our common stock in connection withcollaborations or manufacturing 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 our shareholders’ 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 of our products. We may invest our cash and cash equivalents in short-term orlong-term, investment-grade, interest-bearing securities. These investments may not yield favorable returns. If we do notinvest or apply our cash and cash equivalents in ways that enhance shareholder value, we may fail to achieve expectedfinancial results, which could cause the price of our common stock to decline.Because we do not anticipate paying any cash dividends on our capital stock in the foreseeable future, capitalappreciation, if any, will be our shareholders’ 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 our shareholders’ sole source of gain for the foreseeable future. Item 1B. Unresolved Staff Comments Not applicable. Item 2. Properties Our corporate headquarters are located in Stoughton, Massachusetts, where we lease 50,678 square feet of office space undera lease agreement that was executed in March 2018. We took possession of the space in August 2018 when tenantimprovements were substantially complete, and the lease will continue for a term of approximately 10 years after an initialfour-month free rent period. The lease term may be extended for two additional five-year terms at our election. Our former corporate headquarters are located in Canton, Massachusetts, where we continue to lease 9,660 square feet ofoffice space under a lease agreement that was amended in October 2018. The lease term terminates in August 2020 and maybe extended for an additional five years at our election. We believe that our existing facilities are 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 Xtampza ER Litigation 54 Table of ContentsWe filed the NDA for Xtampza ER as a 505(b)(2) application, which allows us to reference data from an approved drug listedin the 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 ER does not infringe any of the 11 Orange Book listed patents forOxyContin OP, five of which have been invalidated in court proceedings. Under the Hatch-Waxman Act of 1984, Purdue hadthe option to sue us for infringement and receive a stay of up to 30 months before the FDA could issue a final approval forXtampza 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. In June2016, Purdue filed another follow-on suit asserting infringement of another non-Orange Book listed patent, Patent No.9,155,717. In April 2017, Purdue filed another follow-on suit asserting infringement of another patent, Patent No. 9,522,919,which was late-listed in the Orange Book and therefore could not trigger any stay of FDA approval. Then, in September 2017,Purdue filed another follow-on suit asserting infringement of another non-Orange Book listed patent, Patent No. 9,693,961 orthe ‘961 patent. On March 13, 2018, we filed a Petition for Post-Grant Review, or PGR, of the ʼ961 patent with the Patent Trial and AppealBoard, or PTAB. The PGR argues that the ʼ961 patent is invalid for lack of a written description, for lack of enablement, forindefiniteness, and as being anticipated by prior art. Purdue filed its Patent Owner Preliminary Response on July 10, 2018.The PTAB entered an order to institute post-grant review of all claims of the ’961 patent on October 4, 2018, upon a findingthat it is more likely than not that the claims of the ʼ961 patent are unpatentable. The PTAB has scheduled oral argument onthe proceedings for July 10, 2019 and, absent special circumstances, will issue a decision on the patentability of the ʼ961patent by no later than October 4, 2019. In October 2017, and in response to the filing of our sNDA seeking to update the drug abuse and dependence section of theXtampza ER label, Purdue filed another suit asserting infringement of the ʼ933 and ʼ919 patent. We filed a motion to dismissthat action, and the Court granted our motion on January 16, 2018. The current suits have been consolidated by the District of Massachusetts, where Purdue asserted infringement of fivepatents: the ʼ497 patent, the ʼ933 patent, the ʼ717 patent, the ʼ919 patent, and the ʼ961 patent. The Court issued an order onSeptember 28, 2018 in which it granted in part a motion for summary judgment filed by us and in which the Court ruled thatthe ʼ497 and ʼ717 patents are not infringed by us. As a result, only the ʼ933, the ʼ919, and the ʼ961 patents remain in dispute.On October 16, 2018, we filed a motion to stay proceedings in the district court on the ‘961 patent pending the PGR. None ofthese suits are associated with any stay of FDA approval for Xtampza ER. Purdue has made a demand for monetary relief buthas not quantified its alleged damages. Purdue has also requested a judgment of infringement, an adjustment of the effectivedate of FDA approval, and an injunction on the sale of our products accused of infringement. We have denied all claims andseek a judgment that the patents are invalid and/or not infringed by us; We are also seeking a judgment that the case isexceptional, with an award to us of our fees for defending the case. The parties are in the early stages of fact discovery. Written discovery has commenced with depositions expected tocommence during the first half of 2019. A claim construction hearing was held on June 1, 2017. On November 21, 2017, theCourt issued its claim construction ruling, construing certain claims of the ʼ933, ʼ497, and ʼ717 patents. No trial date hasbeen scheduled. We plan to continue, defending this case vigorously. At this stage, we are unable to evaluate the likelihood of an55 Table of Contentsunfavorable outcome or estimate the amount or range of potential loss, if any. Nucynta Litigation On February 7, 2018, Purdue filed a patent infringement suit against us in the District of Delaware. Specifically, Purdueargues that our sale of immediate release and extended release Nucynta infringes U.S. Patent Nos. 9,861,583, 9,867,784, and9,872,836. Purdue has made a demand for monetary relief in its complaint but has not quantified its alleged damages. On December 6, 2018, we filed an Amended Answer asserting an affirmative defense for patent exhaustion. On December 10,2018, the Court granted the parties’ stipulation for resolution of our defense of patent exhaustion and stayed the action, withthe exception of briefing on and resolution of the Company’s Motion for Judgment on the Pleadings and any discoveryrelated to that Motion. On December 12, 2018, the Company filed a Rule 12(c) Motion for Judgment on the Pleadings,arguing that the Purdue’s claims were barred by the doctrine of patent exhaustion. Purdue filed its response on January 11,2019 and we filed a reply on January 25, 2019. That Motion is currently under advisement, and, if successful, would result ina dismissal of this suit. We plan to defend this case vigorously. At this stage, we are unable to evaluate the likelihood of an unfavorable outcome orestimate the amount or range of potential loss, if any. Teva Litigation We have fourteen patents listed in the FDA Orange Book as covering our abuse-deterrent product and methods of using it totreat patients: Patents Nos. 7,399,488; 7,771,707; 8,449,909; 8,557,291; 8,758,813; 8,840,928; 9,044,398; 9,248,195; 9,592,200; 9,682,075; 9,737,530, 9,763,883; 9,968,598; 10,004,729, or the Orange Book Patents. Teva Pharmaceuticals USA, Inc., or Teva, filed a Notice Letter of Patent Certification against twelve of the fourteen listedOrange Book Patents (the ’598 and ’729 patents were listed among the Orange Book Patents after receipt of Teva’s NoticeLetter), alleging that they were invalid and/or not infringed by the proposed oxycodone products that are the subject ofTeva’s Abbreviated New Drug Application, ANDA. On February 22, 2018—within the 45-day period that gives us a 30-month stay on FDA approval of Teva’s ANDA while the parties have an opportunity to litigate—we sued Teva in the Districtof Delaware on eleven of the Orange Book Patents. Teva responded to our complaint on May 14, 2018, alleging that theOrange Book Patents are invalid and are not infringed by Teva’s proposed ANDA products and asserting counterclaims ofnon-infringement and invalidity of the Orange Book Patents. We answered Teva’s counterclaims on June 4, 2018. Accordingto the Scheduling Order for this case, fact discovery will close on July 30, 2019 and expert discovery will close on January31, 2020. Opioid Litigation On March 19, 2018, a lawsuit was filed by multiple local governments in the Circuit Court of Crittenden County, Arkansas,against us and other pharmaceutical manufacturers and distributors alleging a variety of claims related to opioid marketingand distribution practices. On January 29, 2019, we were dismissed from this litigation without prejudice. On March 21, 2018, we, along with other pharmaceutical manufacturers and distributors, were named in a class-action lawsuitfiled in the Eastern District of Kentucky by a family practice clinic, on behalf of other similarly-situated healthcareproviders. The action alleges violations of the Racketeer Influenced and Corrupt Organizations Act relating to opioidmarketing and distribution practices. On April 14, 2018, the lawsuit was conditionally transferred by the Judicial Panel onMulti-District Litigation to the federal Prescription Opiate Multi District Litigation, or MDL, in the Southern District ofOhio. On April 10, 2018, the conditional transfer was finalized and the lawsuit was docketed in the MDL on April 11, 2018.On May 4, 2018, we, along with other pharmaceutical manufacturers and distributors, were named in two lawsuits filed in theMDL by the Fiscal Court of Bourbon County, Kentucky and the Fiscal Court of Owen County, Kentucky, relating to opioidmarketing and distribution practices. On June 11 and 12, 2018, we were named in four lawsuits filed in the MDL by a healthsystem and various member hospitals. On September 26, 2018, we were named in two lawsuits filed in the MDL by the FiscalCourt of Lee County, Kentucky and the Fiscal Court of Wolfe County, Kentucky. The lawsuits allege violations of the RICOAct, fraud, public nuisance, negligence, and violations of state consumer protections laws. The lawsuits all seek, generally,penalties and/or injunctive relief. The MDL lawsuits in56 Table of Contentswhich we have been named are not designated representative cases in the MDL and, therefore, are effectively currentlystayed. On May 29, 2018, a lawsuit was filed by Bucks County, Pennsylvania against us and other pharmaceutical manufacturers andon June 12, 2018, a lawsuit was filed by Clinton County, Pennsylvania, against us and other pharmaceutical manufacturersand distributors. On June 6, 2018, a lawsuit was filed by Mercer County, Pennsylvania, against us and other pharmaceuticalmanufacturers and distributors. These lawsuits allege claims related to opioid marketing and distribution, includingnegligence, fraud, unjust enrichment, public nuisance, and violations of state consumer protections laws. These cases havebeen consolidated for discovery purposes in the Delaware County Court of Common Pleas as part of a consolidatedproceeding of similar lawsuits brought by numerous Pennsylvania counties against other pharmaceutical manufacturers anddistributors. On July 30, 2018, a lawsuit was filed by the City of Worcester, Massachusetts against us and other pharmaceuticalmanufacturers and distributors. The action alleges a variety of claims related to opioid marketing and distribution practicesincluding public nuisance, common law fraud, negligent misrepresentation, negligence, violations of Mass Gen. Laws ch.93A, Section 11, unjust enrichment and civil conspiracy. In February 2019, the City of Worcester case was transferred to theBusiness Litigation Session of the Superior Court. Additional lawsuits brought by cities and towns in Massachusetts werefiled in December 2018 and February 2019; City of Salem, City of Framingham, Town of Lynnfield, City of Springfield, Cityof Haverhill, City of Gloucester, Town of Canton, Town of Wakefield; and City of Chicopee. The plaintiffs in these lawsuitsare seeking to transfer and consolidate each of the additional lawsuits for possible coordination before the BusinessLitigation Session. The same plaintiffs’ law firm has indicated it intends to file more complaints against us and otherpharmaceutical manufacturers and distributors on behalf of additional Massachusetts municipalities. We dispute the allegations in these lawsuits and intend to vigorously defend these actions. At this stage, we are unable toevaluate the likelihood of an unfavorable outcome or estimate the amount or range of potential loss, if any. Opioid-Related Requests and Subpoenas We, like a number of other pharmaceutical companies, have received subpoenas or civil investigative demands related toopioid sales and marketing. We have received such subpoenas or civil investigative demands from the Offices of theAttorney General of each of Washington, New Hampshire, and Massachusetts. We are currently cooperating with the each ofthe foregoing states in their respective investigations. 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, for57 Table of Contentsthe periods indicated, the high and low sales prices for our common stock as reported on NASDAQ:Year Ended December 31, 2018 High LowFirst quarter $29.90 $17.17Second quarter $28.91 $20.81Third quarter $24.44 $14.00Fourth quarter $19.83 $13.70 Year Ended December 31, 2017 High LowFirst quarter $17.60 $9.88Second quarter $13.20 $7.37Third quarter $13.47 $9.03Fourth quarter $20.92 $9.01 HoldersAs of January 31, 2019, there were 34 holders of record of our common stock. The number of holders of record does notinclude beneficial 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.Stock 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, 2018. Such returns are based on historical results and are not intended to58 Table of Contentssuggest future performance. Data for the NASDAQ Composite Index and NASDAQ Biotechnology Index assumereinvestment 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, 201520172018Collegium Pharmaceutical, Inc. (COLL) $100.00$150.20$139.71NASDAQ Composite Index (IXIC) $100.00$139.59$136.74NASDAQ Biotechnology Index (NBI) $100.00$93.20$87.61 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 Form 10-K, except as disclosed on ourForm 8-K filed on November 8, 2018.ATM Sales Agreement In March 2017, we commenced an “at-the-market” offering of our common stock and entered into a Controlled EquityOffering Sales Agreement (the “ATM Sales Agreement”) with Cantor Fitzgerald, as agent, pursuant to which we may issueand sell, from time to time, shares of our common stock having an aggregate offering price of up to $60.0 million. No shareswere sold pursuant to the ATM Sales during the year ended December 31, 2018. During the year ended December 31, 2017, we sold an aggregate of 3,126,998 shares of common stock under the ATM Sales Agreement at an average gross sales priceof $11.36 per share, generating net proceeds of $34.3 million after deduction of underwriting discounts and commissions andexpenses payable by us. The proceeds from the sales were used to fund the continued commercialization of Xtampza ER,research, working capital, business development and for other general corporate purposes. 59 Table of ContentsPurchases of Equity Securities by the Issuer and Affiliated Purchasers The following table sets forth purchases of our common stock for the three months ended December 31, 2018: Period(a) Totalnumber ofsharespurchased (b) AveragePrice Paid perShare(c) Total numberof sharespurchased as partof publiclyannounced plansor programs(d) Maximumnumber ofshares that mayyet be purchasedunder the plansor programsOctober 1, 2018 through October 31, 2018 -$ - - -November 1, 2018 through November 30, 20184,683$ 19.19 December 1, 2018 through December 31, 2018 -$ - - -Total 4,683$ 19.19 - - (1) All of the shares were transferred to us from employees in satisfaction of minimum tax withholding obligations associatedwith the vesting of restricted stock units during the period. 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, 2018 2017 2016 2015 2014 (in thousands, except share and per share amounts)Statement of Operations Data: Product revenues, net$280,413 $28,476 $1,711 $ — $ —Costs and expenses Cost of product revenues 165,677 2,595 213 — —Research and development 8,661 8,572 14,948 7,975 14,959Selling, general and administrative 126,760 92,756 80,632 18,932 2,706Total costs and expenses 301,098 103,923 95,793 26,907 17,665Loss from operations (20,685) (75,447) (94,082) (26,907) (17,665) Interest expense (20,130) — (94) (439) (252)Interest income 1,687 582 — — —Other income — — — 91 —Net loss$(39,128) $(74,865) $(94,176) $(27,255) $(17,917)Basic and diluted net loss per common share:$(1.19) $(2.47) $(3.88) $(1.48) $(22.72)Weighted-average shares used to compute lossper common share: 32,953,808 30,265,262 24,262,945 13,542,282 933,997 (1)See Note 2 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.60 (1)(1)(1)Table of Contents As of December 31, 2018 2017 2016 2015 2014Balance Sheet Data: Cash and cash equivalents $146,633 $118,697 $153,225 $95,697 $1,634Working capital 48,386 101,996 132,979 88,451 (5,921)Total assets 291,245 135,568 162,017 97,718 5,090Other long-term liabilities 10,534 — 1,513 4,214 6,914Total shareholders’ equity (deficit) 91,585 104,080 134,908 85,072 (89,348)(1)Working capital is calculated as current assets minus current liabilities.61 (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 Form 10‑K. The following discussioncontains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results and the timing ofcertain events could differ materially from those anticipated in these forward-looking statements as a result of many factors.We discuss factors that we believe could cause or contribute to these differences below and elsewhere in this Form 10-K,including those set forth under “Forward-looking Statements” and “Risk Factors”, as revised and supplemented by thoserisks described from time to time in other reports which we file with the SEC.OverviewWe are a specialty pharmaceutical company committed to being the leader in responsible pain management. Our firstproduct, Xtampza ER, is an abuse-deterrent, extended-release, oral formulation of oxycodone. In April 2016, the FDA,approved our NDA for Xtampza ER for the management of pain severe enough to require daily, around-the-clock, long-termopioid treatment and for which alternative treatment options are inadequate. In June 2016, we announced the commerciallaunch of Xtampza ER. Our product portfolio also includes the Nucynta Products. In December 2017, we entered into the CommercializationAgreement with Assertio, pursuant to which we acquired the right to commercialize the Nucynta Products in the UnitedStates. Nucynta ER is an extended-release formulation of tapentadol that is indicated for the management of pain severeenough to require daily, around‑the‑clock, long-term opioid treatment, including neuropathic pain associated with diabeticperipheral neuropathy in adults, and for which alternate treatment options are inadequate. Nucynta IR is an immediate-release formulation of tapentadol that is indicated for the management of acute pain severe enough to require an opioidanalgesic and for which alternative treatments are inadequate in adults. We closed the transactions contemplated by the Nucynta Commercialization Agreement, as amended, on January 9, 2018,and we began marketing and commercially selling the Nucynta Products in February 2018. For the fiscal year ended December 31, 2018, we generated $280.4 million in net revenues, comprised of $69.4 million fromsales of Xtampza ER and $211.0 million from sales of the Nucynta Products. OutlookWe expect to continue to incur significant commercialization expenses related to marketing, manufacturing, distribution,selling and reimbursement activities. We are promoting Xtampza ER to approximately 10,700 physicians who writeapproximately 60% of the branded extended-release oral opioid prescriptions in the United States with a sales team ofapproximately 150 sales representatives and managers. We began shipping and recognizing product sales on the Nucynta Products on January 9, 2018, and we began commercialpromotion of the Nucynta Products in February 2018. We are promoting the Nucynta Products to the same physicians towhom we promote Xtampza ER, leveraging our existing sales organization. We will pay a royalty to Assertio on all revenuesfrom the sale of Nucynta Products based on certain net sales thresholds and paid a royalty of $132.0 million in 2018. We have never been profitable and have incurred net losses in each year since inception. We incurred net losses of$39.1 million, $74.9 million and $94.2 million for the years ended December 31, 2018, 2017 and 2016, respectively. As ofDecember 31, 2018, we had an accumulated deficit of $337.2 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 near future as we continue to commercializeour products. Our net losses may fluctuate significantly from quarter to quarter and year to year.We believe that our cash and cash equivalents at December 31, 2018, together with expected cash inflows from thecommercialization of our products, will enable us to fund our operating expenses, debt service and capital expenditurerequirements under our current business plan for the foreseeable future. 62 Table of ContentsFinancial Operations OverviewProduct RevenuesProduct revenue through the year ended December 31, 2018 has been generated from product sales of Xtampza ER and theNucynta Products. In accordance with Accounting Standards Codification, or ASC, Topic 606, Revenue from Contracts withCustomers, product sales are recorded net of a provision for estimated chargebacks, rebates, sales incentives and allowance,distribution service fees, and returns upon delivery of products to customers.Cost of Product RevenuesCost of product revenues include amortization of the Nucynta Intangible Asset, royalty expense, the cost of activepharmaceutical ingredient, or API, the cost of producing finished goods that correspond with revenue for the reportingperiod, as well as certain period costs related to freight, packaging, stability and quality testing. Please refer to Note 4,License Agreements, and Note 9, Intangible Assets, for further detail around the Nucynta Intangible Asset and royaltyexpense.Research and Development ExpensesResearch and development expenses consist of development costs associated with our products, product platform technologyand development of our product candidates. 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;·costs for laboratory supplies;·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 future preclinical studiesand clinical trials. At this time, due to the inherently unpredictable nature of preclinical and clinical development, we areunable to estimate with any certainty the costs we will incur and the timelines required for our products. Clinical andpreclinical development timelines, the probability of success and development costs can differ materially from expectations.In addition, we cannot forecast which products may be subject to future collaborations, when such arrangements will besecured, 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 XtampzaER. Accordingly, historically we have not tracked research and development costs by project. In addition, we use ouremployee and infrastructure resources across multiple research and development projects.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. As we continue to invest inthe commercialization of our products, we expect our selling, general and administrative expenses to be substantial for theforeseeable future.Interest Expense Interest expense consists primarily of non‑cash interest costs related to our Nucynta Commercialization Agreement and cashinterest costs from Loan and Security Agreement with Silicon Valley Bank (“SVB”). 63 Table of ContentsInterest Income Interest income consists of interest earned on our cash and cash equivalents. 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 consolidatedfinancial statements, which have been prepared in accordance with generally accepted accounting principles in the UnitedStates of America (“GAAP”). The preparation of these financial statements requires us to make estimates and judgments thataffect the reported amounts of assets, liabilities, revenue and expenses and the disclosure of contingent assets and liabilitiesin our consolidated financial statements. Estimates include revenue recognition, including the estimates of product returns,units prescribed, discounts and allowances related to commercial sales of our products, estimates utilized in the valuation ofinventory, estimates of useful lives with respect to intangible assets, accounting for stock-based compensation,contingencies, intangible assets and tax valuation reserves. We base our estimates and assumptions on historical experiencewhen available and on various factors that we believe are reasonable under the circumstances, the results of which form thebasis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.We evaluate our estimates and assumptions on an ongoing basis. Actual results may differ from these estimates underdifferent assumptions or conditions.While our significant accounting policies are described in more detail in Note 2, Summary of Significant AccountingPolicies, to our consolidated financial statements appearing elsewhere in this on Form 10‑K, we believe the followingaccounting policies to be most critical to the significant judgments and estimates used in the preparation of our consolidatedfinancial statements.Revenue RecognitionOur accounting policy for revenue recognition will have a substantial impact on reported results and relies on certainestimates. Estimates are based on historical experience, current conditions and various other assumptions that we believe arereasonable, the results of which form the basis for making judgments about the carrying values of assets, liabilities and equityand the amounts of revenues and expenses. Actual results may differ from these estimates under different assumptions orconditions.Product RevenueOur only source of revenue to date has been generated by sales of our products, which are primarily sold to distributors(“customers”), which in turn sell the product to pharmacies for the treatment of patients (“end users”). For the year endedDecember 31, 2018, in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), revenue forproduct sales is recognized when a customer obtains control of promised goods or services, in an amount that reflects theconsideration which the entity expects to receive in exchange for those goods or services. This generally occurs upondelivery; when estimated provisions for chargebacks, rebates, sales incentives and allowances, distribution service fees, andreturns are reasonably determinable. Therefore, product sales are recorded upon delivery net of estimated chargebacks,rebates, sales incentives and allowances, distribution service fees, as well as estimated product returns.Prior to the adoption of ASC 606 on January 1, 2018, we recognized revenue in accordance with ASC Topic 605, RevenueRecognition (“legacy GAAP”), or when there was persuasive evidence of an arrangement; when title and risk of loss hadpassed to the customer; when estimated provisions for chargebacks, rebates, sales incentives and allowances, distributionservice fees, and returns were reasonably determinable; and when collectability was reasonably assured. The satisfaction ofthese criteria generally occurred upon delivery of products to customers, or the sell-in method of revenue recognition underlegacy GAAP. We began recognizing revenue on the sell-in method in the third quarter of 2017. The adoption of Topic 606did not have a material impact on our consolidated financial position, results of operations, equity or cash flows for the yearended December 31, 2018. Prior to the third quarter of 2017, we recognized revenue when products were dispensed to endusers, or the sell-through method of revenue recognition under legacy GAAP, as we did not have sufficient experience withproduct sales to estimate returns at the time product was sold to customers. In the third quarter of 2017, we transitioned to thesell-in method of revenue recognition and recorded a cumulative one-time $4.4 million increase to revenues. 64 Table of ContentsSales DeductionsSales deductions consist primarily of managed care rebates; government rebates; co-pay program incentives; sales incentivesand allowances; provisions for product returns; distribution service fees; prompt pay discounts; and chargebacks. Thesedeductions are recorded as reductions to revenue in the same period as the related sales are recognized. Reserves are based onestimates of the amounts earned or to be claimed on the related sales. Estimates are based on our historical experience ofexisting or similar programs, current contractual and statutory requirements, specific known market events and trends,industry data and forecasted customer buying and payment patterns. As a result, we estimate the accruals and related reservesrequired for amounts payable under these programs.If actual results vary, we may need to adjust these estimates, which could have an effect on earnings in the period of theadjustment.Intangible AssetsWe record the fair value of finite-lived intangible assets as of the transaction date. Intangible assets are then amortized overtheir estimated useful lives using either the straight-line method, or if reliably determinable, based on the pattern in whichthe economic benefit of the asset is expected to be utilized. We test intangible assets for potential impairment whenevertriggering events or circumstances present an indication of impairment. If the sum of expected undiscounted future cashflows of the intangible assets is less than the carrying amount of such assets, the intangible assets would be written down tothe estimated fair value, calculated based on the present value of expected future cash flows. As of December 31, 2018, our only intangible asset was related to the Nucynta Commercialization Agreement (the “NucyntaIntangible Asset”). Results of Operations Comparison of the Years Ended December 31, 2018, 2017 and 2016The following table summarizes the results of our operations for the years ended December 31, 2018, 2017 and 2016: Years ended December 31, 2018 2017 2016 (in thousands)Product revenues, net$280,413 $28,476 $1,711 Cost of product revenues 165,677 2,595 213Research and development 8,661 8,572 14,948Selling, general and administrative 126,760 92,756 80,632Interest expense (20,130) — (94)Interest income 1,687 582 —Net loss$(39,128) $(74,865) $(94,176)Comparison of the Years Ended December 31, 2018 and 2017Product revenues, net were $280.4 million for the year ended December 31, 2018, compared to $28.5 million for the yearended December 31, 2017. The $251.9 million increase was primarily related to sales of the Nucynta Products pursuant to theNucynta Commercialization Agreement consummated in January 2018. For the year ended December 31, 2018, the NucyntaProducts product revenues, net were $211.0 million. In addition, Xtampza ER product revenues, net were $69.4 million forthe year ended December 31, 2018, which represents a $40.9 million increase compared to the year ended December 31,2017. The increase in Xtampza ER product revenues, net was primarily due to an increase in sales volume due to increasingdemand. Cost of product revenues was $165.7 million for the year ended December 31, 2018, compared to $2.6 million for the65 Table of Contentsyear ended December 31, 2017. The $163.1 million increase was primarily related to $109.8 million of amortizationexpenses associated with the intangible asset related to the Nucynta Commercialization Agreement. The remaining increasewas primarily related to volume of product sales in the year ended December 31, 2018. Research and development expenses were $8.7 million for the year ended December 31, 2018, compared to $8.6 million forthe year ended December 31, 2017. The $89,000 increase was primarily related to an increase in salaries, wages and benefitsof $1.0 million, primarily due to increases in employee headcount and stock-based compensation expense. This was partiallyoffset by a $670,000 decrease in development manufacturing expenses following the termination of the Onsolis License andDevelopment Agreement in 2017. Selling, general and administrative expenses were $126.8 million for the year ended December 31, 2018, compared to$92.8 million for the year ended December 31, 2017. The $34.0 million increase was primarily related to:·an increase in salaries, wages and benefits of $14.0 million, primarily due to increases in employee headcount,including an increase in stock-based compensation expense of $5.3 million;·an increase in sales and marketing costs of $10.8 million, primarily related to the Nucynta Products and continuedsupport of Xtampza ER;·an increase in PDUFA related expenses of $2.7 million, primarily due to the acquisition of the Nucynta Products;·an increase in audit, legal, and other professional fees of $3.2 million;·an increase in regulatory costs, including consulting and subscriptions, of $2.1 million, primarily due to theacquisition of the Nucynta Products;·an increase in consulting fees of $1.6 million;·an increase in insurance expense of $1.7 million, primarily due to an increase in product liability insurance; offsetby·a decrease of $1.8 million due to the impairment charge relating to the termination of the Onsolis License andDevelopment Agreement with BDSI in 2017. Interest expense was $20.1 million for the year ended December 31, 2018. This includes $19.3 million of non-cash interestexpense associated with the minimum royalty payments related to the Nucynta Commercialization Agreement, which wasentered into during the year ended December 31, 2018, and interest expense on our term loan of $849,000. Interest income was $1.7 million for the year ended December 31, 2018, compared to $582,000 for the year ended December31, 2017. The increase was primarily due to higher interest rates on money market funds. Comparison of the Years Ended December 31, 2017 and 2016Product revenues, net were $28.5 million for the year ended December 31, 2017, compared to $1.7 million for the year endedDecember 31, 2016. The $26.8 million increase was primarily related to an $18.6 million increase in sold-through units ofXtampza ER, as well as a $3.8 million increase as a result of changing to the sell-in method during the year endedDecember 31, 2017. In addition, a $4.4 million increase to revenues was recorded in the third quarter of 2017 to recognizerevenue from shipments from prior periods as a result of changing to the sell-in method in the third quarter of 2017. Cost of product revenues was $2.6 million for the year ended December 31, 2017, compared to $213,000 for the year endedDecember 31, 2016. The $2.4 million increase was primarily related to increased sales in the year ended December 31, 2017. Research and development expenses were $8.6 million for the year ended December 31, 2017, compared to $14.9 million forthe year ended December 31, 2016. The $6.3 million decrease was primarily related to:·a decrease in clinical trial costs of $4.0 million due to the completion of certain clinical trials in 2016;·a decrease in research-related regulatory costs of $2.1 million following the commercial launch of Xtampza ER in2016;·a decrease in Xtampza ER manufacturing costs of $1.9 million reflecting that, prior to April 2016, we expensedmanufacturing costs associated with Xtampza ER as research and development expense; offset by·an increase in non-clinical trial costs of $932,000 relating to studies required to be conducted following FDAapproval of Xtampza ER; and·an increase in salaries, wages and benefits of $678,000 primarily due to an increase in research and66 Table of Contentsdevelopment, including an increase in incentive compensation and stock-based compensation expense. Selling, general and administrative expenses were $92.8 million for the year ended December 31, 2017, compared to $80.6million for the year ended December 31, 2016. The $12.2 million increase was primarily related to:·an increase in salaries, wages and benefits of $15.8 million primarily due to an increase from 234 to 250 employees,including the addition of a sales force of approximately 150 employees in the second quarter of 2016, and stock-based compensation expense; ·an increase in legal fees of $2.1 million, primarily due to costs related to litigation;·an increase of $1.8 million due to the impairment charge relating to the termination of the Onsolis License andDevelopment Agreement with BDSI; offset by·a decrease in PMR and other regulatory costs associated with FDA approval of Xtampza ER of $3.9 million,primarily due to higher one-time costs incurred upon the commercial launch of Xtampza ER in 2016;·a decrease in commercial, sales and marketing costs of $2.9 million, primarily due to higher costs incurred upon thecommercial launch of Xtampza ER in 2016; and·a decrease in distribution and manufacturing costs of $667,000. Liquidity and Capital ResourcesSources of liquidityWe have incurred net losses and negative cash flows from operations since inception. Historically, we have funded ouroperations primarily through the private placements of our preferred stock and convertible notes, public offerings of commonstock, and commercial bank debt. As of December 31, 2018, we had $146.6 million in cash and cash equivalents.Although it is difficult to predict future liquidity requirements, we believe that our cash and cash equivalents as ofDecember 31, 2018 together with expected cash inflows from the commercialization of our products, will enable us to fundour operating expenses, debt service and capital expenditure requirements under our current business plan for the foreseeablefuture.Equity FinancingIn 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.In March 2017, we commenced an “at-the-market” offering of our common stock and entered into the ATM Sales Agreementwith Cantor Fitzgerald, as agent, pursuant to which we may issue and sell, from time to time, shares of our common stockhaving an aggregate offering price of up to $60.0 million. No shares were sold pursuant to the ATM Sales Agreement duringthe year ended December 31, 2018. During the year ended December 31, 2017, we sold an aggregate of 3,126,998 shares ofcommon stock under the ATM Sales Agreement at an average gross sales price of $11.36 per share, generating net proceedsof $34.3 million after deduction of underwriting discounts and commissions and expenses payable by us.Silicon Valley Bank Term Loan Facility Since August 2012, we have maintained a term loan facility with Silicon Valley Bank, or SVB, which was amended inconnection with, and as a condition to, consummation of the transactions contemplated by the Nucynta CommercializationAgreement. Under the amended term loan, or the New Term Loan, we now have a term loan facility in an amount of $11.5million, which replaces our previously existing term loan facility. The proceeds of the New Term Loan were used to financecertain payment obligations under the Nucynta Commercialization Agreement and to repay67 Table of Contentsthe balance of the previously existing term loan. The New Term Loan also provided SVB’s consent with respect tothe Nucynta Commercialization Agreement. The New Term Loan bears interest at a rate per annum of 0.75% above the prime rate (as defined in the agreement governingthe New Term Loan). We will repay the New Term Loan in equal consecutive monthly installments of principal plus monthlypayments of accrued interest, commencing in July 2019, provided that, if we achieve EBITDA (as defined in the agreementgoverning the New Term Loan) in excess of $2.5 million for two consecutive calendar quarters prior to June 2019, suchpayments will commence in January 2020. All outstanding principal and accrued and unpaid interest under the New TermLoan, and all other outstanding obligations with respect to the New Term Loan, are due and payable in full in December2022. We may prepay the New Term Loan, in full but not in part, with a prepayment fee of (i) 3.0% of the outstandingprincipal balance prior to January 2019, (ii) 2.0% of the outstanding principal balance following January 2019 and prior toJanuary 2020 and (iii) 1.0% of the outstanding principal balance following January 2020, plus, in each case, a final paymentfee of $719,000. Under the New Term Loan, we will be required to maintain a liquidity ratio of at least 2.0 to 1.0. Anyamounts outstanding during the continuance of any event of default under the New Term Loan will bear additional interest atthe per annum rate of 5.0%. In November 2018, we entered into an amended and restated Loan and Security Agreement with SVB, that supersedes ouroriginal loan agreement and subsequent amendments with SVB. The amended and restated Loan and Security Agreementupdated the loan documentation between us and SVB, and modified the minimum liquidity ratio to be at least 1.5 to 1.0,along with other non-material changes. The amended and restated Loan and Security Agreement did not modify ourborrowings, interest rates, or repayment terms. Cash flows Years ended December 31, 2018 2017 2016Net cash provided by (used in) operating activities $169,390 $(67,018) $(75,053)Net cash used in investing activities (24,354) (990) (2,977)Net cash (used in) provided by financing activities (117,197) 33,480 135,558 Operating activities. Cash provided by operating activities was $169.4 million in the year ended December 31, 2018, compared to cash used by operating activities of $67.0 million in the year ended December 31, 2017. The $236.4 millionincrease in cash provided by operating activities was primarily due to the non-cash adjustments related to the NucyntaCommercialization Agreement. While payments made for guaranteed minimum royalties are classified as financing activities,the amortization from the Nucynta Intangible Asset of $109.8 million and the non-cash interest expense related to theguaranteed minimum royalties of $19.3 million are classified as adjustments to cash provided by operating activities. Inaddition, cash provided by operating activities increased due to a benefit from changes in the working capital accounts anddue to a benefit from the change in net loss. The benefit from the change in the working capital accounts was primarilydriven by a benefit from accrued rebates, returns and discounts of $106.6 million, partially offset by the change in accountsreceivable $68.2 million. These changes are directly related to the significant increase in product revenues in 2018, as theprovisions for rebates, returns and discounts are recognized in the same period in which product is delivered to wholesalers,while payment for rebates, returns and discounts is generally based on prescriptions and actual returned product. Cash used in operating activities was $67.0 million in the year ended December 31, 2017 and $75.1 million in the yearended December 31, 2016. The $8.1 million decrease in cash used in operating activities was primarily due to the change innet loss, partially offset by changes in the working capital accounts, including significant changes in accounts receivableand accrued rebates, returns and discounts in the year ended December 31, 2017, and non-cash operating activities such asstock-based compensation expense, non-cash impairment charges and depreciation and amortization.Investing activities. Cash used in investing activities was $24.4 million in the year ended December 31, 2018 and $1.0million in the year ended December 31, 2017. The increase in cash used in investing activities was primarily due to apayment of $18.9 million to Assertio upon closing of the Nucynta Commercialization Agreement and $5.5 million paid forpurchases of property, plant, and equipment for our corporate headquarters and dedicated production suite at our contractmanufacturing organization. 68 Table of ContentsCash used in investing activities was $1.0 million in the year ended December 31, 2017 and $3.0 million in the year endedDecember 31, 2016. The decrease in cash used in investing activities was primarily due to a one-time upfront fee paid toBDSI for the Onsolis License and Development Agreement in the year ended December 31, 2016.Financing activities. Cash used in financing activities was $117.2 million for the year ended December 31, 2018, comparedto cash provided by financing activities of $33.5 million in the year ended December 31, 2017. The increase in cash used byfinancing activities was primarily due to an increase in cash used in the repayment of minimum royalty payments associatedwith the Nucynta Commercialization Agreement for the Nucynta Products of $132.0 million, offset by proceeds receivedfrom our term loan of $10.0 million, and proceeds received from the exercise of stock options of $4.3 million. The remainingchange is primarily due to higher payments made for employee restricted stock tax withholdings.Cash provided by financing activities was $33.5 million for the year ended December 31, 2017, compared to cash providedby financing activities of $135.6 million for the year ended December 31, 2016. The decrease in cash provided by financingactivities was primarily due to the net proceeds of $34.3 million from the issuance of common stock in 2017, compared to netproceeds of $137.3 million from the issuance of common stock in 2016.Funding requirementsWe believe that our cash and cash equivalents at December 31, 2018, together with expected cash inflows from thecommercialization of our products, will enable us to fund our operating expenses, debt service and capital expenditurerequirements under our current business plan for the foreseeable future. However, we are subject to all 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. Certain economic or strategic considerations may cause us to seek additional cash through private or public debt or equityofferings. Such funds may not be available when needed, or, we may not be able to obtain funding on favorable terms, or atall. 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 products. If weraise additional funds through the issuance of additional debt or equity securities, it could result in dilution to our existingshareholders, increased fixed payment obligations and the existence of securities with rights that may be senior to those ofour common stock. If we incur indebtedness, we could become subject to covenants that would restrict our operations andpotentially impair our competitiveness, such as limitations on our ability to incur additional debt, limitations on our abilityto acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our abilityto conduct our business. Any of these events could significantly harm our business, financial condition and prospects. Our forecast that our financial resources will be adequate to support our operations is a forward-looking statement andinvolves risks and uncertainties, and actual results could vary as a result of a number of factors. We have based this estimateon assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currentlyexpect. The amount and timing of future funding requirements, both near- and long-term, will depend on many factors,including:·the generation of reasonable levels of revenue from the products sales;·the cost of growing and maintaining sales, marketing and distribution capabilities for our products;·the timing and costs associated with manufacturing our products, for commercial sale and clinical trials·the cost of patent infringement litigation, including our litigation with each of Purdue and Teva, relating toXtampza ER and the Nucynta Products, which may be expensive to defend;·the cost of litigation related to opioid marketing and distribution practices;·our need to expand our regulatory and compliance functions; and·the effect of competing technological and market developments. If we cannot capitalize on our business opportunities because we lack sufficient capital, our business, financial condition andresults of operations could be materially adversely affected.69 Table of ContentsContractual ObligationsThe following table summarizes our contractual obligations as of December 31, 2018 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 $14,657 $1,032 $2,566 $2,636 $8,423 Debt 11,500 1,642 6,572 3,286 — Purchase obligations 6,000 3,000 3,000 — — Total $32,157 $5,674 $12,138 $5,922 $8,423 Operating lease obligations represent future minimum lease payments under our non‑cancelable operating lease in effectas of December 31, 2018, reflecting remaining lease payments for space at our current headquarters in Stoughton,Massachusetts, and former headquarters in Canton, Massachusetts. Purchase obligations represent the minimum purchase obligations of up to $3.0 million per year with our contractmanufacturer as of December 31, 2018. The disclosed amounts represent the maximum amount that could be payableunder the minimum purchase obligations. 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. Nucynta Commercialization Agreement As more fully described in Note 4, License Agreements, and Note 9, Intangible Assets, to the consolidated financialstatements in January 2018, we closed the Nucynta Commercialization Agreement with Assertio, which initially required usto make annual minimum royalty payments of $537,000, which consisted of scheduled payments of $132,000 in 2018,$135,000 in 2019, $135,000 in 2020, and $135,000 in 2021. The guaranteed minimum royalty payments were a contractualobligation incurred at the closing of the transaction and were included as a component of the accumulated cost of theacquired intangible asset. As a result, we included the present value of the guaranteed minimum royalty payments as acomponent of the Nucynta Intangible Asset recognized upon closing and recorded a corresponding asset acquisitionobligation of $482.3 million. In November 2018, we entered into an amendment to the Commercialization Agreement to adjust the royalty structure, aswell as other changes more fully described in Note 4, License Agreements, and Note 9, Intangible Assets, to the consolidatedfinancial statements. The amendment eliminated the guaranteed minimum royalty payments in years 2019, 2020, and 2021,and instead added a conditional obligation to make royalty payments based on net sales for years 2019, 2020, and 2021. Assuch, we remeasured the guaranteed minimum royalty obligation as of the amendment date. This remeasurement resulted in a$369.6 million decrease to the asset acquisition obligation and a corresponding reduction to the Nucynta Intangible Asset. In the year ended December 31, 2018, we paid $132.0 million of guaranteed minimum royalty payments owed for 2018 andclassified such payments as financing outflows in our statement of cash flows. Cost of product revenues recognized in theyear ended December 31, 2018 included $109.8 million of amortization expense related to the Nucynta Intangible Asset. Inaddition, in the year ended December 31, 2018, we recognized $19.3 million of non-cash interest expense related to theguaranteed minimum royalty payments. In future periods, we expect to classify royalties paid under the Commercialization Agreement as operating outflows as suchpayments are conditional upon net sales. We also expect to recognize such royalties as a component of costs of productrevenues in our statement of operations, in addition to ongoing amortization expense related to the Nucynta IntangibleAsset. We expect amortization expense for the Nucynta Intangible Asset for the years ended December 31, 2019, 2020, and2021 to be $14.8 million, $14.8 million, and $14.8 million, respectively.70 (1)(2)(1)(2)Table of Contents Non‑GAAP Financial Measures To supplement our financial results presented on a U.S. generally accepted accounting principles, or GAAP, basis, we haveincluded information about non-GAAP adjusted loss. We internally use non-GAAP adjusted loss to understand, manage andevaluate the Company as we believe it represents the performance of our core business. Because this non-GAAP measure is animportant internal measure for the Company, we believe that the presentation of the non-GAAP financial measure providesanalysts, investors and lenders insight into management’s view and assessment of the Company’s ongoing operatingperformance. In addition, we believe that the presentation of this non-GAAP financial measure, when viewed with our resultsunder GAAP and the accompanying reconciliation, provides supplementary information that may be useful to analysts,investors, lenders, and other third parties in assessing the Company’s performance and results from period to period. We report this non-GAAP measure in order to portray the results of our major operations – commercializing innovative,differentiated products for people suffering from pain – prior to considering certain income statement elements. This non-GAAP financial measure should be considered in addition to, and not a substitute for, or superior to, net income or otherfinancial measures calculated in accordance with GAAP. Non-GAAP adjusted loss is not based on any standardizedmethodology prescribed by GAAP and represents GAAP net loss adjusted to exclude stock-based compensation expense,amortization expense for the Nucynta intangible asset, non-cash interest expense recognized on the Nucynta minimumroyalty payments, and minimum royalty payments due and payable in connection with the Nucynta CommercializationAgreement. Any non-GAAP financial measures used by us may be calculated differently from, and therefore may not becomparable to, a non-GAAP measure used by other companies. Three Months Ended December 31, Years ended December 31, 2018 2017 2018 2017GAAP net income (loss)$9,086 $(17,403) $(39,128) $(74,865)Non-GAAP adjustments: Stock-based compensation expense 3,598 2,078 13,778 7,945Nucynta related amortization expense (1) 15,494 - 109,834 -Nucynta non-cash interest expense (2) 2,169 - 19,281 -Nucynta minimum royalty payment due (3) (33,750) - (132,000) - Total non-GAAP adjustments$(12,489) $2,078 $10,893 $7,945Non-GAAP adjusted loss$(3,403) $(15,325) $(28,235) $(66,920) First Quarter Second Quarter Third Quarter Fourth Quarter 2018 2018 2018 2018GAAP net income (loss)$(18,652) $(13,060) $(16,502) $9,086Non-GAAP adjustments: Stock-based compensation expense 2,728 3,526 3,926 3,598Nucynta related amortization expense (1) 29,526 32,407 32,407 15,494Nucynta non-cash interest expense (2) 5,528 5,943 5,641 2,169Nucynta minimum royalty payment due (3) (30,750) (33,750) (33,750) (33,750) Total non-GAAP adjustments$7,032 $8,126 $8,224 $(12,489)Non-GAAP adjusted loss$(11,620) $(4,934) $(8,278) $(3,403) (1)Represents amortization expense of the Nucynta intangible asset.(2)Represents non-cash interest expense recognized related to the Nucynta minimum royalty payments.(3)Represents minimum royalty payment due and payable in connection with the Nucynta CommercializationAgreement. Off‑Balance Sheet Arrangements We did not have any off‑balance sheet arrangements during the periods presented, as defined under SEC rules. 71 Table of Contents 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, 2018, we had cash and cashequivalents consisting of cash and money market funds of $146.6 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 Data Our 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 management, with the participation of the Chief Executive Officer and the Chief Financial Officer, has evaluated theeffectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act,as of the end of the period covered by this report. 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 ensurethat information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded,processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Based on this evaluation,our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effectiveas of December 31, 2018. 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 consolidated financial statementsfor external purposes in accordance with generally accepted accounting principles, and includes those policies andprocedures that:(1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions anddispositions of our assets;(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financialstatements in accordance with generally accepted accounting principles, and that our receipts and expenditures are beingmade 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 ofthe company’s assets that could have a material effect on the consolidated 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,72 Table of Contentsthough not eliminate, this risk.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 (COSO) to evaluate the effectiveness of our internal control over financial reporting. Based on itsevaluation, management has concluded that our internal control over financial reporting was effective as ofDecember 31, 2018, the end of our most recent fiscal year.Changes in Internal Control Over Financial ReportingAs required by Rule 13a‑15(d) of the Exchange Act, our management, including our Chief Executive Officer and our ChiefFinancial Officer, conducted an evaluation of the internal control over financial reporting to determine whether any changesoccurred during the quarter ended December 31, 2018 that have materially affected, or are reasonably likely to materiallyaffect, our internal control over financial reporting. Based on that evaluation, our Chief Executive Officer and ChiefFinancial Officer did not identify any change in our internal control over financial reporting during the fiscal quarter endedDecember 31, 2018 that has materially affected, or is reasonably likely to materially affect, our internal control over financialreporting.73 Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the Board of Directors of Collegium Pharmaceutical, Inc. Opinion on Internal Control over Financial Reporting We have audited the internal control over financial reporting of Collegium Pharmaceutical, Inc. and subsidiaries (the“Company”) as of December 31, 2018, based on criteria established in Internal Control — Integrated Framework (2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Companymaintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based oncriteria established in Internal Control — Integrated Framework (2013) issued by COSO. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)(PCAOB), the consolidated financial statements as of and for the year ended December 31, 2018, of the Company and ourreport dated February 27, 2019, expressed an unqualified opinion on those financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for itsassessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’sReport on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internalcontrol over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and arerequired to be independent with respect to the Company in accordance with the U.S. federal securities laws and theapplicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and performthe audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained inall material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing therisk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control basedon the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe thatour audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding thereliability of financial reporting and the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles. A company’s internal control over financial reporting includes those policies andprocedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect thetransactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded asnecessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and thatreceipts and expenditures of the company are being made only in accordance with authorizations of management anddirectors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorizedacquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequatebecause of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Deloitte & Touche LLP Boston, MassachusettsFebruary 27, 201974 Table of Contents 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 2019 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 Compensation The information required by this Item 11 is incorporated herein by reference from our definitive proxy statement for the 2019Annual Meeting of Shareholders. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by this Item 12 is incorporated herein by reference from our definitive proxy statement for the 2019Annual Meeting of Shareholders. Item 13. Certain Relationships and Related Transactions, and Director Independence The information required by this Item 13 is incorporated herein by reference from our definitive proxy statement for the 2019Annual Meeting of Shareholders. Item 14. Principal Accountant Fees and Services The information required by this Item 14 is incorporated herein by reference from our definitive proxy statement for the 2019Annual Meeting of Shareholders. PART IV Item 15. Exhibits and Financial Statement Schedules Consolidated Financial Statements See Part II, Item 8 for the Consolidated 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. 75 Table of ContentsExhibitsExhibitNumberExhibit 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.(8)4.1†Warrant to Purchase Stock, dated November 8, 2018, issued by Collegium Pharmaceutical, Inc. to AssertioTherapeutics, Inc.(16)10.1†Office Lease Agreement, dated August 28, 2012, by and between 780 Dedham Street Holdings, LLC andCollegium Pharmaceutical, Inc.(1)10.2†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)10.3†Office Lease agreement by and between Campanelli-Trigate 100 TCD Stoughton, LLC, and CollegiumPharmaceutical, Inc as of March 23, 2018. (12)10.4†Second Amendment, dated October 19, 2018, to Lease by and between Park at 95, LLC and CollegiumPharmaceutical, Inc.(15)10.5†Loan and Security Agreement, dated August 28, 2012, by and between Silicon Valley Bank and CollegiumPharmaceutical, Inc.(1)10.6†First Amendment to Loan and Security Agreement, dated January 31, 2014, by and between Silicon ValleyBank and Collegium Pharmaceutical, Inc.(1)10.7†Assumption and Second Amendment to Loan and Security Agreement, dated August 12, 2014, by andbetween Silicon Valley Bank and Collegium Pharmaceutical, Inc.(1)10.8†Third Amendment to Loan and Security Agreement, dated September 25, 2014, by and between SiliconValley Bank and Collegium Pharmaceutical, Inc.(1)10.9†Fourth Amendment to Loan and Security Agreement, dated October 31, 2014, by and between Silicon ValleyBank and Collegium Pharmaceutical, Inc.(1)10.10†Sixth Amendment to Loan and Security Agreement, dated January 9, 2018, by and between CollegiumPharmaceutical, Inc. and Silicon Valley Bank.(9)10.11†Seventh Amendment to Loan and Security Agreement, dated March 30, 2018, by and between Silicon ValleyBank and Collegium Pharmaceutical, Inc.(12)10.12†Amended and Restated Loan and Security Agreement, dated November 1, 2018, by and between SiliconValley Bank and Collegium Pharmaceutical, Inc.(15)10.13†Subordination Agreement, dated November 14, 2014, by and among Collegium Pharmaceutical, Inc., SiliconValley Bank and the creditors named therein.(1)10.14†Subordination Agreement, dated December 2, 2014, by and among Collegium Pharmaceutical, Inc., SiliconValley Bank and the creditors named therein.(1)10.15†Form of Confidentiality and Inventions Agreement.(1)10.16+†Offer Letter, dated January 29, 2015, by and between Collegium Pharmaceutical, Inc. and Garen Bohlin.(1)10.17†Series D Convertible Preferred Stock Purchase Agreement, dated March 6, 2015, by and among CollegiumPharmaceutical, Inc. and the purchasers thereto.(1)10.18+†2015 Employee Stock Purchase Plan.(3)10.19+†Performance Bonus Plan. (4)10.20(a)+†Amended and Restated 2014 Stock Incentive Plan. (3)10.20(b)+†Form of Incentive Stock Option Agreement under the Amended and Restated 2014 Stock Incentive Plan. (3)10.20(c)+†Form of Non-Qualified Stock Option Agreement under the Amended and Restated 2014 Stock IncentivePlan. (3)10.20(d)+†Form of Restricted Stock Award Agreement under the Amended and Restated 2014 Stock Incentive Plan. (3)10.21+†Restricted Stock Award Agreement, dated April 2, 2015, by and between Collegium Pharmaceutical, Inc. andMichael T. Heffernan. (4)10.22†Form of Indemnification Agreement. (4)76 Table of Contents10.23+†Employment Agreement, dated August 4, 2015, by and between Michael Heffernan and CollegiumPharmaceutical, Inc.(5)10.24+†Employment Agreement, dated August 4, 2015, by and between Paul Brannelly and CollegiumPharmaceutical, Inc.(5)10.25+† Employment Agreement, dated May 31, 2017, by and between Collegium Pharmaceutical, Inc. and JosephCiaffoni.(10)10.26+†Employment Agreement, effective as of March 16, 2018, by and between Shirley Kuhlmann and CollegiumPharmaceutical, Inc. (12)10.27+†Letter Agreement dated June 4, 2018, by and between Collegium Pharmaceutical, Inc. and Michael T.Heffernan.(13)10.28+†Amendment to Employment Agreement, dated June 4, 2018, by and between Collegium Pharmaceutical, Inc.and Joseph Ciaffoni.(13)10.29+†Employment Agreement, dated July 10, 2018, by and between Collegium Pharmaceutical, Inc. and ScottDreyer.(14)10.30*†License and Development Agreement, dated as of May 11, 2016, by and between Collegium Pharmaceutical,Inc. and BioDelivery Systems International, Inc.(7)10.31*†Commercialization Agreement, by and among, Assertio, Inc., Collegium Pharmaceutical, Inc. and CollegiumNF, LLC, dated as of December 4, 2017.(11)10.32†Amendment dated January 9, 2018 to Commercialization Agreement by and among Assertio, Inc. andCollegium Pharmaceutical, Inc. and Collegium NF, LLC.(11)10.33†Amendment No. 2 to Commercialization Agreement, dated August 29, 2018, by and among CollegiumPharmaceutical, Inc., Collegium NF, LLC, and Assertio Therapeutics, Inc.(15)10.34†Amendment No. 3 to Commercialization Agreement, dated November 8, 2018, by and among CollegiumPharmaceutical, Inc., Collegium NF, LLC, and Assertio Therapeutics, Inc.(16)21.1 Subsidiaries of Collegium Pharmaceutical, Inc.23.1 Consent of Deloitte & Touche 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 31,2018, formatted in XBRL: (i) Consolidated Balance Sheets as of December 31, 2018, 2017, (ii) ConsolidatedStatements of Operations for the years ended December 31, 2018, 2017 and 2016, (iii) ConsolidatedStatements of Shareholders' Equity for the Years Ended December 31, 2018, 2017 and 2016, (iv)Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016, and (v)Notes to Consolidated Financial Statements, tagged as blocks of text. †Previously filed.+Indicates management contract or compensatory plan.* Subject to confidential treatment request.(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, 2015.77 Table of Contents(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.(8)Previously filed as an exhibit to the registrant’s Current Report on Form 8-K filed with the Commission on December 1,2017.(9)Previously filed as an exhibit to the registrant’s Current Report on Form 8-K filed with the Commission on January 10,2018.(10)Previously filed as an exhibit to the registrant’s Current Report on Form 8-K filed with the Commission on May 31,2017.(11)Previously filed as an exhibit to the registrant’s Annual Report on Form 10-K filed with the Commission on March 7,2018.(12)Previously filed as an exhibit to the registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31,2018 filed with the Commission on May 9, 2018.(13) Previously filed as an exhibit to the registrant’s Current Report on Form 8-K filed with the Commission on June 4, 2018.(14)Previously filed as an exhibit to the registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30,2018 filed with the Commission on August 8, 2018.(15)Previously filed as an exhibit to the registrant’s Quarterly Report on Form 10-Q for the quarterly period ended September30, 2018 filed with the Commission on November 8, 2018.(16)Previously filed as an exhibit to the registrant’s Current Report on Form 8-K filed with the Commission on November 8,2018.Item 16. Form 10-K Summary None.78 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/ Joseph Ciaffoni. Joseph Ciaffoni Chief Executive Officer Signature Title Date /s/ Joseph CiaffoniJoseph Ciaffoni President and Chief ExecutiveOfficer (Principal Executive Officer)and Director February 27, 2019/s/ Paul BrannellyPaul Brannelly Executive Vice President and ChiefFinancial Officer (Principal Financialand Accounting Officer) February 27, 2019/s/ Michael T. Heffernan, R.Ph.Michael T. Heffernan, R.Ph. Chairman of the Board February 27, 2019/s/ Garen G. BohlinGaren G. Bohlin Director February 27, 2019/s/ John A. Fallon, M.D.John A. Fallon, M.D. Director February 27, 2019/s/ John G. Freund, M.D.John G. Freund, M.D. Director February 27, 2019/s/ David Hirsch, M.D., Ph.D.David Hirsch, M.D., Ph.D. Director February 27, 2019/s/ Gwen MelincoffGwen Melincoff Director February 27, 2019/s/ Gino SantiniGino Santini Director February 27, 201979 Table of Contents/s/ Theodore R. SchroederTheodore R. Schroeder Director February 27, 2019 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 80 Table of ContentsCOLLEGIUM PHARMACEUTICAL, INC.Index to Consolidated Financial Statements Audited Consolidated Financial StatementsPagesReport of Independent Registered Public Accounting Firm F-2Consolidated Balance Sheets as of December 31, 2018 and 2017F-3 Consolidated Statements of Operations for the Years Ended December 31, 2018, 2017, and 2016F-4Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 2018, 2017 and 2016 F-5Consolidated Statements of Cash Flows for the Years Ended December 31, 2018, 2017 and 2016 F-6Notes to Consolidated Financial Statements F-7 F-1 Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the Board of Directors of Collegium Pharmaceutical, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Collegium Pharmaceutical, Inc. and subsidiaries (the"Company") as of December 31, 2018 and 2017, the related consolidated statements of operations, shareholders' equity, andcash flows, for each of the three years in the period ended December 31, 2018, and the related notes (collectively referred toas the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financialposition of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each ofthe three years in the period ended December 31, 2018, in conformity with accounting principles generally accepted in theUnited States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)(PCAOB), the Company's internal control over financial reporting as of December 31, 2018, based on criteria established inInternal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the TreadwayCommission and our report dated February 27, 2019, expressed an unqualified opinion on the Company's internal controlover financial reporting. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinionon the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB andare required to be independent with respect to the Company in accordance with the U.S. federal securities laws and theapplicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and performthe audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether dueto error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financialstatements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures includedexamining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits alsoincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating theoverall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Deloitte & Touche LLP Boston, Massachusetts February 27, 2019 We have served as the Company's auditor since 2016. F-2 Table of Contents COLLEGIUM PHARMACEUTICAL, INC.CONSOLIDATED BALANCE SHEETS(In thousands, except share and per share data) December 31, 2018 2017 Assets Current assets Cash and cash equivalents $146,633 $118,697 Accounts receivable 77,946 9,969 Inventory 7,817 1,813 Prepaid expenses and other current assets 5,116 3,005 Total current assets 237,512 133,484 Property and equipment, net 9,274 1,826 Intangible assets, net 44,255 — Restricted cash — 97 Other long-term assets 204 161 Total assets $291,245 $135,568 Liabilities and shareholders' equity Current liabilities Accounts payable $12,150 $5,684 Accrued expenses 30,551 8,541 Accrued rebates, returns and discounts 144,783 15,784 Current portion of term loan payable 1,642 1,479 Total current liabilities 189,126 31,488 Other long-term liabilities 676 — Term loan payable, long-term 9,858 — Total liabilities 199,660 31,488 Commitments and contingencies (see Note 11) Shareholders’ equity: Preferred stock, $0.001 par value; authorized shares - 5,000,000 atDecember 31, 2018 and December 31, 2017; issued and outstanding shares - none atDecember 31, 2018 and December 31, 2017 — — Common stock, $0.001 par value; authorized shares - 100,000,000 atDecember 31, 2018 and December 31, 2017; issued and outstanding shares -33,265,629 at December 31, 2018 and 32,770,678 at December 31, 2017 33 33 Additional paid-in capital 428,729 402,096 Accumulated deficit (337,177) (298,049) Total shareholders’ equity 91,585 104,080 Total liabilities and shareholders’ equity $291,245 $135,568 The accompanying notes are an integral part of these consolidated financial statements. F-3 Table of ContentsCOLLEGIUM PHARMACEUTICAL, INC.CONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, except share and per share data) Years ended December 31, 2018 2017 2016Product revenues, net $280,413 $28,476 $1,711Costs and expenses Cost of product revenues 165,677 2,595 213Research and development 8,661 8,572 14,948Selling, general and administrative 126,760 92,756 80,632Total costs and expenses 301,098 103,923 95,793Loss from operations (20,685) (75,447) (94,082) Interest expense (20,130) — (94)Interest income 1,687 582 —Net loss $(39,128) $(74,865) $(94,176) Loss per share - basic and diluted $(1.19) $(2.47) $(3.88)Weighted-average shares - basic and diluted 32,953,808 30,265,262 24,262,945The accompanying notes are an integral part of these consolidated financial statements. F-4 Table of ContentsCOLLEGIUM PHARMACEUTICAL, INC.CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY(In thousands, except share data) Additional Treasury Total Common Stock Paid- In Stock, Accumulated Shareholders’ Shares Amount Capital at cost Deficit EquityBalance at December 31, 2015 20,739,351 $21 $214,062 $(3) $(129,008) $85,072Exercise of common stock options 81,831 — 443 — — 443Issuance for employee stock purchase plan 42,918 — 442 — — 442Public offerings of common stock, net ofissuance costs of $845 8,500,000 8 137,332 — — 137,340Retirement of treasury stock — — (3) 3 — —Stock-based compensation — — 5,787 — — 5,787Net loss — — — — (94,176) (94,176)Balance at December 31, 2016 29,364,100 29 358,063 — (223,184) 134,908Exercise of common stock options 158,801 1 735 — — 736Issuance for employee stock purchase plan 110,841 — 1,141 — — 1,141Vesting of restricted stock units ("RSUs") 14,757 — — — — —Shares withheld for employee taxes uponvesting of RSUs (4,819) — (68) — — (68)Public offerings of common stock, net ofissuance costs of $1,253 3,126,998 3 34,280 — — 34,283Stock-based compensation — — 7,945 — — 7,945Net loss — — — — (74,865) (74,865)Balance at December 31, 2017 32,770,678 33 402,096 — (298,049) 104,080Exercise of common stock options 349,777 — 4,255 — — 4,255Issuance for employee stock purchase plan 86,929 — 1,117 — — 1,117Vesting of RSUs 85,119 — — — — —Shares withheld for employee taxes uponvesting of RSUs (26,874) — (560) — — (560)Stock-based compensation — — 13,778 — — 13,778Issuance of warrant — — 8,043 — — 8,043Net loss — — — — (39,128) (39,128)Balance at December 31, 2018 33,265,629 $33 $428,729 $ — $(337,177) $91,585 The accompanying notes are an integral part of these consolidated financial statements F-5 Table of ContentsCOLLEGIUM PHARMACEUTICAL, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands) Years ended December 31, 2018 2017 2016Operating activities Net loss $(39,128) $(74,865) $(94,176)Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Amortization expense for Nucynta asset acquisition 109,834 — —Depreciation and amortization, excluding Nucynta asset acquisition 1,074 594 655Non-cash impairment charges — 1,845 —Lease incentive obligation — (34) (34)Stock-based compensation expense 13,778 7,945 5,787Non-cash interest expense 19,281 — —Changes in operating assets and liabilities: Accounts receivable (68,231) (7,840) (2,129)Inventories 219 (497) (1,316)Prepaid expenses and other assets (166) (1,057) (923)Accounts payable 6,465 (3,422) 5,569Accrued expenses 18,995 (527) 6,570Accrued rebates, returns and discounts 106,593 15,784 —Deferred revenue — (4,944) 4,944Other long-term liabilities 676 — —Net cash provided by (used in) operating activities 169,390 (67,018) (75,053)Investing activities Upfront cash paid for Nucynta asset acquisition (18,877) — —Upfront cash paid for Onsolis asset acquisition — — (2,500)Purchases of property and equipment (5,477) (990) (477)Net cash used in investing activities (24,354) (990) (2,977)Financing activities Proceeds from issuances of common stock from public offerings, net of issuance costs of$30, $1,198 and $845, respectively (30) 34,338 137,340Proceeds from issuances of common stock from employee stock purchase plans 1,117 1,141 442Repayment of asset acquisition obligations (132,000) — —Proceeds from term loan amendment 10,021 — —Repayment of term loan — (2,667) (2,667)Proceeds from the exercise of stock options 4,255 736 443Payments made for employee restricted stock tax withholdings (560) (68) —Net cash (used in) provided by financing activities (117,197) 33,480 135,558 Net increase (decrease) in cash, cash equivalents and restricted cash 27,839 (34,528) 57,528Cash, cash equivalents and restricted cash at beginning of period 118,794 153,322 95,794Cash, and cash equivalents and restricted cash at end of period $146,633 $118,794 $153,322 Supplemental disclosure of cash flow information Cash paid for offering costs $30 $1,228 $ —Cash paid for interest $582 $139 $284 Supplemental disclosure of non-cash activities Acquisition of property and equipment in accrued expenses $3,261 $216 $81Liabilities assumed from Nucynta asset acquisition included in accrued rebates, returnsand discounts $22,406 $ — $ —Liabilities assumed from Nucynta asset acquisition included as a reduction to accountsreceivable $254 $ — $ —Warrant issued in connection with Nucynta asset acquisition $8,043 $ — $ —The accompanying notes are an integral part of these consolidated financial statements.F-6 Table of Contents COLLEGIUM 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 Stoughton, Massachusetts. The Company is a specialtypharmaceutical company committed to being the leader in responsible pain management. The Company’s first product,Xtampza ER® is an abuse-deterrent, extended-release, oral formulation of oxycodone. In April 2016, the U.S. Food and DrugAdministration (“FDA”) approved the Company’s new drug application (“NDA”) filing for Xtampza ER for the managementof pain severe enough to require daily, around-the-clock, long-term opioid treatment and for which alternative treatmentoptions are inadequate. In June 2016, the Company announced the commercial launch of Xtampza ER.The Company’s product portfolio also includes Nucynta ER and Nucynta IR,(the “Nucynta Products”). In December 2017,the Company entered into a Commercialization Agreement with Assertio Therapeutics, Inc. (formerly known as Depomed)(“Assertio”), pursuant to which the Company acquired the right to commercialize the Nucynta Products in the United Statesand began marketing the Nucynta Products in February 2018. Nucynta ER is an extended-release formulation of tapentadolthat is indicated for the management of pain severe enough to require daily, around-the-clock, long term opioid treatment,including neuropathic pain associated with diabetic peripheral neuropathy in adults, and for which alternate treatmentoptions are inadequate. Nucynta IR is an immediate-release formulation of tapentadol that is indicated for the management ofacute pain severe enough to require an opioid analgesic and for which alternative treatments are inadequate in adults.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 development of competing products, changingregulatory environment and reimbursement landscape, litigation related to opioid marketing and distribution practices,manufacture of adequate commercial inventory, inability to secure adequate supplies of active pharmaceutical ingredientsfor each of our products, key personnel retention and protection of intellectual property, patent infringement litigation andthe availability of additional capital financing on terms acceptable to the Company.Public Offerings of Common StockIn 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.Controlled Equity Offering Sales AgreementIn March 2017, the Company entered into a Controlled Equity Offering Sales Agreement (the “ATM Sales Agreement”), withCantor Fitzgerald & Co., as sales agent (“Cantor Fitzgerald”), pursuant to which the Company may issue and sell, from timeto time, through Cantor Fitzgerald, shares of the Company’s common stock, up to an aggregate offering price of $60,000 (the“ATM Shares”).F-7 Table of ContentsUnder the ATM Sales Agreement, Cantor Fitzgerald may sell the ATM Shares by methods deemed to be an “at-the-market”offering as defined in Rule 415 promulgated under the Securities Act of 1933, as amended (the “Securities Act”), includingsales made directly on The NASDAQ Global Select Market, on any other existing trading market for the ATM Shares or to orthrough a market maker. In addition, under the ATM Sales Agreement, Cantor Fitzgerald may sell the ATM Shares by anyother method permitted by law, including in privately negotiated transactions.The Company is not obligated to make any sales of the ATM Shares under the ATM Sales Agreement. The Company orCantor Fitzgerald may suspend or terminate the offering of ATM Shares upon notice to the other party and subject to otherconditions. The Company will pay Cantor Fitzgerald a commission of up to 3.0% of the gross proceeds from the sale of theATM Shares pursuant to the ATM Sales Agreement and has agreed to provide Cantor Fitzgerald with customaryindemnification and contribution rights.No shares were sold pursuant to the ATM Sales during the year ended December 31, 2018. During the year endedDecember 31, 2017, the Company sold an aggregate of 3,126,998 ATM Shares under the ATM Sales Agreement at anaverage gross sales price of $11.36 per share generating net proceeds of $34,283 after deduction of underwriting discountsand commissions and expenses payable by the Company. Basis of AccountingThe consolidated financial statements include the accounts of Collegium Pharmaceutical, Inc. as well as the accounts of itssubsidiaries Collegium Securities Corp. (a Massachusetts corporation), incorporated in December 2015, and Collegium NFLLC (a Delaware limited liability company), incorporated in December 2017, both wholly owned subsidiaries requiringconsolidation. The consolidated financial statements are prepared in conformity with generally accepted accountingprinciples in the United States of America (“GAAP”). All intercompany balances and transactions have been eliminated inconsolidation.LiquidityThe Company has experienced net losses since its inception, and as of December 31, 2018, had an accumulated deficit of$337,177. The Company expects to continue to incur net losses in the near future. A successful transition to profitableoperations is dependent upon achieving a level of revenues adequate to support the Company’s cost structure.The Company believes that its cash and cash equivalents at December 31, 2018 together with expected cash inflows from thecommercialization of its products, will enable the Company to fund its operating expenses, debt service and capitalexpenditure requirements under its current business plan for the foreseeable future. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of Estimates The preparation of consolidated financial statements in accordance with GAAP requires the Company to make estimates andassumptions that impact the reported amounts of assets, liabilities, revenues, costs and expenses and the disclosure ofcontingent assets and liabilities in the Company’s consolidated financial statements and accompanying notes. The mostsignificant estimates in the Company’s consolidated financial statements relate to revenue recognition, including theestimates of product returns, units prescribed, discounts and allowances related to commercial sales of products, estimates ofuseful lives with respect to intangible assets, accounting for stock based compensation, contingencies, impairment ofintangible assets and tax valuation reserves. The Company bases estimates and assumptions on historical experience whenavailable and on various factors that it believes to be reasonable under the circumstances. The Company evaluates itsestimates and assumptions on an ongoing basis. The Company’s actual results may differ from these estimates under differentassumptions or conditions. F-8 Table of ContentsFair 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. Fair value measurements anddisclosures describe the fair value hierarchy based on three levels of inputs, of which the first two are considered observableand the last unobservable, that may be used to measure fair value, as follows: Level 1 inputs:Quoted prices (unadjusted) in active markets for identical assets or liabilitiesLevel 2 inputs:Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, eitherdirectly or indirectlyLevel 3 inputs:Unobservable inputs that reflect the Company’s own assumptions about the assumptions marketparticipants would use in pricing the asset or liability 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, 2018 and 2017. 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, 2018 and 2017. Significant Quoted Prices other Significantin activeobservableunobservablemarketsinputsinputsDecember 31, 2018 Total (Level 1) (Level 2) (Level 3)Money market funds, included in cashequivalents $92,914 $92,914 $— $— December 31, 2017 Money market funds, included in cashequivalents $81,225 $81,225 $— $— During the year ended December 31, 2018, the Company issued a warrant to purchase 1,041,667 shares of common stock ofthe Company to Assertio. The Company used a Black-Scholes option pricing model to determine the fair value of the warrantas of the date of issuance. This model requires Level 1 and Level 2 inputs on the valuation date, including the risk-freeinterest rate, the expected volatility of the Company’s common stock, the remaining contractual term of the warrant and theexpected dividend yield. The minimum royalty liability associated with the guaranteed future minimum royalty paymentsand the fair value of the warrant instrument were included as a component of the intangible asset acquired in connection withthe Commercialization Agreement, which is further described in Note 9. As of December 31, 2018, and December 31, 2017, the carrying amounts of the Company’s other assets and liabilitiesapproximated their estimated fair values. 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 its cash deposits primarily with one reputableand nationally recognized financial institution. In addition, as of December 31, 2018, the Company’s cash equivalents wereinvested in money market funds. The Company has not experienced any material losses in such accounts and managementbelieves that the Company is not exposed to significant credit risk due to the financial position of the financial institutionsin which those deposits are held. Three customers comprised 10% or more of the Company’s accounts receivable balance as of December 31, 2018. Thesecustomers comprised 54%, 26% and 16% of the accounts receivable balance, respectively. The same three customerscomprised 10% or more of the Company’s revenue during the year ended December 31, 2018. These customersF-9 Table of Contentscomprised 36%, 31% and 27% of revenue, respectively. To date, the Company has not experienced any losses with respect tothe collection of its accounts receivable and believes that its entire accounts receivable balances is collectible as ofDecember 31, 2018. The Company has no financial instruments with 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, 2018 and 2017, the carrying amount of cash equivalents was $92,914 and $81,225, 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 the Company’s products, which are primarily the costs of contract manufacturing. The Company determines the cost of itsinventories on a specific identification basis, and removes amounts from inventories on a first-in, first-out basis. If theCompany identifies excess, obsolete or unsalable items, inventories are written down to their realizable value in the period inwhich the impairment 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 and theexpected shelf-life of the inventory components. As of December 31, 2018, cumulative estimates of excess inventoryrecorded as a component of cost of product revenues were immaterial. The Company outsources the manufacturing of Xtampza ER to a sole contract manufacturer that produces the finishedproduct. In addition, the Company currently relies on a sole supplier for the active pharmaceutical ingredient in Xtampza ER.The Company’s Nucynta Commercialization Agreement partner also relies on a sole supplier to produce the finishedproducts. Accordingly, the Company has concentration risk associated with its commercial manufacturing of Xtampza ERand the Nucynta Products. Prior to the approval of Xtampza ER by the FDA in April 2016, the Company recorded all costs incurred related to themanufacturing of Xtampza ER as research and development expense. Subsequent to approval, the Company begancapitalizing these costs as inventory as they are incurred. The Company has capitalized $7,817 of inventory as of December 31, 2018. The Company expects sales of the capitalizedunits to occur during the next twelve months. Property and Equipment Property and equipment, including leasehold improvements, are recorded at cost. Maintenance and repair costs are expensedas incurred. Costs which materially improve or extend the lives of existing assets are capitalized. Property and equipment aredepreciated when placed into service using the straight‑line method based on their estimated useful lives as follows: Asset Category Estimated Useful Life Machinery and equipment 5 years Computers and office equipment 3 - 5 years Furniture and fixtures 7 years Leasehold improvements Lesser of remaining lease term and estimated useful life Costs for capital assets not yet placed into service have been capitalized as construction-in-progress, and will be depreciatedin accordance with the above guidelines once placed into service.F-10 Table of Contents 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. The Company disposed of fully depreciated assetsof $905 during the year ended December 31, 2018. During the years ended December 31, 2017 and 2016 disposals wereimmaterial. The Company did not have any material gains or losses from the retirement, sale or disposal of property andequipment during the years ended December 31, 2018, 2017, or 2016. Intangible Assets The Company records the fair value of finite-lived intangible assets as of the transaction date. Intangible assets are thenamortized over their estimated useful lives using either the straight-line method, or if reliably determinable, based on thepattern in which the economic benefit of the asset is expected to be utilized. The Company tests intangible assets forpotential impairment whenever triggering events or circumstances present an indication of impairment. If the sum ofexpected undiscounted future cash flows of the intangible assets is less than the carrying amount of such assets, theintangible assets would be written down to the estimated fair value, calculated based on the present value of expected futurecash flows. Restricted Cash Restricted cash is reported as non‑current unless the restrictions are expected to be released in the next twelve months. TheCompany had no restricted cash as of December 31, 2018. As of December 31, 2017, the Company had restricted cash of $97,which represents cash held in a depository account at a financial institution to collateralize a conditional stand by letter ofcredit for the Company’s former headquarters. Revenue Recognition See Note 3 for further detail.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 conductingpreclinical and clinical activities, including fees paid to third‑party professional consultants and service providers, costsincurred under preclinical and clinical trial agreements, costs for laboratory supplies, costs to acquire, develop andmanufacture preclinical study and clinical trial materials, facilities, depreciation and other expenses including allocatedexpenses for rent and maintenance of facilities. 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 $17,497,$11,019, and $16,328 in the years ended December 31, 2018, 2017, and 2016 respectively. Advertising and productpromotion 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 theF-11 Table of ContentsBlack‑Scholes option pricing model and restricted stock awards and restricted stock units based on the fair value of theunderlying common stock as determined by management. Income 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 consolidated financialstatements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between thefinancial statements and tax basis of assets and liabilities using enacted tax rates in effect for the years in which thedifferences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized inincome in the period that includes the enactment 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, 2018 and December 31, 2017, theCompany had no accrued interest or penalties related to uncertain tax positions and no amounts have been recognized in theCompany’s statements 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, asdetermined in accordance with the treasury stock accounting method. For purposes of the diluted net loss per sharecalculation, stock options, warrants and unvested restricted stock units are considered potentially dilutive securities. Becausethe Company has reported a net loss for the years ended December 31, 2018, 2017 and 2016, diluted net loss per commonshare is the same as basic net loss per common share for those periods. Recently Adopted Accounting Pronouncements New accounting pronouncements are issued periodically by the Financial Accounting Standards Board (“FASB”) and areadopted by the Company as of the specified effective dates. In May 2014, the FASB issued Accounting Standards Update, or ASU, 2014-09, Revenue from Contracts with Customers(“ASC Topic 606”), which amends the guidance for accounting for revenue from contracts with customers. This ASUsupersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition, and creates a new ASC Topic 606,Revenue from Contracts with Customers. In 2015, 2016 and 2017, the FASB issued additional ASUs related to ASC Topic606, including ASUs 2015-14, 2016-08, 2016-10, 2016-12, 2016-20, 2017-13, 2017-14, that delayed the effective date ofand clarified various aspects of the new guidance, including principal versus agent considerations, identifying performanceobligations, and licensing. The Company adopted ASC Topic 606, on January 1, 2018 using the modified retrospectivemethod for all contracts not completed as of the date of adoption. The adoption of ASC Topic 606 did not have an impact onthe Company’s consolidated financial position, results of operations, equity orF-12 Table of Contentscash flows as of the adoption date for the year ended December 31, 2018. Refer to Note 3 for the required disclosures and adiscussion of the Company's policies related to revenue recognition. In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain CashReceipts and Cash Payments, and in November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230):Restricted Cash. The purpose of ASU 2016-15 is to reduce the diversity in presentation and classification of the followingitems within the Statement of Cash Flows: debt prepayments, settlement of zero coupon debt instruments, contingentconsideration payments, insurance proceeds, securitization transactions and distributions from equity method investees. Theupdate also addresses classification of transactions that have characteristics of more than one class of cash flows. ASU 2016-18 requires the Statement of Cash Flows to explain the change during the period in the total of cash, cash equivalents, andamounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described asrestricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling thebeginning-of-period and end-of-period total amounts shown on the Statement of Cash Flows. The Company adopted thesenew standards on January 1, 2018 using the retrospective transition method as required with respect to each period presented.The adoption of these standards did not have an impact on the Company’s consolidated financial statements. Recently Issued Accounting Pronouncements Not Yet AdoptedIn February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes the lease accounting requirements inASC Topic 840 with ASC Topic 842 and significantly impacts lessee accounting and disclosures. First, this guidancerequires lessees to identify arrangements that should be accounted for as leases. Under ASU 2016-02, for lease arrangementsexceeding a 12-month term, a right-of-use asset and lease obligation is recorded by the lessee for all leases, whether operatingor financing, while the income statement will reflect lease expense for operating leases and interest expense for financingleases. The balance sheet amount recorded for existing leases at the date of adoption of ASU 2016-02 must be calculatedusing the applicable incremental borrowing rate at the date of adoption. Leases with a term of 12 months or less will beaccounted for in a manner similar to ASC Topic 840 for operating leases. This guidance is effective for fiscal years beginningafter December 15, 2018. Early adoption is permitted. In July 2018, the FASB issued ASU 2018-10, Leases (Topic 842),Codification Improvements and ASU 2018-11, Leases (Topic 842), Targeted Improvements, to correct unintended applicationof guidance and provide additional transition guidance.The Company adopted ASU 2016-02 on January 1, 2019 under the modified retrospective method by initially applying thenew standard at the adoption date and recognizing a cumulative-effect adjustment to the opening balance of retainedearnings. This adoption method did not impact comparative prior periods presented. The Company utilized of the transitionpackage of practical expedients permitted within the new standard, which, among other things, allowed the Company tocarryforward the historical lease classification. The Company anticipates the adoption of ASU 2016-02 will result in a right-to-use asset and corresponding lease liability of $9,500 to $11,500 on its balance sheet primarily related to the operatinglease agreements for its corporate headquarters. In addition, the Company has implemented new accounting policies,processes and controls that will be used to identify and account for leases going forward. 3. REVENUE FROM CONTRACTS WITH CUSTOMERS The Company’s revenue to date is from sales of the Company’s products, which are primarily sold to distributors(“customers”), which in turn sell the product to pharmacies for the treatment of patients (“end users”). Revenue Recognition In accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC Topic 606”), the Company recognizesrevenue when a customer obtains control of promised goods or services, in an amount that reflects the consideration whichthe entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements thatan entity determines are within the scope of ASC Topic 606, the Company performs the following five steps: (i) identify thecontract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv)allocate the transaction price to the performance obligations in theF-13 Table of Contentscontract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies thefive-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange forthe goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scopeof ASC Topic 606, the Company assesses the goods or services promised within each contract and determines those that areperformance obligations and assesses whether each promised good or service is distinct. The Company then recognizes asrevenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) theperformance obligation is satisfied. Adoption of ASC Topic 606, Revenue from Contracts with Customers The Company adopted ASC Topic 606 on January 1, 2018 using the modified retrospective method. Under this method,prior periods were not retrospectively adjusted and, as a result, the reported results for 2018 reflect the application of ASCTopic 606 guidance while the reported results for 2017 were prepared under the guidance of ASC Topic 605, RevenueRecognition (“legacy GAAP”). Immediately prior to the adoption date of January 1, 2018, the Company recognized revenue in accordance with legacyGAAP, or when there was persuasive evidence of an arrangement; when title and risk of loss had passed to the customer;when estimated provisions for chargebacks, rebates, sales incentives and allowances, distribution service fees, and returnswere reasonably determinable; and when collectability was reasonably assured. The satisfaction of these criteria generallyoccurred upon delivery of products to customers, or the sell-in method of revenue recognition under legacy GAAP. TheCompany began recognizing revenue on the sell-in method in the third quarter of 2017. Prior to the third quarter of 2017, theCompany recognized revenue when products were dispensed to end users, or the sell-through method of revenue recognitionunder legacy GAAP, as the Company did not have sufficient experience with product sales to estimate returns at the timeproduct was sold to customers. As a result of the considerations discussed above, the Company concluded that, as of the adoption date, it would recordrevenue net of a provision for estimated chargebacks, rebates, sales incentives and allowances, distribution service fees, andreturns upon delivery of products to customers under either the sell-in method of revenue recognition under legacy GAAP orunder ASC Topic 606 as of the adoption date. Therefore, the adoption of ASC Topic 606 did not have a material impact onthe Company’s consolidated financial position, results of operations, equity or cash flows as of January 1, 2018. In the thirdquarter of 2017, the Company transitioned to the sell-in method of revenue recognition and the Company recorded acumulative one-time $4,377 increase to revenues during the three months ended September 30, 2017. Therefore, theadoption of Topic 606 would not have had a material impact on the Company’s consolidated financial position, results ofoperations, equity or cash flows as of December 31, 2018. Performance Obligations The Company determined that performance obligations are satisfied and revenue is recognized when a customer takescontrol of the Company’s product, which occurs at a point in time. This generally occurs upon delivery of the products tocustomers, at which point the Company recognizes revenue and records accounts receivable, which represents theCompany’s only contract asset. Payment is typically received 30 to 90 days after satisfaction of the Company’s performanceobligations and generally does not have an effect on contract asset and contract liability balances. Under the practicalexpedients permitted by the rules of the adoption, the Company will expense incremental costs of obtaining a contract as andwhen incurred if the expected amortization period of the assets is one year or less. Transaction Price and Variable Consideration Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products orservices to a customer (“transaction price”). The transaction price for product sales includes variable consideration related tochargebacks, rebates, sales incentives and allowances, distribution service fees, and returns. The Company will estimate theamount of variable consideration that should be included in the transaction price under the expected value method. Theseestimates take into consideration a range of possible outcomes that are probability-weighted for relevant factors such as theCompany’s historical experience, current contractual and statutory requirements, specific known market events and trends,industry data and forecasted customer buying and paymentF-14 Table of Contentspatterns. These provisions reflect the Company’s best estimates of the amount of consideration to which it is entitled basedon the terms of the contract. The amount of variable consideration that is included in the transaction price may beconstrained and is included in net sales only to the extent that it is probable that a significant reversal in the amount of thecumulative revenue recognized will not occur in a future period. In general, performance obligations do not include anyestimated amounts of variable consideration that are constrained. Actual amounts of consideration ultimately received maydiffer from the Company’s estimates. If actual results in the future vary from the Company’s estimates, the Company willadjust these estimates, which would affect net product revenue and earnings in the period such variances become known. The following table summarizes activity in each of the Company’s product revenue provision and allowance categories forthe year ended December 31, 2018: Trade Rebates and Product Allowances and Incentives (1) Returns (2) Chargebacks (3)Balance at December 31, 2017 $12,647 $3,137 $2,256Provision related to current period sales 243,158 17,326 68,189Liabilities assumed from asset acquisition (4) 22,406 — 254Changes in estimate related to prior period sales (32) — —Credits/payments made (148,861) (4,998) (55,858)Balance at December 31, 2018 $129,318 $15,465 $14,841 (1) Rebates and incentives includes managed care rebates, government rebates, co-pay program incentives, and salesincentives and allowances. Provisions for rebates and discounts are deducted from gross revenues at the time revenuesare recognized and are included in accrued rebates, returns and discounts in the Company’s Condensed ConsolidatedBalance Sheets. (2) Provisions for product returns are deducted from gross revenues at the time revenues are recognized and are included inaccrued rebates, returns and discounts in the Company’s Condensed Consolidated Balance Sheets. (3) Trade allowances and chargebacks include fees for distribution service fees, prompt pay discounts, and chargebacks.Trade allowances and chargebacks are deducted from gross revenue at the time revenues are recognized and are recordedas a reduction to accounts receivable in the Company’s Condensed Consolidated Balance Sheets. (4) The Company recorded a liability of $22,660 related to sales of Nucynta Products that occurred prior to the closing dateof January 9, 2018, for which the Company is liable under the terms of the Nucynta Commercialization Agreement. Thisassumed liability, representing $22,406 of assumed rebates and incentives and $254 of assumed trade allowances andchargebacks, was recorded as a component of the intangible asset acquired. As of December 31, 2018, the Company did not have any transaction price allocated to remaining performance obligationsand any costs to obtain contracts with customers, including pre-contract costs and set up costs, were immaterial. Disaggregation of Revenue Product revenues, net consisted of the following: Year ended December 31, 2018 2017 2016Xtampza ER$69,383 $28,476 $1,711Nucynta Products 211,030 — —Total product revenues, net$280,413 $28,476 $1,711 4. LICENSE AGREEMENTSThe Company periodically enters into license and development agreements to develop and commercialize its products.F-15 Table of ContentsThe Company’s license and development agreements are as follows:Nucynta Commercialization AgreementOn January 9, 2018 (the “Closing Date”), the Company consummated the transactions contemplated by the NucyntaCommercialization Agreement, pursuant to which Assertio agreed to grant a sublicense of certain of its intellectual propertyrelated to the Nucynta Products for commercialization in the United States. The Company began selling the NucyntaProducts on January 9, 2018 and began commercial promotion of the Nucynta Products in February 2018. Pursuant to theNucynta Commercialization Agreement, the Company paid a one-time, non-refundable license fee of $10,000 to Assertio atthe closing of the Nucynta Commercialization Agreement, 6,223 for transferred inventory and $1,987 as reimbursement forprepaid expenses. The Company also assumed the existing liabilities of the Nucynta Products, including $22,660 related tosales of Nucynta Products that occurred prior to the closing date of January 9, 2018. The Nucynta CommercializationAgreement initially required the Company to pay guaranteed minimum royalty of $135,000 per year through December2021, payable in quarterly payments of $33,750, prorated in 2018 for the Closing Date, as well as a variable royalty based onannual net sales over $233,000. Beginning January 2022 and for each year of the Nucynta Commercialization Agreementterm thereafter, the Company was required to pay a variable royalty on annual net sales of the Nucynta Products, but withouta guaranteed minimum.Effective August 2018, the Company entered into a Second Amendment to the Nucynta Commercialization Agreement toclarify the mechanism for transferring title of products to be sold by the Company pursuant to the agreement and variousrelated matters. The Second Amendment did not have an impact on the Company’s financial statements.Effective November 2018, the Company entered into the Third Amendment to the Nucynta Commercialization Agreement toadjust the royalty structure and termination clauses. Pursuant to the amended Nucynta Commercialization Agreement, the$135,000 guaranteed minimum annual royalties are eliminated, and the Company is no longer required to secure its royaltypayment obligations with a standby letter of credit. Beginning on January 1, 2019 and thereafter, the Company will beconditionally obligated to make royalty payments to Assertio conditional upon net sales and based on the following royaltystructure for the period between January 1, 2019 and December 31, 2021:(i)65% of annual net sales of the Nucynta Products up to $180,000, plus(ii)14% of annual net sales of the Nucynta Products between $180,000 and $200,000, plus(iii)58% of annual net sales of the Nucynta Products between $210,000 and $233,000, plus(iv)20% of annual net sales of the Nucynta Products between $233,000 and $258,000, plus(v)15% of annual net sales of the Nucynta Products in excess of $258,000. The Amendment does not modify the royalties payable on sales of the Nucynta Products on and after January 1, 2022, whichwill remain as contemplated by the Nucynta Commercialization Agreement as in effect on January 9, 2018, based on thefollowing royalty structure:(i)58% of annual net sales of the Nucynta Products up to $233,000, plus(ii)25% of annual net sales of the Nucynta Products between $233,000 and $258,000, plus(iii)17.5% of annual net sales of the Nucynta Products in excess of $258,000. In addition, prior to January 1, 2022, if the annual net sales of the Nucynta Products are in the range of $180,000 to$243,000, the Company will be required to pay a supplemental royalty to Assertio, for ultimate payment to GrünenthalGmbH, not to exceed a maximum of 4.9% of net sales of the Nucynta Products. If annual net sales of Products are less than$180,000 in any 12-month period through January 1, 2022, or if they are less than $170,000 in any 12-month periodcommencing on January 1, 2022, then Assertio will have the right to terminate the Nucynta Commercialization Agreementwithout penalty. The Amendment further provides that the Company does not have a right to terminate the NucyntaCommercialization Agreement prior to December 31, 2021. The Company will be required to pay a $5,000 termination fee toAssertio in connection with any termination by the Company with an effective date between December 31, 2021 andDecember 31, 2022. In connection with execution of the Third Amendment, the Company issued a warrant to purchase1,041,667 shares of common stock of the Company (the “Warrant”) at an exercise price of $19.20 per share. The Warrant willexpire in November 2022 and includes customary adjustments for changes in theF-16 Table of ContentsCompany’s capitalization.The assets acquired, liabilities assumed, and equity interests issued by the Company in connection with the NucyntaCommercialization Agreement are further described in Note 9.Commercialization Agreement for OnsolisIn 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 United States.Onsolis is a Transmucosal Immediate-Release Fentanyl (“TIRF”) film indicated for the management of breakthrough pain incertain cancer patients. During the term of the License Agreement, milestone payments in the aggregate amount of $21,000could become payable by the Company subject to the satisfaction of certain commercialization, intellectual property, andnet sales milestones, including $4,000 upon the first commercial sale of the product in the United States. Finally, theCompany was required to pay royalties in the upper teens based on annual net sales of the product in the United States.During the year ended December 31, 2016, the Company made an upfront payment of $2,500 and recorded the payment as acomponent of intangible assets (the “Onsolis Intangible Asset”). No milestones were achieved, nor did any royalties becomepayable, under the License Agreement. On December 8, 2017, the Company, after a review of its product portfolio, providedwritten notice to BDSI of termination of the License and Development Agreement. The termination was effective pursuant tothe terms of such agreement on March 8, 2018. Upon such termination of the License Agreement, the Company’s rights todevelop and commercialize Onsolis reverted to BDSI. As a result of this notice of termination, the Company determined thatthe carrying amount of the intangible asset was not recoverable and recognized an impairment loss of $1,845 during the yearended December 31, 2017. As of the years ended December 31, 2018 and 2017, the Onsolis net intangible asset is zero. 5. NET LOSS PER COMMON SHAREFor the years ended December 31, 2018, 2017 and 2016, the securities discussed below were anti‑dilutive due to the netlosses in those periods and, therefore, the number of shares used to compute basic and diluted earnings per share are the samefor of those periods.The following table presents the computations of basic and dilutive net loss per share: Years ended December 31, 2018 2017 2016Loss attributable to common shareholders — basic and diluted$(39,128) $(74,865) $(94,176)Weighted-average number of common shares used in net loss per share - basicand diluted 32,953,808 30,265,262 24,262,945Loss per share - basic and diluted$(1.19) $(2.47) $(3.88) 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, 2018 2017 2016Outstanding stock options 3,585,856 3,037,690 2,326,801Warrants 1,041,667 2,445 2,445Unvested restricted stock (1) 3,018 31,943 82,512Restricted stock units 514,603 218,872 41,741 (1) - Includes shares of unvested restricted stock remaining from the early exercise of stock options.F-17 Table of Contents 6. INVENTORY Inventory consisted of the following: As of December 31, As of December 31, 2018 2017Raw materials $496 $616Work in process 671 322Finished goods 6,650 875Total inventory $7,817 $1,813 During the years ended December 31, 2018 and 2017, the aggregate charges to date related to excess inventory wereimmaterial. These expenses were recorded as a component of cost of product revenues. 7. PREPAID EXPENSES AND OTHER CURRENT ASSETSPrepaid expenses and other current assets consisted of the following: As of December 31, 2018 2017Prepaid regulatory fees $3,035 $1,434Other prepaid expenses 655 279Prepaid insurance 340 310Prepaid development costs 78 526Other current assets 1,008 456Prepaid expenses and other current assets $5,116 $3,005 8. PROPERTY AND EQUIPMENTProperty and equipment consisted of the following: As of December 31, 2018 2017Machinery and equipment $1,613 $1,447Computers and office equipment 1,277 702Leasehold improvements 567 700Furniture and fixtures 1,111 117Construction-in-process 6,543 528Total property and equipment 11,111 3,494Less: accumulated deprecation (1,837) (1,668)Property and equipment, net $9,274 $1,826 Depreciation expense related to property and equipment amounted to $1,074, $336 and $258 for the years endedDecember 31, 2018, 2017 and 2016, respectively. The Company disposed of fully depreciated assets of $905 during the yearended December 31, 2018. During the years ended December 31, 2017 and 2016 disposals were immaterial. F-18 Table of Contents9. INTANGIBLE ASSETS As of December 31, 2018, the Company’s only intangible asset is related to the Nucynta Commercialization Agreement. Nucynta Intangible Asset The Company determined the Nucynta Commercialization Agreement should be accounted for as an asset acquisition inaccordance with ASC 805-50 as substantially all of the fair value of the gross assets acquired is concentrated in thesublicense of the Nucynta Products, which is a single identifiable asset. The Company concluded that the fair value estimatesof the assets surrendered, liabilities incurred, and equity interests issued were more clearly evident than the fair value of theassets received, and therefore followed a cost accumulation model to determine the consideration transferred in the assetacquisition.The table below represents the costs accumulated as of December 31, 2018, to acquire the sublicense of the Nucynta Productsbased on the terms of the Nucynta Commercialization Agreement, as amended: Acquisition consideration: Upfront cash paid $18,877Minimum royalty payment obligation 112,719Rebates, incentives, trade allowances and chargebacks assumed 22,660Warrant issued 8,043Total acquisition consideration: $162,299 (1)Represents $132,000 of minimum royalty payments owed under the Nucynta Commercialization Agreement discounted for presentvalue adjustments of $19,281. The Company then allocated the consideration transferred to the individual assets acquired on a relative fair value basis assummarized in the table below: Assets acquired: Nucynta Intangible Asset$154,089Inventory 6,223Prepaid expenses 1,987Total consideration allocated to assets acquired:$162,299Under the original terms of the Nucynta Commercialization Agreement, the Company was obligated to make guaranteedannual minimum royalty payments of $537,000 to Assertio, which consisted of scheduled payments of $132,000 in 2018,$135,000 in 2019, $135,000 in 2020, and $135,000 in 2021. Due to the nature of the guaranteed minimum royalty paymentobligation and the fact that it was required to be settled in cash, the Company determined that the future minimum royaltypayments represented a liability that should be recorded at its fair value as of the closing date. The Company calculated thefair value of the future minimum royalty payments to be $482,300 using a discount rate of 5.7%. The discount rate wasdetermined based on a review of observable market data of similar liabilities. The Company determined the $54,700 discountshould be recognized as interest expense in the Statement of Operations using the effective interest method and over therepayment period from January 9, 2018 through December 2021. Prior to the Third Amendment to the NucyntaCommercialization Agreement, the Company recognized interest expense of $19,281 relating to the minimum royaltypayments. F-19 (1)Table of ContentsA summary of the costs included in the Nucynta Intangible Asset as of the acquisition date of January 9, 2018, is as follows:Costs included in Nucynta Intangible Asset: Upfront cash paid$10,000Transaction costs 667Minimum royalty payment obligation 482,300Rebates, incentives, trade allowances and chargebacks assumed 22,660Total cost:$515,627 (2)Represents $537,000 of minimum royalty payments owed under the Nucynta Commercialization Agreement discounted for presentvalue adjustments of $54,700. (3)Represents $22,660 of liabilities assumed related to sales of Nucynta Products that occurred prior to the closing date of January 9, 2018,for which the Company is liable under the terms of the Nucynta Commercialization Agreement. This assumed liability, representing$22,406 of assumed rebates and incentives and $254 of assumed trade allowances and chargebacks, was recorded as a component ofthe intangible asset acquired as part of the Nucynta Commercialization Agreement. Effective November 8, 2018 (the “Amendment Date”), the Company entered into the Third Amendment to the NucyntaCommercialization Agreement, which eliminated the guaranteed minimum royalty payment obligations for years 2019, 2020and 2021. As a result, the Company remeasured the remaining contractual obligation as of the Amendment Date and recordeda reduction of the acquired intangible asset and obligation. As of December 31, 2018, the Company had paid all of the$132,000 of minimum royalty payment obligation owed under the Nucynta Commercialization Agreement for 2018. A summary of the gross carrying amount, accumulated amortization, and net book value of the Nucynta Intangible Assetfrom the acquisition date through December 31, 2018 is as follows: GrossCarryingValue AccumulatedAmortization Net BookValueCost basis as of acquisition date:$515,627 $- $515,627Amortization from acquisition date through Amendment Date - (107,662) (107,662)Adjustment due to the remeasurement of liability as of Amendment Date (369,581) - (369,581)Additional costs incurred as of Amendment Date 8,043 - 8,043Amortization from Amendment Date through period end - (2,172) (2,172)Total, as amended:$154,089 $(109,834) $44,255 (4)Represents fair value of warrant issued in connection with the Amendment to the Nucynta Commercialization Agreement. WarrantIn November 2018, in connection with the Third Amendment to the Nucynta Commercialization Agreement, the Companyissued a warrant to purchase 1,041,667 shares of common stock of the Company at an exercise price of $19.20 per share. Theterms of the warrant are fixed, with the exception of customary adjustments for changes in the Company’s capitalization. Thewarrant may only be settled with the issuance of shares of common stock upon exercise and will expire in November 2022.The Company has recorded the relative fair value of the warrant as a component of equity interest issued by the Company asconsideration transferred in the cost accumulation model for the asset acquisition. The Company estimated the fair value ofthe warrant on the date of issuance to be approximately $8,043 using the Black-Scholes option-pricing model. The Companyconcluded that the warrant met the definition of an equity instrument and was recorded as a component of additional paid-incapital in the Company’s Consolidated Balance Sheet as of the issuance date. F-20 (2)(3)(4)Table of ContentsAmortization The Company has been amortizing the Nucynta Intangible Asset over its useful life, which is the period over which the assetis expected to contribute directly or indirectly to the future cash flows of the Company. The Company determined that theuseful life for the intangible asset was approximately 4.0 years from the closing date of January 9, 2018. The Company willrecognize amortization expense as a component of cost of product revenues in the Statement of Operations on a straight-linebasis over its useful life as it approximates the period of economic benefits expected to be realized from future cash inflowsfrom sales of the Nucynta Products. Prior to the Third Amendment to the Nucynta Commercialization Agreement, theCompany had recognized $107,662 of amortization expense. As the accumulated cost basis of the intangible asset wasreduced with the Third Amendment to the Nucynta Commercialization agreement on November 8, 2018, the Company willcontinue to prospectively amortize the residual net intangible asset on a straight-line basis over the remaining useful life. Forthe year ended December 31, 2018, the Company recognized amortization expense of $109,834. As of December 31, 2018,the remaining amortization period is approximately 3.0 years and estimated amortization for 2019, 2020 and 2021 isexpected to be $14,752, $14,752, and $14,751. Onsolis Intangible Asset In May 2016, the Company entered into an agreement with BDSI to license the rights to develop, manufacture, andcommercialize Onsolis, in the United States. During the year ended December 31, 2016, the Company made an upfrontpayment of $2,500 and recorded the payment as a component of intangible assets (the “Onsolis Intangible Asset”). OnDecember 8, 2017, the Company, after a review of its product portfolio, provided written notice to BDSI of termination of theLicense and Development Agreement. The termination was effective pursuant to the terms of such agreement on March 8,2018, and the Company’s rights to develop and commercialize Onsolis reverted to BDSI. As a result of this notice oftermination, the Company determined that the carrying amount of the intangible asset was not recoverable and that thecarrying amount exceeded its fair value. As such, an impairment loss of $1,845 was recognized and included as a componentof sales, general and administrative expense during the year ended December 31, 2017 and the net intangible asset is zero asof the years ended December 31, 2018. Amortization Expense Amortization expense relating to the Company’s intangible assets for the years ended December 31, 2018, 2017 and 2016were as follows: Years ended December 31, 2018 2017 2016Nucynta amortization expense included in cost of product revenues$109,834 $ — $ —Onsolis amortization expense included in selling, general and administrative expense — 258 397Total amortization expense$109,834 $258 $397 F-21 Table of Contents10. ACCRUED EXPENSESAccrued expenses consisted of the following: As of December 31, As of December 31, 2018 2017Accrued cost of product revenues$15,138 $ —Accrued bonuses 4,286 2,940Accrued inventory 3,745 —Accrued sales and marketing 2,193 624Accrued incentive compensation 1,806 1,790Accrued payroll and related benefits 1,544 1,382Accrued audit and legal 480 405Accrued interest 274 6Accrued development costs — 517Accrued other operating costs 1,085 877Total accrued expenses$30,551 $8,541 11. 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. Xtampza ER Litigation The Company filed the NDA for Xtampza ER as 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. The 505(b)(2) process requires that the Company certifies to the FDA andnotify Purdue Pharma, L.P. (“Purdue”), as the holder of the NDA and any other Orange Book-listed patent owners, that theCompany does not infringe any of the patents listed for OxyContin OP in the Orange Book, or that the patents are invalid.The Company made such certification and provided such notice on February 11, 2015 and such certification documentedwhy Xtampza ER does not infringe any of the 11 Orange Book listed patents for OxyContin OP, five of which have beeninvalidated in court proceedings. Under the Hatch-Waxman Act of 1984, Purdue had the option to sue the Company forinfringement and receive a stay of up to 30 months before the FDA could issue a final approval for Xtampza ER, unless thestay was earlier terminated. Purdue exercised its option and elected to sue the Company for infringement in the District of Delaware on March 24, 2015asserting infringement 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 the Company filed a partial motion forjudgment on the pleadings relating to the Orange Book-listed patents, the District Court of Massachusetts ordered judgmentin the Company’s favor on those three patents, and dismissed the claims asserting infringement of those patents withprejudice. Upon dismissal of those claims, the 30-month stay of FDA approval was lifted. As a result, the Company was ableto obtain final approval for Xtampza ER and launch the product commercially. In November 2015, Purdue filed a follow-on suit asserting infringement of another patent, Patent No. 9,073,933. In June2016, Purdue filed another follow-on suit asserting infringement of another non-Orange Book listed patent, Patent No.F-22 Table of Contents9,155,717. In April 2017, Purdue filed another follow-on suit asserting infringement of another patent, Patent No. 9,522,919,which was late-listed in the Orange Book and therefore could not trigger any stay of FDA approval. Then, in September 2017,Purdue filed another follow-on suit asserting infringement of another non-Orange Book listed patent, Patent No. 9,693,961. On March 13, 2018, the Company filed a Petition for Post-Grant Review (“PGR”) of the ʼ961 patent with the Patent Trial andAppeal Board (“PTAB”). The PGR argues that the ʼ961 patent is invalid for lack of a written description, for lack ofenablement, for indefiniteness, and as being anticipated by prior art. Purdue filed its Patent Owner Preliminary Response onJuly 10, 2018. The PTAB entered an order to institute post-grant review of all claims of the ’961 patent on October 4, 2018,upon a finding that it is more likely than not that the claims of the ʼ961 patent are unpatentable. Purdue filed its PatentOwner Response on January 30, 2019. The PTAB has scheduled oral argument on the proceedings for July 10, 2019 and,absent special circumstances, will issue a decision on the patentability of the ʼ961 patent by no later than October 4, 2019. In October 2017, and in response to the filing of the Company’s sNDA seeking to update the drug abuse and dependencesection of the Xtampza ER label, Purdue filed another suit asserting infringement of the ʼ933 and ʼ919 patent. The Companyfiled a motion to dismiss that action, and the Court granted its motion on January 16, 2018. The current suits have been consolidated by the District of Massachusetts, where Purdue asserted infringement of fivepatents: the ʼ497 patent, the ʼ933 patent, the ʼ717 patent, the ʼ919 patent, and the ʼ961 patent. The Court issued an order onSeptember 28, 2018 in which it granted in part a motion for summary judgment filed by the Company, and in which theCourt ruled that the ʼ497 and ʼ717 patents are not infringed by the Company. As a result, only the ʼ933, the ʼ919, and theʼ961 patents remain in dispute. On October 16, 2018, the Company filed a motion to stay proceedings in the district court onthe ‘961 patent pending the PGR. None of these suits are associated with any stay of FDA approval for Xtampza ER. Purduehas made a demand for monetary relief but has not quantified its alleged damages. Purdue has also requested a judgment ofinfringement, an adjustment of the effective date of FDA approval, and an injunction on the sale of the Company’s productsaccused of infringement. The Company has denied all claims and seeks a judgment that the patents are invalid and/or notinfringed by the Company; the Company is also seeking a judgment that the case is exceptional, with an award to theCompany of its fees for defending the case. The parties are in the early stages of fact discovery. Written discovery has commenced with depositions expected tocommence during the first half of 2019. A claim construction hearing was held on June 1, 2017. On November 21, 2017, theCourt issued its claim construction ruling, construing certain claims of the ʼ933, ʼ497, and ʼ717 patents. No trial date hasbeen scheduled. The Company is, and plans to continue, defending this case vigorously. At this stage, the Company is unable to evaluate thelikelihood of an unfavorable outcome or estimate the amount or range of potential loss, if any. Nucynta Litigation On February 7, 2018, Purdue filed a patent infringement suit against the Company in the District of Delaware. Specifically,Purdue argues that the Company’s sale of immediate release and extended release Nucynta infringes U.S. Patent Nos.9,861,583, 9,867,784, and 9,872,836. Purdue has made a demand for monetary relief in its complaint but has not quantifiedits alleged damages. On December 6, 2018, the Company filed an Amended Answer asserting an affirmative defense for patent exhaustion. OnDecember 10, 2018, the Court granted the parties’ stipulation for resolution of the Company’s defense of patent exhaustionand stayed the action, with the exception of briefing on and resolution of the Company’s Motion for Judgment on thePleadings and any discovery related to that Motion. On December 12, 2018, the Company filed a Rule 12(c) Motion forJudgment on the Pleadings, arguing that the Purdue’s claims were barred by the doctrine of patent exhaustion. Purdue filedits response on January 11, 2019 and the Company filed a reply on January 25, 2019. That Motion is currently underadvisement, and, if successful, would result in a dismissal of this suit. The Company plans to defend this case vigorously. At this stage, the Company is unable to evaluate the likelihood of anF-23 Table of Contentsunfavorable outcome or estimate the amount or range of potential loss, if any. Teva Litigation The Company has fourteen patents listed in the FDA Orange Book as covering the Company’s abuse-deterrent product andmethods of using it to treat patients: Patents Nos. 7,399,488; 7,771,707; 8,449,909; 8,557,291; 8,758,813; 8,840,928; 9,044,398; 9,248,195; 9,592,200; 9,682,075; 9,737,530, 9,763,883; 9,968,598; 10,004,729 (the “Orange Book Patents”). Teva Pharmaceuticals USA, Inc. (“Teva”) filed a Notice Letter of Patent Certification against twelve of the fourteen listedOrange Book Patents (the ’598 and ’729 patents were listed among the Orange Book Patents after receipt of Teva’s NoticeLetter), alleging that they were invalid and/or not infringed by the proposed oxycodone products that are the subject ofTeva’s Abbreviated New Drug Application (“ANDA”). On February 22, 2018—within the 45-day period that gives theCompany a 30-month stay on FDA approval of Teva’s ANDA while the parties have an opportunity to litigate—theCompany sued Teva in the District of Delaware on eleven of the Orange Book Patents. Teva responded to the Company’scomplaint on May 14, 2018, alleging that the Orange Book Patents are invalid and are not infringed by Teva’s proposedANDA products and asserting counterclaims of non-infringement and invalidity of the Orange Book Patents. The Companyanswered Teva’s counterclaims on June 4, 2018. According to the Scheduling Order, fact discovery will close on July 30,2019 and expert discovery will close on January 31, 2020. Opioid Litigation On March 19, 2018, a lawsuit was filed by multiple local governments in the Circuit Court of Crittenden County, Arkansas,against the Company and other pharmaceutical manufacturers and distributors alleging a variety of claims related to opioidmarketing and distribution practices. On January 29, 2019, the Company was dismissed form this litigation withoutpredjudice. On March 21, 2018, the Company, along with other pharmaceutical manufacturers and distributors, were named in a class-action lawsuit filed in the Eastern District of Kentucky by a family practice clinic, on behalf of other similarly-situatedhealthcare providers. The action alleges violations of the Racketeer Influenced and Corrupt Organizations Act relating toopioid marketing and distribution practices. On April 14, 2018, the lawsuit was conditionally transferred by the JudicialPanel on Multi-District Litigation to the federal Prescription Opiate Multi District Litigation (the “MDL”) in the SouthernDistrict of Ohio. On April 10, 2018, the conditional transfer was finalized and the lawsuit was docketed in the MDL on April11, 2018. On May 4, 2018, the Company, along with other pharmaceutical manufacturers and distributors, were named in twolawsuits filed in the MDL by the Fiscal Court of Bourbon County, Kentucky and the Fiscal Court of Owen County,Kentucky, relating to opioid marketing and distribution practices. On June 11 and 12, 2018, the Company was named in fourlawsuits filed in the MDL by a health system and various member hospitals. On September 26, 2018, the Company wasnamed in two lawsuits filed in the MDL by the Fiscal Court of Lee County, Kentucky and the Fiscal Court of Wolfe County,Kentucky. The lawsuits allege violations of the RICO Act, fraud, public nuisance, negligence, and violations of stateconsumer protections laws. The lawsuits all seek, generally, penalties and/or injunctive relief. The MDL lawsuits in whichthe Company has been named are not designated representative cases in the MDL and, therefore, are effectively currentlystayed. On May 29, 2018, a lawsuit was filed by Bucks County, Pennsylvania against the Company and other pharmaceuticalmanufacturers and on June 14, 2018, a lawsuit was filed by Clinton County, Pennsylvania, against the Company and otherpharmaceutical manufacturers and distributors. On June 6, 2018, a lawsuit was filed by Mercer County, Pennsylvania, againstthe Company and other pharmaceutical manufacturers and distributors. These lawsuits allege claims related to opioidmarketing and distribution, including negligence, fraud, unjust enrichment, public nuisance, and violations of stateconsumer protections laws. These cases have been consolidated for discovery purposes in the Delaware County Court ofCommon Pleas as part of a consolidated proceeding of similar lawsuits brought by numerous Pennsylvania counties againstother pharmaceutical manufacturers and distributors. On July 30, 2018, a lawsuit was filed by the City of Worcester, Massachusetts against the Company and other pharmaceuticalmanufacturers and distributors. The action alleges a variety of claims related to opioid marketing andF-24 Table of Contentsdistribution practices including public nuisance, common law fraud, negligent misrepresentation, negligence, violations ofMass Gen. Laws ch. 93A, Section 11, unjust enrichment and civil conspiracy. In February 2019, the City of Worcester casewas transferred to the Business Litigation Session of the Superior Court. Additional lawsuits brought by cities and towns inMassachusetts were filed in December 2018 and February 2019; City of Salem, City of Framingham, Town of Lynnfield, Cityof Springfield, City of Haverhill, City of Gloucester, Town of Canton, Town of Wakefield; and City of Chicopee. Theplaintiffs in these lawsuits are seeking to transfer and consolidate each of the additional lawsuits for possible coordinationbefore the Business Litigation Session. The same plaintiffs’ law firm has indicated it intends to file more complaints againstus and other pharmaceutical manufacturers and distributors on behalf of additional Massachusetts municipalities. The Company disputes the allegations in these lawsuits and intends to vigorously defend these actions. At this stage, theCompany is unable to evaluate the likelihood of an unfavorable outcome or estimate the amount or range of potential loss, ifany. Opioid-Related Request and Subpoenas The Company, like a number of other pharmaceutical companies, has received subpoenas or civil investigativedemands related to opioid sales and marketing. The Company has received such subpoenas or civil investigative demandsfrom the Offices of the Attorney General of each of Washington, New Hampshire, and Massachusetts. The Company iscurrently cooperating with the each of the foregoing states in their respective investigations. Operating LeasesIn March 2018, the Company entered into an operating lease for its new corporate headquarters (the “Stoughton Lease”)pursuant to which the Company leases approximately 50,678 of rentable square feet of space, in Stoughton,Massachusetts. The Stoughton Lease commenced in August 2018 when the Company took possession of the space aftertenant improvements were substantially complete. After the initial four-month free rent period following possession of thespace, the operating lease will continue for a term of 10 years. The Company has the right to extend the term of theStoughton Lease for two additional five-year terms, provided that written notice is provided to the landlord no later than 12months prior to the expiration of the then current Stoughton Lease term. The annual base rent is $1,214, or $23.95 perrentable square foot, and will increase annually by 2.5% to 3.1% over the subsequent years. The Company recognizes rentexpense on a straight-line basis over the lease term and records rent expense in excess of contractual lease payments asdeferred rent liability.The Company continues to lease 9,660 square feet of office and research space at its former corporate headquarters located inCanton, Massachusetts (the “Canton Lease”). The Canton Lease terminates in August 2020 and may be extended for anadditional five years at the Company’s election.Aggregate minimum lease commitments of the Company under its non‑cancelable operating leases as of December 31, 2018are as follows: 2019 $1,032 2020 1,305 2021 1,261 2022 1,299 2023 1,337 After 2023 8,423 Total minimum lease payments $14,657 Rent expense under the operating lease agreements amounted to approximately $817, $194 and $182 for the years endedDecember 31, 2018, 2017 and 2016, respectively. Deferred rent was approximately $734 as of December 31, 2018. Deferredrent as of December 31, 2017 was immaterial. In addition, as of December 31, 2017, the Company maintained a stand byletter of credit in connection with the Canton Lease of $97, which was classified as restricted cash in theF-25 Table of ContentsConsolidated Balance Sheets. As of December 31, 2018, the Company was no longer required to maintain a standby letter ofcredit for the Canton lease and therefore no longer has a restricted cash balance relating to the Canton Lease.Amounts provided by the lessor related to tenant improvements are considered inducements to enter into the lease. TheCompany has recorded these costs in the Consolidated Balance Sheets as leasehold improvements, with the correspondingliabilities as deferred lease incentive and lease note payable. These liabilities are amortized on a straight‑line basis over theterm of the lease. 12. 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. The Original Term Loan bore interest at a rate per annum of 2.25% above theprime rate fixed at the time of advance of the Original Term Loan (5.50%). The Original Term Loan was subsequentlyamended in 2014 and 2015 to provide for additional borrowings of up to $8,000, adjust the interest rate, extend the loandraw period, and modify loan covenants (as amended, the “Existing Term Loan”). As of December 31, 2017, the futurepayments under the Existing Term Loan were $1,479. In connection with, and as a condition to, consummation of the transactions contemplated by the NucyntaCommercialization Agreement, the Company entered into a Consent and Amendment to Loan and Security Agreement (the“Consent and Amendment”) with SVB to amend the Existing Term Loan. The Consent and Amendment provided theCompany with a new term loan facility in an original principal amount of $11,500, which replaced the Existing Term Loanand the proceeds of which were used by the Company to finance certain payment obligations under the NucyntaCommercialization Agreement and to repay the balance of the Existing Term Loan. The Consent and Amendment alsoprovided SVB’s consent with respect to transactions contemplated by the Nucynta Commercialization Agreement. The Consent and Amendment bears interest at a rate per annum of 0.75% above the prime rate (as defined in the Consent andAmendment). The Company will repay the Consent and Amendment in equal consecutive monthly installments of principalplus monthly payments of accrued interest, commencing in July 2019, provided that, if the Company achieves EBITDA (asdefined in the Consent and Amendment) in excess of $2,500 for two (2) consecutive calendar quarters prior to June 2019,such payments will commence in January 2020. All outstanding principal and accrued and unpaid interest under the NewTerm Loan, and all other outstanding obligations with respect to the New Term Loan, are due and payable in full inDecember 2022. The Company may prepay the Consent and Amendment, in full but not in part, with a prepayment fee of (i)3.0% of the outstanding principal balance prior to the first anniversary of the Consent and Amendment, (ii) 2.0% of theoutstanding principal balance following the first anniversary of the Consent and Amendment and prior to the secondanniversary of the Consent and Amendment and (iii) 1.0% of the outstanding principal balance following the secondanniversary of the Consent and Amendment, plus, in each case, a final payment fee of $719. Under the Consent andAmendment, the Company will be required to maintain a liquidity ratio of at least 2.0 to 1.0. Any amounts outstandingduring the continuance of any event of default under the New Term Loan will bear additional interest at the per annum rate of5.0%. In November 2018, the Company entered into an amended and restated Loan and Security Agreement (“New Term Loan”)with SVB, that supersedes the Company’s original loan agreement and subsequent amendments with SVB. The New TermLoan amended and restated the loan documentation between the Company and SVB and modified the minimum liquidityratio to be at least 1.5 to 1.0, along with other non-material changes. The New Term Loan did not modify the Company’sborrowings, interest rates, or repayment terms. F-26 Table of ContentsAs of December 31, 2018, scheduled principle repayments under the Company’s term loan are as follows: 2019$1,6422020 3,2862021 3,2862022 3,286Balance$11,500 13. EQUITYCommon StockAs of December 31, 2018 and 2017, the Company had reserved the following shares of common stock for the issuance ofshares upon the exercise of stock options and warrants and the issuance of shares under the 2015 Employee Stock PurchasePlan: As of December 31, 2018 2017Options to purchase common stock 4,710,771 4,153,055Employee stock purchase plan 788,053 547,276Warrants 1,041,667 2,445Total 6,540,491 4,702,776 WarrantsAs of December 31, 2018, the warrant issued to Assertio in November 2018 was the Company’s only outstanding warrant,which is described in greater detail in Note 9. 14. 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, 2018, 1,166,529 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. The options generally have a ten year contractual life and, upon termination, vested options are generallyexercisable between one and three months following the termination date, while unvested options are forfeited immediately.F-27 ststTable of ContentsStock option activity under the Plan is summarized as follows: Weighted- Weighted- Average Average Remaining Aggregate Exercise Price Contractual Intrinsic Shares per Share Term (in years) Value Outstanding at December 31, 2017 3,037,690 $13.00 8.4 $16,829 Granted 1,159,280 23.76 Exercised (349,777) 12.17 Cancelled (261,337) 17.83 Outstanding at December 31, 2018 3,585,856 $16.20 8.0 $11,170 Exercisable at December 31, 2018 1,608,346 $12.63 7.2 $7,690 Vested and expected to vest atDecember 31, 2018 3,389,023 $15.97 7.9 $10,882 The total intrinsic value of stock options exercised for the year ended December 31, 2018 was $3,970. As ofDecember 31, 2018, the unrecognized compensation cost related to outstanding options was $19,285, and is expected to berecognized as expense over approximately 2.4 years.As of December 31, 2018, the weighted-average grant date fair value of vested options was $8.38. The weighted-averagegrant date fair value of options granted during the year ended December 31, 2018 was $14.51. The weighted-average grantdate fair value of options that vested during the year ended December 31, 2018 was $8.11.Restricted stock awards under the Plan are summarized as follows: Weighted-Average Purchase Price Shares (1) per ShareUnvested at December 31, 2017 10,816 $5.73Granted — —Vested (10,816) 5.73Unvested at December 31, 2018 — $ —(1) Excludes 3,018 shares of unvested restricted stock remaining from the early exercise of stock options as ofDecember 31, 2018.The total fair value of restricted stock awards vested during the year ended December 31, 2018, was $62. As ofDecember 31, 2018, there is no unrecognized compensation cost related to restricted stock awards.Restricted stock units under the Plan are summarized as follows: Weighted-Average Shares Grant Date Fair ValueOutstanding at December 31, 2017 218,872 $12.64Granted 403,334 23.41Vested (85,119) 13.00Forfeited (22,484) 20.84Outstanding at December 31, 2018 514,603 $20.67As of December 31, 2018, the unrecognized compensation cost related to restricted stock units was $7,987 and is expected tobe recognized as expense over approximately 2.4 years. F-28 Table of ContentsEmployee 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 ofthe Company’s common stock on (1) the first day of the purchase period or (2) the last day of the purchase period. The firstpurchase period commenced in the year ended December 31, 2016. The expense for the years ended December 31, 2018,2017 and 2016 was $493, $380 and $457, respectively. Stock‑Based Compensation ExpenseThe Company granted stock options to employees for the years ended December 31, 2018, 2017 and 2016. 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‑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, 2018 2017 2016Research and development $1,468 $888 $638Selling, general and administrative 12,310 7,057 5,149Total stock-based compensation expense $13,778 $7,945 $5,787 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: Year ended December 31, 2018 2017 2016Risk-free interest rate2.6% 2.0% 1.5%Volatility64.8% 71.0% 76.3%Expected term (years)6.11 6.01 6.02 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 the Company’s volatility as well as the historical volatilities of apeer group of similar companies whose share prices are publicly available. The peer group was developed based oncompanies in the biotechnology and pharmaceutical industries. In evaluating similarity, the Company considers factors suchas 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, 2018 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. 15. INCOME TAXES For the years ended December 31, 2018, 2017 and 2016, the Company did not record a current or deferred income taxF-29 Table of Contentsexpense or (benefit) due to current and historical losses incurred by the Company. The Company's losses before income taxesconsist solely of losses from domestic operations. The enactment of the Tax Cuts and Jobs Act (TCJA) in December 2017, as further described below, resulted in aremeasurement of the Company’s net deferred tax asset due to the reduction in corporate rates from 35% to a 21% flat tax,which is included in the Company’s 2017 rate reconciliation. A reconciliation of income tax expense (benefit) computed atthe statutory federal income tax rate to income taxes as reflected in the consolidated financial statements is as follows: As of December 31, 2018 2017 2016 Federal income tax expense at statutory rate 21.00% 34.00% 34.00%(Increase) decrease income tax (benefit) resulting from: State income tax, net of federal benefit 5.89 3.93 3.43 Permanent differences (2.51) (2.49) (1.45) U.S. - TCJA — (43.32) — Research and development credit 0.52 0.53 0.27 Change in valuation allowance (24.90) 7.35 (36.25) 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, 2018 2017 2016 Deferred tax assets: U.S. and state net operating loss carryforwards $82,501 $62,715 $71,049 Research and development credits 4,364 3,892 3,712 Accruals and other 4,676 3,615 1,541 Depreciation and amortization 269 145 261 Total deferred tax assets 91,810 70,367 76,563 Valuation allowance (80,290) (70,367) (76,563) Deferred tax assets after valuation allowance 11,520 — — Deferred tax liabilities – intangible assets (11,520) — — 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, 2018, and December 31, 2017, based on the Company's history of operating losses, the Company hasconcluded that it is not more likely than not that the benefit of its deferred tax assets will not be realized. Accordingly, theCompany has provided a full valuation allowance for deferred tax assets as of December 31, 2018 and December 31, 2017.The valuation allowance increased $9,923 during the year ended December 31, 2018 due primarily to net operating lossesgenerated during the year. The valuation allowance decreased $6,196 during 2017 primarily due to the enacted change in thecorporate income tax rate from the enactment of TCJA signed into law in December 2017. As of December 31, 2018, 2017, and 2016, the Company had U.S. federal net operating loss carryforwards of $324,533, $249,511, and $190,926, respectively, which may be available to offset future income tax liabilities. TCJA will generallyallow losses incurred after 2017 to be carried over indefinitely but will generally limit the NOL deduction to the lesser of theNOL carryover or 80% of a corporation’s taxable income (subject to Code Section 382/383). Also, there will be no carrybackfor losses incurred after 2017. Losses incurred prior to 2018 will generally be deductible to the extent of the lesser of acorporation’s NOL carryover or 100% of a corporation’s taxable income (subject to Code Section 382/383)F-30 Table of Contentsand be available for twenty years from the period the loss was generated. As of December 31, 2018, 2017, and 2016, the Company also had U.S. state net operating loss carryforwards of $285,181, $205,074, and $145,902, respectively, which may be available to offset future income tax liabilities and expire at variousdates through 2038. As of December 31, 2018, 2017 and 2016, the Company had federal research and development tax credit carryforwards ofapproximately $3,628, $3,426, and $3,367, respectively, available to reduce future tax liabilities which expire at variousdates through 2038. As of December 31, 2018, 2017 and 2016 the Company had state research and development tax creditcarryforwards of approximately $885, $589, and $522, respectively, available to reduce future tax liabilities which expire atvarious dates through 2033. The TCJA was enacted in December 2017. Among other things, the TCJA reduces the U.S. federal corporate tax rate from 35percent to 21 percent beginning in 2018. During 2018 the Company finalized its review of the impact of TCJA on the NOLrules and determined its impact on its NOL carryovers. The impact of TCJA to the Company was primarily attributable to thelimitation on the deductions associated with executive compensation under Internal Revenue Code Section 162(m). TheCompany made adjustments during 2018 to its carryovers associated with its analysis of TCJA so that as of December 31,2018, the Company’s NOL carryovers have been adjusted to comply with the impact of TCJA’s changes to the tax treatmentof executive compensation under Internal Revenue Code Section 162(m). Since a full valuation allowance has been providedagainst the Company’s net deferred tax asset, the impact of adjustments during 2018 to the net deferred tax asset associatedwith the impact of TCJA does not result in any financial statement impact. 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 as well as its IPO since its inception. The Company hasnot completed a current study to assess whether an ownership change has occurred or whether there have been multipleownership changes since its formation. As a result, if the Company earns net taxable income, its ability to use its pre-changeNOL carryforwards to offset U.S. federal taxable income may be subject to limitations, which could potentially result inincreased future tax liability to us. In addition, at the state level, there may be periods during which the use of NOLs issuspended or otherwise limited, which could accelerate or permanently increase state taxes owed. 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, 2015 through December 31, 2018. 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. The Companyoriginally recorded an unrecognized tax benefit of $902 (net rate effected unrecognized tax benefit of $235) during 2017associated with its IRS examination of its 2015 federal income tax return, and accordingly reduced its NOL deferred tax assetduring 2017. The Company settled its IRS audit during 2018, which resulted in a total decrease to its NOL carryover of $36.As a result of the IRS settlement, the Company reversed this unrecognized tax benefit and trued-up its NOL carryover during2018 to reflect the reduction of the $36 to its NOL as required by the IRS settlement. This is included in the tabularrollforward below of gross unrecognized tax benefits. Since a full valuation allowance has been provided against theCompany’s net operating loss carryover, the true up of the NOL carryover and associated deferred tax asset during 2018 doesnot result in any financial statement impact. For all years through December 31, 2018, 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. The Company has reduced its deferred tax asset for its estimate of credits that could be reduced, and that isincluded in the tabular rollforward of uncertain tax positions. Since a full valuation allowance has beenF-31 Table of Contentsprovided against the Company’s research and development credits the reduction in the gross deferred tax asset establishedfor the research and development credit carryforwards does not result in any financial statement impact. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits (UTB) is as follows: As of December 31, 2018 2017Gross UTB Balance at January 1 $1,364 $ —Additions based on tax positions related to the current year 64 57Additions for tax positions of prior years — 1,307Reductions for tax positions of prior years (24) —Settlements (902) —Reductions due to lapse of applicable statute of limitations — — Gross UTB Balance at December 31 502 1,364 Net UTB impacting the effective tax rate at December 31 (included in thechange in the valuation allowance in rate reconciliation) $481 $680 16. 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 starting on the first day of employment. The Company is notrequired to contribute to this plan. Total expense for contributions made by the Company for the years endedDecember 31, 2018, 2017 and 2016 was $1,208, $969 and $613 respectively. F-32 Table of Contents17. UNAUDITED QUARTERLY OPERATING RESULTSThe following is a summary of unaudited quarterly results of operations for the years ended December 31, 2018 and 2017: First Second Third FourthYear ended December 31, 2018 Quarter Quarter Quarter Quarter (2)Product revenues, net $63,749 $73,061 $70,176 $73,427 Costs and expenses Cost of product revenues 43,106 46,838 46,007 29,726Research and development 2,268 2,237 1,907 2,249Selling, general and administrative 31,582 31,279 33,448 30,451Total costs and expenses 76,956 80,354 81,362 62,426Loss from operations $(13,207) $(7,293) $(11,186) $11,001 Interest expense (5,700) (6,158) (5,868) (2,404)Interest income 255 391 552 489Net loss $(18,652) $(13,060) $(16,502) $9,086 Weighted-average shares - basic 32,903,674 32,967,718 33,012,174 33,250,180(Loss) earnings per share - basic $(0.57) $(0.40) $(0.50) $0.27 Weighted-average shares - diluted 32,903,674 32,967,718 33,012,174 33,769,765(Loss) earnings per share - diluted $(0.57) $(0.40) $(0.50) $0.27 First Second Third FourthYear ended December 31, 2017 Quarter Quarter Quarter (1) QuarterProduct revenues, net $2,172 $3,560 $11,950 $10,794 Costs and expenses Cost of product revenues 371 577 553 1,094Research and development 2,130 2,179 2,069 2,194Selling, general and administrative 22,847 22,062 22,758 25,089Total costs and expenses 25,348 24,818 25,380 28,377Loss from operations $(23,176) $(21,258) $(13,430) $(17,583) Interest income 98 137 167 180Net loss $(23,078) $(21,121) $(13,263) $(17,403) Weighted-average shares - basic and diluted 29,350,268 29,441,514 29,753,043 32,485,572Loss per share - basic and diluted $(0.79) $(0.72) $(0.45) $(0.54) (1) - In the third quarter of 2017, the Company recorded a one-time $4,377 increase to revenues as a result of the Company’schange to the sell-in method in the third quarter of 2017.(2) - In the fourth quarter of 2018, the Company executed the Third Amendment to the Nucynta CommercializationAgreement, which eliminated the guaranteed minimum royalty payment obligations after 2018. As a result, the Companyremeasured the remaining contractual obligation as of the Amendment Date and reduced the intangible asset. Consequently,amortization expense included within cost of product revenues was $15,494 in the fourth quarter compared to $32,407,$32,407 and $29,526 in the third, second and first quarters, respectively. Similarly, interest expense associated with theminimum royalty payments was $2,169 in the fourth quarter compared to $5,641, $5,943 and $5,528 in the third, second andfirst quarters, respectively. See Note 9 for further detail.F-33Exhibit 21.1 Subsidiaries of Collegium Pharmaceutical, Inc. SubsidiaryJurisdiction of IncorporationCollegium Securities CorporationMassachusettsCollegium NF, LLCDelaware 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 Nos. 333-207744, 333-218767 and 333-225498 on Form S-8 of our reports dated February 27, 2019, relatingto the consolidated financial statements of Collegium Pharmaceutical, Inc. and subsidiaries (the “Company”), and theeffectiveness of the Company's internal control over financial reporting, appearing in this Annual Report on Form 10-Kof Collegium Pharmaceutical Inc. for the year ended December 31, 2018. /s/ Deloitte & Touche LLP Boston, MassachusettsFebruary 27, 2019 /s/ JOSEPH CIAFFONIJoseph CiaffoniPresident and Chief Executive Officer Exhibit 31.1CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANTTO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002I, Joseph Ciaffoni, 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: February 27, 2019/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: February 27, 2019/s/ JOSEPH CIAFFONIJoseph Ciaffoni President 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, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), theundersigned, Joseph Ciaffoni, President and Chief Executive 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 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: February 27, 2019/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, 2018 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: February 27, 2019

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