~~FORM 10-Q~~☒Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the ~~Quarterly Period Ended:~~ quarterly period endedSeptember 30, ~~2017~~2021

☐Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

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)~~Section 13(a) of the Exchange Act.☒ ☐

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

As of November ~~7, 2017,~~2, 2021, there were ~~19,123,935~~46,614,535 shares of common stock, par value $0.01 per share, outstanding.

Notes to ~~the Consolidated Financial Statements~~consolidated financial statements

Recro Pharma, Inc.~~, or the Company,~~ (the “Company”) was incorporated in the Commonwealth of Pennsylvania on November 15, ~~2007.~~2007. The Company is a ~~specialty pharmaceutical company that operates through two business divisions: an Acute Care division and a revenue-generating~~dedicated contract development and manufacturing ~~or CDMO division. Each of these divisions are deemed~~organization dedicated to ~~be reportable segments (see Note 3(m)~~solving complex formulation and ~~Note 17).~~manufacturing challenges primarily in small molecule therapeutic development. The ~~Acute Care division is primarily focused on developing innovative products for hospital~~Company leverages its formulation and ~~other acute care settings, and the CDMO division leverages the Company’s formulation~~development expertise to develop and manufacture pharmaceutical products using ~~the Company’s~~ proprietary delivery technologies and know-how for ~~commercial~~ partners who develop and commercialize or plan to commercialize these products. ~~On April 10, 2015, the~~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 businessoperates 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 its lead investigational product candidate intravenous, or IV, meloxicam 30 mg for the management of moderate to severe pain. The FDA has accepted the NDA for review and has set a Prescription Drug User Fee Act, or PDUFA, date of May 26, 2018.

The Company has incurred net losses ~~from operations~~ since inception and has an accumulated deficit of ~~$87,265~~$243,397 as of September 30, ~~2017. Though its CDMO segment has been profitable,~~2021, which is primarily related to the ~~Company anticipates incurring additional losses until such time, if ever, that it can generate significant sales~~activities of its products currently in development. 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, through strategicformer 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 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.business, which was spun-out in 2019. 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 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.manufacturing operations. Management believes that it is probable that the ~~Company’s existing cash, cash equivalents and short-term investments as of September 30, 2017~~Company will be ~~sufficient~~able to ~~fund~~meet its ~~operations through mid-year 2018.~~obligations as they become due within at least one year after the date financial statements included herein are issued.

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

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 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~~The Company ~~allocates~~measures the purchase price ofpaid for acquired companies based on fair value and allocates that purchase price 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~~Costs associated with the transaction are expensed as ~~incurred. In-process research~~incurred as selling, general and ~~development,~~administrative expenses.

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, royalties and/or profit sharing components.~~companies.

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 ~~royalties~~intellectual property sales-based profit-sharing and/or ~~profit sharing payments,~~royalties consideration, collectively referred to as profit-sharing, computed on the net product sales of the commercial partner. ~~Royalty and profit sharing~~Profit-sharing revenues are generally recognized under the terms of the applicable license, development and/or supply ~~agreement~~agreement. For arrangements that include sales-based profit-sharing where the license for intellectual property is deemed to be the predominant item to which the profit-sharing relates, the Company recognizes revenue when the related sales occur by the commercial partner. For arrangements that include sales-based profit-sharing where the license for intellectual property is not deemed to be the predominant item to which the profit-sharing relates, the Company recognizes revenue upon transfer of control of the manufactured product. In these cases, significant judgment is required to calculate the estimated variable consideration from such profit-sharing using the expected value method based on historical commercial partner pricing and deductions. Estimated variable consideration is partially constrained due to the uncertainty of price adjustments made by the Company’s commercial partners, which are outside of the Company’s control. Factors causing price adjustments by the Company’s commercial partners include increased competition in the ~~period~~products’ markets, mix of volume between the ~~products are sold~~commercial partners’ customers, and ~~when collectability is reasonably assured.~~changes in government pricing.

Research and development revenue includes services associated with formulation, process development, clinical trials materials services, as well as custom development of manufacturing processes and analytical methods for a customer’s non-clinical, clinical and commercial products. Such revenues are ~~generally~~ recognized asat a point in time or over time depending on the ~~related services or activities are performed, in accordance~~nature and particular facts and circumstances associated with the contract terms. ~~To the extent~~

In contracts 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 ~~recognizes revenue from non-refundable milestone payments when~~evaluates whether the ~~earnings process is complete~~milestones are considered probable of being achieved and estimates the ~~payment is reasonably assured. Non-refundable milestone~~amount to be included in the transaction price using the most likely amount method. Milestone payments related to arrangements under which the Company has continuing performance obligations ~~would be~~are deferred and recognized over the period of performance. Milestone payments that are not within the Company’s 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.

In contracts that require revenue recognition over time, the Company utilizes input or output methods, depending on the specifics of the contract, that compare the cumulative work-in-process to date to the most current estimates for the entire performance obligation. Under these contracts, the customer typically owns the product details and process, which have no alternative use. These projects are customized to each customer to meet its specifications and typically only one performance obligation is included. Each project represents a distinct service that is sold separately and has stand-alone value to the customer. The customer also retains control of its product as the product is being created or enhanced by the Company’s services and can make changes to its process or specifications upon request.

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 and 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 primarily concentrated ~~amongst approximately five customers and if~~among 3 customers. 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.

~~Research~~The Company is dependent on its relationships with a small number of commercial partners. The Company's 3 largest customers generated 81% and ~~development costs~~88% of its revenues for the ~~Company’s proprietary products/product candidates are charged to~~three and nine months ended September 30, 2021, respectively.

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~~basis, operating ~~loss~~losses 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. A full valuation allowance was recorded as of September 30, 2021 and December 31, 2020.

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 does not anticipate significant changes in the amount of unrecognized income tax benefits over the next year.

Basic income or loss per share is determined by dividing net income or loss ~~applicable to common shareholders~~(the numerator) by the weighted average common shares outstanding during the ~~period. For all~~period (the denominator). Additionally, the weighted average common shares outstanding for the three- and nine-month periods ~~presented,~~ended September 30, 2021 include 9,302,718 shares issuable to the former equity holders of IriSys since the acquisition date (see note 10).

To calculate diluted income or loss per share, the numerator and denominator are adjusted to eliminate the income or loss and the dilutive effects on shares, respectively, caused by outstanding common stock options, warrants and unvested restricted stock units, ~~have been excluded from~~using 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~~treasury stock ~~equivalents~~method, if the inclusion of such ~~common stock equivalents~~instruments would be dilutive. ~~There are~~

For all periods presented, the Company incurred a net loss. In periods of net loss, the inclusion of dilutive securities would be antidilutive because it would reduce the amount of loss incurred per share. As a result, no additional dilutive ~~common stock equivalents for the three~~shares were included in diluted loss per share, and ~~nine months ended September 30, 2017~~.there were no differences between basic and diluted loss per share.

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~~Recently adopted accounting pronouncements

On January 1, 2020, the Company ~~reviews~~adopted ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”). ASU 2018-13 removes, modifies and ~~evaluates operating performance. The~~adds certain disclosure requirements in Topic 820 “Fair Value Measurement”. There was no impact upon adoption because the Company ~~has identified CDMO and Acute Care as reportable segments. Segment~~is not currently required to provide any of the disclosures ~~are included in Note 17. Segment operating profit (loss) is defined as segment revenue less segment operating expenses (segment operating expenses consist~~impacted by the new standard.

On January 1, 2021, the Company adopted ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of ~~general and administrative expenses, research and development expenses, and~~Credit Losses on Financial Instruments” (“ASU 2016-13”), a new standard for measuring expected credit losses. That guidance impacts the ~~change in valuation~~measurement of contingent consideration and warrants). The following items are excluded from segment operating profit (loss): interest income and expense, and income tax benefit (expense). 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.doubtful accounts receivable, among other things. There was no impact upon adoption because the Company does not currently have any significant exposure to credit losses.

In ~~July 2017,~~March 2020, the FASB issued ~~Accounting Standards Update, or~~ ASU ~~No. 2017-11~~ ~~“Earnings Per Share~~2020-04, "Reference Rate Reform (Topic ~~260); Distinguishing Liabilities~~848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting" ("ASU 2020-04"). This ASU provides temporary optional expedients and exceptions to the guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from ~~Equity (Topic 480); Derivatives~~the London Interbank Offered Rate and ~~Hedging (Topic 815): Accounting for Certain Financial Instruments with Down Round Features,”~~ orother interbank offered rates to alternative reference rates. In January 2021, the FASB issued ASU ~~2017-11. ASU 2017-11 simplifies~~2021-01, which refines the ~~accounting for certain financial instruments with down round features,~~scope of Topic 848 and clarifies some of its guidance as ~~equity-linked instruments or embedded equity-linked features will not be accounted for as a liability solely because there~~part of the FASB’s monitoring of global reference rate activities. The new guidance was effective upon issuance, and the Company is ~~a down-round feature. The~~allowed to elect to apply the amendments ~~are effective for public companies for annual and interim periods beginning after~~prospectively through December ~~15, 2018.~~31, 2022. The Company is currently evaluating the ~~effect that~~impact this ~~guidance may have on its consolidated financial statements.~~

~~In May 2017, the FASB issued ASU No. 2017-09,~~ ~~Stock Compensation - Scope of Modification Accounting~~. 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 the effect that this guidance may have on its consolidated financial statements.

~~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.~~statements.

(3) Acquisition of IriSys

~~In February 2016,~~On August 13, 2021, 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 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 be revised. This update also requires an entity to present separately on the faceacquired all of the ~~income statement or disclose~~units of IriSys, LLC (“IriSys”) pursuant to a unit purchase agreement. IriSys provides contract pharmaceutical product development and manufacturing services, specializing in formulation research and development and good manufacturing practices of clinical trial materials and specialty pharmaceutical products. The acquisition advances the ~~notes~~Company’s ongoing growth strategy and leads to key synergies within business development, clinical development and commercial scale-up, as well as a strong cultural alignment and fit between the ~~amount recorded in the current-period income statement that would have been recorded in previous reporting periods if the adjustments had been recognized as~~companies.

The aggregate purchase price consideration was comprised of the acquisition date. The updated guidance is effective for annual and interim periods beginning after December 15, 2016. The Company adopted the guidance effective January 1, 2017. The guidance did not havecash consideration, 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 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 guidance 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 earnings in the period of adoption. The Company currently anticipates adopting the standard using the modified retrospective method. The Company has made substantial progress towards completion of its analysis of existing contracts with customers and its assessment of the differences in accounting for such contracts under ASU 2014-09 compared with current revenue accounting standards. The new standard will result in additional revenue-related disclosures in the 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 required disclosures. The Company is in the process of implementing such changes.

~~RECRO PHARMA, INC. AND SUBSIDIARIES~~

~~Notes to the Consolidated Financial Statements~~

~~(amounts in thousands, except share and per share data)~~

~~(Unaudited)~~

~~(4)~~

~~Acquisition of Gainesville Facility and Meloxicam~~

On April 10, 2015, the Company completed the Gainesville Transaction. The consideration paid in connection with the Gainesville Transaction consisted of $50.0 million cash at closing, a $4.0 million working capital adjustmentsubordinated promissory note and a ~~seven-year warrant~~contractual obligation to ~~purchase 350,000~~issue 9,302,718 shares of the Company’s common stock ~~at an exercise price~~on the six-month anniversary of ~~$19.46 per share. In addition,~~ the Company may be required to pay up to an additional $125.0 million in milestone payments including $45 million upon regulatory approval, as well as net sales milestones related to injectable meloxicam and a percentage of future product net sales related to injectable meloxicam between 10% and 12% (subjectclosing, subject to a ~~30% reduction when no longer covered by patent). Under~~working capital adjustment. The following table summarizes the ~~acquisition method of accounting, the~~estimated consideration ~~paid and the~~paid:


	August 13, 2021
Cash paid, net of cash acquired	$	24,006
Fair value of shares issuable to former equity holders of IriSys		20,931
Fair value of note with former equity holder of IriSys		5,240
Total estimated consideration	$	50,177

The fair value of the ~~contingent consideration and royalties are allocated~~shares issuable was determined by using the price of the Company's common stock on the acquisition date, less a discount for lack of marketability due to the shares being unregistered shares of the Company. The fair value of the note was determined using a discounted cash flow analysis that incorporated an estimate of the market interest rate for debt of similar terms and credit risk on the acquisition date.

The Company incurred $1,211 in transaction costs related to the acquisition that were expensed as incurred and classified as selling, general and administrative expenses.

The following table summarizes the provisional fair values of the assets acquired and liabilities ~~assumed.~~ assumed at the date of acquisition:


	As of August 13, 2021
Assets acquired:
Accounts receivable	$	912
Contract assets		505
Inventory		685
Prepaid expenses and other assets		91
Property and equipment		9,304
Right of use assets		5,559
Intangible assets		6,128
Goodwill		35,249
Other noncurrent liabilities		146
Total assets acquired	$	58,579

Liabilities assumed:
Accounts payable	$	730
Accrued expenses and other liabilities		1,512
Operating lease liability		5,559
Debt from finance loan		415
Other liabilities		186
Total liabilities assumed	$	8,402

Net assets acquired	$	50,177

The ~~contingent consideration obligation is remeasured each reporting date with changes in~~amounts above represent the Company's current provisional fair value ~~recognized~~estimates and are subject to subsequent adjustments as ~~a period charge within~~additional information is obtained and valuations are finalized during the ~~statement~~measurement period. The primary areas of ~~operations (see Note 6 for further information regarding fair value).~~

estimates that are not yet finalized include the final outcome of the net working capital adjustment, certain tangible assets acquired and liabilities assumed, as well as the identifiable intangible assets. The ~~contingent consideration consists of three separate components. The first component will be payable upon regulatory approval. The second component consists of three potential payments,~~purchase price was allocated to the tangible assets and identifiable intangible assets acquired and liabilities assumed based on ~~the achievement~~their acquisition date estimated fair values. The identifiable intangible assets consisting of ~~specified annual revenue targets. The third component consists~~customer relationships, acquired backlog and trademark and tradename were assigned provisional fair values of $4,830, $957 and $341, respectively. Customer relationships, acquired backlog, and trademarks and trade names are subject to amortization on a ~~royalty payment for a defined term on future meloxicam net sales.~~straight-line basis and are being amortized over 12, 2.4 and 1.5 years, respectively.

The fair value of property, plant and equipment was determined using a cost approach valuation method. The customer relationships and acquired backlog were valued using the ~~first contingent consideration component recognized on~~multi-period excess earnings method and trademarks and trade names were valued using the ~~acquisition date was estimated by applying a risk-adjusted discount rate~~relief from royalty method. These methods require several judgments and assumptions to determine the ~~probability-adjusted contingent payments and the expected approval dates. The~~ fair value of ~~the second contingent consideration component recognized on the acquisition date was estimated by applying a risk-adjusted~~intangible assets, including revenue growth rates, discount ~~rate to the potential payments resulting from probability-weighted revenue projections~~rates, EBITDA margins, and ~~expected revenue target attainment dates. The~~tax rates, among others. These nonrecurring 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 and the defined royalty percentage.

~~These fair values~~measurements 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.~~

~~(5)~~

~~NMB Related License Agreement~~

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 to these NMB Related Compounds.

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, 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, of which $329 is reported as a component of Accrued expenses and other current liabilities and Other non-current liabilities on the Consolidated Balance Sheet as of September 30, 2017.

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 for U.S. regulatory approval and commercialization milestones and $3 million 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 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

~~RECRO PHARMA, INC. AND SUBSIDIARIES~~

~~Notes to the Consolidated Financial Statements~~

~~(amounts in thousands, except share and per share data)~~

~~(Unaudited)~~

~~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.

~~(6)~~

~~Fair Value of Financial Instruments~~

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 placementmeasurements within the fair value hierarchy. ~~Categorization is based on a three-tier valuation hierarchy, which prioritizes~~

Goodwill represents the ~~inputs used in measuring fair value, as follows:~~

~~Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical~~excess of the purchase price over the net identifiable tangible and intangible assets ~~or liabilities;~~

Level 2: Inputs that are other than quoted prices in active markets for identical assets and liabilities, inputs that are quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are either directly or indirectly observable; and

~~Level 3: Unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.~~

~~RECRO PHARMA, INC. AND SUBSIDIARIES~~

~~Notes~~acquired. The goodwill related to the ~~Consolidated Financial Statements~~

~~(amounts in thousands, except share and per share data)~~

~~(Unaudited)~~

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

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)

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 September 30, 2017:

Assets:

Cash equivalents

Money market mutual funds (See Note 7)

$
134

$
—

$
—

Total cash equivalents

$
134

$
—

$
—

Short-term investments

U.S. Treasury obligations (See Note 7)

$
29,507

$
—

$
—

Total financial assets

$
29,641

$
—

$
—

Liabilities:

Warrants (See Note 14(d))

—

—

$
3,412

Contingent consideration (See Note 4)

—

—

78,897

$
—

$
—

$
82,309

~~The Company developed its own assumptions~~acquisition was attributable to ~~determine~~expected synergies, the value of the ~~warrants that~~assembled workforce as well as the collective experience of the management team with regards to its operations, customers, and industry. The goodwill is deductible for tax purposes.

Results for the three and nine months ended September 30, 2021 included revenue of $1,490 and net loss of $303 from IriSys. The following table presents unaudited supplemental pro forma financial information as if the IriSys acquisition had occurred on January 1, 2020:


	Three months ended September 30,						Nine months ended September 30,
	2021			2020			2021			2020
Revenue	$	19,102		$	21,977		$	60,742		$	62,844
Net loss		(3,821	)		(2,399	)		(9,625	)		(18,589	)

The pro forma financial information presented above has been prepared by combining the Company's historical results and the historical results of IriSys and adjusting those results to eliminate historical transaction costs and to reflect the effects of the acquisition as if they occurred on January 1, 2020. The effects of the acquisition on the historical pro forma financial information include additional depreciation and amortization expense from the increase of asset carrying values to fair value, the adoption of new accounting standards, additional interest expense from the issuance of the subordinated promissory note

and the elimination of interest expense related to indebtedness of IriSys prior to the acquisition. These results do not ~~have observable inputs or available market data~~purport to ~~support the fair value. This method of valuation involves using inputs such as the fair value~~be indicative of the ~~Company’s common stock, stock price volatility,~~results of operations which actually would have resulted had 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

Balance at December 31, 2016

$
3,397

$
69,574

Additions

—

—

Remeasurement

15

9,323

Total at September 30, 2017

$
3,412

$
78,897

Current portion

—

30,372

Long-term portion

3,412

48,525

The current portion of the contingent consideration represents the estimated probability adjusted fair value that is expected to become payable within one year as of September 30, 2017 (see Note 4 for additional information).

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 September 30, 2017, the financial

~~RECRO PHARMA, INC. AND SUBSIDIARIES~~

~~Notes to the Consolidated Financial Statements~~

~~(amounts in thousands, except share and per share data)~~

~~(Unaudited)~~

~~assets and liabilities recorded~~acquisitions occurred on the ~~Consolidated Balance Sheets~~date indicated above, or that are not measured at fair value on a recurring basis include accounts receivable, accounts payable, 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 September 30, 2017 due to the estimated amount of the Excess Cash Flow payments and terms of the debt.

~~(7)~~

~~Short-term Investments~~

Short-term investments as of September 30, 2017 consist of government money market funds and U.S. Treasury obligations. In accordance with FASB ASC Topic 320, “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 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 September 30, 2017.

September 30, 2017

Amortized

Gross Unrealized

Estimated

Description

Cost

Gain

Loss

Fair Value

Money market mutual funds

$
134

$
—

$
—

$
134

U.S. Treasury obligations

29,515

—

(8
)

29,507

Total investments

$
29,649

$
—

$
(8
)

$
29,641

As of September 30, 2017, the Company’s investments had maturities ranging from one to four months. As of December 31, 2016, all of the Company’s investments in US. Treasury obligations had original maturities of less than three 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.

Certain investment securities as of September 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 September 30, 2017, there were 15 U.S. Treasury 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 September 30, 2017. The Company anticipates full recovery of amortized costs with respect to these investments at maturity or soonerresult in the ~~event of a more favorable market interest rate environment. The duration of time~~future, and do not reflect potential synergies or additional costs following the ~~investments had been in a continuous unrealized loss position as of September 30, 2017 was less than 6 months.~~acquisition.

Depreciation expense for the three and nine months ended September 30, 2017 was $1,231 and $3,655, respectively. Depreciation expense for the three and nine months ended September 30, 2016 was $1,245 and $3,756, respectively.

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

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

~~Amortization expense for each of~~During the nine months ended September 30, ~~2017~~2021, $120 of interest expense was capitalized to construction in process.

~~The Company financed the Gainesville Transaction with cash on hand~~(8)Commitments and a $50,000 five-year senior secured term loan, pursuant to a credit agreement, entered into on April 10, 2015, with OrbiMed Royalty Opportunities II, LP, or OrbiMed. The unpaid principal amount under the credit agreement is due and payable on April 10, 2020, the five-year anniversary 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 to the 36-month anniversary of the closing 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 September 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 LIBORcontingencies

~~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.~~

The 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 September 30, 2017, the Company was in compliance with the covenants.

The Company issued to OrbiMed a warrant to purchase 294,928 shares of common stock, with an exercise price of $3.28 per share. The warrant is exercisable through April 10, 2022. The initial fair value of the warrant of $2,861 was recorded as debt issuance costs.

Debt issuance costs related to the term loan of $4,579, including the initial warrant fair value of $2,861, are being amortized to interest expense over the five-year term of the loan and netted with the loan principal amount. The unamortized balance of debt issuance costs is $2,457 as of September 30, 2017. As of September 30, 2017, the long-term debt balance is comprised of the following:

The Company has estimated that no amount of the Excess Cash Flow payments will become payable within one year of September 30, 2017. The full amount of the debt is classified as long term in the accompanying consolidated balance sheet.

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 ($24,215 as of September 30, 2017) 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 September 30, 2017, 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 ($14,411 as of September 30, 2017) 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 September 30, 2017, 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 entitled to receive additional milestone payments, 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 in milestone payments including $45 million 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).

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 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.

On May 31, 2018, a securities class action lawsuit (the “Securities Litigation”) was filed against the Company ~~acquired~~and certain of its officers and directors (collectively, the rights to Zohydro ER®, which the Company licenses to its 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 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 the Company’s 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 Alvogen"Defendants") in the U.S. District Court for the Eastern District of ~~Delaware~~Pennsylvania (the "Court") (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 Securities Exchange Act of 1934, as amended, and Rule 10(b)(5) promulgated thereunder, based on statements made by the ~~ANDAs,~~Company concerning the New Drug Application (“NDA”) for IV meloxicam. The complaint seeks unspecified damages, interest, attorneys’ fees and ~~in 2015,~~other costs. On December 10, 2018, the lead plaintiff filed an amended complaint that asserted the same claims and sought the same relief but included new allegations and named additional officers as defendants. On February 8, 2019, the Company filed ~~suit against Actavis~~a motion to dismiss the amended complaint in its entirety, which the ~~U.S. District Court for~~lead plaintiff opposed on April 9, 2019. On May 9, 2019, the ~~District of Delaware based~~Company filed its response and briefing was completed on the ~~sANDA.~~motion to dismiss. In response to questions from the Court, the parties submitted supplemental briefs regarding the motion to dismiss the amended complaint during the fall of 2019. On February 18, 2020, the motion to dismiss was granted by the Court without prejudice. On April 25, 2020, the plaintiff filed a second amended complaint. The Company filed a motion to dismiss the second amended complaint on June 18, 2020. The plaintiff filed an opposition to the Company’s motion to dismiss on August 17, 2020. On September ~~2016, Recro Gainesville LLC entered~~16, 2020, the Company filed a reply in support of its motion to dismiss. On March 1, 2021, the Court denied the Company’s second motion to dismiss. On June 21, 2021, the Defendants filed an answer and affirmative defenses to the second amended complaint. A Preliminary Pretrial Conference before the Court occurred on August 3, 2021. The parties have begun discovery and class certification briefing, which the Court has ordered to be completed by December 30, 2021. All expert and fact discovery must be completed by March 15, 2022.

In connection with the separation of the Company's former acute care research and development business into a ~~settlement agreement~~new standalone entity named Baudax Bio, Inc. ("Baudax Bio"), Baudax Bio accepted assignment by the Company of all of its obligations in connection with ~~Alvogen pursuant~~the Securities Litigation and agreed to which the case against Alvogen was dismissed. In February 2017, the District Court in the Actavis case ruled in Recro Gainesville LLC’s favor and enjoined Actavis from selling the proposed generic version of Zohydro ER®. Actavis has appealed this decisionindemnify it for all liabilities related to the ~~U.S. Court of Appeals for~~Securities Litigation. The Company and Baudax Bio believe that the ~~Federal Circuit. In October 2017, Recro Gainesville LLC filed suit~~lawsuit is without merit and intend to vigorously defend against ~~Actavis in the U.S. District Court for the District of Delaware based upon another recently issued patent relating to~~it, unless and until a formulation of Zohydro ER®. Under Recro Gainesville LLC’s license agreement with Pernix, Recro Gainesville LLC has the right to control the enforcement of its patents and related proceedings involving Zohydro ER® and any prospective generic entrant, and Pernix has the obligation to reimburse Recro Gainesville LLC for all reasonable costs of such actions.

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. In April 2016, the USPTO found Recro Gainesville LLC’s claims and the Purdue claims involved in the interference to be invalid. In June 2016, Purdue appealed this decisionresolution satisfactory to the U.S. Court of Appeals for the Federal Circuit and in June 2017, the U.S. Court of Appeals for the Federal Circuit affirmed the decision of the USPTO in Recro Gainesville’s favor and dismissed Purdue’s appeal.

~~On January 1, 2017, the~~ Company entered into a six-year lease for its Malvern, Pennsylvania facility that expires on December 31, 2022. In February 2017, the Company also entered into a three-year lease for office space in Dublin, Ireland that expires April 2020. 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.can be achieved.

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

~~As of September 30, 2017,~~2021, the Company had outstanding ~~non-cancelable~~cancelable and ~~cancelable~~non-cancelable purchase commitments in the aggregate amount of ~~$22,338~~ $4,506related to inventory, capital expenditures and other goods and ~~services, including pre-commercial/manufacturing scale-up~~services.

The Company has entered into employment agreements with ~~certain~~each of its named executive ~~officers.~~officers that provide for, among other things, severance commitments of up to $1,250 should the Company terminate the named executive officers for convenience or if certain events occur following a change in control. In addition, the Company is subject to other contingencies of up to $3,566 in the aggregate if certain events occur following a change in control.

(12)Stock-based compensation

In October 2013, the Company established an equity incentive plan that has been subsequently amended and restated to become 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 the2018 Amended and Restated Equity Incentive Plan or(the “A&R Plan”) At September 30, 2021, a total of 2,431,418 shares were available for future grants under 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.~~Plan. On December 1st of each year, pursuant to the “Evergreen” provision of the A&R Plan, the number of shares available under the ~~plan~~A&R Plan may be increased by the board of directors by an amount equal to 5%5% of the outstanding common stock on December 1st of that year. ~~In December 2016 and 2015, the number of shares available for~~

~~RECRO PHARMA, INC. AND SUBSIDIARIES~~Stock options

~~Notes to the Consolidated Financial Statements~~

~~(amounts in thousands, except share and per share data)~~

~~(Unaudited)~~

~~issuance under the A&R Plan was increased by 619,181 and 461,215, respectively. The total number of shares authorized for issuance under the A&R plan as of September 30, 2017 is 3,080,396.~~

Stock options are exercisable generally for a period of 10 years from the date of grant and generally vest over four ~~years. As of September 30, 2017, 296,453 shares and 174 shares are available for future grants under~~years.

The following table presents information about the ~~A&R Plan and 2008 Plan, respectively.~~

~~The weighted average grant-date~~ fair value of stock options granted:


	Nine months ended September 30,
	2021		2020
Weighted average grant date fair value	$	1.78	$	8.24
Assumptions used to determine fair value:
Range of expected option life	5.5 - 6 years		5.5 - 6 years
Expected volatility	79 - 81%		75 - 81%
Risk-free interest rate	0.7 - 1.2%		0.3 - 1.4%
Expected dividend yield		0		0

The intrinsic value of options exercised was negligible in the ~~options awarded to employees during the~~first nine months ~~ended September 30, 2017~~of 2021 and ~~2016 was $5.39 and $5.02, respectively. The fair value~~$1,058 in the first nine months of ~~the options was estimated on the date of grant using a Black-Scholes option pricing model with the following assumptions:~~

2020.

September 30,

2017

2016

Range of expected option life

6 years

6 years

Expected volatility

84.71%

79.95%

Risk-free interest rate

1.87-2.17%

1.07-1.91%

Expected dividend yield

—

—

The following table ~~summarizes~~presents information about stock option ~~activity during the nine months ended September 30, 2017:~~balances and activity:

Number of
shares

Weighted
average
exercise
price

Weighted
average
remaining
contractual life
Balance, December 31, 2016

2,611,929

$
7.01

Granted

1,003,580

7.50

Exercised

(4,256
)

6.21

Expired/forfeited/cancelled

(43,233
)

8.12

Balance, September 30, 2017

3,568,020

$
7.14

7.3 years
Vested

1,897,174

$
6.68

5.8 years
Vested and expected to vest

3,429,561

$
7.10

7.2 years


	Number of shares			Weighted average exercise price		Aggregate intrinsic value		Weighted average remaining contractual life
Balance, December 31, 2020		3,907,010		$	8.03
Granted		1,575,534			2.64
Exercised		(80	)		2.31
Forfeited or expired		(185,172	)		6.48
Balance, September 30, 2021		5,297,292			6.48	$	1	6.0 years
Exercisable		3,268,854			8.05		—	3.9 years

Included in the table above are ~~740,000~~903,542 options outstanding as of September 30, 2021 that were granted outside the ~~plan.~~A&R Plan. The grants were made pursuant to the NASDAQ inducement grant exception in accordance with NASDAQ Listing Rule 5635(c)(4).

Restricted stock units

Restricted stock units (“RSUs”) vest over six months to four years depending on the purpose of the award. The fair value of RSUs on the date of grant is measured as the closing price of the Company's common stock on that date. The weighted average grant-date fair value of RSUs awarded to employees was $3.49 in the first nine months of 2021 and $15.11 in the first nine months of 2020. The fair value of RSUs vested was $1,868 in the first nine months of 2021 and $3,246 in the first nine months of 2020.

The following table ~~summarizes restricted stock units activity during the nine months ended September 30, 2017.~~presents information about recent RSU activity:

	~~Number of shares~~
~~Balance, December 31, 2016~~		~~7,750~~
~~Granted~~		~~369,043~~
~~Vested and settled~~		~~(15,050~~	)
~~Expired/forfeited/cancelled~~		~~(1,750~~	)
~~Balance, September 30, 2017~~		~~359,993~~
~~Expected to vest~~		~~359,993~~


	Number of shares			Weighted average grant date fair value
Balance, December 31, 2020		1,516,819		$	5.67
Granted		743,956			3.49
Vested		(680,194	)		7.89
Forfeited		(106,408	)		9.26
Balance, September 30, 2021		1,474,173			3.29

During 2017, the Company granted 91,150 performance-based restricted stock units, or RSUs, which vested based on attaining clinical and operational goals during 2017, as well as 277,893 time-based RSUs, which vest over four years.

During September 2017, the performance condition associated with the Company’s outstanding performance-based RSUs was achieved, which resulted in stock-based compensation expense of $656. Due to the timing of the achievement, these RSUs were settled with the issuance of common shares in October 2017, and remain outstanding as of September 30, 2017Included in the table ~~above. Included in the 15,050 units of restricted stock vested during the nine months ended~~above are 232,822 time-based RSUs outstanding at September 30, ~~2017 as well as the 89,400 vested but not yet settled performance-based RSUs are 27,987 shares with a weighted average fair value of $8.92 per share~~2021 that were ~~withheld for withholding tax purposes upon vesting~~granted outside of ~~such awards from stockholders who elected to net share settle such tax withholding obligation.~~

~~RECRO PHARMA, INC. AND SUBSIDIARIES~~

~~Notes~~the A&R Plan. The grants were made pursuant to the ~~Consolidated Financial Statements~~NASDAQ inducement grant exception in accordance with NASDAQ Listing Rule 5635(c)(4).

~~(amounts in thousands, except share and per share data)~~Other information

The following table presents the classification of stock-based compensation expense:

~~(Unaudited)~~


	Nine months ended September 30,
	2021		2020
Cost of sales	$	3,081	$	2,293
Selling, general and administrative expenses		3,300		5,793
Total	$	6,381	$	8,086

~~Stock-based compensation expense for the nine months ended September 30, 2017 and 2016 was $4,265 and $2,799, respectively.~~

As of September 30, ~~2017,~~2021, there was ~~$11,086~~$8,232 of unrecognized compensation expense related to unvested options and RSUs that are expected to vest and will be expensed over a weighted average period of ~~2.8~~2.5 years.

(13)Fair value of financial instruments

The ~~aggregate intrinsic~~Company follows the provisions of FASB ASC Topic 820, “Fair Value Measurements and Disclosures,” for fair value ~~represents~~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 and certain warrants. The Company’s assessment of the ~~total amount by which~~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 ~~common stock subject~~fair value hierarchy. Categorization is based on a three-tier valuation hierarchy, which prioritizes the inputs used in measuring fair value, as follows:

•

Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities;

•

Level 3: Unobservable inputs in which little or no market data exists, therefore requiring an entity to ~~options exceeds~~develop its own assumptions.

Items measured at fair value on a recurring basis

Cash equivalents of $15,411 at September 30, 2021 and $6,583 at December 31, 2020 consisted entirely of money market mutual funds whose fair value were determined using Level 1 measurements.

Fair value disclosures

The Company follows the ~~exercise price~~disclosure provisions of ~~the related options.~~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 September 30, ~~2017,~~2021, the ~~aggregate intrinsic~~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. The carrying values of these accounts approximate fair value due to their short-term nature.

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 ~~vested~~Company for debt with similar terms, remaining payments and ~~unvested options was $4,927 and $2,632, respectively.~~

~~(17)~~

~~Segment Reporting~~

considerations of the Company’s creditworthiness. The Company ~~operates through two business segments:~~determined that the recorded book value of its debt, a level 2 measurement, approximated fair value at September 30, 2021 due to the recent issuances and amendment of those instruments and taking into consideration management's current evaluation of market conditions.

(14)Leases

The Company determines if an ~~Acute Care segment~~arrangement is a lease at inception. The arrangement is a lease if it conveys the right to the Company to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. Options to extend the lease are included in the lease term if the options are reasonably certain to be exercised. Operating lease expense is recognized on a straight-line basis over the lease term.

Operating lease balances are presented as separate captions on the balance sheets. Finance lease assets are included in property, plant and ~~a revenue-generating CDMO segment.~~ equipment. Finance lease liabilities are included in debt.

The ~~Acute Care segment~~Company is ~~primarily focused on developing innovative products~~party to 2 operating leases for ~~hospital~~development facilities in California and ~~related settings,~~ Georgia that end in 2031 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,2025, respectively, as well as ~~CDMO’s research~~other immaterial operating leases for office space, storage and office equipment. The development ~~services performed for commercial partners.~~

~~The accounting policies~~facility leases each include options to extend, none of ~~the segments~~which are ~~the same as those described~~included in the ~~summary of significant accounting policies (see Note 3). The Company evaluates performance of its reportable segments based on revenue~~lease terms. Short-term and ~~operating income (loss). The Company does~~variable lease costs were not ~~allocate interest income, interest expense or income taxes to its operating segments.~~

~~The following table summarizes segment information as of and~~material for the ~~three and nine months ended~~periods presented. The development facility leases do not provide an implicit rate, so the Company uses its incremental borrowing rate to discount the lease liabilities.

Undiscounted future lease payments for the 2 development leases, which were the only material noncancelable leases at September 30, ~~2017:~~2021, were as follows:

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

2017

2016

2017

2016

Revenues:

CDMO

$
17,114

$
16,951

$
52,790

$
51,973

Acute Care

—

—

—

—

Total

$
17,114

$
16,951

$
52,790

$
51,973

Operating income (loss):

CDMO

$
7,781

$
8,621

$
18,039

$
19,899

Acute Care

(18,484
)

(12,542
)

(45,475
)

(35,616
)
Total

$
(10,703
)

$
(3,921
)

$
(27,436
)

$
(15,717
)

Depreciation and amortization:

CDMO

$
1,854

$
1,890

$
5,556

$
5,692

Acute Care

23

1

36

1

Total

$
1,876

$
1,891

$
5,592

$
5,693

Capital expenditures:

CDMO

$
1,036

$
933

$
3,932

$
2,014

Acute Care

365

—

654

—

Total

$
1,401

$
933

$
4,586

$
2,014


Twelve months ended September 30,
2022	$	1,130
2023		1,158
2024		1,186
2025		1,189
2026		1,089
Thereafter		5,086
Total lease payments		10,838
Less imputed interest		(4,842	)
Total operating lease liabilities	$	5,996

~~RECRO PHARMA, INC. AND SUBSIDIARIES~~

~~Notes to the Consolidated Financial Statements~~

~~(amounts in thousands, except share and per share data)~~

~~(Unaudited)~~

September 30,

December 31,

2017

2016

Total assets:

CDMO

$
88,524

$
77,828

Acute Care

80,486

105,169

Total

$
169,010

$
182,997

~~(18)~~

~~Related Party Transactions~~

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 of the Company’s executive officers, its CEO, its Senior Vice President, Development and its Senior Vice President, Regulatory Affairs and Quality Assurance, who is also the CEO's sister, provided minimal consulting services from time to time to MCG. Until December 31, 2016, the Company was a party to a Master Consulting Services Agreement with MCG. Pursuant to the agreement, MCG provided the Company with certain consulting services for a fee based upon hourly rates previously approved by the Company’s Board of Directors. In consideration for such services, the Company recorded $88 and $278 for the three and nine months endedAt September 30, ~~2016, respectively. A portion of these amounts were used during 2016 to pay a portion of~~2021, the ~~respective salaries of MCG employees that, as described above, included immediate family members of the Company’s CEO.~~

~~Until December 31, 2016, the Company~~weighted average remaining lease term was ~~party to an Office Services Agreement with MCG for the lease of an aggregate of 8,458 square feet of office and lab space located at its Malvern, Pennsylvania facility~~8.9 years, and the ~~provision of IT services~~weighted average discount rate was 14.2%. For the third quarter, total lease cost was $161 in 2021 and ~~general office support. Pursuant to the Office Services Agreement, the Company paid MCG $155~~$76 in 2020. For the nine months ended September 30, ~~2016. The Company terminated this agreement on December 31, 2016~~total lease cost was $347 in 2021 and ~~is now a party to a six-year lease directly with the landlord of the Company’s Malvern, Pennsylvania facility (see Note 13).~~$234 in 2020.

~~As of December 31, 2016, the Company terminated the Master Consulting Agreement 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.

~~Item 2.~~

~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

~~The~~Item 2.Management’s discussion and analysis of financial condition and results of operations

You should read the following ~~Management’s Discussion~~discussion and ~~Analysis~~analysis of ~~Financial Condition~~our financial condition and ~~Results~~results of ~~Operations should be read in conjunction~~operations together with ~~the interim~~our unaudited consolidated financial statements ~~contained~~and notes thereto in Part I, Item 1 of this ~~quarterly report,~~Quarterly Report on Form 10-Q, or Quarterly Report, and the audited consolidated financial statements and notes thereto for the year ended December 31, ~~2016~~2020 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our ~~annual report~~Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on ~~March 9, 2017. As used~~February 26, 2021, or Annual Report.

In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions and other factors that could cause actual results to differ materially from those made, projected or implied in ~~this report, unless~~ the ~~context suggests otherwise, “we,” “us,” “our,” “the Company”~~forward-looking statements. Our actual results may differ materially from those discussed below. Please see “Forward-Looking Statements” and “Risk Factors” included in Part I, Item 1A of our Annual Report for factors that could cause or ~~“Recro” refer~~contribute to ~~Recro Pharma, Inc. and its consolidated subsidiaries.~~such differences.

Cautionary ~~Note Regarding Forward-Looking Statements~~note regarding forward-looking statements

This Quarterly Report ~~on Form 10-Q~~ contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, included in this Quarterly Report regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management are forward-looking statements. ~~We may, in some cases, use terms such as~~The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “will,” “would” “could,” “should,” ~~“expect,~~“potential,” ~~“plan,~~“seek,” ~~“anticipate,~~“evaluate,” ~~“could,~~“pursue,” ~~“intend,~~“continue,” “design,” “impact,” “affect,” “forecast,” “target,” ~~“project,~~“outlook,” ~~“contemplates,~~“initiative,” ~~“believes,~~“objective,” ~~“estimates,~~“designed,” ~~“predicts,~~“priorities,” ~~“potential”~~“goal,” or ~~“continue” or other words that convey uncertainty~~the negative of ~~future events or outcomes~~such terms and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these ~~forward-looking statements.~~identifying words. Such statements are based on assumptions and expectations that may not be realized and are inherently

~~These~~19

subject to risks, uncertainties and other factors, many of which cannot be predicted with accuracy and some of which might not even be anticipated.

The forward-looking statements in this ~~quarterly report on Form 10-Q~~Quarterly Report include, among other things, statements about:



our estimates regarding expenses, future revenue, cash flow, capital requirements and timing and availability of and the need for additional financing;



our ability to ~~obtain~~maintain or expand our relationships, profitability and ~~maintain regulatory approval~~contracts with our key commercial partners, including the impact of ~~injectable meloxicam and~~changes in consumer demand for the products we manufacture for our ~~product candidates, and the labeling under any approval that we may obtain;~~

commercial partners;



~~the results, timing and outcome of our clinical trials of injectable meloxicam or our other product candidates, and any future clinical and preclinical studies;~~

our ability to ~~successfully commercialize injectable meloxicam or~~grow and diversify our ~~other product candidates, upon regulatory approval;~~

business with new customers, including our ability to ~~comply~~meet desired project outcomes with development customers;



the ~~legal and regulatory frameworks applicable~~extent to which the ongoing COVID-19 pandemic continues to disrupt our business operations and ~~other regulatory developments in~~financial condition and the ~~United States~~business operations and ~~foreign countries;~~

financial condition of our customers and suppliers, including our ability to ~~raise future financing~~initiate and ~~attain profitability for continued development of our business~~continue relationships with third-party clinical research organizations and ~~our product candidates~~manufacturers and ~~to meet required debt payments, and any milestone payments owing to Alkermes, or our other licensing and collaboration partners;~~

third-party logistics providers given recent supply chain challenges;



our ability to operate under increased leverage and associated lending covenants;

to pay existing required interest and principal amortization payments when due; and/or to obtain acceptable refinancing alternatives;



the performance of ~~third-parties~~third-party suppliers upon which we depend ~~including third-party contract research organizations,~~for Active Pharmaceutical Ingredients, or ~~CRO’s,~~APIs, excipients, capsules, reagents, etc., and ~~third-party suppliers~~other third parties involved with maintenance of our facilities and ~~manufacturers;~~

equipment;



our ability to obtain and maintain patent protection for applicable products and defend our intellectual property rights against ~~third parties;~~

third-parties;



pharmaceutical industry market forces that may impact our ~~ability to maintain our relationships~~commercial customers’ success and ~~contracts with our key commercial partners;~~

continued demand for the products we produce;



our ability to recruit orand retain key scientific, technical, ~~commercial,~~business development, and management personnel ~~or to retain~~and our executive ~~officers;~~

officers, including as a result of our enforcement of state and federal vaccine mandates;



our ability to comply with stringent U.S. and foreign government regulation in the manufacture of pharmaceutical products, including Good Manufacturing Practice, or cGMP, compliance and U.S. Drug Enforcement Agency, or DEA, ~~compliance;~~compliance and

other relevant regulatory authoritiesapplicable to our business; and



our ability to integrate the ~~effects~~IriSys business successfully and the risk that we may not realize the expected benefits of ~~changes~~such acquisition.

We may not achieve the plans, intentions or expectations disclosed in our ~~effective tax rate due to changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities and changes in the tax laws.~~

~~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 filed with the SEC on March 9, 2017 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 our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the Annual Report, particularly under “Risk Factors,” that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, collaborations or investments we may make. You should read this Quarterly Report and the documents that we incorporate by reference herein completely and with the understanding that our actual future results may be materially different from what we expect. We do not assume any obligation to update any forward-looking statements.

~~Overview~~

Overview

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

~~Our Acute Care segment is~~solving complex formulation and manufacturing challenges primarily ~~focused on developing innovative products for commercialization~~ in hospital and other acute care settings. Our lead product candidate, IV meloxicam, has successfully completed two pivotal 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 a total of approximately 1,100 patients in our Phase III program. At the end of July 2017, we submitted an NDA to the FDA for IV meloxicam 30mg for the management of moderate to severe pain. The FDA has accepted the NDA for review and set a PDUFA date of May 26, 2018. Our Acute Care segment has no revenue and our costs consist primarily of expenses incurred in conducting our clinical trials and preclinical studies, manufacturing scale-up, regulatory activities, initial pre-commercialization of meloxicam and personnel costs.

~~Our CDMO segment leverages~~small molecule therapeutic development. We leverage our formulation and development expertise to develop and manufacture pharmaceutical products using ~~our~~ proprietary delivery technologies and know-how for ~~commercial~~ partners who develop and commercialize or plan to commercialize these products. ~~These collaborations result in revenue streams including royalties, profit sharing, research and~~In 2020, we launched our clinical trials support services capabilities, which includes preparation of clinical trial supplies, as well as specialized services dedicated to the development and ~~manufacturing, which support continued operations for our~~Good Manufacturing Practices, or GMP, of high-potency products. In August 2021, we acquired IriSys, a San Diego-based CDMO ~~segment~~that possesses capabilities that complement and ~~have contributed funds to be used in our research and development and pre-commercialization activities in our Acute Care segment.~~expand those of Recro. We operate a 97,000 ~~square-foot,~~square foot, DEA-licensed manufacturing facility in Gainesville, Georgia, a 24,000 square foot development, high-potency product and clinical packaging facility in Gainesville, Georgia that we opened in October 2018, and a 24,500 square foot development and cGMP facility in San Diego, California that was part of the IriSys acquisition. We currently develop and/or manufacture the following key products with our key commercial partners: Ritalin LA®, Focalin XR®, Verelan PM®, ~~generic~~Verelan SR®, Verapamil ~~sustained release~~PM, Verapamil SR, and ~~Zohydro ER®~~Donnatal®, as well as supporting development stage products.

Our ~~CDMO segment’s revenue streams are derived~~manufacturing and development capabilities include formulation, product development from formulation through clinical trial and commercial manufacturing, ~~royalty~~ and ~~profit sharing revenues,~~specialized capabilities for solid oral dosage forms, extended release and controlled substance manufacturing, as well as high potency development and manufacturing. With the acquisition of IriSys, our capabilities have been expanded beyond oral solid dose to include sterile injectables oral liquids, tablets, topicals, liquid/powder filled capsules, ophthalmic droppers, liposomes and nano/microparticles. In addition, the acquisition adds new capabilities in the areas of aseptic fill/finish and lyophilization and established bi-coastal footprint from which to better serve clients within the U.S., as well as globally. In a typical collaboration, we work with our partners to develop product candidates, or new formulations of existing product candidates, and may license certain intellectual property to such partners. We also typically exclusively manufacture and supply clinical and commercial supplies of these proprietary products and product candidates.

We have used cash flow generated by our business primarily to fund the growth of our CDMO business, to fund a historical acute care research and development ~~of services performed for commercial partners.~~

business that was spun off in 2019, and to make payments under our credit facility. We ~~have incurred losses and generated negative cash flows from operations since inception, and expect to~~believe our business will 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 primarilycontribute cash to fund ~~operations at~~ our ~~Gainesville, Georgia manufacturing facility, to~~growth, make payments under our credit facility and other general corporate purposes.

COVID-19

We continue to ~~partially fund our development~~closely monitor developments related to the COVID-19 pandemic, which continues to have adverse effects on the U.S. and ~~pre-commercialization~~world economies, including the commercial activities of our ~~Acute Care segment.~~customers and their peers. While we are committed to continue providing essential pharmaceutical products to our customers, we are also taking all necessary measures to protect the health and safety of our employees. These developments include:

Operations. We are continuing to follow appropriate safety protocols including strict social distancing and other protective measures for employees supporting essential operations at our plant. We are also supporting continued remote work arrangements for other personnel not required to work on site.

Business development. We continue to experience lower than expected growth in our development business, which we believe is partially attributable to COVID-19. We have responded to these challenges by adopting new methods for meeting and contacting customers. Meanwhile, some customers have begun easing restrictions, but these measures vary among customers and from state to state. Other customers continue to delay their development plans for a variety of reasons such as concerns about the timing of clinical trials.

Manufacturing demand. We believe that there continues to be lower end-user demand for some of the commercial products we manufacture as compared to periods prior to the onset of the COVID-19 pandemic. Third party national data demonstrates that there was a meaningful impact of COVID-19 on the reduction of total prescriptions filled by patients across most therapeutic areas, including chronic cardiovascular and pediatric medications.

Logistics challenges. As global logistics and supply chain issues continue to present obstacles to the U.S. economy and our ~~CDMO’s revenue~~business, we will continue to ~~contribute cash for general corporate purposes that may,~~work to ~~some extent, reduce the amount of external capital needed to fund development operations.~~overcome these challenges. We also expect to ~~incur increasing expenses over~~continue facing inflationary pressure on raw materials, labor and logistics. During the ~~next several years to develop~~three months ended September 30, 2021, we experienced minimal supply chain disruption.

Our sales and ~~commercialize injectable meloxicam, including continued pre-commercial activities~~manufacturing operations for ~~IV meloxicam. Based upon~~ the ~~availability of additional financial resources, we may also develop and commercialize our other product candidates in our pipeline, as well as other products we may in-license.~~

On April 10, 2015, we completed the Gainesville Transaction. The Gainesville Transaction transformed our business through the addition of a revenue-generating business and the increase in our workforcenine months ended September 30, 2021 were disrupted as a result of the ~~addition~~pandemic because of production slowdowns, stoppages and decreased demand for the ~~employees at~~products we manufacture. While we are not currently expecting that future results will be materially impacted by the pandemic, there can be no assurance that such future results will not be impacted. While vaccines have proven effective in reducing the severity and mortality of COVID-19, including the variants that have evolved to date, the overall vaccination rate in the United States has not reached the level required for herd immunity. Certain variants of COVID-19, such as the delta variant, are proving to be more easily spread than earlier variants. We may also be adversely impacted by broader economic effects associated with the pandemic such as inflation, changes in laws and general volatility in the markets. The continued low vaccination rate, and the emergence of new variants, which could prove resistant to existing vaccines, could again result in major disruptions to businesses and markets worldwide and our ~~Gainesville, Georgia~~business, results of operations and financial condition could be materially and adversely affected. We will continue to closely monitor any developments.

Financial overview

Revenues

We recognize three types of revenue: 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 $45 million upon regulatory approval of IV meloxicam as well as net sales milestones and a royalty percentage of future product net sales related to IV meloxicam.

The up-front payment was funded with $50.0 million in borrowings under a credit agreement that we entered into with 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, 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.

~~Financial Overview~~

~~Revenues~~

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

Manufacturing ~~revenue~~—

We recognize manufacturing 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.

~~Royaltyrevenue~~—Profit-sharing

We recognize profit-sharing or royalty revenue, collectively referred to as profit-sharing revenue, related to the sale of products by our commercial partners that incorporate our technologies. ~~Royalties~~Profit-sharing revenues are ~~earned~~generally recognized under the terms of athe applicable license, development and/or supply ~~agreement in~~agreement. For arrangements that include sales-based profit-sharing and the ~~period~~license is deemed to be the ~~products are sold~~predominant item to which the profit-sharing relates, we recognize revenue when the related sales occur by the commercial partner. For arrangements that include sales-based profit-sharing and the license is not deemed to be the predominant item to which the profit-sharing relates, we recognize revenue when the performance obligation to which the profit-sharing has been allocated has been satisfied, which is upon transfer of control of a product to a customer. In these cases, significant judgment is required to calculate the estimated variable consideration from such profit-sharing using the expected value method based on historical commercial partner pricing and ~~collectability~~deductions. Estimated variable consideration is ~~reasonably assured.~~

~~Profit sharing revenue—We recognize revenue from profit sharing related~~partially constrained due to the ~~sale~~uncertainty of ~~certain of our manufactured products~~price adjustments made by our commercial ~~partners. Profit sharing revenue is earned under the terms~~partners, which are outside of ~~a license, development and/or supply agreement in the period the products are sold and expenses are incurred~~our control. Factors causing price adjustments by our commercial ~~partner~~partners include increased competition in the products’ markets, mix of volume between the commercial partners’ customers, and ~~collectability is reasonably assured.~~changes in government pricing.

Research and development ~~revenue~~—

Research and development revenue ~~consists of funding that compensates us for~~includes services associated with formulation, ~~and preparation of pre-clinical~~process development, clinical trial material and clinical ~~testing drug product materials prepared by our CDMO segment under research~~trial support services, as well as custom development of manufacturing processes and ~~development arrangements~~analytical methods for a customer’s non-clinical, clinical and commercial products. Such revenues are recognized at a point in time or over time depending on the nature and particular facts and circumstances associated 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.~~ the contract terms.

In ~~agreements which~~contracts that specify milestones, we ~~recognize revenue from non-refundable milestone payments when~~evaluate whether the ~~earnings process is complete~~milestones are considered probable of being achieved and estimate the ~~payment is reasonably assured. Non-refundable milestone~~amount to be included in the transaction price using the most likely amount method. Milestone payments related to arrangements under which we have continuing performance obligations ~~would be~~are deferred and 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~~22

In contracts that require revenue recognition over time, we utilize input or output methods, depending on the specifics of the contract, that compare the cumulative work-in-process to date to the most current estimates for the entire performance obligation. Under these contracts, the customer typically owns the product details and ~~Development Expenses~~process, which have no alternative use. These projects are customized to each customer to meet its specifications and typically only one performance obligation is included. Each project represents a distinct service that is sold separately and has stand-alone value to the customer. The customer also retains control of its product as the product is being created or enhanced by our services and can make changes to its process or specifications upon request.

~~Research~~Cost of sales and ~~development~~selling, general and administrative expenses ~~currently consist primarily~~

Cost of sales consists of inventory costs, ~~incurred in connection with the development of injectable meloxicam~~including production wages, material costs and overhead, and other ~~pipeline activities. These expenses consist primarily of:~~

~~expenses incurred under agreements with contract research organizations, investigative sites and consultants that conduct our clinical trials and a substantial portion of our preclinical studies;~~

~~the cost of acquiring and manufacturing clinical trial materials and manufacturing services;~~

costs related to ~~facilities, depreciation and other allocated expenses;~~

~~acquired in process research and development;~~

~~costs associated with non-clinical and regulatory activities;~~

~~salaries and related costs for personnel in research and development and regulatory functions.~~

~~costs associated with pre-commercialization activities for injectable meloxicam; and~~

~~costs related to scale up and validation for injectable meloxicam.~~

~~The majority~~the recognition 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 our product candidates is highly uncertain and subject to a number of risks, including, but not limited to:~~

~~the duration of clinical trials, which varies substantially according to the type, complexity and novelty of the product candidate;~~

the imposition by the FDA and comparable agencies in foreign countries of substantial requirements on the introduction of therapeutic pharmaceutical products, which may require lengthy and detailed laboratory and clinical testing procedures, sampling activities and other costly and time-consuming procedures;

the possibility that data obtained from nonclinical and clinical activities at any step in the testing process may be adverse and lead to discontinuation or redirection of development activity or may be susceptible to varying interpretations, which could delay, limit or prevent regulatory approval;

~~risk involved with development of manufacturing processes and successful completion of manufacturing batches for clinical development and other regulatory purposes;~~

~~the costs, timing and outcome of regulatory review of a product candidate;~~

~~the emergence of competing technologies and products and other adverse market developments, which could impede our commercial efforts; and~~

~~the other risks disclosed in the section titled “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.~~

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, as well as ongoing assessments of such product candidate’s commercial potential. 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 meloxicam for the foreseeable future as we advance this product candidate through the pre-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 and development services performed for our commercial partners, as well as other product development and regulatory activities. 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~~

~~General~~revenue. Selling, general and administrative expenses ~~consist principally~~consists of salaries and related costs for corporate administrative, public company costs, business development personnel ~~in executive, pre-commercial and finance functions. General and administrative expenses also include professional fees for~~as well as legal, ~~including~~ patent-related expenses and consulting fees. Public company costs include compliance, auditing ~~and~~services, tax services, insurance and ~~stock compensation expense.~~investor relations.

With the August 2021 acquisition of IriSys, we have been integrating and reorganizing our collective employee base to support a multi-site organization. As a result, we are reevaluating our expense classification policies which may result in material reclassification in the fourth quarter of 2021.

We expect our ~~general and administrative~~business development expenses to increase during the remainder of 2021 as we continue to ~~increase~~expand our sales team in various geographies, in anticipation of business growth from new formulation and development capabilities as well as the expansion of the team through the acquisition of IriSys.

For the first nine months of 2021, we build our Acute Care commercialization team and engage in pre-commercialization IV meloxicam marketing, sales, market access and medical affairs activities. In addition, we will continue to incur costs relatingqualified for approximately $4.4 million of federal employee retention credits. The employee retention credits are recognized as offsets to our ~~operations as a public company, including increased headcount~~expenses in the same period that the related employee expenditures are recognized. The expense offset for the three and ~~increased salary, consulting, legal, patent~~nine months ended September 30, 2021 was approximately $1.9 million and ~~compliance, accounting, insurance~~$3.6 million, respectively, and ~~investor relations costs.~~we expect to recognize an additional expense offset of $0.8 million in the fourth quarter of 2021. We do not expect to qualify for any additional credits based on recent legislative activity.

Amortization of ~~Intangible Assets~~intangible assets

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

~~Change~~reached the end of its useful life in ~~Fair Value of Contingent Consideration~~

~~In connection with~~April 2021. With the acquisition of ~~injectable meloxicam in the Gainesville Transaction,~~IriSys, we are required to pay up to an additional $125.0 million in milestone payments including $45 million upon regulatory approval of IV meloxicam as well as net sales milestones and a royalty percentage of future product net salesrecognizing amortization expense related to ~~IV meloxicam~~acquired customer relationships, backlog and trademarks and trade names on a straight-line basis over an estimated useful life of ~~between 10%~~12, 2.4, 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. Each reporting period, we revalue this estimated obligation with changes in fair value recognized as a non-cash operating1.5 years, respectively.

Interest expense ~~or income.~~

~~Change in Fair Value of Warrants~~

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

~~Interest Expense~~

Interest expense for the ~~three and nine months ended September 30, 2017 and 2016 was a result of interest expense incurred on~~periods presented primarily relates to our ~~OrbiMed~~Athyrium senior secured term ~~loan~~loans and the amortization of ~~the~~ related financing costs.

~~Results~~ In addition, following the acquisition of ~~Operations~~

~~Comparison~~IriSys, there is additional interest expense related to interest on the sellers note which was a component of the ~~Three Months Ended September 30, 2017~~IriSys acquisition purchase price.

Net operating losses and ~~2016~~tax carryforwards

Three Months Ended September 30,

2017

2016

(amounts in thousands)

Revenue

$
17,114

$
16,951

Operating expenses:

Cost of sales (excluding amortization of intangible assets)

6,882

5,745

Research and development

9,296

7,046

General and administrative

6,635

3,841

Amortization of intangible assets

646

646

Change in warrant valuation

808

402

Change in contingent consideration valuation

3,550

3,192

Total operating expenses

27,817

20,872

Operating loss

(10,703
)

(3,921
)
Other income (expense):

Interest expense, net

(1,173
)

(1,440
)
Loss before income taxes

(11,876
)

(5,361
)
Income tax benefit (expense)

2,821

(18
)
Net loss

$
(9,055
)

$
(5,379
)

~~Revenue~~As of December 31, 2020, we had federal net operating loss, or NOL, carry forwards of approximately $130.6 million, $122.4 million of which have an indefinite carry forward period. The remaining $8.2 million of federal NOL carry forwards, $127.4 million of state NOL carry forwards and ~~costs of sales.~~ ~~Our revenues were $17.1 million~~federal and $17.0 million and cost of sales were $6.9 million and $5.7 million for the three months ended September 30, 2017 and 2016, respectively. Excluding the $2.3 million, one-time, contractually based manufacturing revenue amount from one of our commercial partners in the three months ended September 30, 2016, the $2.4 million increase in revenue versus prior year was primarily due to higher manufacturing revenues. Cost of sales increased $1.2 million, or 20%, primarily due to increases in manufacturing revenue compared to prior year.

~~Research and Development.~~ ~~Our~~state research and development ~~expenses were $9.3~~tax credit carryforwards of $4.4 million and $7.0 million for the three months ended September 30, 2017 and 2016, respectively. Research and development expenses increased as a result of an increase of $2.0 million for the NDA filing fee, an increase of $1.4 millionare also available to offset future taxable income, but they will begin to expire at various dates beginning in pre-commercialization manufacturing and other development costs for IV meloxicam, an increase of $1.5 million in salaries and benefits expense due to increased Acute Care headcount, and an increase of $0.4 million in development costs for other pipeline products. These increases in research and development costs were offset by lower IV meloxicam clinical trial expenses of $3.0 million.

~~General and Administrative.~~ Our general and administrative expenses were $6.6 million and $3.8 million for the three months ended September 30, 2017 and 2016, respectively. The increase of $2.8 million was primarily due to increased headcount in our Acute Care division, and pre-commercialization and medical affairs expenses.

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

~~Interest Expense, net.~~ Interest expense, net was $1.2 million and $1.4 million during the three months ended September 30, 2017 and 2016, respectively. The decrease in interest expense, net, was due to a lower principal balance on our OrbiMed senior secured term loan and amortization of the related financing costs.

~~Income Tax Benefit.~~ Income tax benefit was $2.8 million for the three months ended September 30, 2017 due to a loss in our U.S. operations and the income tax expense was $0.02 million for the three months ended September 30, 2016 due to income tax related to our U.S. operations.2028 if not utilized. We believe that it is more likely than not that the deferred income tax assets associated with our ~~foreign~~U.S. operations will not be realized, and as such, there is a full valuation allowance against our ~~foreign~~U.S. deferred tax assets.

~~Operating Income (Loss) per Segment.~~

Results of operations

Comparison of third quarters 2021 and 2020


	Three months ended September 30,
(in millions)	2021			2020
Revenue	$	18.2		$	19.3
Operating expenses:
Cost of sales (excluding amortization of intangible assets)		13.2			11.7
Selling, general and administrative		4.6			4.4
Amortization of intangible assets		0.1			0.7
Total operating expenses		17.9			16.8
Operating income (loss)		0.3			2.5
Interest expense		(3.8	)		(4.6	)
Net loss	$	(3.5	)	$	(2.1	)

Revenue. The decrease of $1.1 million was primarily the result of decreased product sales due to timing of customer orders. This decrease was partially offset by increases in revenue due to the acquisition of IriSys as well as higher revenues from our clinical trial materials business including revenue from the Otsuka Pharmaceutical Co., Ltd. commercial product tech transfer project.

Cost of sales. The increase of $1.5 million was primarily due to costs from the San Diego facility due to the acquisition of IriSys and is partially offset by lower costs due to certain employment incentive tax credits in 2021.

Selling, general and administrative. The increase of $0.2 million was primarily related to deal and integration costs related to the acquisition of IriSys and business development expenses associated with our San Diego team offset by lower public company costs and stock-based compensation expense.

Amortization of intangible assets. The decrease of $0.6 million was because the amortization of CDMO ~~Segment-~~royalties and contract manufacturing relationships acquired in 2015 ended on April 10, 2021 offset by amortization related to the acquisition of IriSys for acquired customer relationships, backlog and trademarks and trade names.

~~Our CDMO’s gross margin percentage~~Interest expense. The decrease of $0.8 million was ~~60% and 66%~~primarily due to reduced term loan borrowings under the Credit Agreement with Athyrium as well as a decrease in the ~~three~~LIBOR base rate of interest on our term loans under the Credit Agreement. This decrease was partially offset by an increase in interest from the sellers note which was a component of the IriSys acquisition purchase price.

Comparison of first nine months ~~ended September 30, 2017~~2021 and ~~2016, respectively. Excluding~~2020


	Nine months ended September 30,
(in millions)	2021			2020
Revenue	$	53.1		$	56.6
Operating expenses:
Cost of sales (excluding amortization of intangible assets)		39.8			41.6
Selling, general and administrative		13.1			14.1
Amortization of intangible assets		0.9			2.0
Total operating expenses		53.8			57.7
Operating loss		(0.7	)		(1.1	)
Interest expense		(11.7	)		(14.7	)
Gain on extinguishment of debt		3.4			—
Net loss	$	(9.0	)	$	(15.8	)

Revenue. The decrease of $3.5 million was primarily the ~~$2.3 million, one-time, contractually based manufacturing revenue amount~~result of the discontinuation of two commercial product lines by our commercial partners announced in the first quarter of 2020 as well as decreased product sales from one of our commercial partners ~~in the three months ended September 30, 2016, the $2.4 million increase in revenue versus prior year was primarily~~ due to ~~higher manufacturing revenues. Cost~~timing of ~~sales~~customer orders. During the 2021 period, increased ~~$1.2 million, or 20%, primarily due to increases in manufacturing revenue compared to prior year.~~

CDMO’s operating expenses (excluding cost of sales) decreased by $0.1 million, from $1.9 million in the three months ended September 30, 2016 to $1.8 million in the three months ended September 30, 2017. Research and development expenses decreased by $0.1 million and general and administration expenses decreased by $0.1 million. All of the above contributed to CDMO’s operating income of $7.8 million for the three months ended September 30, 2017, which included non-cash charges of $1.9 million for depreciation and amortization and $0.3 million for stock-based compensation.

~~Acute Care Segment-~~

Acute Care’s operating expenses increased $5.2 million from $8.9 million in the three months ended September 30, 2016 to $14.1 million in the three months ended September 30, 2017. Research and development expenses increased $2.3 million as a result of increased IV meloxicam pre-commercialization manufacturing costs, NDA filing fees and increased headcount, which was partially offset by a decrease in our IV meloxicam clinical trial expenses. General and administrative costs increased by $2.8 million as a result of increased headcount and increased pre-commercialization marketing expenses. Non-cash charges related to the warrant valuation increased $0.4 million and contingent consideration increased by $0.4 million. All of the above contributed to Acute Care’s operating loss of $18.5 million for the three months ended September 30, 2017, which also included non-cash charges of $1.7 million for stock-based compensation, depreciation and amortization.

~~Comparison of the Nine Months Ended September 30, 2017 and 2016~~

Nine Months Ended September 30,

2017

2016

(amounts in thousands)

Revenue

$
52,790

$
51,973

Operating expenses:

Cost of sales (excluding amortization of intangible assets)

27,829

25,563

Research and development

24,132

23,175

General and administrative

16,990

9,263

Amortization of intangible assets

1,937

1,937

Change in warrant valuation

15

47

Change in contingent consideration valuation

9,323

7,705

Total operating expenses

80,226

67,690

Operating loss

(27,436
)

(15,717
)
Other income (expense):

Interest expense, net

(3,341
)

(4,252
)
Loss before income taxes

(30,777
)

(19,969
)
Income tax benefit

4,780

166

Net loss

$
(25,997
)

$
(19,803
)

~~Revenue and costs of sales.~~ ~~Our revenues were $52.8 million and $52.0 million and cost of~~product sales ~~were $27.8 million and $25.6 million for the nine months ended September 30, 2017 and 2016, respectively. Excluding the $2.3 million, one-time, contractually based manufacturing revenue amount~~ from one of our commercial partners, ~~in the nine months ended September 30, 2016, the $3.1 million increase in~~increased revenue ~~versus prior year was primarily~~ due to ~~increased profit share revenue as a result~~the acquisition of ~~increased sales volumes and pricing by one of our commercial partners~~IriSys as well as ~~increased manufacturing revenue. These increases were~~higher revenues from our clinical trial materials new business growth activities, have partially offset ~~by decreased royalty revenue due to a change in~~ the ~~mix of generic and brand sales by one of our commercial partners.~~ decrease.

Cost of ~~sales increased $2.2 million, or 9%,primarily due to increases in manufacturing revenue compared to prior year and changes in the product mix.~~

~~Research and Development.~~ ~~Our research and development expenses were $24.1 million and $23.2 million for the nine months ended September 30, 2017 and 2016, respectively. Research and development expenses increased as a result~~sales. The decrease of ~~an increase of $2.0~~

million for the NDA filing fee, an increase of $3.6 million in pre-commercialization manufacturing and other development costs for IV meloxicam, an increase of $2.3 million in salaries and benefits expense due to increased Acute Care headcount, an increase of $0.8 million in IPR&D costs for the acquisition of the NMB Related Compounds and an increase of $1.5 million in development costs for other pipeline products. These increases in research and development costs were offset by lower IV meloxicam clinical trial expenses of $9.3 million.

~~General and Administrative.~~ ~~Our general and administrative expenses were $17.0 million and $9.3 million for the nine months ended September 30, 2017 and 2016, respectively. The increase of $7.7~~$1.8 million was primarily due to ~~increased headcount~~lower commercial manufacturing volumes and reflects lower costs due to the prior year reduction in ~~our Acute Care division~~force as well as certain employment incentive tax credits in 2021 offset by costs from the San Diego facility due to the acquisition of IriSys.

Selling, general and ~~pre-commercialization~~administrative. The decrease of $1.0 million was primarily related to lower public company costs and ~~medical affairs expenses.~~

~~Amortization of Intangible Assets.~~ ~~Amortization~~stock-based compensation expense ~~was $1.9 million for the nine months ended September 30, 2017 and 2016 which was exclusively~~offset by expenses related to the acquisition of IriSys and business development expenses associated with our San Diego team.

Amortization of intangible assets. The decrease of $1.2 million was because the amortization of ~~our~~CDMO royalties and contract manufacturing relationships ~~intangible asset over its estimated useful life.~~acquired in 2015 ended on April 10, 2021 offset by amortization related to the acquisition of IriSys for acquired customer relationships, backlog and trademarks and trade names.

Interest ~~Expense, net.~~ ~~Interest expense, net was $3.3 million and $4.3 million during the nine months ended September 30, 2017 and 2016, respectively.~~expense. The decrease ~~in interest expense, net, was due to a lower principal balance on our OrbiMed senior secured term loan and amortization~~ of ~~the related financing costs.~~

~~Income Tax Benefit.~~ ~~Income tax benefit was $4.8~~$3.0 million and $0.2 million for the nine months ended September 30, 2017 and 2016, respectively, due to an income tax benefit related to a loss in our U.S. operations. 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.

~~Operating Income (Loss) per Segment.~~

~~CDMO Segment-~~

Our CDMO’s gross margin percentage was 47% and 51% in the nine months ended September 30, 2017 and 2016, respectively. Excluding the $2.3 million, one-time, contractually based manufacturing revenue amount from one of our commercial partners in the nine months ended September 30, 2016, the $3.1 million increase in revenue versus prior year was primarily due to ~~increased profit share revenue as a result of increased sales volumes and pricing by one of our commercial partners~~reduced term loan borrowings under the Credit Agreement with Athyrium as well as ~~increased manufacturing revenue. These increases were partially offset by decreased royalty revenue due to~~ a ~~change~~decrease in the ~~mix~~LIBOR base rate of ~~generic and brand sales by one of~~interest on our ~~commercial partners. Cost of sales increased $2.2 million, or 9%, primarily due to increases in manufacturing revenue compared to prior year and changes in~~term loans under the ~~product mix.~~

CDMO’s operating expenses (excluding cost of sales) increased by $0.4 million, from $4.6 million in the nine months ended September 30, 2016 to $5.0 million in the nine months ended September 30, 2017. Research and development expenses increased by $0.5 million due to expanded investment in our future capabilities and general and administration decreased by $0.1 million. All of the above contributed to CDMO’s operating income of $18.0 million for the nine months ended September 30, 2017, which included non-cash charges of $5.6 million for depreciation and amortization and $0.8 million for stock-based compensation.

~~Acute Care Segment-~~

Acute Care’s operating expenses increased $8.2 million from $27.9 million in the nine months ended September 30, 2016 to $36.1 million in the nine months ended September 30, 2017. Research and development expenses increased $0.5 million as a result of increased IV meloxicam pre-commercialization manufacturing costs, NDA filing fees and increased headcount, whichCredit Agreement. This decrease was partially offset by an increase in interest from the sellers note which was a decrease in our IV meloxicam clinical trial expenses. General and administrative costs increased by $7.8 million as a result of increased headcount and increased pre-commercialization marketing expenses. The non-cash charge for contingent consideration increased by $1.6 million. Allcomponent of the ~~above contributed to Acute Care’s operating loss~~IriSys acquisition purchase price.

Gain on extinguishment of ~~$45.5 million for~~debt. In June 2021, the ~~nine months ended~~PPP Note and all accrued interest thereon was forgiven.

Liquidity and capital resources

At September 30, ~~2017, which also included non-cash charges of $3.5 million for stock-based compensation, depreciation and amortization.~~

~~Liquidity and Capital Resources~~

~~As of September 30, 2017,~~2021, we had ~~$41.3~~$23.5 million in cash and cash ~~equivalents and short-term investments.~~equivalents.

Since our inception, ~~through September 30, 2017,~~ we have financed our ~~product development,~~ operations and capital expenditures primarily from ~~sales~~the issuance of equity and debt securities, including sales of our common stock of $116.4 million, which includes $57.6 million raised in 2016. 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.~~debt. During the nine months ended September 30, ~~2017,~~2021, our capital expenditures were ~~$4.6 million.~~$2.8 million to scale and support our expansion of capabilities.

We are party to a credit agreement with Athyrium, or the Credit Agreement, which has been fully drawn. The Credit Agreement requires us to repay the outstanding principal amount of $100.0 million on December 31, 2023. The Credit Agreement also includes certain financial covenants that the Company will need to ~~raise substantial~~satisfy on a monthly and quarterly basis, including: 1) maintaining a permitted net leverage ratio, calculated as our indebtedness, net of cash and cash equivalents, divided by EBITDA, each as defined in the Credit Agreement; and 2) a minimum amount of cash and cash equivalents on hand.

We are also party to an amended common stock purchase agreement with Aspire Capital Fund LLC, or Aspire Capital. The amended agreement provides that, upon the terms and subject to the conditions and limitations set forth in the agreement, Aspire Capital is committed to purchase, at our sole election, up to an aggregate value of $41.2 million in shares of common stock. As of September 30, 2021, there is availability to issue up to $30.0 million or 6,199,299 shares of common stock under the 2019 Common Stock Purchase Agreement.

In August 2021, we acquired IriSys for $50.2 million by paying $24.0 million in cash, net of cash acquired, and issuing a note and equity with fair values of $5.3 million and $20.9 million, respectively, to the former equity holders of IriSys.

We may require additional funds in order to fund the payments which may become due, including milestone payments owed to Alkermes or other licensing partners, to continue our clinical trials of our approved or development state product candidates, to commercialize any approved product candidates or technologiesfinancing and ~~to enhance our sales and marketing efforts for additional products~~if 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 the cost of clinical studies and other actions needed to obtain regulatory approval of our products in development, and the costs of commercialization activities, as well as the continued profitability of our CDMO segment. If additional funds are required,do, we may raise such additional funds through debt refinancing, bank or other loans, through strategic ~~research and~~ development, licensing ~~including out-licensing~~ activities, sale of assets 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. Further, our ability to access capital market or otherwise raise capital may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, financial markets in the United States and worldwide resulting from the ongoing COVID-19 pandemic. 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 to access 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 principal amount under the credit agreement is due and payable on the five-year anniversary 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. We may make voluntary prepayments in whole or in part, subject to: (i) on or prior to the 36-month anniversary of the closing of the credit agreement, payment 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. As of September 30, 2017, we have paid $22.7 million of the outstanding principal on our senior secured term loan from free cash flow.25

Sources and ~~Uses~~uses of ~~Cash~~cash


	Nine months ended September 30,
(amounts in millions)	2021			2020
Net cash provided by (used in) continuing operations:
Operating activities	$	6.4		$	6.4
Investing activities		(26.8	)		(5.5	)
Financing activities		20.1			2.6
Net cash (used in) provided by continuing operations	$	(0.3	)	$	3.5

Net cash used in discontinued operations	$	—		$	(1.2	)

Cash ~~used in operations was $18.0 million and $4.2 million~~flows from operating activities represent our net loss as adjusted for ~~the nine months ended September 30, 2017 and 2016, 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~~a gain on extinguishment of debt and changes in operating assets and liabilities. Cash flows from operations were relatively flat for the first nine months of 2021 compared to 2020.

~~Cash~~Net cash used in investing activities ~~was $34.6~~include $24.0 million ~~and $2.0 million~~paid to acquire IriSys for the first nine months ~~ended September 30, 2017~~of 2021 and ~~2016, respectively,~~capital expenditures in both periods to scale and ~~reflected cash used for the purchase~~support our expansion of short-term investments offset by maturities/redemption 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.capabilities.

~~There was $0.01 million~~Net cash provided by financing activities in the first nine months ~~ended September 30, 2017 from~~of 2021 primarily included net proceeds from exercise of options offset by the repurchase of shares traded for taxes. Cash provided by financing activities was $11.2 million for the nine months ended September 30, 2016, primarily as a result of the salean issuance of common stock ~~raising net proceeds~~ of ~~$13.4~~$32.1 million, ~~$4.2~~partially offset by debt repayments of $10.1 million and financing costs of $1.4 million paid in ~~proceeds from~~connection with the ~~sale of shares of~~debt amendments and common stock ~~through our common stock purchase agreement with Aspire Capital, offset by excess~~issuances.

Net cash ~~flow payments of $6.3 million made~~used in discontinued operations during 2020 was to settle outstanding liabilities related to ~~the OrbiMed credit agreement.~~our former acute care research and development business.

Forward-looking factors

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



~~the timing and outcome of the FDA’s review of an NDA for IV meloxicam;~~

~~the timing and outcome of our Phase IIIB clinical studies for IV meloxicam;~~

~~the extent to which the FDA may require us to perform additional preclinical studies, clinical trials or pre-commercial manufacturing of injectable meloxicam or our other product candidates;~~

•

~~the timing to fund the Gainesville Transaction regulatory milestone payments and other contingent consideration;~~

~~the costs of our commercialization activities, if our product candidates are approved by the FDA;~~

~~the cost of manufacturing scale-up, acquiring drug pruoduct and other capital equipment for our product candidates;~~

~~the scope, progress, results and costs of development for our other product candidates;~~

~~the cost, timing and outcome of regulatory review of our other product candidates;~~

the extent to which we in-license, acquire or invest in products, businesses and technologies;



the timing and extent of our manufacturing and capital ~~expenditures related to our CDMO division;~~

expenditures;



our ability to maintain or expand our relationships and contracts with our commercial partners;



our ability to grow and diversify our business with new customers, including our ability to meet desired project outcomes with development customers;



our ability to regain profitability;



our ability to comply with stringent U.S. & foreign government regulation in the manufacture of pharmaceutical products, including cGMP and U.S. DEA requirements;



~~the extent~~our ability to ~~which we choose to establish collaboration, co-promotion, distribution~~raise additional funds through equity or ~~other similar agreements for product candidates;~~

debt financings or sale of certain assets;



the costs of preparing, submitting and prosecuting patent applications and maintaining, enforcing and defending intellectual property claims; and



the ~~effect~~extent to which health epidemics and other outbreaks of ~~any changes in~~communicable diseases, including the ongoing COVID-19 pandemic, could disrupt our ~~effective tax rate due to changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets~~operations or materially and ~~liabilities~~adversely affect our business and ~~changes in tax laws.~~

financial conditions.

We might use existing cash and cash equivalents on hand, additional debt, equity financing, sale of assets or out-licensing revenue or a combination ~~of the four~~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.

Contractual ~~Commitments~~commitments

The ~~following is a discussion of~~table below reflects our contractual commitments as of September 30, ~~2017.~~2021:

~~Licenses~~

~~We have in-licensed product candidates~~

Payments due by period

(in millions)
Total

Less than
1 year

1-3 years

3-5 years

More than
5 years

Debt obligations (1):

Principal
$
106.5

$
2.0

$
104.1

$
0.1

$
0.3

Interest

11.3

5.0

6.1

0.1

0.1

Purchase obligations (2)

4.5

4.0

0.5

—

—

Operating leases (3)

10.8

1.1

2.3

2.3

5.1

Other long-term liabilities (4)

1.3

1.0

0.3

—

—

Total
$
134.4

$
13.1

$
113.3

$
2.5

$
5.5

(1)

Debt obligations consist of principal, an exit fee of 1% of that ~~generally trigger or require payments~~principal, and interest on $100.0 million of outstanding term loans under our credit facility with Athyrium, $6.1 million of notes issued to the ~~partner from whom~~former members of IriSys and a small finance lease. Because the Athyrium term loans bear interest at a variable rate based on LIBOR, we ~~have licensed~~estimated future interest commitments utilizing the ~~product. Such payments frequently take~~LIBOR rate as of September 30, 2021. In accordance with U.S. GAAP, the ~~form of:~~

future interest obligations are not recorded on our consolidated balance sheet.

(2)

~~an up-front payment, the size~~Purchase obligations consist of ~~which varies depending on the phase of the product candidate~~cancelable and ~~how many~~non-cancelable purchase commitments related to inventory, capital expenditures and other ~~companies would like to obtain the product, which is paid very soon after signing a license agreement;~~

~~royalties as a percentage of net sales of the product; and~~

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

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 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.services. 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.~~

consolidated balance sheets.

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 $45 million upon regulatory approval of IV meloxicam as well as net sales milestones and a royalty percentage of future product net sales related to IV meloxicam between 10% and 12% (subject to a 30% reduction when no longer covered by patent).

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. (3)

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

~~Our~~The following supplements the 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 filed~~Report.

Business acquisitions are accounted for in accordance with Accounting Standards Codification, or ASC, Topic 805, Business Combinations. In purchase accounting, identifiable assets acquired and liabilities assumed, are recognized at their estimated fair values at the acquisition date, and any remaining purchase price is recorded as goodwill. In determining the fair values of the consideration transferred, the assets acquired and the liabilities assumed, we make significant estimates and assumptions, particularly with respect to long-lived tangible and intangible assets. Critical estimates used in valuing tangible and intangible assets include, but are not limited to, future expected cash flows, discount rates, market prices and asset lives.

While we use our best estimates and assumptions as part of the purchase price allocation process to accurately value assets acquired and liabilities assumed at the business acquisition date, our estimates and assumptions are inherently uncertain and subject to refinement. As a result, during the purchase price allocation period, which is generally one year from the business acquisition date, we record adjustments to the assets acquired and liabilities assumed, with the ~~SEC on March 9, 2017. There have not been~~corresponding offset to goodwill. For changes in the valuation of intangible assets between preliminary and final purchase price allocation, the related amortization is adjusted in the period it occurs. Subsequent to the purchase price allocation period any ~~significant changes~~adjustment to ~~such critical accounting policies since.~~assets acquired or liabilities assumed is included in operating results in the period in which the adjustment is determined.

~~We are exposed~~Item 3. Quantitative and qualitative disclosures about market risk

There has been no material change in our assessment of our sensitivity to market ~~risks~~risk described in the ordinary course of our business. These market risks are principally limited to interest rate fluctuations. At September 30, 2017, we had approximately $29.6 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 September 30, 2017, all less than one year, minimizes such risks. Due to 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 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.Annual Report.

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 September 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.

Evaluation of ~~Disclosure Controls~~disclosure controls and ~~Procedures~~procedures

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 September 30, ~~2017.~~2021. 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 September 30, ~~2017,~~2021, 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.

Changes in ~~Internal Control~~internal control over ~~Financial Reporting~~financial reporting

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~~Item 1. Legal proceedings.

Information regarding legal and regulatory proceedings is set forth in note 8 to our ~~commercial partner, Pernix Therapeutics Holdings, Inc., or Pernix,~~consolidated financial statements included in Part I, Item 1 of this Quarterly Report, and is incorporated by reference herein.

We are also engaged in various other legal actions arising in the ~~United States, and which is subject~~ordinary course of our business (such as, for example, proceedings relating to ~~ongoing~~employment matters or the initiation or defense of proceedings relating to intellectual property ~~litigation~~rights) 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 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 allegewhile there can be no assurance, we believe 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,~~ultimate outcome of these other legal actions will not ~~be infringed by Actavis’~~have a material adverse effect on our business, results of operations, financial condition or Alvogen’s proposed products, are invalid and/or are unenforceable. In 2014, Daravita Limited (a subsidiary of Alkermes and our predecessor in interest) filed suit against each of Actavis and Alvogen in the U.S. District Court for the District of Delaware based on the ANDAs, and, in 2015, we filed suit against Actavis in the U.S. District Court for the District of Delaware based on the sANDA. In September 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. In October 2017, we filed suit against Actavis in the U.S. District Court for the District of Delaware based upon another recently issued patent relating to a formulation of Zohydro ER®. 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.cash flows.

In addition, in April 2015, the U.S. Patent and Trademark Office declared an interference between one of our patent applications relating to a dosage form of Zohydro ER® and two Purdue Pharma, LP, or Purdue, applications. In April 2016, the USPTO found our claims and the Purdue claims involved in the interference to be invalid. In June 2016, Purdue appealed this decision to the U.S. Court of Appeals for the Federal Circuit and in June 2017, the U.S. Court of Appeals for the Federal Circuit affirmed the decision of the USPTO in our favor and dismissed Purdue’s appeal.

In connection with the Acquisition, we have ~~been no material changes from~~supplemented our risk factors as previously reported in our Annual Report as follows:

The acquisition and integration of IriSys may present many risks and we may not realize the strategic and financial goals that were contemplated at the time we entered into the Purchase Agreement.

We acquired IriSys on ~~Form 10-K~~August 13, 2021, and we are in the process of integrating IriSys with our Company. The success of the acquisition depends on, among other things, our ability to combine our business with IriSys in a manner that does not materially disrupt existing relationships and allows us to achieve operational synergies. If we are unable to achieve these objectives, the anticipated benefits of the acquisition may not be realized fully or at all or may take longer to realize than expected. In particular, the acquisition may not be accretive to our stock value in the near or long term.

Some of the risks we may face in connection with the acquisition include the following:

If any of these events were to occur, our ability to maintain relationships with customers, suppliers and employees or our ability to achieve the anticipated benefits of the acquisition could be adversely affected, or could reduce our future earnings or otherwise adversely affect our business and financial results and, as a result, adversely affect the market price of our common stock.

In addition, we expect to continue to incur additional costs integrating the operations of IriSys, as well as higher regulatory and personnel costs, which cannot be fully estimated accurately at this time. If the total costs of the integration of our companies exceed the anticipated benefits of the acquisition, our financial results could be adversely affected.

Our future success depends on our ability to attract and retain qualified personnel, which may be affected by recent government vaccine mandates.

As a party to certain contracts with the federal government, we are subject to various federal regulatory requirements including, but not limited to, COVID-19 vaccine mandates. These vaccine mandates present certain risks regarding our ability to attract or retain talent, including the willingness of our employees to comply with such mandates and the potential conflict with actions by certain states in which we operate that are in conflict with the federal mandate. If a significant number of our employees choose not to comply with applicable mandates and we are forced to terminate their employment as a result, our business could be materially harmed. The inability to recruit or the loss of the services of any executive or key employee could impede the progress of our business development, manufacturing, quality, growth and diversification objectives.

Our U.S. government contracts require compliance with numerous laws that may present additional risk and liability.

Through IriSys, we provide services to the National Institutes of Health, a part of the U.S. Department of Health and Human Services. As a result, we must comply with certain laws and regulations relating to the award, administration, and performance of U.S. government contracts. U.S. government contracts typically contain a number of extraordinary provisions that would not typically be found in commercial contracts and which may create a disadvantage and additional risks to us as compared to competitors that do not rely on government contracts. As a U.S. government service provider and subcontractor, we are subject to increased risks of investigation, audit, criminal prosecution, and other legal actions and liabilities to which purely private sector companies are not. The results of any such actions could adversely impact our business and have an adverse effect on our financial performance.

Additionally, a violation of specific laws and regulations could result in the imposition of fines and penalties or the termination of our contracts, as well as suspension or debarment. The suspension or debarment in any particular case may be limited to the facility, contract or subsidiary involved in the violation or could be applied to our entire enterprise in certain severe circumstances. Even a narrow scope suspension or debarment could result in negative publicity that could adversely affect our ability to renew contracts and to secure new contracts, both with the U.S. government and private customers, which could materially and adversely affect our business and results of operations. Fines and penalties could be imposed for failing to follow procurement integrity and bidding rules, employing improper billing practices, receiving or paying kickbacks, or filing false claims, among other potential violations. In addition, we could suffer serious reputational harm and the ~~year ended December 31, 2016.~~value of our common stock could be negatively affected if allegations of impropriety related to such contracts are made against us.

† ~~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.~~

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,~~ 1 E. Uwchlan Ave, Suite 112, Exton, Pennsylvania	~~19355~~19341
(Address of principal executive offices)	(Zip Code)


Title of each class	Trading symbol	Name of exchange on which registered
Common Stock, par value $0.01	REPH	The NASDAQ Stock Market LLC


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

				~~Page~~
		Page
PART I. FINANCIAL INFORMATION		3

	~~Item 1.~~		~~Consolidated Financial Statements~~ ~~(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~~	35

	~~Item 4.~~		~~Controls and Procedures~~	35
				1
Item 1. Financial statements		1
Item 2. Management's discussion and analysis of financial condition and results of operations		19
Item 3. Quantitative and qualitative disclosures about market risk		28
Item 4. Controls and procedures		28
PART II. OTHER INFORMATION		37

	~~Item 1.~~		~~Legal Proceedings~~	37

	~~Item 1A.~~		~~Risk Factors~~	37

	~~Item 2.~~		~~Unregistered Sales of Equity Securities and Use of Proceeds~~	37

	~~Item 3.~~		~~Defaults Upon Senior Securities~~	37

	~~Item 4.~~		~~Mine Safety Disclosures~~	37

	~~Item 5.~~		~~Other Information~~	37

	~~Item 6.~~		~~Exhibits~~	37
				29
~~SIGNATURES~~Item 1. Legal proceedings		3929
Item 1A. Risk factors		29
Item 2. Unregistered sales of equity securities and use of proceeds		30
Item 3. Defaults upon senior securities		31
Item 4. Mine safety disclosures		31
Item 5. Other information		31
Item 6. Exhibits		31
SIGNATURES		33


(amounts in thousands, except share and per share data)	September 30, 2021			December 31, 2020
Assets
Current assets:
Cash and cash equivalents	$	23,490		$	23,760
Accounts receivable		13,746			9,033
Contract asset		7,314			7,330
Inventory		9,440			11,612
Prepaid expenses and other current assets		2,101			2,334
Total current assets		56,091			54,069
Property, plant and equipment, net		50,021			43,841
Operating lease asset		5,963			486
Intangible assets, net		5,993			700
Goodwill		39,568			4,319
Other assets		146			—
Total assets	$	157,782		$	103,415
Liabilities and shareholders’ equity (deficit)
Current liabilities:
Accounts payable	$	1,916		$	1,804
Current portion of debt		—			1,474
Current portion of related party debt		2,039			—
Current portion of operating lease liability		1,049			145
Accrued expenses and other current liabilities		7,856			4,380
Total current liabilities		12,860			7,803
Debt, net of current portion		91,029			108,097
Related party debt, net of current portion		3,259			—
Operating lease liability, net of current portion		4,947			366
Other liabilities		1,203			1,249
Total liabilities		113,298			117,515
Commitments and contingencies (note 8)
Shareholders’ equity (deficit):
Preferred stock, $0.01 par value. 10,000,000 shares authorized, NaN issued or outstanding		—			—
Common stock, $0.01 par value. 95,000,000 shares authorized, 46,614,535 and 28,601,358 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively		466			286
Additional paid-in capital		287,415			219,998
Accumulated deficit		(243,397	)		(234,384	)
Total shareholders’ equity (deficit)		44,484			(14,100	)
Total liabilities and shareholders’ equity (deficit)	$	157,782		$	103,415

(amounts in thousands, except share and per share data)	September 30, 2017			December 31, 2016
Assets
Current assets:
Cash and cash equivalents	$	11,803		$	64,483
Short-term investments		29,507			—
Accounts receivable		13,126			10,411
Inventory		9,891			8,746
Prepaid expenses and other current assets		2,785			1,118
Total current assets		67,112			84,758
Property, plant and equipment, net		38,197			37,300
Deferred income taxes		21,759			17,060
Intangible assets, net		35,496			37,433
Goodwill		6,446			6,446
Total assets	$	169,010		$	182,997
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	2,823		$	4,132
Accrued expenses and other current liabilities		9,150			9,893
Current portion of contingent consideration		30,372			—
Current portion of long-term debt, net		—			2,236
Total current liabilities		42,345			16,261
Long-term debt, net		24,890			22,152
Warrants and other long-term liabilities		3,600			3,397
Long-term portion of contingent consideration		48,525			69,574
Total liabilities		119,360			111,384
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, 19,060,260 shares at September 30, 2017 and 19,043,216 shares at December 31, 2016		191			190
Additional paid-in capital		136,732			132,691
Accumulated deficit		(87,265	)		(61,268	)
Accumulated other comprehensive loss		(8	)		—
Total shareholders’ equity		49,650			71,613
Total liabilities and shareholders’ equity	$	169,010		$	182,997

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
(amounts in thousands, except share and per share data)	2017			2016			2017			2016
Revenue	$	17,114		$	16,951		$	52,790		$	51,973
Operating expenses:
Cost of sales (excluding amortization of intangible assets)		6,882			5,745			27,829			25,563
Research and development		9,296			7,046			24,132			23,175
General and administrative		6,635			3,841			16,990			9,263
Amortization of intangible assets		646			646			1,937			1,937
Change in warrant valuation		808			402			15			47
Change in contingent consideration valuation		3,550			3,192			9,323			7,705
Total operating expenses		27,817			20,872			80,226			67,690
Operating loss		(10,703	)		(3,921	)		(27,436	)		(15,717	)
Other income (expense):
Interest income		62			10			284			27
Interest expense		(1,235	)		(1,450	)		(3,625	)		(4,279	)
Net loss before income taxes		(11,876	)		(5,361	)		(30,777	)		(19,969	)
Income tax benefit (expense)		2,821			(18	)		4,780			166
Net loss	$	(9,055	)	$	(5,379	)	$	(25,997	)	$	(19,803	)

Per share information:
Net loss per share of common stock, basic and diluted	$	(0.48	)	$	(0.50	)	$	(1.36	)	$	(2.01	)
Weighted average common shares outstanding, basic and diluted		19,058,956			10,780,911			19,053,636			9,862,526

Other comprehensive loss:
Unrealized gain (loss) on available-for-sale securities		68			—			(8	)		—
Comprehensive loss	$	(8,987	)	$	(5,379	)	$	(26,005	)	$	(19,803	)


	Common stock				Additional paid-in			Accumulated
(amounts in thousands, except share data)	Shares		Amount		capital			deficit			Total
Balance, December 31, 2020		28,601,358	$	286	$	219,998		$	(234,384	)	$	(14,100	)
Issuance of common stock, net of costs		2,202,420		22		9,318			—			9,340
Stock-based compensation expense		—		—		3,133			—			3,133
Vesting of restricted stock units, net		209,541		2		(338	)		—			(336	)
Net loss		—		—		—			(6,761	)		(6,761	)
Balance, March 31, 2021		31,013,319		310		232,111			(241,145	)		(8,724	)
Issuance of common stock, net of costs		15,333,332		153		31,950			—			32,103
Stock-based compensation expense		—		—		1,929			—			1,929
Vesting of restricted stock units, net		155,198		2		(128	)		—			(126	)
Net income		—		—		—			1,234			1,234
Balance, June 30, 2021		46,501,849	$	465	$	265,862		$	(239,911	)	$	26,416
Fair value of shares issuable to former equity holders of IriSys, net of costs		—		—		20,328			—			20,328
Stock-based compensation expense		—		—		1,319			—			1,319
Vesting of restricted stock units, net		112,606		1		(94	)		—			(93	)
Exercise of stock options		80		—		—			—			—
Net loss		—		—		—			(3,486	)		(3,486	)
Balance, September 30, 2021		46,614,535	$	466	$	287,415		$	(243,397	)	$	44,484


Balance, December 31, 2019		23,312,928	$	233	$	199,938		$	(206,883	)	$	(6,712	)
Stock-based compensation expense		—		—		3,231			—			3,231
Exercise of stock options, net		37,063		—		(105	)		—			(105	)
Vesting of restricted stock units, net		105,242		1		(917	)		—			(916	)
Net loss		—		—		—			(7,692	)		(7,692	)
Balance, March 31, 2020		23,455,233		234		202,147			(214,575	)		(12,194	)
Stock-based compensation expense		—		—		2,446			—			2,446
Exercise of stock options, net		105,606		1		378			—			379
Vesting of restricted stock units, net		78,067		1		(31	)		—			(30	)
Net loss		—		—		—			(6,012	)		(6,012	)
Balance, June 30, 2020		23,638,906	$	236	$	204,940		$	(220,587	)	$	(15,411	)
Stock-based compensation expense		—		—		2,409			—			2,409
Vesting of restricted stock units, net		5,725		—		(4	)		—			(4	)
Net loss		—		—		—			(2,127	)		(2,127	)
Balance, September 30, 2020		23,644,631	$	236	$	207,345		$	(222,714	)	$	(15,133	)

	Common Stock				Additional						Accumulated other
(amounts in thousands, except share data)	Shares		Amount		paid-in capital			Accumulated Deficit			comprehensive loss			Total
Balance, December 31, 2016		19,043,216		190		132,691			(61,268	)		—			71,613
Stock-based compensation expense		—		—		4,265			—			—			4,265
Stock option exercise		4,256		1		26			—			—			27
Issuance of restricted stock units		12,788		—		(250	)		—			—			(250	)
Other comprehensive loss		—		—		—			—			(8	)		(8	)
Net loss		—		—					(25,997	)		—			(25,997	)
Balance, September 30, 2017		19,060,260	$	191	$	136,732		$	(87,265	)	$	(8	)	$	49,650


	Nine months ended September 30,
(amounts in thousands)	2021			2020
Cash flows from operating activities, continuing operations:
Net loss	$	(9,013	)	$	(15,831	)
Adjustments to reconcile net loss to net cash provided by operating activities, continuing operations:
Stock-based compensation expense		6,381			8,086
Non-cash interest expense		4,531			4,222
Depreciation expense		4,803			4,581
Amortization of intangible assets		835			1,938
Gain on extinguishment of debt		(3,352	)		—
Changes in operating assets and liabilities:
Accounts receivable		(3,801	)		755
Contract asset		521			(877	)
Inventory		2,857			3,492
Prepaid expenses and other assets		491			268
Accounts payable, accrued expenses and other liabilities		2,162			(234	)
Net cash provided by operating activities, continuing operations		6,415			6,400
Cash flows from investing activities
Acquisition of IriSys, net of cash acquired		(24,006	)		—
Purchases of property and equipment		(2,765	)		(5,451	)
Net cash used in investing activities		(26,771	)		(5,451	)
Cash flows from financing activities:
Proceeds from issuance of common stock, net of costs		32,103			—
Proceeds from issuance of debt		—			4,416
Repayments of debt		(10,100	)		(1,100	)
Payment of financing costs		(1,362	)		(78	)
Net payments related to vesting of restricted stock units		(555	)		(1,185	)
Net proceeds related to exercise of stock options		—			509
Net cash provided by financing activities		20,086			2,562
Net (decrease) increase in cash and cash equivalents from continuing operations		(270	)		3,511
Cash flows used in discontinued operating activities		—			(1,172	)
Cash and cash equivalents, beginning of period		23,760			19,148
Cash and cash equivalents, end of period	$	23,490		$	21,487
Supplemental disclosures of cash flow information:
Cash paid for interest	$	7,462		$	10,662
Purchases of property, plant and equipment included in accrued expenses and accounts payable		158			686
Fair value of shares issuable to former equity holders of IriSys		20,931			—
Fair value of note issued to former equity holder of IriSys		5,240			—
Issuance of common stock to reduce debt principal and accrued exit fees		6,060			—
Issuance of common stock to settle interest obligations		3,211			—

	September 30,
	2017		2016		Three months ended September 30,				Nine months ended September 30,
Options and restricted stock units outstanding		3,928,013		2,363,794
					2021		2020		2021		2020
Restricted stock units						708,965		896,537		377,437		703,679
Stock options						4,965,826		3,613,173		4,496,878		3,480,572
Warrants		784,928		784,928		348,664		348,664		348,664		348,664

	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)
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 September 30, 2017:
Assets:
Cash equivalents
Money market mutual funds (See Note 7)	$	134	$	—	$	—
Total cash equivalents	$	134	$	—	$	—
Short-term investments
U.S. Treasury obligations (See Note 7)	$	29,507	$	—	$	—
Total financial assets	$	29,641	$	—	$	—
Liabilities:
Warrants (See Note 14(d))		—		—	$	3,412
Contingent consideration (See Note 4)		—		—		78,897
	$	—	$	—	$	82,309

	Warrants		Contingent Consideration
Balance at December 31, 2016	$	3,397	$	69,574
Additions		—		—
Remeasurement		15		9,323
Total at September 30, 2017	$	3,412	$	78,897

Current portion		—		30,372
Long-term portion		3,412		48,525

	September 30, 2017
	Amortized		Gross Unrealized					Estimated
Description	Cost		Gain		Loss			Fair Value
Money market mutual funds	$	134	$	—	$	—		$	134
U.S. Treasury obligations		29,515		—		(8	)		29,507
Total investments	$	29,649	$	—	$	(8	)	$	29,641

	Cost		Accumulated Amortization		Net Intangible Assets
Royalties and contract manufacturing relationships:	$	15,500	$	6,404	$	9,096
In-process research and development		26,400		—		26,400
Total	$	41,900	$	6,404	$	35,496


	Nine months ended September 30, 2021
Beginning balance	$	4,319
Acquisition of IriSys		35,249
Ending balance	$	39,568


	September 30, 2021						December 31, 2020
	Gross value		Accumulated amortization		Carrying value		Gross value		Accumulated amortization		Carrying value
Customer relationships	$	20,330	$	15,553	$	4,777	$	15,500	$	14,800	$	700
Backlog		957		52		905		0		0		0
Trademarks and tradenames		341		30		311		0		0		0
Total	$	21,628	$	15,635	$	5,993	$	15,500	$	14,800	$	700


Twelve months ended September 30,
2022	$	1,026
2023		882
2024		515
2025		403
2026		403
Thereafter		2,764
Total	$	5,993

	Amortization
October - December 2017	$	645
2018		2,583
2019		2,583
2020		2,583
2021		702
Total	$	9,096


	September 30, 2021		December 31, 2020
Payroll and related costs	$	3,782	$	1,481
Current portion of contract liabilities (see note 11)		2,316		1,447
Professional and consulting fees		844		432
Property, plant and equipment		44		551
Other		870		469
Total	$	7,856	$	4,380

	September 30,		December 31,
	2017		2016
Clinical trial and related costs	$	—	$	2,564
Professional and consulting fees		551		360
Payroll and related costs		4,996		4,547
Property plant and equipment		495		720
Deferred revenue		563		418
Income tax payable		—		311
Other		2,545		973
	$	9,150	$	9,893

Principal balance outstanding	$	27,347
Unamortized deferred issuance costs		(2,457	)
Total	$	24,890

	Lease payments
2017	$	151
2018		566
2019		502
2020		405
2021		362
2022		373
Total	$	2,359


	September 30, 2021			December 31, 2020
Debt principal:
Terms loans under Credit Agreement	$	100,000		$	116,000
Note with former equity holder of IriSys		6,117			—
Other		415			3,316
Debt principal		106,532			119,316
Debt adjustments:
Unamortized deferred issuance costs		(10,017	)		(10,359	)
Exit fee accretion		627			614
Unamortized original discount		(815	)		—
Carrying value of debt	$	96,327		$	109,571

Current portion of debt	$	—		$	1,474
Current portion of related party debt		2,039			—
Debt, net of current portion		91,029			108,097
Related party debt, net of current portion		3,259			—
Carrying value of debt	$	96,327		$	109,571

Number of Shares	Exercise Price per Share		Expiration Date
140,000	$	12.00	March 2019
350,000	$	19.46	April 2022
294,928	$	3.28	April 2022

	Date of issuance			September 30, 2017			December 31, 2016
Fair value	$	5,331		$	3,412		$	3,397
Expected dividend yield		—	%		—	%		—	%
Expected volatility	80		%	77		%	85		%
Risk-free interest rates	1.73		%	1.92		%	1.93		%
Remaining contractual term	7 years			4.50 years			5.25 years


	Date or period	Shares of common stock issued		Gross proceeds		Offering expenses			Net proceeds
Initial public offering	March 12, 2014		4,312,500	$	34,500	$	(4,244	)	$	30,256
Private placement	July 7, 2015		1,379,311		16,000		(1,188	)		14,812
Underwritten public offering	August 19, 2016		1,986,666		14,900		(1,533	)		13,367
Underwritten public offering	December 16, 2016		6,670,000		40,020		(3,132	)		36,888
2018 common stock purchase agreement with Aspire Capital	Year ended December 31, 2018		1,950,000		16,999		—			16,999
2019 common stock purchase agreement with Aspire Capital	Fourth quarter 2020		4,690,972		11,172		(78	)		11,094
Underwritten public offering	May 12, 2021		15,333,332		34,500		(2,397	)		32,103


	Contract assets			Contract liabilities
Balance at December 31, 2020	$	7,330		$	2,695
Changes to the beginning balance of contract assets arising from:
Reclassification to receivables as a result of rights to consideration becoming unconditional		(8,774	)		—
Changes in estimate		1,508			—
Contract assets recognized since beginning of period, net of reclassification to receivables and changes in estimates		6,745			—
Changes to contract liabilities:
Amounts billed in advance of contract performance		—			4,097
Revenue recognized		—			(4,391	)
Acquisition of IriSys		505			930
Balance at September 30, 2021	$	7,314		$	3,331
Less: noncurrent portion		0			(1,015	)
Current portion	$	7,314		$	2,316

	Number of shares			Weighted average exercise price		Weighted average remaining contractual life
Balance, December 31, 2016		2,611,929		$	7.01
Granted		1,003,580			7.50
Exercised		(4,256	)		6.21
Expired/forfeited/cancelled		(43,233	)		8.12
Balance, September 30, 2017		3,568,020		$	7.14	7.3 years
Vested		1,897,174		$	6.68	5.8 years
Vested and expected to vest		3,429,561		$	7.10	7.2 years


	Payments due by period
(in millions)	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Debt obligations (1):
Principal	$	106.5	$	2.0	$	104.1	$	0.1	$	0.3
Interest		11.3		5.0		6.1		0.1		0.1
Purchase obligations (2)		4.5		4.0		0.5		—		—
Operating leases (3)		10.8		1.1		2.3		2.3		5.1
Other long-term liabilities (4)		1.3		1.0		0.3		—		—
Total	$	134.4	$	13.1	$	113.3	$	2.5	$	5.5

~~Exhibit~~ ~~No.~~Description	~~Description~~	Method of ~~Filing~~filing
10.1	Unit Purchase Agreement, dated August 13, 2021, by and among Recro Pharma, Inc., IriSys, LLC, the Sellers (as defined therein), and IriSys, Inc. as the Seller’s Representative	Incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 13, 2021
~~10.1~~ †10.2	~~Master Manufacturing Services~~Form of Subordinated Promissory Note	Incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on August 13, 2021
10.3	Sixth Amendment to Credit Agreement, dated ~~July 14, 2017,~~as of August 13, 2021, by and ~~between Patheon UK Limited~~among Recro Pharma, Inc., certain subsidiaries of Recro Pharma, Inc., named as guarantors therein, the lenders named therein and ~~Recro Ireland Limited~~Athyrium Opportunities III Acquisition LP, as administrative agent	Incorporated herein by reference to Exhibit 10.3 to the Company’s ~~Quarterly~~Current Report on Form ~~10-Q~~8-K filed on August ~~11, 2017 (File No. 001-36329).~~13, 2021
~~10.2~~ †31.1	~~Product Agreement, dated July 14, 2017, by and between Patheon UK Limited and Recro Ireland Limited~~	~~Incorporated herein by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q filed on August 11, 2017 (File No. 001-36329).~~
~~10.3~~	~~Employment Agreement, dated August 21, 2017, between Recro Pharma, Inc. and Jyrki Mattila, MD, PhD, MBA~~	~~Filed herewith.~~

~~31.1~~	Rule 13a-14(a)/15d-14(a) certification of Principal Executive Officer.	Filed ~~herewith.~~herewith
31.2
~~31.2~~	Rule 13a-14(a)/15d-14(a) certification of Principal Financial and Accounting Officer.	Filed ~~herewith.~~herewith
32.1
~~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.~~herewith
101 INS	XBRL Instance Document	Filed herewith
101 ~~INS~~SCH	~~XBRL Instance Document~~	~~Filed herewith.~~

~~101 SCH~~	XBRL Taxonomy Extension Schema	Filed ~~herewith.~~herewith
101 CAL
~~101 CAL~~	XBRL Taxonomy Extension Calculation Linkbase	Filed ~~herewith.~~herewith
101 DEF
~~101 DEF~~	XBRL Taxonomy Extension Definition Linkbase	Filed ~~herewith.~~herewith
101 LAB
~~101 LAB~~	XBRL Taxonomy Extension Label Linkbase	Filed ~~herewith.~~herewith
101 PRE
~~101 PRE~~	XBRL Taxonomy Extension Presentation Linkbase Document	Filed ~~herewith.~~herewith


	RECRO PHARMA, INC.

Date: November 9, ~~2017~~2021	By:	/s/ ~~Gerri A. Henwood~~ J. David Enloe, Jr.
		~~Gerri A. Henwood~~J. David Enloe, Jr.
		President and Chief Executive Officer
		(Principal Executive Officer)

Date: November 9, ~~2017~~2021	By:	~~/s/ Michael Celano~~
		~~Michael Celano~~
		~~Chief Financial Officer~~
		~~(Principal Financial Officer)~~

~~Date: November 9, 2017~~	~~By:~~	/s/ Ryan D. Lake
		Ryan D. Lake
		Chief ~~Accounting~~Financial Officer
		(Principal Financial and Accounting Officer)