Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

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.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section13(a) of the Exchange Act.☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of August ~~9, 2017,~~5, 2018, there were ~~19,059,604~~20,718,063 shares of common stock, par value $0.01 per share, outstanding.

(amounts in thousands, except share and per share data)	June 30, 2017			December 31, 2016			June 30, 2018			December 31, 2017
Assets
Current assets:
Cash and cash equivalents	$	8,728		$	64,483		$	48,911		$	60,984
Short-term investments		41,517			—			—			3,498
Accounts receivable		10,102			10,411			11,671			9,686
Contract asset								6,866			—
Inventory		6,888			8,746			8,113			9,839
Prepaid expenses and other current assets		2,572			1,118			3,468			3,276
Total current assets		69,807			84,758			79,029			87,283
Property, plant and equipment, net		37,638			37,300			38,740			39,074
Deferred income taxes		19,777			17,060			22,696			18,573
Intangible assets, net		36,141			37,433			33,558			34,850
Goodwill		6,446			6,446			6,446			6,446
Total assets	$	169,809		$	182,997		$	180,469		$	186,226
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	3,421		$	4,132		$	6,357		$	7,954
Accrued expenses and other current liabilities		6,551			9,893			9,500			9,897
Current portion of long-term debt, net		2,057			2,236
Current portion of contingent consideration								33,957			32,053
Total current liabilities		12,029			16,261			49,814			49,904
Long-term debt, net		22,657			22,152			54,316			53,598
Warrants and other long-term liabilities		2,788			3,397			481			3,516
Contingent consideration		75,347			69,574
Long-term portion of contingent consideration								51,372			50,360
Total liabilities		112,821			111,384			155,983			157,378
Commitments and contingencies (Note 13)
Shareholders’ equity:
Preferred stock, $0.01 par value. Authorized, 10,000,000 shares; none issued and outstanding		—			—			—			—
Common stock, $0.01 par value. Authorized, 50,000,000 shares; issued and outstanding, 19,054,566 shares at June 30, 2017 and 19,043,216 shares at December 31, 2016		191			190
Common stock, $0.01 par value. Authorized, 50,000,000 shares; issued and outstanding, 20,716,269 shares at June 30, 2018 and 19,127,435 shares at December 31, 2017								207			191
Additional paid-in capital		135,083			132,691			157,981			140,006
Accumulated deficit		(78,210	)		(61,268	)		(133,702	)		(111,348	)
Accumulated other comprehensive loss		(76	)		—			—			(1	)
Total shareholders’ equity		56,988			71,613			24,486			28,848
Total liabilities and shareholders’ equity	$	169,809		$	182,997		$	180,469		$	186,226

	For the Three Months Ended June 30,						For the Six Months Ended June 30,						For the Three Months Ended June 30,						For the Six Months Ended June 30,
(amounts in thousands, except share and per share data)	2017			2016			2017			2016			2018			2017			2018			2017
Revenue:
Manufacturing, royalty and profit sharing revenue	$	16,750		$	16,933		$	34,878		$	34,072
Research and development revenue		184			346			798			949
Total revenues		16,934			17,279			35,676			35,021
Revenue													$	21,739		$	16,934		$	41,281		$	35,676
Operating expenses:
Cost of sales (excluding amortization of intangible assets)		10,448			9,547			20,946			19,818			12,071			10,448			22,561			20,946
Research and development		7,073			8,320			14,836			16,129			10,157			7,073			18,599			14,836
General and administrative		6,322			2,763			10,354			5,421			12,955			6,322			22,473			10,354
Amortization of intangible assets		646			646			1,292			1,291			646			646			1,292			1,292
Change in warrant valuation		(1,084	)		1,240			(793	)		(354	)		(1,139	)		(1,084	)		(365	)		(793	)
Change in contingent consideration valuation		2,959			1,534			5,773			4,512			396			2,959			2,916			5,773
Total operating expenses		26,364			24,050			52,408			46,817			35,086			26,364			67,476			52,408
Operating loss		(9,430	)		(6,771	)		(16,732	)		(11,796	)		(13,347	)		(9,430	)		(26,195	)		(16,732	)
Other income (expense):
Interest income		117			8			222			17			114			117			255			222
Interest expense		(1,207	)		(1,317	)		(2,390	)		(2,829	)		(2,189	)		(1,207	)		(4,292	)		(2,390	)
Net loss before income taxes		(10,520	)		(8,080	)		(18,900	)		(14,608	)		(15,422	)		(10,520	)		(30,232	)		(18,900	)
Income tax benefit		1,665			195			1,958			184			2,707			1,665			5,060			1,958
Net loss	$	(8,855	)	$	(7,885	)	$	(16,942	)	$	(14,424	)	$	(12,715	)	$	(8,855	)	$	(25,172	)	$	(16,942	)

Per share information:
Net loss per share of common stock, basic	$	(0.46	)	$	(0.83	)	$	(0.89	)	$	(1.53	)	$	(0.62	)	$	(0.46	)	$	(1.27	)	$	(0.89	)
Net loss per share of common stock, diluted	$	(0.48	)	$	(0.83	)	$	(0.89	)	$	(1.53	)	$	(0.62	)	$	(0.48	)	$	(1.27	)	$	(0.89	)
Weighted average common shares outstanding, basic		19,052,430			9,544,629			19,050,931			9,398,288			20,410,615			19,052,430			19,818,227			19,050,931
Weighted average common shares outstanding, diluted		19,220,700			9,544,629			19,220,175			9,398,288			20,410,615			19,220,700			19,818,227			19,220,175

Net loss													$	(12,715	)	$	(8,855	)	$	(25,172	)	$	(16,942	)
Other comprehensive loss:
Unrealized loss on available-for-sale securities		(19	)		—			(76	)		—
Unrealized gain/(loss) on available-for-sale securities														1			(19	)		1			(76	)
Comprehensive loss	$	(8,874	)	$	(7,885	)	$	(17,018	)	$	(14,424	)	$	(12,714	)	$	(8,874	)	$	(25,171	)	$	(17,018	)

	Common Stock				Additional					Accumulated other						Common Stock				Additional						Accumulated other
(amounts in thousands, except share data)	Shares		Amount		paid-in capital		Accumulated Deficit			comprehensive loss			Total			Shares		Amount		paid-in capital			Accumulated Deficit			comprehensive loss			Total
Balance, December 31, 2016		19,043,216		190		132,691		(61,268	)		—			71,613
Balance, December 31, 2017																	19,127,435	$	191	$	140,006		$	(111,348	)	$	(1	)	$	28,848
Stock-based compensation expense		—		—		2,370		—			—			2,370			—		—		3,303			—			—			3,303
Stock option exercise		3,600		1		22		—			—			23			174,361		2		1,025			—			—			1,027
Issuance of restricted stock units		7,750		—		—		—			—			—
Other comprehensive loss		—		—		—		—			(76	)		(76	)
Issuance of restricted stock units, net of shares withheld for income taxes																	116,718		1		(88	)		—			—			(87	)
Sale of common stock under equity facility, net of transaction costs																	1,083,040		11		11,148			—			—			11,159
Cashless exercise of warrants																	214,715		2		2,587			—			—			2,589
Other comprehensive income																	—		—		—			—			1			1
Net loss		—		—				(16,942	)		—			(16,942	)		—		—		—			(25,172	)		—			(25,172	)
Balance, June 30, 2017		19,054,566	$	191	$	135,083	$	(78,210	)	$	(76	)	$	56,988
Cumulative effect of adoption of new accounting standards, net of tax																	—		—		—			2,818			—			2,818
Balance, June 30, 2018																	20,716,269	$	207	$	157,981		$	(133,702	)	$	—		$	24,486

	For the Six Months Ended June 30,						For the Six Months Ended June 30,
(amounts in thousands)	2017			2016			2018			2017
Cash flows from operating activities:
Net loss	$	(16,942	)	$	(14,424	)	$	(25,172	)	$	(16,942	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation		2,370			1,430			3,303			2,370
Non-cash interest expense		326			449			639			326
Depreciation expense		2,424			2,511			2,498			2,424
Amortization		1,292			1,291			1,292			1,292
Acquired in-process research & development charges		766			—
Acquired in-process research and development charges								—			766
Change in warrant valuation		(793	)		(354	)		(365	)		(793	)
Change in contingent consideration valuation		5,773			4,512			2,916			5,773
Deferred income taxes		(2,717	)		(1,007	)		(5,060	)		(2,717	)
Changes in operating assets and liabilities, net of effect of acquisition:
Changes in operating assets and liabilities:
Inventory		1,858			2,254			1,726			1,858
Contract asset								(3,111	)		—
Prepaid expenses and other current assets		(1,454	)		(1,098	)		(17	)		(1,454	)
Accounts receivable		309			(2,887	)		(1,985	)		309
Accounts payable, accrued expenses and other liabilities		(4,194	)		1,928			(905	)		(4,194	)
Net cash used in operating activities		(10,982	)		(5,395	)		(24,241	)		(10,982	)
Cash flows from investing activities:
Purchase of property and equipment		(3,185	)		(1,081	)		(2,931	)		(3,185	)
Purchase of short-term investments		(53,593	)		—			(4,982	)		(53,593	)
Proceeds from maturity/redemption of investments		12,000			—
Proceeds from maturity of investments								8,500			12,000
Acquisition of license agreement		(18	)		—			(82	)		(18	)
Net cash used in investing activities		(44,796	)		(1,081	)
Net cash provided by/(used in) investing activities								505			(44,796	)
Cash flows from financing activities:
Proceeds from Aspire facility		—			4,175
Payments on long-term debt		—			(2,633	)
Payment of deferred financing costs								(261	)		—
Proceeds from sale of common stock, net of transaction costs								10,984			—
Payments of withholdings on shares withheld for income taxes								(87	)		—
Proceeds from option exercise		23			—			1,027			23
Net cash provided by financing activities		23			1,542			11,663			23
Net decrease in cash and cash equivalents		(55,755	)		(4,934	)		(12,073	)		(55,755	)
Cash and cash equivalents, beginning of period		64,483			19,779			60,984			64,483
Cash and cash equivalents, end of period	$	8,728		$	14,845		$	48,911		$	8,728
Supplemental disclosure of cash flow information:
Cash paid for interest	$	2,064		$	2,373		$	4,375		$	2,064
Cash paid for taxes	$	467		$	166		$	—		$	467
Unrealized loss on available-for-sale securities	$	76		$	—
Purchase of property, plant and equipment included in accrued expenses and accounts payable	$	385		$	129		$	508		$	385
Amortization of deferred equity costs	$	—		$	224
Retirement of fully depreciated property, plant and equipment							$	30		$	—
Common stock issued in connection with equity facility							$	357		$	—

Recro Pharma, Inc., or the Company, was incorporated in Pennsylvania on November 15, 2007. The Company is a specialty pharmaceutical company that operates through two business divisions: an Acute Care division and a revenue-generating contract development and manufacturing, or CDMO division. Each of these divisions are deemed to be reportable segments (see Note 3(m) and Note 17). The Acute Care division is primarily focused on developing innovative products for hospital and other acute care settings, and the CDMO division leverages the Company’s formulation expertise to develop and manufacture pharmaceutical products using the Company’s proprietary delivery technologies for commercial partners who commercialize or plan to commercialize these products. On April 10, 2015, the Company acquired from Alkermes plc, or Alkermes, worldwide rights to intravenous and intramuscular, or injectable, meloxicam, a proprietary long-acting preferential COX-2 inhibitor being developed for the management of moderate to severe pain, as well as a contract manufacturing facility, royalty and formulation business in Gainesville, Georgia. The acquisition is referred to herein as the Gainesville Transaction. In July 2017, the Company submitted a New Drug Application, or NDA, to the U.S. Food and Drug Administration, or the FDA, for ~~our~~its lead investigational product candidate intravenous, or IV, meloxicam 30 mg for the management of moderate to severe pain. In May 2018, the Company received a Complete Response Letter, or CRL, from the FDA regarding its NDA for IV meloxicam. In July 2018, the Company participated in a Type A End-of-Review meeting with the FDA to discuss the topics covered in the CRL. The Company plans to provide an update on its path forward following receipt of the written meeting minutes.

The Company has incurred losses from operations since inception and has an accumulated deficit of ~~$78,210~~$133,702 as of June 30, ~~2017.~~2018. Though its CDMO segment has been profitable, the Company anticipates incurring additional losses until such time, if ever, that it can generate significant sales of its products currently in development. ~~Substantial additional~~Additional financing will be needed by the Company to fund its operations and to commercially develop its product candidates, including the payment of the Gainesville Transaction contingent payments, which may become due upon achievement of certain development and commercialization milestones for meloxicam (see Note 4). Insufficient funds may cause the Company to delay, reduce the scope of or eliminate one or more of its development, commercialization or expansion activities. The Company may raise such funds through debt refinancing, bank or other loans, sale of assets, through strategic research and development, licensing (including out-licensing) and/or marketing arrangements or through public or private sales of equity or debt securities from time to time. Financing may not be available on acceptable terms, or at all, and failure to raise capital when needed could materially adversely impact the Company’s growth plans and its financial condition or results of operations. Additional debt or equity financing, if available, may be dilutive to the holders of its common stock and may involve significant cash payment obligations and covenants that restrict the Company’s ability to operate its business. The Company’s future operations are highly dependent on a combination of factors, including (i) the continued profitability of the CDMO segment; (ii) the timely and successful completion of additional financing and/or alternative sources of capital, debt, partnering or ~~partnering~~out-licensing transactions; (iii) the success of its research and development, including the results and timing of its clinical trials; (iv) the development of competitive therapies by other biotechnology and pharmaceutical companies; and, ultimately, (v) regulatory approval and market acceptance of the Company’s proposed future ~~products.~~products, including IV meloxicam. Management believes that it is probable that the ~~Company’s existing cash, cash equivalents and short-term investments as of June 30, 2017~~Company will be ~~sufficient~~able to ~~fund~~meet its ~~operations through mid-year 2018.~~obligations as they become due within one year after the date of the financial statements are issued.

The accompanying unaudited consolidated financial statements of the Company and its subsidiaries have been prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP, for interim financial information and with the instructions of Form 10-Q and Article 10 of Regulation S-X and, therefore, do not include all of the information and notes required by ~~the~~ U.S. GAAP for complete annual financial statements. The Company’s consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated. In the opinion of management, the accompanying consolidated financial statements include all normal and recurring adjustments (which consist primarily of accruals, estimates and assumptions that impact the financial statements) considered necessary to present fairly the Company’s results for the interim periods. Operating results for the three and six months ended June 30, ~~2017~~2018 are not necessarily indicative of the results that may be expected for the full year ending December 31, ~~2017.~~2018.

The accompanying unaudited interim consolidated financial statements should be read in conjunction with the annual audited financial statements and related notes as of and for the year ended December 31, ~~2016~~2017 included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016.~~2017.

The preparation of financial statements and the notes to the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from such estimates.

Cash and cash equivalents ~~represents~~represent cash in banks and highly liquid short-term investments that have maturities of three months or less when ~~acquired to be cash equivalents.~~acquired. These highly liquid short-term investments are both readily convertible to known amounts of cash and so near to their maturity that they present insignificant risk of changes in value because of the changes in interest rates.

Property and equipment are recorded at cost less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets, which are as follows: three to ten years for furniture and office equipment; six to ten or more years for manufacturing equipment; two to five years for vehicles; 35 to 40 years for buildings; and the shorter of the lease term or useful life for leasehold improvements. Repairs and maintenance ~~cost~~costs are expensed as incurred.

In accordance with Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 805, “Business Combinations,” or ASC 805, the Company allocates the purchase price of acquired companies to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. Valuations are performed to assist in determining the fair values of assets acquired and liabilities assumed, which requires management to make significant estimates and assumptions, in particular with respect to intangible assets. Management makes estimates of fair value based upon assumptions believed to be reasonable. These estimates are based in part on historical experience and information obtained from management of the acquired companies and expectations of future cash flows. Transaction costs and restructuring costs associated with the transaction are expensed as incurred. In-process research and development, or IPR&D, is the value assigned to those projects for which the related products have not received regulatory approval and have no alternative future use. Determining the portion of the purchase price allocated to IPR&D requires the Company to make significant estimates. In a business combination, the Company capitalizes IPR&D as an intangible asset, and for an asset acquisition the Company expenses IPR&D in the Consolidated Statements of Operations and Comprehensive Loss on the acquisition date.

Goodwill represents the excess of purchase price over the fair value of net assets acquired by the Company. Goodwill is not amortized but assessed for impairment on an annual basis or more frequently if impairment indicators exist. The impairment model prescribes a two-step method for determining impairment.

The first step compares a reporting unit’s fair value to its carrying amount to identify potential goodwill impairment. If the carrying amount of a reporting unit exceeds the reporting unit’s fair value, the second step of the impairment test must be completed to measure the amount of the reporting unit’s goodwill impairment loss, if any. Step two requires an assignment of the reporting unit’s fair value to the reporting unit’s assets and liabilities to determine the implied fair value of the reporting unit’s goodwill. The implied fair value of the reporting unit’s goodwill is then compared with the carrying amount of the reporting unit’s goodwill to determine the goodwill impairment loss to be recognized, if any.

Intangible assets include the Company’s royalties and contract manufacturing relationships intangible asset as well as an IPR&D asset. The royalties and contract manufacturing relationships intangible asset is considered a definite-lived intangible asset and is amortized on a straight-line basis over a useful life of six years.

Intangible assets related to IPR&D are considered indefinite-lived intangible assets and are assessed for impairment annually or more frequently if impairment indicators exist. If the associated research and development effort is abandoned, the related assets will be written-off, and the Company will record a noncash impairment loss on its ~~consolidated statements~~Consolidated Statements of ~~operations.~~Operations and Comprehensive Loss. For those compounds that reach commercialization, the IPR&D assets will be amortized over their estimated useful lives.

The impairment test for indefinite-lived intangible assets is a one-step test, which compares the fair value of the intangible asset to its carrying value. If the carrying value exceeds its fair value, an impairment loss is recognized in an amount equal to the excess. Based on accounting standards, it is required that these assets be assessed at least annually for impairment

unless a triggering event occurs between annual assessments, which would then require an assessment in the period which a triggering event occurred. The ~~most recent tests~~Company performs its annual goodwill and indefinite-lived intangible asset impairment test as of November 30 ~~2016,~~^th, or whenever an event or change in circumstances occurs that would require reassessment of the recoverability of those assets. In performing the evaluation, the Company assessed qualitative factors such as overall financial performance of its reporting units, anticipated changes in industry and market conditions, including recent tax reform, intellectual property protection, and competitive environments. Due to the receipt of the CRL in May 2018, an indicator of potential impairment, the Company performed an impairment test, which indicated that there was no impairment to goodwill ~~and~~or indefinite-lived intangible assets ~~were not impaired. There were no indicators of impairment~~ as of June 30, ~~2017.~~2018.

The Company generates revenues from manufacturing, packaging, research and development, ~~manufacturing, packaging~~ and related services for multiple pharmaceutical companies through its CDMO segment. The agreements that the Company has with its commercial partners provide for manufacturing revenues, sales-based royalties and/or profit sharing components. The Company’s revenue policies listed below are reflective of Accounting Standards Update, or ASU, No. 2014-09, “Revenue from Contracts with Customers,” or ASU 2014-09, which the company adopted effective January 1, 2018. See footnote 18 for additional information regarding the Company’s adoption of ASU 2014-09 and its impact on the Company’s financial statements.

Manufacturing and other related services revenue is recognized ~~when persuasive evidence~~upon transfer of ~~an arrangement exists,~~control of a product to a customer, generally upon shipment, ~~has occurred~~based on a transaction price that reflects the consideration the Company expects to be entitled to as specified in the agreement with the commercial partner, which could include pricing and ~~the title to the product and associated risk of loss has passed to the customer, the sales price is fixed or determinable and collectability is reasonably assured.~~volume-based adjustments.

In addition to manufacturing and packaging revenue, ~~the~~certain customer agreements may have intellectual property sales-based royalties and/or profit sharing ~~payments,~~consideration, collectively referred to as royalties, computed on the net product sales of the commercial partner. Royalty ~~and profit sharing~~ revenues are generally recognized under the terms of the applicable license, development and/or supply ~~agreement in~~agreement. For arrangements that include sales-based royalties where the ~~period~~license for intellectual property is deemed to be the ~~products~~predominant item to which the royalties relate, the Company recognizes revenue when the related sales occur by the commercial partner. For arrangements that include sales-based royalties where the license for intellectual property is not deemed to be the predominant item to which the royalties relate, the Company recognizes revenue upon transfer of control of the manufactured product. In these cases, significant judgement is required to calculate this estimated variable consideration using the most-likely amount method based on historical customer pricing and deductions and is partially constrained due to items that are ~~sold~~outside of the Company’s control including the uncertainty of the timing of future commercial partner sales, mix of volume, customer stocking and ~~when collectability is reasonably assured.~~ordering patterns, as well as unforeseen price adjustments made by the Company’s commercial partners.

Revenues related to research and development are generally recognized over-time as the related services or activities are performed using the output method and in accordance with the contract terms. ~~To the extent that the agreements specify services are to be performed on a fixed basis, revenues are recognized consistent with the pattern of the work performed.~~ In agreements which specify milestones, the Company evaluates whether the milestones are considered probable of being achieved and estimates the amount to be included in the transaction price using the most likely amount method. Milestone payments related ~~revenues~~to arrangements under which the Company has continuing performance obligations would be deferred and recognized over the period of performance. Milestone payments that are ~~recognized upon~~not within the ~~achievement~~control of the Company, such as submission for approval to regulators by a ~~substantive milestone.~~commercial partner or approvals from regulators, are not considered probable of being achieved until those submissions are submitted by the customer or approvals are received.

Financial instruments that potentially subject the Company to significant concentration of credit risk consist primarily of cash, cash equivalents, short-term investments and accounts receivable. The Company manages its cash, cash equivalents and short-term investments based on established guidelines relative to diversification and maturities to maintain safety and liquidity.

The Company’s accounts receivable balances are concentrated amongst approximately five customers and if any of these customers’ receivable balances should be deemed uncollectible, it could have a material adverse effect on the Company’s results of operations and financial condition.

The Company’s CDMO segment is dependent on its relationships with a small number of commercial partners, with its four largest customers having generated 99% of its revenues for three and six months ended June 30, 2018. A portion of the Company’s revenues are dependent on U.S. based customers selling to end-users outside the United States.

Research and development costs for the Company’s proprietary products/product candidates are charged to expense as incurred. Research and development expenses consist primarily of funds paid to third parties for the provision of services for pre-commercialization and manufacturing scale-up activities, drug development, clinical trials, statistical analysis and report writing and regulatory filing fees and compliance costs. At the end of the reporting period, the Company compares payments made to third-party service providers to the estimated progress toward completion of the research or development objectives. Such estimates are subject to change as additional information becomes available. Depending on the timing of payments to the service providers and the progress that the Company estimates has been made as a result of the service provided, the Company may record net prepaid or accrued expenses relating to these costs.

Upfront and milestone payments made to third parties who perform research and development services on the Company’s behalf are expensed as services are rendered. Costs incurred in obtaining product technology licenses are charged to research and development expense as acquired IPR&D if the technology licensed has not reached technological feasibility and has no alternative future use.

The Company measures employee stock-based awards at grant-date fair value and recognizes employee compensation expense on a straight-line basis over the vesting period of the award.

Determining the appropriate fair value of stock options requires the input of subjective assumptions, including the expected life of the option and expected stock price volatility. The Company uses the Black-Scholes option pricing model

to value its stock option awards. The assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and/or management uses different assumptions, stock-based compensation expense could be materially different for future awards.

The expected life of stock options was estimated using the “simplified method,” as the Company has limited historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior for its stock options grants. The simplified method is based on the average of the vesting tranches and the contractual life of each grant. For stock price volatility, the Company uses ~~comparable public companies as a basis for~~the historical volatility of its ~~expected volatility~~publicly traded stock in order to ~~calculate the fair value of options grants.~~estimate future stock price trends. The risk-free interest rate is based on U.S. Treasury notes with a term approximating the expected life of the option.

Non-employee stock-based awards are revalued until an award vests and the Company recognizes compensation expense on a straight-line basis over the vesting period of each separated vesting tranche of the award, which is known as the accelerated attribution method. The estimation of the number of stock awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from the Company’s current estimates, such amounts are recognized as an adjustment in the period in which estimates are revised.

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date. A valuation allowance is recorded to the extent it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Unrecognized income tax benefits represent income tax positions taken on income tax returns that have not been recognized in the consolidated financial statements. The Company recognizes the benefit of an income tax position only if it is more likely than not (greater than 50%) that the tax position will be sustained upon tax examination, based solely on the technical merits of the tax position. Otherwise, no benefit is recognized. The tax benefits recognized are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company ~~accrues interest, and related penalties are classified as income tax expense in the Consolidated Statements of Operations. The Company~~ does not anticipate significant changes in the amount of unrecognized income tax benefits over the next year.

Basic net loss per common share is determined by dividing net loss applicable to common shareholders by the weighted average common shares outstanding during the period. For all periods presented, the outstanding common stock options and unvested restricted stock units have been excluded from the calculation of diluted net loss per share because their effect would be anti-dilutive.

For purposes of calculating diluted loss per common share, the denominator includes both the weighted average common shares outstanding and the number of common stock equivalents if the inclusion of such common stock equivalents would be dilutive.

For the three and six months ended June 30, 2018, the outstanding common stock options, warrants and unvested restricted stock units have been excluded from the calculation of diluted net loss per share because their effect would be anti-dilutive. Dilutive common stock equivalents for the three and six months ended June 30, 2017 include warrants using the treasury stock method. The diluted loss per common share calculation is further affected by an add-back of change in fair value of warrant liability to the numerator, net of tax, under the assumption that the change in fair value of warrant liability would not have been incurred if the warrants had been converted into common stock.

The following table sets forth the computation of basic ~~earnings per share~~ and diluted ~~earnings~~loss per share:

	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016			2018			2017			2018			2017
Basic Earnings Per Share
Basic and Diluted Loss Per Share
Net loss	$	(8,855	)	$	(7,885	)	$	(16,942	)	$	(14,424	)	$	(12,715	)	$	(8,855	)	$	(25,172	)	$	(16,942	)
Weighted average common shares outstanding, basic		19,052,430			9,544,629			19,050,931			9,398,288			20,410,615			19,052,430			19,818,227			19,050,931
Net loss per share of common stock, basic	$	(0.46	)	$	(0.83	)	$	(0.89	)	$	(1.53	)	$	(0.62	)	$	(0.46	)	$	(1.27	)	$	(0.89	)
Diluted Earnings Per Share
Net loss	$	(8,855	)	$	(7,885	)	$	(16,942	)	$	(14,424	)
Net income (loss)													$	(12,715	)	$	(8,855	)	$	(25,172	)	$	(16,942	)
Add change in warrant valuation		(341	)		—			(234	)		—			—			(341	)		—			(234	)
Diluted net loss	$	(9,196	)	$	(7,885	)	$	(17,176	)	$	(14,424	)
Weighted average common shares outstanding, basic		19,052,430			9,544,629			19,050,931			9,398,288
Diluted net income (loss)													$	(12,715	)	$	(9,196	)	$	(25,172	)	$	(17,176	)
Weighted average common shares outstanding, diluted														20,410,615			19,052,430			19,818,227			19,050,931
Add shares from outstanding warrants		168,270			—			169,244			—			—			168,270			—			169,244
Weighted average common shares outstanding, diluted		19,220,700			9,544,629			19,220,175			9,398,288			20,410,615			19,220,700			19,818,227			19,220,175
Net loss per share of common stock, diluted	$	(0.48	)	$	(0.83	)	$	(0.89	)	$	(1.53	)
Net income (loss) per share of common stock, diluted													$	(0.62	)	$	(0.48	)	$	(1.27	)	$	(0.89	)

The following potentially dilutive securities have been excluded from the computations of diluted weighted average shares outstanding as of June 30, ~~2017~~2018 and ~~2016,~~2017, as they would be anti-dilutive:

	June 30,				June 30,
	2017		2016		2018		2017
Options and restricted stock units outstanding		3,680,799		2,229,343		5,121,104		3,680,799
Warrants		490,000		784,928		838,664		490,000

Amounts in the table above reflect the common stock equivalents of the noted instruments.

The Company determined its reportable segments based on its strategic business units, the commonalities among the products and services within each segment and the manner in which the Company reviews and evaluates operating performance. The Company has identified its CDMO and Acute Care divisions as reportable segments. Segment disclosures are included in Note 17. Segment operating profit (loss) is defined as segment revenue less segment operating expenses (segment operating expenses consist of general and administrative expenses, research and development expenses, and the change in valuation of contingent consideration and warrants). The following items are excluded from segment operating profit (loss): interest income and expense, and income tax ~~benefit (expense).~~benefit. Segment assets are those assets and liabilities that are recorded and reported by segment operations. Segment operating capital employed represents segment assets less segment liabilities.

In ~~July 2017,~~June 2018, the FASB issued ~~Accounting Standards Update,~~ASU No. 2018-07, “Compensation – Stock Compensation (Topic 718)” or ASU ~~No. 2017-11~~ ~~“Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): Accounting for Certain Financial Instruments with Down Round Features,”~~ or2018-07. ASU ~~2017-11. ASU 2017-11~~2018-07 simplifies the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain ~~financial instruments with down round features, as equity-linked instruments~~exceptions. The new guidance expands the scope of ASC 718 “Compensation—Stock Compensation” to include share-based payments granted to nonemployees in exchange for goods or ~~embedded equity-linked features will not be accounted for as a liability solely because there~~services used or consumed in an entity’s own operations and supersedes the guidance in ASC 505-50 “Equity-Based Payments to Non-Employees”. The guidance is ~~a down-round feature. The amendments are~~ effective for public ~~companies for~~business entities in annual ~~and interim~~ periods beginning after December 15, ~~2018.~~2018, and interim periods within those annual periods. Early adoption is permitted, including in an interim period for which financial statements have not been issued, but not before an entity adopts ASU 2014-09 “Revenue from Contracts with Customers (Topic 606)”. The Company ~~is currently evaluating the effect that~~adopted this guidance ~~may have on its consolidated financial statements.~~effective June 30, 2018. There was no impact upon adoption.

In May 2017, the FASB issued ASU No. 2017-09, “Stock Compensation -– Scope of Modification ~~Accounting~~Accounting” .or ASU 2017-09. ASU 2017-09 provides guidance on which changes to the terms or conditions of a share-based payment award require an entity to

apply modification accounting. The new standard is effective for fiscal years beginning after December 15, 2017. The Company ~~is currently evaluating~~adopted the ~~effect that this~~ guidance ~~may have on its consolidated financial statements.~~effective January 1, 2018. There was no impact upon adoption.

In January 2017, the FASB issued ASU No. 2017-04 ““Intangibles -– Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment,” or ASU 2017-04. ASU 2017-04 allows companies to apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The amendments of the ASU are effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the effect that this guidance may have on its consolidated financial statements.

In ~~August 2016, the FASB issued ASU No. 2016-15~~ ~~“Classification of Certain Cash Receipts and Cash Payments,”~~ or ASU 2016-15. ASU 2016-15 provides guidance in the classification of certain cash receipts and payments in the statement of cash flows where diversity in practice exists. This new guidance is effective for annual periods beginning after December 15, 2017, with early adoption permitted. The Company is currently evaluating the effect that the updated standard will have on its consolidated financial statements and related disclosures.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842),” or ASU 2016-02. ASU 2016-02 establishes a wholesale change to lease accounting and introduces a lease model that brings most leases on the balance sheet. It also eliminates the required use of bright-line tests in current U.S. GAAP for determining lease classification. The new guidance is effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted. The Company ~~is currently evaluating the effect that~~plans to adopt this ~~guidance may have on its consolidated financial statements.~~

~~In September 2015, the FASB issued~~ ASU ~~No. 2015-16, “Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments,”~~ ~~or ASU 2015-16.~~ ~~ASU 2015-16 addresses~~ the accounting for and disclosure of measurement-period adjustments that occur in periods after a business combination is consummated. This update requires that the acquirer recognize measurement-period adjustments in the ~~reporting period in which they are determined. Prior period information should not~~first quarter of 2019. The Company currently expects that most of its operating lease commitments will be ~~revised. This~~subject to the update also requires an entity to present separately on the face of the income statement or disclose in the notes the amount recorded in the current-period income statement that would have been recorded in previous reporting periods if the adjustments had beenand recognized as ~~of the acquisition date. The updated guidance is effective for annual~~operating lease liabilities and ~~interim periods beginning after December 15, 2016.~~ right-of-use assets upon adoption. The Company ~~adopted the guidance effective January 1, 2017. The guidance did not have a material impact to the consolidated financial statements upon adoption.~~

~~In July 2015, the FASB issued ASU No. 2015-11, “Simplifying the Measurement of Inventory,”~~ ~~or ASU 2015-11. ASU 2015-11 addresses changes in the measurement principle for inventory from the lower of cost or market to the lower of cost~~expects total assets and net realizable value. The amendments in this guidance do not apply to inventory that is measured using last-in, first-out, or LIFO, or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out or average cost methods. Within the scope of this new guidance, an entity should measure inventory at the lower of cost and net realizable value; where net realizable value is defined as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The new guidance is effective for annual periods beginning after December 15, 2016, with early adoption permitted. The new guidance must be applied on a prospective basis. The Company adopted the guidance effective January 1, 2017. The guidance did not have a material impact to the consolidated financial statements upon adoption.

~~In May 2014, the FASB issued ASU No. 2014-09,~~ ~~“Revenue from Contracts with Customers,”~~ or ASU 2014-09. ASU 2014-09 represents the accounting for and disclosures of revenue recognition, with an effective date for annual and interim periods beginning after December 15, 2016. The update provides a single comprehensive model for accounting for revenue from contracts with customers. The model requires that revenue recognized reflect the actual consideration to which the entity expects to be entitled in exchange for the goods or services defined in the contract, including in situations with multiple performance obligations. In July 2015, the FASB deferred the effective date by one year. The guidancetotal liabilities will be effective for annual and interim periods beginning after December 15, 2017. The new standard permits two methods of adoption: the full retrospective method, which requires the standard to be applied to each prior period presented, or the modified retrospective method, which requires the cumulative effect of adoption to be recognized as an adjustment to opening retained earningsmaterially increase in the period of adoption. The Company is currently ~~anticipates adopting~~evaluating the ~~standard using~~impact the ~~modified retrospective method. The Company plans to complete an analysis~~adoption of ~~existing contracts with its customers and to assess the differences in~~this accounting ~~for such contracts under ASU 2014-09 compared with current revenue accounting standards by the end of the third quarter. The new~~ standard will ~~result in additional revenue-related disclosures in the~~

~~(amounts in thousands, except share~~have on its results of operations, cash flows and ~~per share data)~~

footnotes to the consolidated financial statements. The Company will continue to assess new customer contracts during 2017. Adoption of this standard will require changes to business processes, systems and controls to support the additional requiredrelated disclosures. The Company is in the process of ~~identifying such changes.~~assessing any potential impacts on our internal controls, business processes, and accounting policies related to both the implementation and ongoing compliance of the new guidance.

In May 2014, the FASB issued ASU 2014-09. ASU 2014-09 represents a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which a company expects to be entitled to receive in exchange for those goods or services. This ASU sets forth a new five-step revenue recognition model which replaces the prior revenue recognition guidance in its entirety and is intended to eliminate numerous industry-specific pieces of revenue recognition guidance that have historically existed. In January 2018, the Company adopted the standard using the modified retrospective method. See Footnote 18 for additional information on the impact of the transition on the Company’s financial statements.

On April 10, 2015, the Company completed the Gainesville Transaction. The consideration paid in connection with the Gainesville Transaction consisted of ~~$50.0 million~~$50,000 cash at closing, a ~~$4.0 million~~$4,000 working capital adjustment and a seven-year warrant to purchase 350,000 shares of the Company’s common stock at an exercise price of $19.46 per share. In addition, the Company may be required to pay up to an additional ~~$125.0 million~~$125,000 in milestone payments ~~(including, at the Company’s election, either (i) $10 million upon a new drug application, or NDA, filing and $30 million upon regulatory approval or (ii) an aggregate of $45 million~~including $45,000 upon regulatory approval, as well as net sales milestones related to injectable ~~meloxicam)~~meloxicam and a percentage of future product net sales related to injectable meloxicam between 10% and 12% (subject to a 30% reduction when no longer covered by patent). Under the acquisition method of accounting, the consideration paid and the fair value of the contingent consideration and royalties ~~are~~were allocated to the fair value of the assets acquired and liabilities assumed. The contingent consideration obligation is remeasured each reporting date with changes in fair value recognized as a period charge within the statement of operations (see Note 6 for further information regarding fair value).

The contingent consideration consists of three separate components. The first component ~~consists of two potential payments, which~~ will be payable ~~upon the submission of the NDA for meloxicam and the related regulatory approval or one payment~~ upon regulatory approval. The second component consists of three potential payments, based on the achievement of specified annual revenue ~~targets.~~targets, the last of which represents over 60% of these milestone payments and currently does not have a fair value assigned to its achievement. The third component consists of a royalty payment between 10% and 12% (subject to a 30% reduction when no longer covered by patent) for a defined term on future meloxicam net sales.

The fair value of the first contingent consideration component ~~recognized on the acquisition date was~~is estimated by applying a risk-adjusted discount rate to the probability-adjusted contingent payments and the expected approval dates. The fair value of the second contingent consideration component ~~recognized on~~is estimated using the ~~acquisition date was estimated by~~Monte Carlo simulation method and applying a risk-adjusted discount rate to the potential payments resulting from probability-weighted revenue projections based upon the intellectual property protection and expected revenue target attainment dates. The fair value of the third contingent consideration component recognized ~~on the acquisition date~~ was estimated by applying a risk-adjusted discount rate to the potential payments resulting from ~~probability-weighted~~ revenue projections, expected intellectual property protection and the defined royalty percentage.

These fair values are based on significant inputs not observable in the market, which are referred to in the guidance as Level 3 inputs. The contingent consideration components are classified as liabilities and are subject to the recognition of subsequent changes in fair value through the results of operations.

In June 2017, the Company acquired the exclusive global rights to two novel neuromuscular blocking agents, or NMBs, and a proprietary ~~chemical~~ reversal agent from Cornell University, or Cornell. The NMBs and reversal agent are referred to herein as the NMB Related Compounds. The NMB Related Compounds include one novel intermediate-acting NMB that has initiated Phase I clinical trials and two other agents, a novel short-acting NMB, and a rapid-acting reversal agent ~~proprietary~~specific to these ~~NMB Related Compounds.~~NMBs.

The transaction was accounted for as an asset acquisition, with the total cost of the acquisition of $766 allocated to acquired IPR&D. The Company recorded an upfront payment obligation of $350, ~~that is included within Accounts payable,~~ as well as operational liabilities and acquisition-related costs of $416, primarily consisting of reimbursement to Cornell for specified past patent, legal and pre-clinical ~~costs, each of which is reported as a component of Accrued expenses and other current liabilities and Other non-current liabilities on the Consolidated Balance Sheet as of June 30, 2017.~~costs.

In addition, the Company is obligated to make: (i) an annual license maintenance fee payment until the first commercial sale of the NMB Related Compounds; and (ii) milestone payments upon the achievement of certain milestones, up to a maximum, for each NMB, of ~~$5 million~~$5,000 for U.S. regulatory approval and commercialization milestones and ~~$3 million~~$3,000 for European regulatory approval and commercialization milestones. The Company is also obligated to pay Cornell royalties on net sales of the NMB Related Compounds at a rate ranging from low to mid-single digits, depending on the applicable NMB Related Compounds and whether there is a valid patent claim in the applicable country, subject to an annual minimum royalty amount. Further, the Company will reimburse Cornell ongoing patent costs related to prosecution and maintenance of the patents related to the Cornell patents for the NMB Related Compounds.

The Company accounted for the transaction as an asset acquisition based on an evaluation of the accounting guidance (ASC Topic 805) and ~~considering~~considered the early clinical stage of the novel and unproven NMB Related Compounds. The Company concluded that the acquired IPR&D of Cornell did not constitute a business as defined under ASC 805 due to the incomplete nature of the inputs and the absence of processes from a market participant perspective. Substantial additional research and development will be required to develop any NMB Related Compounds into a commercially viable drug candidate, including completion of pre-clinical testing and clinical trials, and, if such clinical trials are successful, application for regulatory approvals and manufacturing repeatability and scale-up. There is risk that a marketable compound may not be well tolerated and may never be approved.

Acquired IPR&D in the asset acquisition was accounted for in accordance with FASB ASC Topic 730, “Research and Development.” At the date of acquisition, the Company determined that the development of the projects underway at Cornell had not yet reached technological feasibility and that the research in process had no alternative future uses. Accordingly, the acquired IPR&D was charged to expense in the Consolidated Statements of Operations and Comprehensive Loss on the acquisition date. The acquired IPR&D charge is expected to be deductible over a 15-year period for income tax purposes.

The Company follows the provisions of FASB ASC Topic 820, “Fair Value Measurements and Disclosures,” for fair value measurement recognition and disclosure purposes for its financial assets and financial liabilities that are remeasured and reported at fair value each reporting period. The Company measures certain financial assets and liabilities at fair value on a recurring basis, including cash equivalents, short-term investments, warrants and the contingent consideration. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of financial assets and financial liabilities and their placement within the fair value hierarchy. Categorization is based on a three-tier valuation hierarchy, which prioritizes the inputs used in measuring fair value, as follows:

The Company has classified assets and liabilities measured at fair value on a recurring basis as follows:

	Fair value measurements at reporting date using						Fair value measurements at reporting date using
	Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
At December 31, 2016:
Assets:
Money market mutual funds (See Note 7)	$	37,079	$	—	$	—
U.S. Treasury obligations (See Note 7)		20,517		—		—
Cash equivalents	$	57,596	$	—	$	—
Liabilities:
Warrants (See Note 14(d))		—		—	$	3,397
Contingent consideration (See Note 4)		—		—		69,574
	$	—	$	—	$	72,971
At June 30, 2017:
At December 31, 2017:
Assets:
Cash equivalents
Money market mutual funds (See Note 7)	$	6,043	$	—	$	—	$	38,959	$	—	$	—
Total cash equivalents	$	6,043	$	—	$	—	$	38,959	$	—	$	—
Short-term investments
U.S. Treasury obligations (See Note 7)	$	41,517	$	—	$	—	$	3,498	$	—	$	—
Total financial assets	$	47,560	$	—	$	—	$	42,457	$	—	$	—
Liabilities:
Warrants (See Note 14(d))		—		—	$	2,604		—		—	$	3,406
Contingent consideration (See Note 4)		—		—		75,347		—		—		82,413
	$	—	$	—	$	77,951	$	—	$	—	$	85,819
At June 30, 2018:
Assets:
Cash equivalents
Money market mutual funds (See Note 7)							$	41,329	$	—	$	—
Total cash equivalents							$	41,329	$	—	$	—
Liabilities:
Warrants (See Note 14(d))								—		—	$	452
Contingent consideration (See Note 4)								—		—		85,329
							$	—	$	—	$	85,781

The Company developed its own assumptions to determine the value of the warrants that do not have observable inputs or available market data to support the fair value. This method of valuation involves using inputs such as the fair value of the Company’s common stock, stock price volatility, the contractual term of the warrants, risk free interest rates and dividend yield. Due to the nature of these inputs, the valuation of the warrants is considered a Level 3 measurement.

The reconciliation of the contingent consideration and warrants measured at fair value on a recurring basis using unobservable inputs (Level 3) is as follows:

	Warrants			Contingent Consideration		Warrants			Contingent Consideration
Balance at December 31, 2016	$	3,397		$	69,574
Balance at December 31, 2017						$	3,406		$	82,413
Additions		—			—		—			—
Exercise of warrants							(2,589	)		—
Remeasurement		(793	)		5,773		(365	)		2,916
Balance at June 30, 2017	$	2,604		$	75,347
Total at June 30, 2018						$	452		$	85,329

Current portion as of June 30, 2018							—			33,957
Long-term portion as of June 30, 2018							452			51,372

The current portion of the contingent consideration represents the amount the Company currently expects to become payable within one year as of June 30, 2018 (see Note 4 for additional information). The Company plans to reevaluate this classification following receipt of the FDA minutes from its recent Type A End-of-Review meeting regarding its NDA for IV meloxicam.

The Company follows the disclosure provisions of FASB ASC Topic 825, “Financial Instruments” (ASC 825), for disclosure purposes for financial assets and financial liabilities that are not measured at fair value. As of June 30, ~~2017,~~2018, the financial assets and liabilities recorded on the Consolidated Balance Sheets that are not measured at fair value on a recurring basis include accounts receivable, accounts payable and accrued expenses ~~and current debt obligations~~ approximate fair value due to the short-term nature of these instruments. The fair value of long-term debt, where a quoted market price is not available, is evaluated based on, among other factors, interest rates currently available to the Company for debt with similar terms, remaining payments and considerations of the Company’s creditworthiness. The Company determined that the recorded book value of long-term debt approximated fair value at June 30, ~~2017~~2018 due to the ~~estimated amount~~comparison of the ~~Excess Cash Flow payments and~~ terms of the ~~debt.~~

~~Notes~~debt, including borrowing rates available to the ~~Consolidated Financial Statements~~

~~(amounts~~Company through its debt refinancing process in ~~thousands, except share~~the fourth quarter of 2017, availability of additional term loan tranches, and ~~per share data)~~

Short-term investments as of June 30, ~~2017~~2018 consist of government money market ~~funds~~funds. As of June 30, 2018, all of the Company’s short-term investments are included in Cash and ~~U.S. Treasury obligations.~~cash equivalents due to their original maturity of three months or less when acquired. In accordance with FASB ASC Topic 320, ~~“Investments~~“Investments – Debt and Equity Securities,” ~~or ASC 320,~~ the Company has classified its entire investment portfolio as available-for-sale securities with secondary or resale markets, and, as such, its portfolio is reported at fair value with unrealized gains and losses included in Comprehensive ~~Income~~Loss in stockholders’ equity and realized gains and losses included in other income/expense. The following is a summary of available-for-sale ~~securities as of June 30, 2017.~~securities:

	June 30, 2017									December 31, 2017
	Amortized		Gross Unrealized					Estimated		Amortized		Gross Unrealized					Estimated
Description	Cost		Gain		Loss			Fair Value		Cost		Gain		Loss			Fair Value
Money market mutual funds	$	6,043	$	—	$	—		$	6,043	$	38,959	$	—	$	—		$	38,959
U.S. Treasury obligations		41,593		—		(76	)		41,517		3,499		—		(1	)		3,498
Total Investments	$	47,636	$	—	$	(76	)	$	47,560
Total investments										$	42,458	$	—	$	(1	)	$	42,457

As of ~~June 30, 2017, the Company’s investments had maturities ranging from one to six months. As of~~ December 31, ~~2016,~~2017, all of the Company’s investments in ~~US.~~U.S. Treasury obligations had original maturities of less than ~~three~~two months. The fair value of the Company’s U.S. Treasury obligations is determined by taking into consideration valuations obtained from third-party pricing services. The third-party pricing services utilize industry standard valuation models, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include reported trades of and broker/dealer quotes on the same or similar securities, issuer credit spreads, benchmark securities, and other observable inputs. To derive the fair value of its commercial paper, the Company uses benchmark inputs and industry standard analytical models.

Certain investment securities as of June 30, 2017 had fair values less than their amortized costs and, therefore, contained unrealized losses. The Company has evaluated these investments and has determined that the decline in value was not related to any Company or industry specific event. As of June 30, ~~2017,~~2018, there were ~~23 U.S. Treasury~~no investments with unrealized losses. The gross unrealized losses related to these investments were due to changes in interest rates. Given that the Company has no intent to sell any of these investments until a recovery of its fair value, which may be at maturity, and there are no current requirements to sell any of these investments, the Company did not consider these investments to be other-than-temporarily impaired as of June 30, 2017. The Company anticipates full recovery of amortized costs with respect to these investments at maturity or sooner in the event of a more favorable market interest rate environment. The duration of time the investments had been in a continuous unrealized loss position as of June 30, 2017 was less than 12 months.

Inventory is stated at the lower of cost and net realizable value. Included in inventory are raw materials and work-in-process used in the production of commercial products. Cost is determined using the first-in, first-out method. The Company expenses costs related to inventory until such time as it receives approval from the FDA to market a product, at which time the Company commences capitalization of costs relating to that product.

Inventory was as follows as of June 30, ~~2017~~2018 and December 31, ~~2016:~~2017:

	June 30, 2017			December 31, 2016			June 30, 2018			December 31, 2017
Raw materials	$	2,371		$	2,618		$	2,295		$	2,130
Work in process		3,151			5,219			3,089			3,931
Finished goods		1,777			1,793			3,170			4,488
		7,299			9,630			8,554			10,549
Provision for inventory obsolescence		(411	)		(884	)		(441	)		(710	)
	$	6,888		$	8,746		$	8,113		$	9,839

~~The provision for inventory obsolescence decreased approximately $473 during the six months ended June 30, 2017, primarily due to the disposal of the fully reserved inventory at December 31, 2016.~~ Adjustments to inventory are determined at the raw materials, work-in-process, and finished good levels to reflect obsolescence or impaired balances. Inventory is ordered to meet specific customer orders and largely reflects demand. Factors influencing inventory obsolescence include changes in demand, product life cycle, product pricing, physical deterioration and quality concerns.

	June 30, 2017		December 31, 2016		June 30, 2018		December 31, 2017
Land	$	3,263	$	3,263	$	3,263	$	3,263
Building and improvements		15,757		15,613		15,771		15,751
Furniture, office and computer equipment		4,031		3,811		5,035		4,406
Vehicles		30		30
Manufacturing equipment		23,454		21,508		28,976		24,153
Construction in progress		2,650		2,198		1,988		5,326
		49,185		46,423		55,033		52,899
Less: accumulated depreciation and amortization		11,547		9,123		16,293		13,825
Property, plant and equipment, net	$	37,638	$	37,300	$	38,740	$	39,074

Depreciation expense for the three and six months ended June 30, 2018 was $1,282 and $2,498, respectively. Depreciation expense for the three and six months ended June 30, 2017 was $1,228 and $2,424, ~~respectively. Depreciation expense for the three and six months ended June 30, 2016 was $1,240 and $2,511,~~ respectively.

The following represents the balance of the intangible assets at June 30, ~~2017:~~2018:

	Cost		Accumulated Amortization		Net Intangible Assets		Cost		Accumulated Amortization		Net Intangible Assets
Royalties and contract manufacturing relationships:	$	15,500	$	5,759	$	9,741
Royalties and contract manufacturing relationships							$	15,500	$	8,342	$	7,158
In-process research and development		26,400		—		26,400		26,400		—		26,400
Total	$	41,900	$	5,759	$	36,141	$	41,900	$	8,342	$	33,558

The following represents the balance of intangible assets at December 31, ~~2016:~~2017:

	Cost		Accumulated Amortization		Net Intangible Assets		Cost		Accumulated Amortization		Net Intangible Assets
Royalties and contract manufacturing relationships:	$	15,500	$	4,467	$	11,033
Royalties and contract manufacturing relationships							$	15,500	$	7,050	$	8,450
In-process research and development		26,400		—		26,400		26,400		—		26,400
Total	$	41,900	$	4,467	$	37,433	$	41,900	$	7,050	$	34,850

~~Notes to~~Amortization expense for each of the ~~Consolidated Financial Statements~~

~~(amounts in thousands, except share~~three months ended June 30, 2018 and ~~per share data)~~

2017 was $646, respectively. Amortization expense for each of the six months ended June 30, ~~2017~~2018 and ~~2016~~2017 was $1,292, ~~and $1,291, respectively, and for the three months ended June 30, 2017 and 2016 was $646.~~ respectively.

	Amortization		Amortization
July - December 2017	$	1,291
2018		2,583		1,292
2019		2,583		2,583
2020		2,583		2,583
2021		701		700
Total	$	9,741	$	7,158

	June 30,		December 31,		June 30,		December 31,
	2017		2016		2018		2017
Clinical trial and related costs	$	340	$	2,564	$	1,277	$	383
Professional and consulting fees		643		360		1,293		1,010
Payroll and related costs		3,218		4,547		4,840		6,387
Property plant and equipment		383		720		100		216
Deferred revenue		518		418		225		546
Income tax payable		603		311
Interest payable						—		802
Production Costs						980		—
Other		846		973		785		553
	$	6,551	$	9,893	$	9,500	$	9,897

On November 17, 2017, the Company entered into a $100,000 Credit Agreement, or the Credit Agreement, with Athyrium Opportunities III Acquisition LP, or Athyrium. The ~~Company financed the Gainesville Transaction with cash on hand and a $50,000 five-year senior secured~~Credit Agreement provides for an initial term loan ~~pursuant~~in the original principal amount of $60,000 funded at closing. Pursuant to the terms of the Credit Agreement, there are two additional tranches of term loans, each in an aggregate original principal amount of $20,000. The second tranche term loan may be drawn upon on or before December 31, 2018 provided that the Company receives regulatory approval of the Company’s IV meloxicam product candidate and will have at least $20,000 in unrestricted cash after payment of the milestone payment due to Alkermes. The third tranche term loan may be drawn upon at any time on or prior to March 31, 2020 provided that the second term loan has been drawn upon and net sales of IV meloxicam achieve $20,000 for the most recent trailing twelve-month period. The maturity date of the Credit Agreement is November 17, 2022, the five-year anniversary of the closing.

The Term Loans will bear interest at a ~~credit agreement, entered into on April 10, 2015,~~rate equal to the three-month LIBOR rate, with ~~OrbiMed Royalty Opportunities II, LP, or OrbiMed.~~a 1% floor plus 9.75% per annum, with quarterly, interest-only payments until the maturity date. The unpaid principal amount ~~under~~of the ~~credit agreement~~Term Loans is due and payable on ~~April 10, 2020,~~ the ~~five-year anniversary~~maturity date. In addition, in accordance with the Credit Agreement the Company will have to pay a 1% exit fee of $600, which will be accreted to the carrying amount of the loan provided thereunder by OrbiMed. The credit agreement also provides for certain mandatory prepayment events, including a quarterly excess cash flow prepayment requirement at OrbiMed’s request. The Company may make voluntary prepayments in whole or in part, subject to: (i) on or prior todebt using the ~~36-month anniversary~~effective interest method over the term of the ~~closing~~loan. In addition, if there is an early repayment, there is a sliding scale of the credit agreement, payment of a buy-out premium amount equal to (A) for full prepayments of the unpaid principal amount, $75,000 less all previously prepaid principal amounts and all previously paid interest or (B) for partial prepayments of the unpaid principal amount, 0.5 times the partial prepayment amount less interest payments previously paid in respect to the partial prepayment amount and (ii) after the 36-month anniversary of the closing of the credit agreement, payment of an exit fee amount equal to 10% of the amount of any prepayments. As defined by the agreement, based upon the CDMO segment financial results, OrbiMed has the option to require the Company to prepay a portion of the loan balance based upon an Excess Cash Flow calculation. No payments under this option shall be subject to the buy-out premium. As of June 30, 2017, the Company has paid $22,653 of principal payments on the senior secured loan from the Excess Cash Flow calculation. The credit agreement carries interest at three month LIBOR plus 14.0% with a 1.0% floor. The Company’s obligations under the senior term loan are secured by substantially all of the Company’s assets.penalties.

The ~~credit agreement~~Credit Agreement contains certain usual and customary affirmative and negative covenants, as well as financial covenants that the Company will need to satisfy on a monthly and quarterly basis. As of June 30, ~~2017,~~2018, the Company was in compliance with the covenants.

~~The~~As of June 30, 2018, the remaining payments due under the Credit Agreement include a principal payment of $60,000 and an exit fee of $600 due at the maturity date.

In connection with the Credit Agreement, the Company issued warrants to ~~OrbiMed a warrant~~each of Athyrium and its affiliate, Athyrium Opportunities II Acquisition LP, or Athyrium II, to purchase ~~294,928~~an aggregate of 348,664 shares of the Company’s common stock with an exercise price of ~~$3.28~~$8.6043 per share. See Note 14(d) for additional information. The ~~warrant is~~warrants are exercisable through ~~April 10, 2022.~~November 17, 2024. The initial fair value of the warrant of ~~$2,861~~$2,143 was recorded as a debt issuance ~~costs.~~cost.

~~Debt~~Company recorded debt issuance costs ~~related to~~for the ~~term loan~~Credit Agreement of ~~$4,579, including~~$4,439, which, along with the ~~initial warrant~~ fair value of ~~$2,861,~~warrants, are being amortized tousing the effective interest ~~expense~~method over the ~~five-year~~ term of the ~~loan~~Credit Agreement. Debt issuance cost amortization is included in interest expense within the Consolidated Statements of Operations and ~~netted with~~Comprehensive Loss. As of June 30, 2018, the ~~loan principal amount. The unamortized balance~~effective interest rate was 15.74%, which takes into consideration the non-cash accretion of the exit fee and the amortization of the debt issuance ~~costs is $2,633~~cost.

The components of the carrying value of the debt as of June 30, ~~2017. As~~2018, are detailed below:

The Company used proceeds from the $60,000 initial term loan to (i) repay in full all outstanding indebtedness under its previous credit facility governed by the Credit Agreement, dated April 10, 2015, between the Company’s subsidiary, Recro Gainesville LLC and OrbiMed Royalty Opportunities II, LP, or the OrbiMed Credit Agreement of ~~June 30, 2017,~~$31,767, which included the ~~long-term~~remaining debt principal balance ~~is comprised~~of $27,347 and early termination charges of $4,420 and (ii) pay transaction fees associated with the Athyrium Credit Agreement of $4,178.

Associated with the refinancing of the ~~following:~~OrbiMed Credit Agreement and in accordance with ASC 405-20 “Extinguishments of Liabilities”, the Company booked one-time loss on extinguishment of $6,772 as of December 31, 2017, which was reflected in the interest expense line within the Consolidated Statement of Operations and Comprehensive Loss.

The Company ~~has estimated~~recorded debt issuance cost amortization for both credit agreements of $329 and $168 for the ~~amount of the Excess Cash Flow payments that could be payable within one year of~~three months ended June 30, 2018 and 2017, ~~upon request of OrbiMed~~respectively, and ~~has classified that amount as a current debt in~~$658 and $326 for the ~~accompanying consolidated balance sheet.~~six months ended June 30, 2018 and 2017, respectively.

The Company is party to an exclusive license with Orion for the development and commercialization of Dexmedetomidine ~~or Dex,~~ for use in the treatment of pain in humans in any dosage form for transdermal, transmucosal (including sublingual and intranasal), topical, enteral or pulmonary (inhalational) delivery, but specifically excluding delivery vehicles for administration by injection or infusion, worldwide, except for Europe, Turkey and the CIS (currently includes Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan, Ukraine and Uzbekistan), referred to herein as the Territory. The Company is required to pay Orion lump sum payments of up to €20,500 ($~~23,393~~23,945 as of June 30, ~~2017)~~2018) on the achievement of certain developmental and commercial milestones, as well as a royalty on net sales during the term, which varies from 10% to 20% depending on annual sales levels. Through June 30, ~~2017,~~2018, no such milestones have been achieved.

The Company is also party to an exclusive license agreement with Orion for the development and commercialization of Fadolmidine ~~or Fado,~~ for use as a human therapeutic, in any dosage form in the Territory. The Company is required to pay Orion lump sum payments of up to €12,200 ($~~13,921~~14,250 as of June 30, ~~2017)~~2018) on achievement of certain developmental and commercial milestones, as well as a royalty on net sales during the term, which varies from 10% to 15% depending on annual sales levels. Through June 30, ~~2017, No~~2018, no such milestones have been achieved.

The Company is party to a license agreement with Cornell University for the exclusive license of the NMB Related Compounds. Under the terms of the agreement, the Company will pay Cornell an initial upfront fee and Cornell is also ~~entitle~~entitled to receive additional milestone payments, ~~and~~ annual license maintenance fees as well as royalties. See Note 5 for further information regarding these payment obligations.

Pursuant to the purchase and sale agreement governing the Gainesville Transaction, the Company agreed to pay to Alkermes up to an additional ~~$125.0 million~~$125,000 in milestone payments ~~(including, at the Company’s election, either (i) $10 million upon NDA filing and $30 million upon regulatory approval or (ii) an aggregate of $45 million~~including $45,000 upon regulatory approval, as well as net sales milestones related to injectable meloxicam and royalties on future product sales of injectable meloxicam between 10% and 12% (subject to a 30% reduction when no longer covered by patent). ~~At the end of July 2017, the Company has filed the NDA and has not made the election as to which milestone payment it will make as of the 10-Q filing date.~~

The Company is party to a Development, Manufacturing and Supply Agreement, or Supply Agreement, with Alkermes (through a subsidiary of Alkermes), pursuant to which Alkermes will (i) provide clinical and commercial bulk supplies of injectable meloxicam formulation and (ii) provide development services with respect to the Chemistry, Manufacturing and Controls section of an NDA for injectable meloxicam. Pursuant to the Supply Agreement, Alkermes will supply the Company with such quantities of bulk injectable meloxicam formulation as shall be reasonably required for the completion of clinical trials of injectable meloxicam. During the term of the Supply Agreement, the Company will purchase its clinical and commercial supplies of bulk injectable meloxicam formulation exclusively from Alkermes, subject to certain exceptions, for a period of time.

The Company is party to a Development, Manufacturing and Supply Agreement, or Supply Agreement, with Alkermes (through a subsidiary of Alkermes), for the clinical and, if approved by the U.S. Food and Drug Administration, or FDA, commercial supply of injectable meloxicam. Pursuant to the Supply Agreement, the Company will purchase its clinical and commercial supplies of bulk injectable meloxicam formulation exclusively from Alkermes, subject to certain exceptions, for a period of time.

The Company is also party to an active pharmaceutical ingredient, or API, supply agreement with Orion, whereby Orion provides the Company with API for the development and commercialization of its Dex product candidates. Prior to obtaining regulatory approval, subject to advance notice to Orion, Orion will provide API without charge for agreed-upon amounts. Any amounts ordered by the Company that are greater than the planned supply will be charged at 50% of the supply price for commercial product.

The Company is involved, from time to time, in various claims and legal proceedings arising in the ordinary course of its business. Except as disclosed below, the Company is not currently a party to any such claims or proceedings that, if decided adversely to it, would either individually or in the aggregate have a material adverse effect on its business, financial condition or results of operations.

~~As part of the Gainesville Transaction,~~On May 31, 2018, a securities class action lawsuit was filed against the Company ~~acquired the rights to Zohydro ER®, which the Company licenses to~~and certain of its ~~commercial partner, Pernix Therapeutics Holdings, Inc., or Pernix, in the United States,~~officers and ~~which is subject to ongoing intellectual property litigation and proceedings.~~

Zohydro ER® is subject to six paragraph IV certifications, two of which were filed in 2014 by Actavis plc, or Actavis, and Alvogen Pine Brook, Inc., or Alvogen, regarding the filing of Abbreviated NDAs, or ANDAs, with the FDA for a generic version of Zohydro ER®, one of which was filed in April 2015 by Actavis regarding the filing of a supplemental ANDA, or sANDA, and another three of which were filed in November 2015 and October 2016 by Actavis, and in December 2015 by Alvogen regarding one of our recently issued patents relating to a formulation of Zohydro ER®. These certification notices allege that three U.S. patents listed in the FDA’s Orange Book for Zohydro ER®, with an expiration date of November 2019 and September 2034, will not be infringed by Actavis’ or Alvogen’s proposed products, are invalid and/or are unenforceable. In 2014, Daravita Limited (a subsidiary of Alkermes and the Company’s predecessor in interest) filed suit against each of Actavis and Alvogendirectors in the U.S. District Court for the Eastern District of ~~Delaware~~Pennsylvania (Case No. 2:18-cv-02279-MMB) that purported to state a claim for alleged violations of Section 10(b) and 20(a) of the Exchange Act and Rule 10(b)(5) promulgated thereunder, based on ~~the ANDAs, and in 2015,~~statements made by the Company ~~filed suit~~concerning the NDA for IV meloxicam. The complaint seeks unspecified damages, interest, attorneys’ fees and other costs. The Company believes that the lawsuit is without merit and intends to vigorously defend against ~~Actavis~~it. The lawsuit is in the ~~U.S. District Court for~~early stages and, at this time, no assessment can be made as to its likely outcome or whether the District of Delaware based on the sANDA. In addition, in April 2015, the U.S. Patent and Trademark Office, or the USPTO, declared an interference between one of the Company’s patent applications relating to a dosage form of Zohydro ER® and two Purdue Pharma, LP, or Purdue, applications. On April 29, 2016, the USPTO found the Company’s claims and the Purdue claims involved in the interference tooutcome will be ~~invalid. Purdue appealed this decision~~material to the ~~U.S. Court of Appeals for the Federal Circuit on June 28, 2016, and on June 13, 2017 the U.S. Court of Appeals for the Federal Circuit affirmed the decision of the USPTO.~~

Under the Company’s license agreement with Pernix, the Company has the right to control the enforcement of the Company’s patents and related proceedings involving Zohydro ER® and any prospective generic entrant, and Pernix has the obligation to reimburse the Company for all reasonable costs of paragraph IV certification actions. On September 29, 2016, the Company entered into a settlement agreement with Alvogen pursuant to which the case against Alvogen was dismissed. In February 2017, the District Court in the Actavis case ruled in the Company’s favor and enjoined Actavis from selling the proposed generic version of Zohydro ER®. Actavis has appealed this decision to the U.S. Court of Appeals for the Federal Circuit.Company.

~~On January 1, 2017, the~~The Company ~~entered into~~is a ~~six-year lease for its~~party to various operating leases in Malvern, Pennsylvania, ~~facility that expires on December 31, 2022. In February 2017, the Company also entered into a three-year lease~~Gainesville, Georgia and Dublin, Ireland for office, ~~space in Dublin, Ireland that expires April 2020.~~manufacturing, and chemistry, manufacturing and controls development space. The Company is also a party to operating leases for office equipment and storage. Rent expense includes rent as well as additional operating and tenant improvement expenses.

As of June 30, ~~2017,~~2018, future minimum lease payments excluding operating expenses and tenant improvements for the leases, are as follows:

	Lease payments		Lease payments
2017	$	281
2018		568		358
2019		497		713
2020		403		561
2021		362		518
2022		373		529
2023 and thereafter				404
Total	$	2,484	$	3,083

As of June 30, ~~2017,~~2018, the Company had outstanding non-cancelable and cancelable purchase commitments in the aggregate amount of ~~$13,612~~$21,516 related to inventory, capital expenditures and other goods and ~~services.~~services, including pre-commercial/manufacturing scale-up and clinical activities. In addition, in July 2018, the Company committed to reimburse Alkermes for the costs related to the fit out of the Alkermes facility for commercial inventory production of IV meloxicam, which the Company estimates will be approximately $6,300.

The Company has entered into employment agreements with certain of its named executive officers. As of June 30, ~~2017,~~2018, these employment agreements provided for, among other things, annual base salaries in an aggregate amount of not less than ~~$1,420,~~$714, from that date through calendar year 2018.

The Company is authorized to issue up to 50,000,000 shares of common stock, with a par value of $0.01 per share.

Reflected below are the Company’s capital raises since its initial public offering, or IPO:

On March 12, 2014, the Company completed an initial public offering, or IPO, in which the Company sold 4,312,500 shares of common stock at $8.00 per share, resulting in gross proceeds of $34,500. In connection with the IPO, the Company paid $4,244 in underwriting discounts, commissions and offering ~~costs,~~expenses, resulting in net proceeds of $30,256. Also in connection with the IPO, all of the outstanding shares of the Company’s Series A Redeemable Convertible Preferred Stock, including accreted dividends, and Bridge Notes, including accrued interest, were converted into common stock.

On July 7, 2015, the Company closed a private placement with certain accredited investors in which the Company sold 1,379,311 shares of common stock at a price of $11.60 per share, for net proceeds of $14,812. The Company paid the placement agents a fee equal to 6.0% of the aggregate gross proceeds from the private placement, plus reimbursement of certain expenses.

On August 19, 2016, the Company closed an underwritten public offering in which the company sold 1,986,666 shares of common stock at a price per share of $7.50, for net proceeds of $13,367 after deducting underwriting discounts, commissions and offering expenses.

On December 16, 2016, the Company closed an underwritten public offering in which the company sold 6,670,000 shares of common stock at a price per share of $6.00, for net proceeds of $36,888 after deducting underwriting discounts, commissions and offering expenses.

On December 29, 2017, the Company entered into a sales agreement, or the Sales Agreement, with Cowen and Company, LLC, or Cowen, pursuant to which the Company may sell from time to time, at its option, shares of its common stock, $0.01 par value per share, having an aggregate offering price of up to $40,000 through Cowen, as the placement agent. As of June 30, 2018, the Company did not have any sales of common stock under the Sales Agreement.

On February 2, 2015, the Company entered into a Common Stock Purchase Agreement, or the 2015 Purchase Agreement, with Aspire Capital Fund, LLC, or Aspire Capital, pursuant to which Aspire Capital was committed to purchase, at the Company’s election, up to an aggregate of $10,000 of shares of the Company’s common stock over the 24-month term of the 2015 Purchase Agreement. On the execution of the 2015 Purchase Agreement, the Company issued 96,463 shares of common stock to Aspire Capital with a fair value of $285, as consideration for entering in the 2015 Purchase Agreement. In addition, the Company incurred $253 of costs in connection with the 2015 Purchase Agreement, which, along with the fair value of the

common stock, has been recorded as deferred equity costs. During 2016, the Company sold 1,143,940 shares of common stock under the 2015 Purchase Agreement for $7,796. The agreement expired in February 2017.

On March 2, 2018, the Company entered into a Common Stock Purchase Agreement, or the Purchase Agreement, with Aspire Capital, which provides that, upon the terms and subject to the conditions and limitations set forth in the Purchase Agreement, Aspire Capital is committed to purchase, at the Company’s sole election, up to an aggregate of $20,000 of shares of the Company’s common stock over the approximately 30-month term of the Purchase Agreement. On the execution of the Purchase Agreement, the Company agreed to issue 33,040 shares of common stock to Aspire Capital as consideration for entering into the Purchase Agreement. As of June 30, 2018, the Company sold 1,050,000 shares of common stock under the Purchase Agreement for proceeds of $11,018.

The Company is authorized to issue 10,000,000 shares of preferred stock, with a par value of $0.01 per share. As of June 30, ~~2017,~~2018, no preferred stock was issued or outstanding.

As of June 30, ~~2017,~~2018, the Company had the following warrants outstanding to purchase shares of the Company’s common stock:

Number of Shares	Exercise Price per Share		Expiration Date	Exercise Price per Share		Expiration Date
140,000	$	12.00	March 2018	$	12.00	March 2019
350,000	$	19.46	April 2022	$	19.46	April 2022
294,928	$	3.28	April 2022
348,664				$	8.60	November 2024

The ~~warrant~~warrants to purchase 140,000 and 348,664 shares related to Aegis Capital Corporation and Athyrium, respectively, are equity classified.

The warrants to purchase 350,000 shares isrelated to Alkermes are liability classified since ~~it contains~~they contain a contingent net cash settlement feature. The ~~warrant to purchase 294,928 shares is liability classified since it contains an anti-dilution provision. The~~ fair value of ~~both~~the warrants will be remeasured through settlement or expiration with changes in fair value recognized as a period charge within the statement of operations.

The following table summarizes the fair value and the assumptions used for the Black-Scholes option-pricing model for ~~these~~the liability classified warrants.

	Date of issuance			June 30, 2017			December 31, 2016			June 30, 2018			December 31, 2017
Fair value	$	5,331		$	2,604		$	3,397		$	452		$	3,406
Expected dividend yield		—	%		—	%		—	%		—	%		—	%
Expected volatility	80		%	80		%	85		%	77		%	75		%
Risk-free interest rates	1.73		%	1.89		%	1.93		%	2.68		%	2.09		%
Remaining contractual term	7 years			4.75 years			5.25 years			3.75 years			4.25 years

In April 2015, the Company issued a warrant to purchase 294,928 shares of common stock at an exercise price of $3.28 per share to OrbiMed in connection with the Company’s prior credit agreement, which was liability classified. In April 2018, the warrant was exercised on a cashless basis, with OrbiMed surrendering 80,213 shares, to cover the aggregate exercise price, resulting in the issuance of 214,715 shares of common stock based on the closing bid price of the Company’s Common Stock on April 27, 2018 of $12.06.

The Company’s comprehensive loss is shown on the Consolidated Statements of Operations and Comprehensive Loss as of June 30, ~~2017,~~2018, and is comprised of net unrealized gains and losses on the Company’s available-for-sale securities. The total of comprehensive loss for the three ~~and six~~ months ended June 30, 2018 and 2017 was ~~$8,874~~$12,714 and ~~$17,018,~~$8,874, respectively. The ~~tax effect~~total of comprehensive loss for the six months ended June 30, 2018 and 2017 was $25,171 and $17,018, respectively. There was no tax effect of other comprehensive loss for the six months ended June 30, 2018. The tax effect of other comprehensive loss for the six months ended June 30, 2017 was $26.

The Company established the 2008 Stock Option Plan, or the 2008 Plan, which allows for the granting of common stock awards, stock appreciation rights, and incentive and nonqualified stock options to purchase shares of the Company’s common stock to designated employees, non-employee directors, and consultants and advisors. As of June 30, ~~2017,~~2018, no stock appreciation rights have been issued. Subsequent to adoption, the 2008 Plan was amended to increase the authorized number of shares available for grant to 444,000 shares of common stock. In October 2013, the Company established the 2013 Equity Incentive Plan, or the 2013 Plan, which allows for the grant of stock options, stock appreciation rights and stock awards for a total of 600,000 shares of common stock. In June 2015, the Company’s shareholders approved the Amended and Restated Equity Incentive Plan, or the A&R Plan, which amended and restated the 2013 Plan and increased the aggregate amount of shares available for issuance to 2,000,000. On December 1^st of each year, pursuant to the “Evergreen” provision of the A&R Plan, the number of shares available under the plan may be increased by the board of directors by an amount equal to 5% of the outstanding common stock on December 1^st of that year. In December ~~2016~~2017 and ~~2015,~~2016, the number of shares available for

issuance under the A&R Plan was increased by 956,341 and 619,181, respectively. In May 2018, the Company’s shareholders approved the 2018 Amended and ~~461,215, respectively. The total number~~Restated Equity Incentive Plan, which amended and restated the A&R Plan to increase the aggregate amount of shares ~~authorized~~available for issuance ~~under the A&R plan as of June 30, 2017 is 3,080,396.~~to 7,036,737.

Stock options are exercisable generally for a period of 10 years from the date of grant and generally vest over four years. As of June 30, ~~2017, 279,905~~2018, 2,723,462 shares and 174 shares are available for future grants under the A&R Plan and 2008 Plan, respectively.

The weighted average grant-date fair value of the options awarded to employees during the six months ended June 30, 2018 and 2017 was $6.18 and ~~2016 was~~ $5.36, ~~and $4.18,~~ respectively. The fair value of the options was estimated on the date of grant using a Black-Scholes option pricing model with the following assumptions:

	June 30,				June 30,
	2017		2016		2018		2017
Range of expected option life	6 years		6 years		5.5 - 6 years		6 years
Expected volatility		84.71%		74.82%	73.26% - 82.00%		84.71%
Risk-free interest rate	1.87-2.17%		1.13-1.91%		2.32 - 2.96%		1.87 - 2.17%
Expected dividend yield		—		—		—		—

The following table summarizes stock option activity during the six months ended June 30, ~~2017:~~2018:

	Number of shares			Weighted average exercise price		Weighted average remaining contractual life	Number of shares			Weighted average exercise price		Weighted average remaining contractual life
Balance, December 31, 2016		2,611,929		$	7.01
Balance, December 31, 2017								3,594,875		$	7.17	7.1 years
Granted		753,570			7.46			816,991			9.33
Exercised		(3,600	)		6.00			(174,361	)		5.89
Expired/forfeited/cancelled		(19,393	)		8.65			(233,529	)		9.33
Balance, June 30, 2017		3,342,506		$	7.10	7.4 years
Balance, June 30, 2018								4,003,976		$	7.54	7.3 years
Vested		1,740,772		$	6.59	6.0 years		2,230,438		$	6.94	6.0 years
Vested and expected to vest		3,226,304		$	7.08	7.4 years		4,003,976		$	7.54	7.3 years

Included in the table above are ~~501,000~~980,000 options granted outside the plan. The grants were made pursuant to the NASDAQ inducement grant exception in accordance with NASDAQ Listing Rule 5635(c)(4).

During the year ending December 31, 2016, the Company adopted ASU 2016-09 “Compensation – Stock Compensation (Topic 718) Improvements to Employee Share-Based Payment Accounting” and elected to account for forfeitures as they occur.

The following table summarizes restricted stock units, or RSUs, activity during the six months ended June 30, ~~2017.~~2018.

~~During 2017,~~Included in the table above are 47,000 time-based RSUs granted outside the plan. The grants were made pursuant to the NASDAQ inducement grant exception in accordance with NASDAQ Listing Rule 5635(c)(4).

In January 2018, the Company granted ~~91,150 performance-based restricted stock units, or RSUs, which vest based on attaining clinical and operational goals during 2017, as well as 247,893~~242,396 time-based RSUs, which vest over four years. In March 2018, the Company granted 240,224 performance-based RSUs, which may vest based on attaining 2018 financial, clinical and operational goals. In June 2018, the Company granted 444,418 time-based RSUs, which vest in two installments at nine and 18 months from the grant date.

Stock-based compensation expense for the six months ended June 30, 2018 and 2017 was $3,303 and ~~2016 was~~ $2,370, ~~and $1,430,~~ respectively.

As of June 30, ~~2017,~~2018, there was ~~$11,588~~$15,631 of unrecognized compensation expense related to unvested options and time-based RSUs that are expected to vest and will be expensed over a weighted average period of ~~2.7~~2.2 years. As of June 30, 2018, there was $2,611 of unrecognized compensation expense related to unvested performance-based RSUs and will be expensed when the performance criteria are met.

The aggregate intrinsic value represents the total amount by which the fair value of the common stock subject to options exceeds the exercise price of the related options. As of June 30, ~~2017,~~2018, the aggregate intrinsic value of the vested and unvested options was ~~$2,266~~$1,248 and ~~$603,~~$59, respectively.

The Company operates through two business divisions that are treated as separate financial segments: an Acute Care segment and a revenue-generating CDMO segment. The Acute Care segment is primarily focused on developing innovative products for hospital and related settings, and the CDMO segment leverages the Company’s formulation expertise to develop and manufacture pharmaceutical products using the Company’s proprietary delivery technologies for commercial partners who commercialize or plan to commercialize these products. Acute Care has no revenue, and its costs consist primarily of expenses incurred in conducting the Company’s clinical and preclinical studies, acquiring clinical trial materials, regulatory activities, personnel costs and pre-commercialization of meloxicam. CDMO revenue streams are derived from manufacturing, royalty ~~and profit-sharing~~ revenues, as well as ~~CDMO’s~~CDMO segment’s research and development services performed for commercial partners.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies (see Note 3). The Company evaluates performance of its reportable segments based on revenue and operating income (loss). The Company does not allocate interest income, interest expense or income taxes to its operating segments.

The following table summarizes segment information as of and for the three and six months ended June 30, ~~2017 and 2016:~~2018:

	For the Three Months Ended June 30,						For the Six Months Ended June 30,						For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2017			2016			2017			2016			2018			2017			2018			2017
Revenues:
CDMO	$	16,934		$	17,279		$	35,676		$	35,021		$	21,739		$	16,934		$	41,281		$	35,676
Acute Care		—			—			—			—			—			—			—			—
Total	$	16,934		$	17,279		$	35,676		$	35,021		$	21,739		$	16,934		$	41,281		$	35,676

Operating income (loss):
CDMO	$	4,060		$	5,634		$	10,258		$	11,277		$	7,288		$	4,060		$	13,854		$	10,258
Acute Care		(13,490	)		(12,405	)		(26,990	)		(23,073	)		(20,635	)		(13,490	)		(40,049	)		(26,990	)
Total	$	(9,430	)	$	(6,771	)	$	(16,732	)	$	(11,796	)	$	(13,347	)	$	(9,430	)	$	(26,195	)	$	(16,732	)

Depreciation and amortization:
CDMO	$	1,865		$	1,917		$	3,702		$	3,802		$	1,858		$	1,865		$	3,678		$	3,702
Acute Care		9			—			14			—			69			9			112			14
Total	$	1,874		$	1,917		$	3,716		$	3,802		$	1,927		$	1,874		$	3,790		$	3,716

Capital expenditures:
CDMO	$	1,366		$	737		$	2,896		$	1,081		$	824		$	1,366		$	1,153		$	2,896
Acute Care		75			—			289			—			453			75			1,778			289
Total	$	1,441		$	737		$	3,185		$	1,081		$	1,277		$	1,441		$	2,931		$	3,185

	June 30,		December 31,		June 30,		December 31,
	2017		2016		2018		2017
Total assets:
CDMO	$	78,986	$	77,828	$	80,157	$	78,136
Acute Care		90,823		105,169		100,312		108,090
Total	$	169,809	$	182,997	$	180,469	$	186,226

Effective January 1, 2018, the Company adopted ASU 2014-09 using the modified retrospective method applied to contracts existing as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under the new guidance while prior period amounts are not adjusted and continue to be reported in accordance with previous guidance. See Note 3 for additional information on the Company’s revenue recognition policies.

The Company uses the practical expedient to not account for significant financing components because the period between recognition and collection does not exceed one year in any contract.

Upon adoption, the Company recorded a decrease of $2,818 to the opening balance of accumulated deficit as of January 1, 2018. This adjustment resulted from a change in revenue recognition associated with a variable portion of certain of its royalty revenue. Under the new accounting standard, estimated royalty revenue to be received in the future that is deemed predominantly related to product sales rather than the license for intellectual property, is included as a component of the product sale transaction consideration to the extent such consideration is not probable to significant reversal. Prior to adoption of the new guidance, the Company recognized this royalty revenue in the period the products were sold by the commercial partner.

The cumulative effect of the changes made to the Company’s consolidated January 1, 2018 balance sheet for the adoption of ASU 2014-09 were as follows:

The impact of the adoption of ASU 2014-09 on the Company’s condensed consolidated statement of operations and condensed consolidated balance sheet was as follows:

Contract assets represent revenue recognized for performance obligations completed before an unconditional right to payment exists, and therefore invoicing or associated reporting from the customer regarding the computation of the net product sales has not yet occurred. Contract assets were $6,866 and $3,755 at June 30, 2018 and January 1, 2018, respectively. Generally, the contract assets balance is impacted by the recognition of additional contract assets, offset by amounts invoiced to customers or actual net product sale amounts reported by the commercial partner for the period. For the six months ended June 30, 2018, actual net product sale amounts reported by the Company’s commercial partner exceeded estimates of royalty amounts attributed to manufactured product shipped as of January 1, 2018 for the related arrangements by approximately $1,279.

The following table presents changes in the Company’s contract assets for the six months ended June 30, 2018:

The following table disaggregates revenue by business segment and timing of revenue recognition:

Adoption of ASU 2014-09 did not require capitalization of any costs to obtain or fulfill contracts. In general, the Company’s payment terms for manufacturing revenue and research and development services is 30 days. Royalty revenue is recorded to accounts receivable in the quarter that the product is sold by the commercial partner upon reporting from the commercial partner and payment terms are generally 45 days after quarter end. Based on the adoption of ASU 2014-09, the timing difference between recognition of certain royalty revenues as a contract asset and cash receipt is increased by an estimated 90 days.

The Company’s President and Chief Executive Officer, or CEO, owns a majority of the stock of Malvern Consulting Group, or MCG, a pharmaceutical incubator and consulting firm. The CEO’s husband, who is also a shareholder of the Company, is a consultant and a shareholder of MCG. In addition, the CEO’s son is the President and a shareholder of MCG. During 2016, certain immediate family members of the CEO were employees of MCG, including the CEO’s brother and sister-in-law. Since formation, the Company entered into various transactions with MCG, as detailed below. However, since becoming a public

~~company, the Company sought to decrease its involvement with MCG, and, as of December 31, 2016, the Company no longer has any involvement or transactions with MCG.~~

~~During 2016, certain~~A Non-Executive Director of the Company’s ~~executive officers, its CEO, its Senior Vice President, Development~~Irish subsidiary is a Managing Director and ~~its Senior Vice President, Regulatory Affairs~~a majority shareholder of HiTech Health Ltd, or HiTech Health, a consultancy firm for the biotech, pharmaceutical and ~~Quality Assurance, who is also the CEO's sister, provided minimal consulting services from time to time to MCG. Until December 31,~~medical device industry. Since 2016, ~~the Company was a party to a Master Consulting Services Agreement with MCG. Pursuant to the agreement, MCG~~HiTech Health has provided the Company with certain consulting services ~~for~~and in November 2017 both parties entered into a ~~fee based upon hourly rates previously approved by the Company’s Board of Directors.~~Service Agreement to engage in regulatory project support and consultancy. In consideration for such services, the Company recorded ~~$89~~$144 and ~~$190~~$253 for the three and six months ended June 30, ~~2016,~~2018, respectively. A portion of ~~these amounts were used during 2016~~the amount relates to ~~pay~~consultancy services provided by the Non-Executive Director.

The Company has a ~~portion~~voluntary 401(k) Savings Plan (the 401(k) Plan) in which all employees are eligible to participate. The Company’s policy is to match 100% of the ~~respective salaries~~employee contributions up to a maximum of ~~MCG employees that, as described above, included immediate family members~~5% of employee compensation. Total Company contributions to the ~~Company’s CEO.~~

~~Until December 31, 2016, the Company was party to an Office Services Agreement with MCG~~401(k) plan for the ~~lease of an aggregate of 8,458 square feet of office~~three months ended June 30, 2018 and ~~lab space located at its Malvern, Pennsylvania facility~~2017 were $311 and ~~the provision of IT services and general office support. Pursuant to the Office Services Agreement, the~~$208, respectively. The Company ~~paid MCG $57 in~~contributions for the ~~three and~~ six months ended June 30, ~~2016. The Company terminated this agreement on December 31, 2016~~2018 and ~~is now a party to a six-year lease directly with the landlord of the Company’s Malvern, Pennsylvania facility (see Note 13).~~

~~As of December 31, 2016, the Company terminated the Master Consulting Agreement~~2017 were $701 and ~~the Office Services Agreement and MCG no longer provides any services or has any contracts with the Company.~~

The Company’s Senior Vice President, Regulatory and Quality, who is the CEO’s sister, has held that position since 2014. Effective January 1, 2017, the CEO’s sister-in-law and brother, respectively, terminated their employment with MCG and were hired as the Company’s Director of Human Resources and the Company’s Vice President, Manufacturing. The Company’s board of directors approved these hires consistent with the Company’s related person transaction policy.$551, respectively.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the interim unaudited financial statements contained in Part I, Item 1 of this quarterly report, and the audited financial statements and notes thereto for the year ended December 31, ~~2016~~2017 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our annual report on Form 10-K filed with the SEC on March ~~9, 2017.~~2, 2018. As used in this report, unless the context suggests otherwise, “we,” “us,” “our,” “the Company” or “Recro” refer to Recro Pharma, Inc. and its consolidated subsidiaries.

This Quarterly Report on Form 10-Q contains forward-looking statements. We may, in some cases, use terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or other words that convey uncertainty of future events or outcomes to identify these forward-looking statements.

These forward-looking statements in this quarterly report on Form 10-Q include, among other things, statements about:

Any forward-looking statements that we make in this Quarterly Report speak only as of the date of such statement, and we undertake no obligation to update such statements to reflect events or circumstances after the date of this Quarterly Report or to reflect the occurrence of unanticipated events. Comparisons of results 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.

You should also read carefully the factors described in the “Risk Factors” included in Part II, Item 1A of this Quarterly Report and Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016~~2017 filed with the SEC on March ~~9, 2017~~2, 2018 to better understand significant risks and uncertainties inherent in our business and underlying any forward-looking statements. As a result of these factors, actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements in this report and you should not place undue reliance on any forward-looking statements.

We are a specialty pharmaceutical company that operates through two business divisions: an Acute Care division and a revenue-generating CDMO division. Each of these divisions are deemed to be reportable segments for financial reporting purposes.

Our Acute Care segment is primarily focused on developing and commercializing innovative products for ~~commercialization in~~ hospital and ~~other~~related acute care settings. Our lead product candidate is a proprietary injectable form of meloxicam, a long-acting preferential COX-2 inhibitor. IV meloxicam has successfully completed ~~two pivotal~~three Phase III clinical trials ~~a large Phase III safety trial and other safety studies~~ for the management of moderate to severe ~~pain. Overall, we enrolled~~pain, consisting of two pivotal efficacy trials and a ~~total of approximately 1,100 patients in our~~large double-blind Phase III ~~program. At~~safety trial, as well as other safety studies. Overall, the ~~end of~~total new drug application, or NDA, program included over 1,400 patients. In late July 2017, we submitted ana NDA to the U.S. Food and Drug Administration, or FDA, for IV meloxicam 30mg for the management of moderate to severe pain. ~~The~~In May 2018, we received a CRL from the FDA ~~has~~regarding our NDA for IV meloxicam. In July 2018, we participated in a ~~60-day filing review period~~Type A End-of-Review meeting with the FDA to ~~determine whether~~discuss the ~~NDA is complete and acceptable for filing.~~topics covered in the CRL. We plan to provide an update on our path forward following receipt of the written meeting minutes. Our Acute Care segment has no revenue and our costs consist primarily of expenses incurred in conducting our manufacturing scale-up, clinical trials and preclinical studies, ~~manufacturing scale-up,~~ regulatory activities, ~~initial~~ pre-commercialization of meloxicam and personnel costs.

Our CDMO segment leverages ~~our~~ formulation expertise to develop and manufacture pharmaceutical products using ~~our~~ proprietary delivery technologies for commercial partners who commercialize or plan to commercialize these products. These collaborations result in revenue streams including manufacturing, royalties, ~~profit sharing,~~and research and development, ~~and manufacturing,~~ which support continued operations for our CDMO segment and have contributed ~~funds~~excess cash flow to be used infor our research and development ~~and pre-commercialization~~ activities in our Acute Care segment. We operate a 97,000 ~~square-foot,~~square foot, DEA-licensed manufacturing facility in Gainesville, Georgia and we currently develop and/or manufacture the following key products with our commercial partners: Ritalin LA®, Focalin XR®, Verelan PM®, ~~generic~~Verelan SR®, Verapamil ~~sustained release~~PM, Verapamil SR and Zohydro ER®, as well as supporting development stage products. Our CDMO segment’s revenue streams are derived from manufacturing, ~~royalty~~ and ~~profit sharing~~royalty revenues, as well as ~~our~~ research and development of services performed for commercial partners.

We have incurred losses and generated negative cash flows from operations since inception and expect to continue to incur significant and increasing operating losses for the foreseeable future. Substantially all of our operating losses resulted from costs incurred in connection with our development programs, including our non-clinical and formulation development activities, manufacturing, clinical trials and pre-commercialization activities. We have used revenue generated by our CDMO segment primarily to fund operations at our Gainesville, Georgia manufacturing facility, to make payments under our previous credit facility and to partially fund our development and pre-commercialization activities of our Acute Care segment. We believe our ~~CDMO’s~~CDMO segment’s revenue will continue to contribute cash for general corporate purposes that may, to some extent, reduce the amount of external capital needed to fund development and commercial operations. We expect to incur increasing expenses over the next several years as we seek to resolve the CRL issued by the FDA with regard to the NDA for IV meloxicam, obtain regulatory approval for IV meloxicam, successfully commercialize IV meloxicam, if approved, and continue to develop and commercialize injectable meloxicam, including continued pre-commercial activities for IV meloxicam. Based upon the availability of additional financial resources, we may also develop and commercialize our other current and future product ~~candidates in our pipeline, as well as other products we may in-license.~~candidates.

On April 10, 2015, we completed the ~~Gainesville Transaction. The~~acquisition from Alkermes of certain assets, including the worldwide rights to injectable meloxicam and the development, formulation and manufacturing business that comprised our CDMO segment, which we refer to as the Gainesville Transaction, which transformed our business through the addition of a revenue-generating business and the increase in our workforce as a result of the addition of the employees at our Gainesville, Georgia manufacturing facility. The consideration paid consisted of $50.0 million cash, a $4.0 million working capital adjustment and a seven-year warrant to purchase 350,000 shares of our common stock at an exercise price of $19.46 per share. In addition, we may be required to pay up to an additional $125.0 million in milestone payments ~~(including, at our election, either (i) $10 million upon NDA filing and $30~~including $45.0 million upon regulatory approval ~~or (ii) an aggregate~~ of ~~$45 million upon regulatory approval,~~IV meloxicam, as well as net sales ~~milestones)~~milestones and a royalty percentage of future product net sales related to ~~injectable~~IV meloxicam.

~~The~~We funded the up-front payment ~~was funded~~of the Gainesville Transaction with ~~$50.0 million in~~ borrowings under aour previous credit ~~agreement that we entered into~~facility with OrbiMed Royalties, II, LP, or OrbiMed, and cash on hand. ~~The interest rate under the credit agreement is equal to LIBOR plus 14.0%, with a 1.0% LIBOR floor.~~ Pursuant to the credit ~~agreement,~~facility with OrbiMed, we issued OrbiMed a warrant to purchase an aggregate of 294,928 shares of our common stock at an exercise price of $3.28 per share, subject to certain adjustments. In April 2018, OrbiMed fully exercised the warrant on a cashless basis, surrendering 80,213 shares to cover the aggregate exercise price, and resulting in the issuance of 214,715 shares of common stock.

In November 2017, we entered into our Credit Agreement with Athyrium Opportunities III Acquisition LP, or Athyrium, pursuant to which we drew $60.0 million in an initial term loan. We also have the ability to draw upon two additional tranches of the terms loans, each in the aggregate original principal amount of $20.0 million. Pursuant to the terms of the credit agreement, we may draw upon the second $20.0 million tranche on or before December 31, 2018, provided that we receive regulatory approval for IV meloxicam and retain at least $20.0 million in unrestricted cash following payment of the $45.0 million milestone payment to Alkermes. We may draw upon the final $20.0 million tranche on or prior to March 31, 2020, provided that we have drawn on the second tranche and have achieved net sales for IV meloxicam of $20.0 million in the most recent trailing twelve-month period. We used the proceeds from the initial term loan to repay in full all outstanding indebtedness and transaction fees under the previous credit facility with OrbiMed. The interest rate under the credit agreement with Athyrium is equal to three-month LIBOR plus 9.75%, with a 1.0% LIBOR floor. Pursuant to the credit agreement with Athyrium, we issued to each of Athyrium and its affiliate, Athyrium Opportunities II Acquisition LP, warrants to purchase an aggregate of 348,664 shares of our common stock at an exercise price of $8.6043 per share, subject to certain adjustments.

During the ~~three and~~ six months ended June 30, ~~2017~~2018 and ~~June 30, 2016,~~2017 we recognized revenues ~~in four categories:~~from three revenue streams: manufacturing revenue, royalty ~~profit sharing~~ and research and development revenue. All revenue is generated from our CDMO segment.

We recognize manufacturing ~~revenues~~revenue from the sale of products we manufacture for our commercial partners. Manufacturing revenues are recognized ~~when persuasive evidence~~upon transfer of ~~an arrangement exists,~~control of a product to a customer, generally upon shipment, ~~has occurred~~based on a transaction price that reflects the consideration we expect to be entitled to as specified in the agreement with the commercial partner, which could include pricing and ~~title~~

~~to the product and associated risk of loss has passed to the customer, the sales price is fixed or determinable and collectability is reasonably assured.~~volume-based adjustments.

We recognize royalty ~~revenues~~or profit sharing revenue, collectively referred to as royalty revenue, related to the sale of products by our commercial partners that incorporate our ~~technologies. Royalties~~technologies. Royalty revenues are ~~earned~~generally recognized under the terms of athe applicable license, development and/or supply ~~agreement~~agreement. For arrangements that include sales-based royalties and the license is deemed to be the predominant item to which the royalties relate, we recognize revenue when the related sales occur by the commercial partner. For arrangements that include sales-based royalties and the license is not deemed to be the predominant item to which the royalties relate, we recognize revenue when the performance obligation to which the royalty has been allocated has been satisfied, which is upon transfer of control of a product to a customer. In this case, significant judgement is used in the ~~period~~estimation of these royalties based on historical customer pricing and deductions and is partially constrained due to items that are outside of our control including the ~~products are sold by a~~uncertainty of the timing of future commercial partner sales, mix of volume, customer stocking and ~~collectability is reasonably assured.~~

~~Profit sharing revenue—We recognize revenue from profit sharing related to the sale of certain of our manufactured products~~ordering patterns, as well as unforeseen price adjustments made by our commercial partners. Profit sharing revenue is earned under the terms of a license, development and/or supply agreement in the period the products are sold and expenses are incurred by our commercial partner and collectability is reasonably assured.

Research and development revenue consists of funding that compensates us for formulation, and preparation of pre-clinical and clinical testing drug product materials prepared by our CDMO segment under research and development arrangements with commercial partners. We generally bill our commercial partners under research and development arrangements using a full-time equivalent or hourly rate, plus direct external costs, if any. Revenues related to research and development are generally recognized as the related services or activities are performed using the output method and in accordance with the contract terms. To the extent that the agreements specify services are to be performed on a fixed basis, revenues are recognized consistent with the pattern of the work performed. In ~~an agreement~~agreements which ~~specifies~~specify milestones, we ~~recognize~~evaluate whether the milestones are considered probable of being achieved and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue ~~upon achievement~~reversal would not occur, the value of ~~manufacturing~~the associated milestone is recognized at a point in time. Non-refundable milestone payments related to arrangements under which we have continuing performance obligations would be deferred and ~~regulatory events.~~recognized over the period of performance. Milestone payments that are not within our control, such as submission for approval to regulators by a commercial partner or approvals from regulators, are not considered probable of being achieved until those submissions are submitted by the customer or approvals are received.

Research and development expenses currently consist primarily of costs incurred in connection with the development of injectable meloxicam and other pipeline activities. These expenses consist primarily of:

The majority of our external research and development costs relate to clinical trials, manufacturing of drug supply for pre-commercial products, analysis and testing of product candidates and patent costs. Costs related to facilities, depreciation and support are not charged to specific programs.

The successful development of IV meloxicam and our other product candidates is highly uncertain and subject to a number of risks, including, but not limited to:

Development timelines, probability of success and development costs vary widely. As a result of the uncertainties discussed above, we anticipate that we will make determinations as to which additional programs to pursue and how much funding to direct to each program on an ongoing basis in response to the scientific and clinical data of each product candidate, additional information as we progress through our discussions with the FDA around the CRL regarding our NDA for IV meloxicam, as well as ongoing assessments of such product candidate’s commercial ~~potential.~~potential and available capital resources. Accordingly, we cannot currently estimate with any degree of certainty the amount of time or costs that we will be required to expend in the future on our product candidates to complete current or future clinical or pre-commercial stages prior to their regulatory approval, if such approval is ever granted. As a result of these uncertainties surrounding the timing and outcome of any approvals, we are currently unable to estimate precisely when, if ever, any of our ~~other~~ product candidates will generate revenues and cash flows.

We expect our research and development costs to ~~primarily~~ relate to ~~injectable~~IV meloxicam for the foreseeable future as we seek to resolve the CRL issued by the FDA with regard to our NDA for IV meloxicam and obtain regulatory approval for IV meloxicam, and if successful in obtaining regulatory approval, advance ~~this product candidate~~IV meloxicam through the ~~pre-commercialization~~commercialization scale-up, clinical and other ~~pre-approval~~ activities. We also expect to have expenses as we initiate clinical trials and related work for our other product candidates. We may elect to seek out collaborative relationships in order to provide us with a diversified revenue stream and to help facilitate the development and commercialization of our product candidate pipeline. We expect our research and development costs to continue to increase as we continue clinical and pre-commercialization manufacturing activities for IV meloxicam and engage in pipeline development activities.

In addition, research and development expenses consist of costs incurred by our CDMO segment ~~in connection with research~~for its product and formulation development ~~services performed for our commercial partners, as well as other product development activities.~~activities, including regulatory support. We expense research and development costs as incurred. Advanced payments for goods and services that will be used in future research and development activities are initially recorded as prepaid expenses and expensed as the activity is performed or when the goods have been received.

General and administrative expenses consist principally of salaries and related costs for personnel in executive, pre-commercial and finance and information technology functions. General and administrative expenses also include professional fees for legal, including patent-related expenses, consulting, auditing and tax ~~services, and stock compensation expense.~~services.

We currently expect our general and administrative expenses to ~~continue to increase~~be lower for the second half of 2018 as we ~~build~~progress through our ~~Acute Care~~discussions with the FDA regarding the CRL. These expenses could increase depending on the timing of regulatory approval and subsequent commercialization ~~team, and engage in pre-commercialization~~of IV ~~meloxicam marketing, sales, market access and medical affairs activities.~~meloxicam. In addition, we will continue to incur costs relating to our operations as a public company, including ~~increased headcount and increased~~ salary, consulting, legal, patent and compliance, accounting, insurance and investor relations costs.

We recognize amortization expense related to the intangible asset for our contract manufacturing relationships on a straight-line basis over an estimated useful life of six years. The intangible asset related to injectable meloxicam represents in process research and development, or IPR&D, which is considered an indefinite-lived intangible asset that is assessed for impairment annually or more frequently if impairment indicators exist.

In connection with the acquisition of injectable meloxicam in the Gainesville Transaction, we are required to pay up to an additional $125.0 million in milestone payments, ~~(including, at our election, either (i) $10 million upon NDA filing and $30~~including $45.0 million upon regulatory approval ~~or (ii) an aggregate~~ of ~~$45 million upon regulatory approval,~~IV meloxicam, as well as net sales ~~milestones)~~milestones and ~~royalties on~~a royalty percentage of future product net ~~product~~ sales ofrelated to IV meloxicam between 10% and 12% (subject to a 30% reduction when no longer covered by patent). The estimated fair value of the initial $54.6 million payment obligation was recorded as part of the purchase price for the Gainesville Transaction. We have since reevaluated our fair value determination and as of June 30, 2018 recorded a $85.3 million payment obligation, representing the estimated probability adjusted fair value. Each reporting period, we revalue this estimated obligation with changes in fair value recognized as a non-cash operating expense or income.

We have classified as liabilities certain warrants outstanding which contain a contingent net cash settlement feature, ~~or an anti-dilution provision.~~upon a change in control. The fair value of these warrants ~~are~~is remeasured through settlement or expiration with changes in fair value recognized as a period charge within the ~~statement~~Consolidated Statements of ~~operations.~~Operations and Comprehensive Loss.

Interest expense, net for the ~~three and~~ six months ended June 30, ~~2017~~2018 was a result of interest expense incurred on our Athyrium senior secured term loans and the amortization of the related financing costs, net of interest income on cash equivalents and short-term investments. Interest expense for the six months ended June 30, ~~2016~~2017 was a result of interest expense incurred on our OrbiMed senior secured term loan and the amortization of the related financing ~~costs.~~costs, net of interest income on cash equivalents and short-term investments.

As of December 31, 2017, we had approximately $9.0 million of federal net operating loss carryforwards. We also had federal and state research and development tax credit carryforwards of $3.4 million available to offset future taxable income. U.S. tax laws limit the time during which these carryforwards may be utilized against future taxes. These federal and state net operating loss and federal and state tax credit carryforwards will begin to expire at various dates beginning in 2028, if not utilized. Based on our projected future taxable income we expect to be able to utilize all federal and state net operating losses. We have also generated foreign net operating loss carryforwards in Ireland. We currently do not believe it is more likely than not we will use any of these net operating losses and as a result have recorded a full valuation allowance against the deferred tax asset related to the losses.

Under the Tax Reform Act of 1986, or the Act, the utilization of a corporation’s net operating loss and research and development tax credit carryforwards is limited following a greater than 50% change in ownership during a three-year period. Any unused annual limitation may be carried forward to future years for the balance of the carryforward period. We determined that we have experienced ownership changes, as defined by the Act, during the 2008, 2014 and 2016 tax years as a result of past financings; accordingly, our ability to utilize the aforementioned carryforwards will be limited. Although the carryforwards will be limited, we have determined that none of the net operating losses will expire prior to being utilized as a result of the changes. In addition, state net operating loss carryforwards may be further limited, including in Pennsylvania, which has a limitation of 30%, 35% or 40% of taxable income after modifications and apportionment on state net operating losses utilized in any one year during tax years beginning during 2017, 2018 or 2019 going forward respectively. In addition, since we will need to raise substantial additional funding to finance our operations, we may undergo further ownership changes in the future, including changes to our organizational structure relating to foreign operations, purchases, sales and licenses, which could further limit our ability to use net operating loss carryforwards. As a result, if we generate taxable income, our ability to use some of our net operating loss carryforwards to offset U.S. federal and state taxable income may be subject to limitations, which could result in increased future tax liabilities to us or a determination that it is more likely than not that we will be able to use any of the net operating losses resulting in the need to record a full valuation allowance against the deferred tax asset related to the loses.

In December 2017, the federal government enacted numerous amendments to the Internal Revenue Code of 1986 pursuant to the Tax Cuts and Jobs Act, or the Tax Act. The Tax Act will impact our income tax expense/(benefit) from operations in future periods. The Tax Act resulted in the following impacts to us:

•Our results for the fourth quarter of 2017 included a one-time net expense of $7.9 million, as a result of remeasuring our deferred tax balances to the new statutory rate.

•We will be able to claim an immediate deduction for investments in qualified fixed assets acquired and placed in service beginning September 27, 2017 through 2022. This provision phases out through 2026.

	Three Months Ended June 30,						Three Months Ended June 30,
	2017			2016			2018			2017
	(amounts in thousands)						(amounts in thousands)
Revenue:
Manufacturing, royalty and profit sharing revenue	$	16,750		$	16,933
Research and development revenue		184			346
Total revenues		16,934			17,279
Revenue							$	21,739		$	16,934
Operating expenses:
Cost of sales (excluding amortization of intangible assets)		10,448			9,547			12,071			10,448
Research and development		7,073			8,320			10,157			7,073
General and administrative		6,322			2,763			12,955			6,322
Amortization of intangible assets		646			646			646			646
Change in warrant valuation		(1,084	)		1,240			(1,139	)		(1,084	)
Change in contingent consideration valuation		2,959			1,534			396			2,959
Total operating expenses		26,364			24,050			35,086			26,364
Operating loss		(9,430	)		(6,771	)		(13,347	)		(9,430	)
Other income (expense):
Interest expense, net		(1,090	)		(1,309	)		(2,075	)		(1,090	)
Loss before income taxes		(10,520	)		(8,080	)		(15,422	)		(10,520	)
Income tax benefit		1,665			195			2,707			1,665
Net loss	$	(8,855	)	$	(7,885	)	$	(12,715	)	$	(8,855	)

Revenue and costs of sales. Our revenues were ~~$16.9~~$21.7 million and ~~$17.3~~$16.9 million and cost of sales were ~~$10.4~~$12.1 million and ~~$9.5~~$10.4 million for the three months ended June 30, ~~2017~~2018 and ~~2016,~~2017, respectively. The ~~decrease~~increase of ~~$0.3~~$4.8 million in revenue includes the impact from the new Accounting Standards Update, or ~~2%, for this quarter year-over-year,~~ASU, No. 2014-09 “Revenue from Contracts with Customers,” or ASU 2014-09, and was primarily ~~the result of a decrease in royalty revenue~~ due to ~~the change in the mix~~increased royalties recognized from one of ~~generic~~our commercial partners and ~~brand sales by our partners offset by~~ an increase in ~~profit sharing revenue due~~product sales to ~~increased sales volume and pricing by~~one of our ~~partner.~~commercial partners. Cost of sales increased ~~$0.9 million, or 9%,~~primarily due to ~~changes in the~~increased product ~~mix of manufacturing revenue.~~sales.

Research and Development. Our research and development expenses were ~~$7.1~~$10.2 million and ~~$8.3~~$7.1 million for the three months ended June 30, 2018 and 2017, ~~and 2016,~~ respectively. ~~Lower IV meloxicam clinical trial expenses~~The increase of ~~$4.3~~$3.1 million ~~were offset by increases of $1.6 million of~~was primarily due to an increase in pre-commercialization manufacturing ~~costs and other development~~ costs for IV meloxicam, ~~$0.8 million~~an increase in ~~IPR&D costs for the NMB Related Compounds and $0.5 million of~~ salaries and benefits expense, ~~due to increased Acute Care~~an increase in Phase IIIb clinical ~~headcount.~~trials and related costs and a modest increase in development costs for other pipeline products. These increases were partially offset by a decrease in Phase III clinical trial costs.

General and Administrative. Our general and administrative expenses were ~~$6.3~~$13.0 million and ~~$2.8~~$6.3 million for the three months ended June 30, ~~2017~~2018 and ~~2016,~~2017, respectively. The increase of ~~$3.5~~$6.7 million was primarily due to commercial team personnel and related costs as well as increased ~~headcount in~~legal and consulting fees associated with addressing the CRL issued by the FDA regarding our ~~Acute Care division, and pre-commercialization and medical affairs expenses.~~NDA for IV meloxicam.

Amortization of Intangible Assets. Amortization expense was $0.6 million for each of the quarters ended June 30, 2018 and 2017, ~~and 2016,~~respectively, which was exclusively related to the amortization of our CDMO royalties and contract manufacturing relationships intangible asset over its ~~six-year~~ estimated useful life.

Interest Expense, net. Interest expense, net was ~~$1.1~~$2.1 million and ~~$1.3~~$1.1 million during the three months ended June 30, ~~2017~~2018 and ~~2016,~~2017, respectively. The ~~decrease in interest expense, net,~~increase of $1.0 million was primarily due to ~~a lower~~the higher principal balance on our ~~OrbiMed~~Athyrium senior secured term loan and amortization of the related financing ~~costs.~~costs, which was partially offset by a lower interest rate on our Athyrium senior secured term loan versus our previous loan with OrbiMed.

Income Tax Benefit. Income tax benefit was ~~$1.7~~$2.7 million and ~~$0.2~~$1.7 million for the three months ended June 30, 2018 and 2017, ~~and 2016,~~ respectively, related exclusively to our U.S. operations. The increase of $1.0 million was primarily due to ~~income tax benefit related to our a loss~~increased losses in ~~our U.S. operations.~~the United States. We believe that it is more likely than not that the deferred income tax assets associated with our foreign operations will not be realized, and as such, there is a full valuation allowance against our foreign deferred tax assets.

Our ~~CDMO’s gross margin percentage~~CDMO segment’s revenues were $21.7 million and $16.9 million in the three months ended June 30, 2018 and 2017, respectively. The increase of $4.8 million in revenue includes the impact from the new standard ASU 2014-09, and was ~~38%~~primarily due to increased royalties recognized from one of our commercial partners and ~~45%~~an increase in product sales to one of our commercial partners.

Our CDMO segment’s operating expenses increased by $1.6 million, from $12.9 million in the three months ended June 30, 2017 ~~and 2016, respectively. Our revenues decreased by $0.3 million, or 2%, and was primarily the result of a decrease in royalty revenue due~~ to a change in the mix of generic and brand sales by our partners offset by an increase in profit sharing revenue due to increased sales volume and pricing by our partner. One of our commercial partners, Pernix, is out of stock for the 20mg dosage strength of Zohydro ER®. The 20mg dosage strength is one of six strengths we manufacture for Pernix. For fiscal year 2016, revenues across all Zohydro ER® strengths represented less than 10% of our total revenues. Cost of sales increased $0.9 million, or 9% as a result of our product mix of manufacturing revenue.

~~CDMO’s operating expenses (excluding cost of sales) increased by $0.3 million, from $2.1~~$14.5 million in the three months ended June 30, ~~2016, to $2.4~~2018. Cost of sales were $12.1 million and $10.4 million in the three months ended June 30, ~~2017.~~2018 and 2017, respectively. Cost of sales increased primarily due to increased product sales. Research and development expenses ~~increased by $0.2 million due to increased overhead costs in 2017. General~~and general and administration expenses ~~increased by $0.1 million due~~remained constant for the three months ended June 30, 2018 compared to ~~an increase in marketing expenses.~~the three months ended June 30, 2017. All of the above contributed to ~~CDMO’s~~CDMO segment’s operating income of ~~$4.1~~$7.3 million for the three months ended June 30, ~~2017,~~2018, which included non-cash charges of $1.9 million for depreciation and amortization and ~~$0.2~~$0.3 million for stock-based compensation.

Our Acute ~~Care’s~~Care segment’s operating expenses increased ~~$1.1~~$9.8 million from ~~$12.4~~$11.6 million in the three months ended June 30, ~~2016~~2017 to ~~$13.5~~$21.4 million in the three months ended June 30, ~~2017.~~2018. Research and development expenses ~~decreased $1.5~~increased $3.1 million as a result of ~~a decrease in our IV meloxicam clinical trial expenses, which was partially offset by~~ increased ~~costs in~~ IV meloxicam pre-commercialization manufacturing costs, ~~IPR&D costs for the acquisition of the NMB Related Compounds~~salaries and ~~increased headcount.~~benefits and Phase IIIb clinical trial costs. The increase was partially offset by a decrease in Phase III clinical trial costs. General and administrative costs increased by ~~$3.5~~$6.7 million as a result of increased ~~headcount~~salaries and benefits, increased pre-commercialization marketing ~~expenses.~~expenses and severance and increased legal and consulting fees associated with addressing the CRL issued by the FDA regarding our NDA for IV meloxicam. Non-cash charges ofrelated to the warrant valuation ~~decreased $2.3 million~~remained constant and contingent consideration ~~increased~~expense decreased by ~~$1.4 million.~~$2.6 million year over year primarily as a result of the reevaluation conducted following receipt of the CRL from the FDA. All of the above contributed to our Acute ~~Care’s~~Care segment’s operating loss of ~~$13.5~~$20.7 million for the three months ended June 30, ~~2017,~~2018, which also included non-cash charges of ~~$1.2~~$1.5 million for stock-based compensation, depreciation and amortization.

	Six Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2018			2017
	(amounts in thousands)						(amounts in thousands)
Revenue:
Manufacturing, royalty and profit sharing revenue	$	34,878		$	34,072
Research and development revenue		798			949
Total revenues		35,676			35,021
Revenue							$	41,281		$	35,676
Operating expenses:
Cost of sales (excluding amortization of intangible assets)		20,946			19,818			22,561			20,946
Research and development		14,836			16,129			18,599			14,836
General and administrative		10,354			5,421			22,473			10,354
Amortization of intangible assets		1,292			1,291			1,292			1,292
Change in warrant valuation		(793	)		(354	)		(365	)		(793	)
Change in contingent consideration valuation		5,773			4,512			2,916			5,773
Total operating expenses		52,408			46,817			67,476			52,408
Operating loss		(16,732	)		(11,796	)		(26,195	)		(16,732	)
Other income (expense):
Interest expense, net		(2,168	)		(2,812	)		(4,037	)		(2,168	)
Loss before income taxes		(18,900	)		(14,608	)		(30,232	)		(18,900	)
Income tax benefit		1,958			184			5,060			1,958
Net loss	$	(16,942	)	$	(14,424	)	$	(25,172	)	$	(16,942	)

Revenue and costs of sales. Our revenues were ~~$35.7~~$41.3 million and ~~$35.0~~$35.7 million and cost of sales were ~~$20.9~~$22.6 million and ~~$19.8~~$20.9 million for the six months ended June 30, ~~2017~~2018 and ~~2016,~~2017, respectively. The increase of ~~$0.7~~$5.6 million in revenue ~~or 2%,~~includes the impact from the new standard ASU 2014-09, and was primarily ~~the result of increased profit share revenue~~ due to increased royalties recognized from one of our commercial partners and an increase in product sales ~~volumes and pricing by~~to one of our partner and was partially offset by a decrease in manufacturing revenue due to a change in the timing of product shipments compared to prior year and decreased royalty revenue due to a change in the mix of generic and brand sales by ourcommercial partners. Cost of sales increased ~~$1.1 million, or 6%,~~primarily due to ~~changes in the~~increased product ~~mix of manufacturing revenue.~~sales.

Research and Development. Our research and development expenses were ~~$14.8~~$18.6 million and ~~$16.1~~$14.8 million for the six months ended June 30, 2018 and 2017, ~~and 2016,~~ respectively. ~~Lower IV meloxicam clinical trial expenses~~The increase of ~~$5.5~~$3.8 million ~~were offset by increases of $2.5 million of~~was primarily due to an increase in pre-commercialization manufacturing ~~costs and other development~~ costs for IV meloxicam, ~~$0.8 million~~an increase in ~~IPR&D costs for the acquisition of the NMB Related Compounds and $0.9 million of~~ salaries and benefits expense, ~~due to increased Acute Care~~an increase in Phase IIIb clinical ~~headcount.~~trials and related costs and a modest increase in development costs for other pipeline products. These increases were partially offset by a decrease in Phase III clinical trial costs.

General and Administrative. Our general and administrative expenses were ~~$10.4~~$22.5 million and ~~$5.4~~$10.4 million for the six months ended June 30, ~~2017~~2018 and ~~2016,~~2017, respectively. The increase of ~~$5.0~~$12.1 million was primarily due to commercial team personnel and related costs as well as increased ~~headcount in~~legal and consulting fees associated with addressing the CRL issued by the FDA regarding our ~~Acute Care division and pre-commercialization and medical affairs expenses.~~NDA for IV meloxicam.

Amortization of Intangible Assets. Amortization expense was $1.3 million for the six months ended June 30, ~~2017~~2018 and ~~2016~~2017 which was exclusively related to the amortization of our royalties and contract manufacturing relationships intangible asset over its ~~six-year~~ estimated useful life.

Interest Expense, net. Interest expense, net was ~~$2.2~~$4.0 million and ~~$2.8~~$2.2 million during the six months ended June 30, ~~2017~~2018 and ~~2016,~~2017, respectively. The ~~decrease in interest expense, net,~~increase of $1.8 million was primarily due to ~~a lower~~the higher principal balance on our ~~OrbiMed~~Athyrium senior secured term loan and amortization of the related financing ~~costs.~~costs, which was partially offset by a lower interest rate on our Athyrium senior secured term loan versus our previous loan with OrbiMed.

Income Tax Benefit. Income tax benefit was ~~$2.0~~$5.1 million and ~~$0.2~~$2.0 million for the six months ended June 30, 2018 and 2017, ~~and 2016, respectively,~~respectively. The increase of $3.1million was primarily due to ~~income tax benefit related to our loss~~increased losses in ~~our U.S. operations.~~the United States. We believe that it is more likely than not that the deferred income tax assets associated with our foreign operations will not be realized, and as such, there is a full valuation allowance against our foreign deferred tax assets.

Our ~~CDMO’s gross margin percentage~~CDMO segment’s revenues were $41.3 million and $35.7 million for the six months ended June 30, 2018 and 2017, respectively. The increase of $5.6 million in revenue was ~~41%~~primarily due to increased royalties recognized from one of our commercial partners including the impact from the new standard ASU 2014-09 and ~~43%~~an increase in product sales to one of our commercial partners.

Our CDMO segment’s operating expenses (including cost of sales) increased by $2.0 million, from $25.4 million in the six months ended June 30, 2017 ~~and 2016, respectively. Our revenues increased by $0.7 million, or 2%, and was primarily the result of increased profit share revenue due~~ to increased sales volumes and pricing by our partner and was partially offset by a decrease in manufacturing revenue due to a change in the timing of product shipments compared to prior year and decreased royalty revenue due to a change in the mix of generic and brand sales by our partners. One of our commercial partners, Pernix, is out of stock for the 20mg dosage strength of Zohydro ER®. The 20mg dosage strength is one of six strengths we manufacture for Pernix. For fiscal year 2016, revenues across all Zohydro ER® strengths represented less than 10% of our total revenues. Cost of sales increased $1.1 million, or 6%, as a result of our product mix of manufacturing revenue.

~~CDMO’s operating expenses (excluding cost of sales) increased by $0.6 million, from $3.9~~$27.4 million in the six months ended June 30, ~~2016 to $4.5~~2018. Cost of sales were $22.6 million and $20.9 million in the six months ended June 30, ~~2017.~~ 2018 and 2017, respectively. Cost of sales increased primarily due to increased product sales.Research and development expenses increased by ~~$0.5~~$0.2 million due to expanded investment in our ~~future~~formulation and development capabilities ~~in 2017. General~~and general and administration expenses ~~remained constant in the six months ended June 30, 2017 and 2016.~~increased by $0.3 million. All of the above contributed to ~~CDMO’s~~our CDMO segment’s operating income of ~~$10.3~~$13.9 million for the six months ended June 30, ~~2017,~~2018, which included non-cash charges of $3.7 million for depreciation and amortization and ~~$0.5~~$0.6 million for stock-based compensation.

Our Acute ~~Care’s~~Care segment’s operating expenses increased ~~$3.9~~$15.5 million from ~~$23.1~~$22.0 million in the six months ended June 30, ~~2016~~2017 to ~~$27.0~~$37.5 million in the six months ended June 30, ~~2017.~~2018. Research and development expenses ~~decreased $1.9~~increased $3.6 million as a result of ~~a decrease in our IV meloxicam clinical trial expenses, which was partially offset by~~ increased ~~costs in~~ IV meloxicam pre-commercialization manufacturing costs, salaries and ~~increased headcount.~~benefits and Phase IIIb clinical trial costs. The increase was partially offset by a decrease in Phase III clinical trial costs. General and administrative costs increased by ~~$5.0~~$11.9 million as a result of increased ~~headcount~~salaries and benefits and increased pre-commercialization marketing ~~expenses. Non-cash charges~~expenses as well as costs due to the CRL including severance and increased legal and consulting fees associated with addressing the CRL issued by the FDA regarding our NDA for IV meloxicam. The non-cash charge for contingent consideration decreased by $2.9 million and the non-cash benefit from the reduction in value of warrants decreased by $0.4 million primarily as a result of the ~~warrant valuation decreased $0.4 million~~receipt of a CRL from the FDA and ~~contingent consideration increased by $1.3 million.~~the resulting decrease in our stock price. All of the above contributed to our Acute ~~Care’s~~Care segment’s operating loss of ~~$27.0~~$40.1 million for the six months ended June 30, ~~2017,~~2018, which also included non-cash charges of ~~$1.9~~$2.9 million for stock-based compensation, depreciation and amortization.

As of June 30, ~~2017,~~2018, we had ~~$50.2~~$48.9 million in cash and cash ~~equivalents and short-term investments.~~equivalents.

Since inception through June 30, ~~2017,~~2018, we have financed our product development, operations and capital expenditures primarily from sales of equity and debt securities, including sales of our common stock with net proceeds of ~~$116.4~~$127.5 million ~~which includes $57.6 million raised in 2016.~~, and term loans made under our previous and existing credit facilities, including our credit facility with Athyrium with an outstanding balance of $60.0 million. Revenues from our CDMO segment are used primarily to fund operations at our Gainesville, Georgia manufacturing facility, to make payments under our credit facility and to partially fund the development and pre-commercialization activities of our Acute Care segment. During the six months ended June 30, ~~2017,~~2018, our capital expenditures were ~~$3.2~~$2.9 million.

We will need to raise substantial additional funds in order to fund the payments which may become due, including milestone payments owed to Alkermes or other licensing partners, to continue or commence our clinical trials of our ~~approved or development state~~ product candidates, to commercialize any approved product candidates or technologies and to enhance our sales and marketing efforts for additional products we may acquire. Insufficient funds may cause us to delay, reduce the scope of or eliminate one or more of our development, commercialization or expansion activities. Our future capital needs and the adequacy of our available funds will depend on many factors, including our ability to timely and adequately resolve the CRL issued by the FDA regarding our NDA for IV meloxicam, the cost of ~~clinical~~ studies and other actions that may be needed to obtain regulatory approval offor IV meloxicam or our ~~products~~other product candidates in development, the timing of approval of IV meloxicam, the level of market acceptance of IV meloxicam and the costs of commercialization activities ~~as well as~~for IV meloxicam, if approved, the continued profitability of our CDMO ~~segment. If~~segment, and our ability to access additional ~~funds are required, we~~tranches under our Credit Agreement with Athyrium, which depends in part on our ability to obtain regulatory approval of IV meloxicam by December 31, 2018. We may raise such additional funds through debt refinancing, bank or other loans, through strategic research and development, licensing, including out-licensing activities, and/or marketing arrangements or through public or private sales of equity or debt securities from time to time. Financing may not be available on acceptable terms, or at all, and our failure to raise capital when needed could materially adversely impact our growth plans and our financial condition or results of operations. Additional debt or equity financing, if available, may be dilutive to the holders of our common stock and may involve significant cash payment obligations and covenants that restrict our ability to operate our ~~business.~~business or access to capital.

On March 7, 2015, in connection with the Gainesville Transaction, we, through a wholly owned subsidiary, entered into a credit agreement with OrbiMed. Pursuant to the credit agreement, OrbiMed provided us with a term loan in the original principal amount of $50.0 million on April 10, 2015, which amount was used to fund the Gainesville Transaction. ~~The unpaid~~On November 17, 2017, we entered into our credit agreement with Athyrium, pursuant to which we drew $60.0 million in an initial term loan and have the ability to draw upon two additional tranches of terms loans, each in the aggregate original principal amount ~~under~~of $20.0 million. Pursuant to the terms of the credit agreement, ~~is due~~we may draw upon the second $20.0 million tranche on or before December 31, 2018, provided that we receive regulatory approval for IV meloxicam and ~~payable on the five-year anniversary~~retain at least $20.0 million in unrestricted cash following payment of the ~~loan provided thereunder by OrbiMed. The credit agreement also provides for certain mandatory prepayment events, including a quarterly excess cash flow prepayment requirement at OrbiMed’s~~

~~request.~~$45.0 million milestone payment to Alkermes. We may ~~make voluntary prepayments in whole or in part, subject to: (i)~~draw upon the final $20.0 million tranche on or prior to March 31, 2020, provided that we have drawn on the ~~36-month anniversary~~second tranche and have achieved net sales for IV meloxicam of $20.0 million in the ~~closing~~most recent trailing twelve-month period. We used the proceeds from the $60.0 million initial term loan to (i) repay in full all outstanding indebtedness under our credit facility with OrbiMed of approximately $31.7 million, which included the remaining debt principal balance of $27.3 million and early termination charges of $4.4 million and (ii) pay transaction fees associated with the credit ~~agreement, payment~~facility with Athyrium of a buy-out premium amount equal to (A) for full prepayments, $75 million less all previously prepaid principal amount and all previously paid interest or (B) for partial prepayments of the unpaid principal amount, 0.5 times the partial prepayment amount less interest payments previously paid in respect to the partial prepayment amount and; and (ii) after the 36-month anniversary of the closing of the credit agreement, payment of an exit fee amount equal to 10% of the amount of any prepayments. As defined by the agreement, based upon our CDMO segment financial results, OrbiMed has the option to require us to prepay a portion of the Loan balance based upon an Excess Cash Flow calculation. No payments under this option shall be subject to the buy-out premium. The credit agreement carries interest at three-month LIBOR plus 14.0% with 1.0% floor. This obligation is secured by substantially all of our assets.approximately $4.2 million. As of June 30, ~~2017,~~2018, we ~~have paid $22.7~~had $60.0 million ~~of the~~ outstanding principal onunder our ~~senior secured term loan from free cash flow.~~Credit Agreement with Athyrium.

Cash used in operations was ~~$11.0~~$24.2 million and ~~$5.4~~$11.0 million for the six months ended June 30, ~~2017~~2018 and ~~2016,~~2017, respectively, which represents our operating losses less our stock-based compensation, depreciation, non-cash interest expense, changes in fair value of warrants and contingent consideration and amortization of intangibles, as well as changes in operating assets and liabilities.

Cash provided by/(used inin) investing activities was ~~$44.8~~$0.5 million and ~~$1.1~~($44.8) million for the six months ended June 30, ~~2017~~2018 and ~~2016,~~2017, respectively, and reflected cash maturities/redemption of investments offset by cash used for the purchase of short-term investments ~~offset by maturities/redemption~~and for the purchase of ~~investments in 2017 and~~ property and ~~equipment in 2017 and 2016. Our short-term investments are classified as available for sales securities maturities of less than one year.~~equipment.

There was ~~$0.02~~$11.7 million of cash provided by financing activities in ~~six months ended June 30, 2017 from proceeds from exercise of options. Cash provided by financing activities was $1.5 million for~~ the six months ended June 30, ~~2016, primarily as a result~~2018 from net proceeds of ~~$4.2~~$11.0 million ~~in proceeds~~ from the sale of shares of common stock through our ~~common stock purchase agreement~~Common Stock Purchase Agreement with Aspire Capital and proceeds of $1.0 million from exercise of options, which was partially offset by ~~excess cash flow payments~~deferred financing costs of ~~$2.6~~$0.3 million ~~made related to~~from the ~~OrbiMed credit agreement.~~

Athyrium transaction. Our future use of operating cash and capital requirements will depend on many forward-looking factors, including the following:

We might use existing cash and cash equivalents on hand, additional debt, or equity financing, sale of assets or out-licensing revenue or a combination ~~of the three~~thereof to fund our operations or product acquisitions. If we increase our debt levels, we might be restricted in our ability to raise additional capital and might be subject to financial and restrictive covenants. Our shareholders may experience dilution as a result of the issuance of additional equity or debt securities. This dilution may be significant depending upon the amount of equity or debt securities that we issue and the prices at which we issue any securities.

The ~~following is a discussion of~~table below reflects our contractual commitments as of June 30, ~~2017.~~2018:

~~We have in-licensed product candidates that generally trigger or require payments to the partner from whom we have licensed the product. Such payments frequently take the form of:~~

milestone payments, which are paid when certain parts of the overall development program and regulatory milestones (such as filing an IND or an NDA) are successfully accomplished, as well meeting certain sales thresholds.

	Payments Due by Period (in 000s)
Contractual Obligations	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Long-Term Debt Obligations (1):
Athyrium Debt	$	60,600	$	—	$	—	$	60,600	$	—
Interest on Debt	$	32,354		7,356		14,813		10,185		—
Purchase Obligations (2):	$	21,516		16,025		2,453		11		—
Operating Leases (3)	$	3,083		747		1,144		866		325
Other Long-Term Liabilities:
Other License Commitments and Milestone payments (4), (5)	$	54,890		25		100		150		315
Alkermes Payments (6)	$	125,000		—		—		—		—
Employment Agreements (7)	$	714		714		—		—		—
Other Non-Current Liabilities (8)	$	29		—		29		—		—

Total Contractual Obligations	$	298,186	$	24,867	$	18,539	$	71,812	$	640

We are party to exclusive licenses with Orion for the development and commercialization of Dex and Fado, under which we may be required to make certain milestone and royalty payments to Orion. We also license the NMB Related Compounds from Cornell pursuant to a license agreement pursuant to which we are obligated to make annual license maintenance fee payments, milestone payments and patent cost payments and to pay royalties on net sales of the NMB Related Compounds. See Note 5 and Note 13(a) to the Consolidated Financials Statements included in the Form 10-Q. We are unable to reliably estimate the timing of these payments because they are dependent on the type and complexity of the clinical studies and intended uses of the products, which have not been established. In accordance with U.S. GAAP, these obligations are not recorded on our Consolidated Balance Sheets.

~~We may also out-license products for which we hold the rights to other companies for commercialization in other territories or, at times, for other uses and would seek appropriate compensation.~~

Pursuant to the purchase and sale agreement governing the Gainesville Transaction, we agreed to pay to Alkermes up to an additional $125.0 million in milestone payments (including, at our election, either (i) $10 million upon NDA filing and $30 million upon regulatory approval or (ii) an aggregate of $45 million upon regulatory approval, as well as net sales milestones) and royalties on future product sales of injectable meloxicam between 10% and 12% (subject to a 30% reduction when no longer covered by patent). Through June 30, 2017, no milestones have been achieved. At the end of July 2017, we filed the NDA and have not made the election as to which milestone payment we will make as of the 10-Q filing date.

We are party to a supply agreement with Alkermes for the clinical and, if approved by the FDA, commercial supply of injectable meloxicam. Pursuant to our agreement with Alkermes, we will purchase our clinical and commercial supplies of bulk injectable meloxicam formulation exclusively from Alkermes, subject to certain exceptions. We are also party to an API supply agreement with Orion, whereby Orion provides us with API for the development and commercialization of our Dex product candidates. Prior to obtaining regulatory approval, subject to advance notice to Orion, Orion will provide API without charge for agreed-upon amounts. Any amounts ordered by us that are greater than the planned supply will be charged at 50% of the supply price for commercial product.

On January 1, 2017, we entered into a six-year lease of our Malvern, Pennsylvania facility that expires on December 31, 2022. In February 2017, we also entered into a three-year lease for office space in Dublin, Ireland that expires in April 2020. We are also party to operating leases for office equipment and storage.

Pursuant to our credit agreement with OrbiMed, OrbiMed provided us with a term loan in the original principal amount of $50.0 million on April 10, 2015. The unpaid principal amount under the credit agreement is due and payable in April 2020. The credit agreement also provides for certain mandatory prepayment events, including a quarterly excess cash flow prepayment requirement at OrbiMed’s request. As defined by the agreement, based upon our CDMO segment financial results, OrbiMed has the option to require the Company to prepay a portion of the loan balance based upon an Excess Cash Flow calculation. As of June 30, 2017, we have paid $22.7 million of the outstanding principal on our senior secured term loan from free cash flow.

We do not have any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.

Our critical accounting policies and estimates are disclosed in the ~~Management’s~~“Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations~~Operations” section of our Annual Report on Form 10-K December 31, ~~2016~~2017 filed with the SEC on March ~~9, 2017. There have not been any significant~~2, 2018. In the three months ended March 31, 2018, there were changes to ~~such~~the application of critical accounting policies ~~since.~~previously disclosed in our most recent Annual Report on Form 10-K related to the adoption of ASU 2014-09 on January 1, 2018, as described below.

~~We are exposed~~Item 3.Quantitative and Qualitative Disclosures About Market Risk

There has been no material change in our assessment of its sensitivity to market ~~risks~~risk described in the ~~ordinary course~~“Quantitative and Qualitative Disclosures About Market Risk” section of our ~~business. These market risks are principally limited to interest rate fluctuations. At June 30,~~Annual Report on Form 10-K December 31, 2017 we had approximately $47.6 million invested in money market instruments and government and agency bonds. We believe our policy of investing in highly-rated securities, whose liquidities are, at June 30, 2017, all less than one year, minimizes such risks. Due tofiled with the ~~short-term duration of our investment portfolio and the low-risk profile of our investments, an immediate 10.0% change in interest rates would not have a material effect~~SEC on the fair market value of our portfolio. Accordingly, we would not expect our operating results or cash flows to be affected to any significant degree by the effect of a sudden change in market interest rates on our investment portfolio. We do not enter into investments for trading or speculative purposes. Our OrbiMed senior secured term loan interest expense is based on the current committed rate of LIBOR plus 14% with a 1.0% LIBOR floor. A fluctuation in LIBOR of 0.25% would result in a charge of $0.1 million of interest expense.

We have license agreements with Orion for Dex and Fado which require the payment of milestones upon the achievement of certain regulatory and commercialization events and royalties on product sales, which are required to be made in Euros. As of June 30, 2017, no milestones or royalties were due under these agreements, and we do not anticipate incurring milestone or royalty costs under these agreements until we advance our development of Dex or Fado. We do not believe foreign currency exchange rate risk is a material risk at this time; however, these agreements could, in the future, give rise to foreign currency transaction gains or losses. As a result, our results of operations and financial position could be exposed to changing currency exchange rates. In the future, we may periodically use forward contracts to hedge certain transactions or to neutralize exposures.March 2, 2018.

Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act) as of June 30, ~~2017.~~2018. We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow for timely decisions regarding required disclosure.

A control system, no matter how well conceived and operated, can provide only reasonable, and not absolute, assurance that the objectives of the control system will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. However, our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives. Based on the evaluation of our disclosure controls and procedures as of June 30, ~~2017,~~2018, our principal executive officer and principal financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

There has been no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

As part of the Gainesville Transaction, we acquired the rights to Zohydro ER®, which we license to our commercial partner, Pernix Therapeutics Holdings, Inc., or Pernix, in the United States, and which is subject to ongoing intellectual property litigation and proceedings.

Zohydro ER® has been subject to six paragraph IV certifications, two of which were filed in 2014 by Actavis plc, or Actavis, and Alvogen Pine Brook, Inc., or Alvogen, regarding the filing of Abbreviated NDAs, or ANDAs, with the FDA forOn May 31, 2018, a ~~generic version of Zohydro ER®, one of which~~securities class action lawsuit was filed ~~in April 2015 by Actavis regarding the filing of a supplemental ANDA, or sANDA,~~against us and ~~another three of which were filed in November 2015 and October 2016 by Actavis and in December 2015 by Alvogen regarding one~~certain of our recently issued patents relating to a formulation of Zohydro ER®. These certification notices allege that the three U.S. patents listed in the FDA’s Orange Book for Zohydro ER®, with an expiration date in November 2019 or September 2034, will not be infringed by Actavis’ or Alvogen’s proposed products, are invalid and/or are unenforceable. In 2014, Daravita Limited (a subsidiary of Alkermesofficers and ~~our predecessor in interest) filed suit against each of Actavis and Alvogen~~directors in the U.S. District Court for the Eastern District of ~~Delaware~~Pennsylvania (Case No. 2:18-cv-02279-MMB) that purported to state a claim for alleged violations of Section 10(b) and 20(a) of the Exchange Act and Rule 10(b)(5) promulgated thereunder, based on statements made by us concerning the ~~ANDAs,~~NDA for IV meloxicam. The complaint seeks unspecified damages, interest, attorneys’ fees and ~~in 2015, we filed suit~~other costs. We believe that the lawsuit is without merit and intend to vigorously defend against ~~Actavis~~it. The lawsuit is in the ~~U.S. District Court for~~early stages and, at this time, no assessment can be made as to its likely outcome or whether the ~~District of Delaware based on the sANDA. In addition, in April 2015, the U.S. Patent and Trademark Office declared an interference between one of our patent applications relating~~outcome will be material to a dosage form of Zohydro ER® and two Purdue Pharma, LP, or Purdue, applications. On April 29, 2016, the USPTO found our claims and the Purdue claims involved in the interference to be invalid. Purdue appealed this decision to the U.S. Court of Appeals for the Federal Circuit on June 28, 2016, and on June 13, 2017 the U.S. Court of Appeals for the Federal Circuit affirmed the decision of the USPTO.

Under our license agreement with Pernix, we have the right to control the enforcement of our patents and related proceedings involving Zohydro ER® and any prospective generic entrant, and Pernix has the obligation to reimburse us for all reasonable costs of such actions. On September 29, 2016, we entered into a settlement agreement with Alvogen pursuant to which the case against Alvogen was dismissed. In February 2017, the District Court in the Actavis case ruled in our favor and enjoined Actavis from selling the proposed generic version of Zohydro ER®. Actavis has appealed this decision to the U.S. Court of Appeals for the Federal Circuit.us.

~~There~~Except as set forth below, there have been no material changes from our risk factors as previously reported in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017.

Considering our receipt of a CRL from the FDA regarding our NDA for IV meloxicam, the U.S. regulatory pathway for IV meloxicam is uncertain, and we will need to successfully address deficiencies raised by the FDA in order to obtain regulatory approval.

In July 2017 we submitted an NDA for IV meloxicam for the management of moderate to severe pain to the FDA. On May 23, 2018, we received a CRL from the FDA regarding the NDA, which stated that the FDA determined it could not approve the NDA in its present form. The CRL stated that data from ad hoc analyses and selective secondary endpoints suggest that the analgesic effect did not meet the expectations of the FDA. In addition, the CRL identified certain CMC related questions on extractable and leachable data provided in the NDA. The CRL did not identify any issues relating to the safety of IV meloxicam. In July 2018, we participated in a Type A End-of-Review meeting with the FDA to discuss the topics covered in the CRL. We plan to provide an update on our path forward following receipt of the written meeting minutes.

Our anticipated commercialization of IV meloxicam has been delayed by the CRL and we will incur additional costs and be required to devote some resources to address the FDA’s concerns raised in the CRL. Our receipt of the CRL and delay in the commercialization of IV meloxicam has adversely affected our business and caused our stock price to decline. We will need to raise additional funds if the FDA requires us to conduct additional studies and cannot guarantee that we will be able to do so on favorable terms or at all. In addition, if we do not obtain FDA approval of IV meloxicam by December 31, 2018, we will need to seek to renegotiate the conditions relating to our ability to draw the two additional $20 million tranches available under our credit agreement with Athyrium, or we will not be able to draw on these additional tranches.

Even if the outstanding items identified in the CRL are resolved to the satisfaction of the FDA with regard to our NDA for IV meloxicam, the FDA retains the right not to approve the NDA or to require additional information, or to raise additional issues with regard to regulatory approval of IV meloxicam, which could further delay or prevent its approval or limit the product labelling claims for IV meloxicam. In addition, either the substance of the items identified by the FDA in the CRL, or the CRL itself, could have an adverse impact on future efforts to obtain marketing authorization for IV meloxicam from the EMA and other foreign regulatory authorities, or on our future efforts to commercialize IV meloxicam and gain acceptance of IV meloxicam from third party payors.

Should we fail to address the concerns raised in the CRL in a timely manner and obtain regulatory approval of IV meloxicam, we may be forced to rely on our other product candidates, which are at an earlier development stage and will require additional time and resources to obtain regulatory approval and proceed with commercialization.

~~Exhibit~~ ~~No.~~	~~Description~~	~~Method of Filing~~

~~10.1†~~	~~Third Amendment to the Development, Manufacturing and Supply Agreement, dated June 15, 2017, by and between Alkermes Pharma Ireland Limited and Recro Pharma, Inc.~~	~~Filed herewith.~~

~~10.2†~~	~~Licensing Agreement, dated June 30, 2017, by and between Cornell University and Recro Pharma, Inc.~~	~~Filed herewith.~~

~~10.3†~~	~~Master Manufacturing Services Agreement, dated July 14, 2017, by and between Patheon UK Limited and Recro Ireland Limited~~	~~Filed herewith.~~

~~10.4†~~	~~Product Agreement, dated July 14, 2017, by and between Patheon UK Limited and Recro Ireland Limited~~	~~Filed herewith.~~

~~10.5~~	~~Employment Agreement, dated June 5, 2017, between Recro Pharma, Inc. and Ryan D. Lake~~	~~Incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 9, 2017 (File No. 001-36329).~~

~~31.1~~	~~Rule 13a-14(a)/15d-14(a) certification of Principal Executive Officer.~~	~~Filed herewith.~~

~~31.2~~	~~Rule 13a-14(a)/15d-14(a) certification of Principal Financial Officer.~~	~~Filed herewith.~~

~~31.3~~	~~Rule 13a-14(a)/15d-14(a) certification of Principal Accounting Officer.~~	~~Filed herewith.~~

~~32.1~~	~~Section 1350 certification, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.~~	~~Filed herewith.~~

~~101 INS~~	~~XBRL Instance Document~~	~~Filed herewith.~~

~~101 SCH~~	~~XBRL Taxonomy Extension Schema~~	~~Filed herewith.~~

~~101 CAL~~	~~XBRL Taxonomy Extension Calculation Linkbase~~	~~Filed herewith.~~

~~101 DEF~~	~~XBRL Taxonomy Extension Definition Linkbase~~	~~Filed herewith.~~

~~101 LAB~~	~~XBRL Taxonomy Extension Label Linkbase~~	~~Filed herewith.~~

~~101 PRE~~	~~XBRL Taxonomy Extension Presentation Linkbase Document~~	~~Filed herewith.~~

~~Pursuant to the requirements 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.~~

Exhibit No.	Description	Method of Filing

~~10.1†~~10.1	~~Third Amendment to the Development, Manufacturing and Supply Agreement, dated June 15, 2017, by and between Alkermes Pharma Ireland Limited and Recro Pharma, Inc.~~	~~Filed herewith.~~

~~10.2†~~	~~Licensing Agreement, dated June 30, 2017, by and between Cornell University and Recro Pharma, Inc.~~	~~Filed herewith.~~

~~10.3†~~	~~Master Manufacturing Services Agreement, dated July 14, 2017, by and between Patheon UK Limited and Recro Ireland Limited~~	~~Filed herewith.~~

~~10.4†~~	~~Product Agreement, dated July 14, 2017, by and between Patheon UK Limited and Recro Ireland Limited~~	~~Filed herewith.~~

~~10.5~~	~~Employment Agreement, dated June 5, 2017, between~~ Recro Pharma, Inc. 2018 Amended and ~~Ryan D. Lake~~Restated Equity Incentive Plan.	Incorporated herein by reference to Exhibit ~~10.1~~10.2 to the Company’s ~~Current~~Quarterly Report on Form ~~8-K~~10-Q filed on ~~June~~May 9, ~~2017~~2018 (File No. 001-36329).

31.1	Rule 13a-14(a)/15d-14(a) certification of Principal Executive Officer.	Filed herewith.

31.2	Rule 13a-14(a)/15d-14(a) certification of Principal Financial ~~Officer.~~	~~Filed herewith.~~

~~31.3~~	~~Rule 13a-14(a)/15d-14(a) certification of Principal~~and Accounting Officer.	Filed herewith.

32.1	Section 1350 certification, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	Filed herewith.

101 INS	XBRL Instance Document	Filed herewith.

101 SCH	XBRL Taxonomy Extension Schema	Filed herewith.

101 CAL	XBRL Taxonomy Extension Calculation Linkbase	Filed herewith.

101 DEF	XBRL Taxonomy Extension Definition Linkbase	Filed herewith.

101 LAB	XBRL Taxonomy Extension Label Linkbase	Filed herewith.

101 PRE	XBRL Taxonomy Extension Presentation Linkbase Document	Filed herewith.

Pursuant to the requirements 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.

Pennsylvania	26-1523233
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

490 Lapp Road, Malvern, Pennsylvania	19355
(Address of principal executive offices)	(Zip Code)

Large accelerated filer	☐	Accelerated filer	☐☒

Non-accelerated filer	☐ (Do not check if a smaller reporting company)	Smaller reporting company	☒☐
		Emerging growth company	☒

			Page

PART I. FINANCIAL INFORMATION			3

	Item 1.	Consolidated Financial Statements (Unaudited) ~~(Unaudited)~~	3

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3637

	Item 4.	Controls and Procedures	3638

PART II. OTHER INFORMATION			3839

	Item 1.	Legal Proceedings	3839

	Item 1A.	Risk Factors	3839

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3840

	Item 3.	Defaults Upon Senior Securities	3840

	Item 4.	Mine Safety Disclosures	3840

	Item 5.	Other Information	3840

	Item 6.	Exhibits	3840

SIGNATURES			4042

~~EXHIBIT INDEX~~			41

	Number of shares
Balance, December 31, ~~2016~~2017		~~7,750~~270,593
Granted		~~339,043~~993,319
Vested and settled		(~~7,750~~126,518	)
Expired/forfeited/cancelled		(~~750~~20,266	)
Balance, June 30, ~~2017~~2018		~~338,293~~1,117,128
Expected to vest		~~338,293~~1,117,128

Contract asset, beginning of year	$	3,755
Change in estimate arising from changes in transaction price		1,279
Reclassification of contract asset to receivables, as the result of rights to consideration becoming unconditional		(10,542	)
Contract assets recognized		12,374
Contract asset, end of period	$	6,866

Principal balance outstanding	$	60,000
Unamortized deferred issuance costs		(5,759	)
Exit fee accretion		75
Total	$	54,316

Principal balance outstanding	$	27,347
Unamortized deferred issuance costs		(2,633	)
	$	24,714
Current portion		(2,057	)
	$	22,657

	Balance at December 31, 2017		Adoption of ASU 2014-09			Balance at January 1, 2018
Contract asset	$	—	$	3,755		$	3,755
Deferred income taxes		18,573		(937	)		17,636

Total shareholders' equity		28,848		(2,818	)		26,030

	Previous Revenue Standard			Adoption of ASU 2014-09			As Reported
	Three Months Ended June 30, 2018
Revenue	$	20,381		$	1,358		$	21,739
Income tax benefit		3,110			(403	)		2,707
Net loss		(13,670	)		955			(12,715	)

	Six Months Ended June 30, 2018
Revenue	$	38,170		$	3,111		$	41,281
Income tax benefit		5,900			(840	)		5,060
Net loss		(27,443	)		2,271			(25,172	)

	Three Months Ended June 30, 2018
	Point in time		Over time		Total
CDMO	$	21,377	$	362	$	21,739
Acute Care		—		—		—
Revenue		21,377		362		21,739

	~~RECRO PHARMA, INC.~~

~~Date: August 11, 2017~~	~~By:~~	~~/s/ Gerri A. Henwood~~
		~~Gerri A. Henwood~~
		~~President and Chief Executive Officer~~
		~~(Principal Executive Officer)~~

~~Date: August 11, 2017~~	~~By:~~	~~/s/ Michael Celano~~
		~~Michael Celano~~
		~~Chief Financial Officer~~
		~~(Principal Financial Officer)~~

~~Date: August 11, 2017~~	~~By:~~	~~/s/ Ryan D. Lake~~
		~~Ryan D. Lake~~
		~~Chief Accounting Officer~~
		~~(Principal Accounting Officer)~~

	RECRO PHARMA, INC.

Date: August 7, 2018	By:	/s/ Gerri A. Henwood
		Gerri A. Henwood
		President and Chief Executive Officer
		(Principal Executive Officer)

†	~~Portions of this exhibit (indicated by asterisks) have been omitted pursuant to a request for confidential treatment pursuant to Rule 406 under the Securities Act of 1933.~~
Date: August 7, 2018		By:	/s/ Ryan D. Lake
			Ryan D. Lake
			Chief Financial Officer
			(Principal Financial and Accounting Officer)