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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2021 
or 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ______to______.
 
Commission File Number: 001-38193
 
OPIANT PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter) 
Delaware46-4744124
(State or other jurisdiction of incorporation or
organization)
(I.R.S. Employer Identification No.)
  
233 Wilshire Blvd.Suite 280,Santa Monica,CA90401
(Address of principal executive offices)(Zip Code)
 
(310)-598-5410 
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   No 
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. 
Large Accelerated FilerAccelerated Filer
Non-Accelerated Filer Smaller Reporting Company
Emerging Growth Company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No 
 
As of November 9, 2021, the registrant had 4,720,285 shares of common stock outstanding.



Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbolName of each exchange on which registered
Common stock, par value $0.001 per shareOPNTNasdaq Stock Market LLC




CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION
 
    This Quarterly Report on Form 10-Q (this “Report”) contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements may include words such as “anticipate,” “believe,” “estimate,” “intend,” “could,” “should,” “would,” “may,” “seek,” “plan,” “might,” “will,” “expect,” “predict,” “project,” “forecast,” “potential,” “continue”, negatives thereof or similar expressions. Forward-looking statements speak only as of the date they are made, are based on various underlying assumptions and current expectations about the future and are not guarantees. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, level of activity, performance or achievement to be materially different from the results of operations or plans expressed or implied by such forward-looking statements.
 
    We cannot predict all of the risks and uncertainties. Accordingly, such information should not be regarded as representations that the results or conditions described in such statements or that our objectives and plans will be achieved and we do not assume any responsibility for the accuracy or completeness of any of these forward-looking statements. These forward-looking statements are found at various places throughout this Report and include information concerning possible or assumed future results of our operations, including statements about potential acquisition or merger targets; business strategies; future cash flows; financing plans; plans and objectives of management, any other statements regarding future acquisitions, future cash needs, future operations, business plans and future financial results, and any other statements that are not historical facts.
 
    From time to time, forward-looking statements also are included in our other periodic reports on Forms 10-K and 8-K, in our press releases, in our presentations, on our website and in other materials released to the public. Any or all of the forward-looking statements included in this Report and in any other reports or public statements made by us are not guarantees of future performance and may turn out to be inaccurate. These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Report. All subsequent written and oral forward-looking statements concerning other matters addressed in this Report and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Report.
 
    Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise.
 
CERTAIN TERMS USED IN THIS REPORT
 
    When this Report uses the words “we,” “us,” “our,” “Opiant,” and the “Company,” they refer to Opiant Pharmaceuticals, Inc. “SEC” refers to the Securities and Exchange Commission.



OPIANT PHARMACEUTICALS, INC. 
TABLE OF CONTENTS
 
 
   
   
   
Defaults Upon Senior Securities


4


PART 1 - FINANCIAL INFORMATION

Item 1.           Financial Statements
Opiant Pharmaceuticals, Inc.
Condensed Consolidated Balance Sheets
September 30, 2021December 31, 2020
Assets(unaudited) 
Current assets  
Cash and cash equivalents$35,284,595 $48,251,336 
Marketable securities15,044,750  
Accounts receivable15,425,938 8,910,975 
Prepaid and other current assets2,121,145 1,936,842 
Total current assets67,876,428 59,099,153 
Other assets  
Property and equipment - net93,519 171,190 
Right of use assets - operating leases997,777 278,455 
Patents and patent applications - net11,971 13,000 
Other non-current assets 1,051,234 
Total assets$68,979,695 $60,613,032 
Liabilities and Stockholders' Equity  
Liabilities  
Current liabilities  
Accounts payable and accrued expenses$2,580,904 $2,966,479 
Accrued salaries and wages1,347,552 908,516 
Royalty payable3,136,677 1,908,072 
Deferred revenue 354,756 
Operating leases287,139 282,421 
Total current liabilities7,352,272 6,420,244 
Long-term liabilities
Operating leases - long term716,343  
   Convertible debt, net of unamortized discount18,905,723 18,700,546 
Total long-term liabilities19,622,066 18,700,546 
Total liabilities26,974,338 25,120,790 
Stockholders' equity  
Common stock; par value $0.001; 200,000,000 shares authorized; 4,618,221 and 4,258,105 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively
4,618 4,259 
Additional paid-in capital104,460,194 100,203,979 
Accumulated other comprehensive loss(26,850)(26,931)
Accumulated deficit(62,432,605)(64,689,065)
Total stockholders' equity42,005,357 35,492,242 
Total liabilities and stockholders' equity$68,979,695 $60,613,032 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5


Opiant Pharmaceuticals, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
(unaudited)
Three months ended September 30,Nine months ended September 30,
 2021202020212020
Revenues    
Royalty revenue$14,041,006 $8,600,811 $27,688,713 $19,056,999 
Grant and contract revenue2,298,055 505,265 6,296,542 644,195 
Total revenue16,339,061 9,106,076 33,985,255 19,701,194 
Operating expenses    
General and administrative3,378,707 2,729,098 8,758,601 8,138,571 
Research and development4,881,398 2,783,452 12,119,088 4,762,749 
Sales and marketing1,059,649 914,349 3,080,211 3,737,793 
Royalty expense3,058,865 1,951,947 6,145,057 4,288,701 
Total operating expenses12,378,619 8,378,846 30,102,957 20,927,814 
Income (loss) from operations3,960,442 727,230 3,882,298 (1,226,620)
Other income (expense)  
Interest income3,498 3,922 10,334 92,015 
Interest expense(547,296) (1,626,273) 
Gain (loss) on foreign exchange455 (6,178)(9,899)(2,269)
Total other income (expense)(543,343)(2,256)(1,625,838)89,746 
Income (loss) before income taxes3,417,099 724,974 2,256,460 (1,136,874)
Income tax (expense)   (39,000)
Net income (loss)$3,417,099 $724,974 $2,256,460 $(1,175,874)
Other comprehensive income (loss):
Foreign currency translation adjustment(7,974)196,076 81 (114,644)
Comprehensive income (loss)$3,409,125 $921,050 $2,256,541 $(1,290,518)
Net income (loss) per share of common stock:  
Basic$0.77 $0.17 $0.52 $(0.28)
Diluted$0.56 $0.15 $0.41 $(0.28)
Weighted average shares outstanding used to compute net income (loss) per share:    
Basic4,462,236 4,258,105 4,359,759 4,247,045 
Diluted6,065,044 4,847,211 5,565,065 4,247,045 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

6


Opiant Pharmaceuticals, Inc.
Condensed Consolidated Statements of Stockholders' Equity
(unaudited)
 Common StockAdditional
Paid In
Capital
Accumulated
Deficit
Accumulated
Other Comprehensive Loss
 Total
 SharesAmount
Balance at December 31, 20204,258,105 $4,259 $100,203,979 $(64,689,065)$(26,931)$35,492,242 
Exercise of stock options65,962 66 579,553 — — 579,619 
Restricted stock issued6,527 6(6)— —  
Stock based compensation— — 745,620 — — 745,620 
Net loss— — — (2,844,230)— (2,844,230)
Foreign currency translation adjustment — — — — 12,501 12,501 
Balance at March 31, 20214,330,594 $4,331 $101,529,146 $(67,533,295)$(14,430)$33,985,752 
Exercise of stock options5,630 6 36,599 — — 36,605 
Restricted stock issued13,375 13(13)— —  
Stock based compensation— — 654,562 — — 654,562 
Net income— — — 1,683,591 — 1,683,591 
Foreign currency translation adjustment— — — — (4,446)(4,446)
Balance at June 30, 20214,349,599 4,350 102,220,294 (65,849,704)(18,876)36,356,064 
Exercise of stock options268,622 268 1,545,566 — — 1,545,834 
Stock based compensation— — 694,334 — — 694,334 
Net income— — — 3,417,099 — 3,417,099 
Foreign currency translation adjustment— — — — (7,974)(7,974)
Balance at September 30, 20214,618,221 $4,618 $104,460,194 $(62,432,605)$(26,850)$42,005,357 
Balance at December 31, 20194,186,438 $4,187 $97,239,455 $(62,827,616)$ $34,416,026 
Exercise of stock options12,157 12 89,988 — — 90,000 
Exercise of warrants59,510 60 595,041 — — 595,101 
Stock based compensation— — 686,599 — — 686,599 
Net loss— — — (1,684,643)— (1,684,643)
Foreign currency translation adjustment— — — — (293,491)(293,491)
Balance at March 31, 20204,258,105 $4,259 $98,611,083 $(64,512,259)(293,491)$33,809,592 
Stock based compensation— — 720,100 — — 720,100 
Net loss— — — (216,205)— (216,205)
Foreign currency translation adjustment— — — — (17,229)(17,229)
Balance at June 30, 20204,258,105 4,259 99,331,183 (64,728,464)(310,720)34,296,258 
Stock based compensation— — 323,809 — — 323,809 
Net Income— — — 724,974 — 724,974 
Foreign currency translation adjustment— — — — 196,076 196,076 
Balance at September 30, 20204,258,105 $4,259 $99,654,992 $(64,003,490)$(114,644)$35,541,117 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7


Opiant Pharmaceuticals, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
For the Nine Months Ended
September 30, 2021September 30, 2020
Cash flows from operating activities  
Net income (loss)$2,256,460 $(1,175,874)
Adjustments to reconcile net income (loss) to net cash used in operating activities:  
   Depreciation and amortization78,701 92,059 
Amortization of debt discount205,177  
   Non-cash lease expense388,598 364,542 
   Stock based compensation2,094,516 1,730,508 
Change in assets and liabilities: 
    Accounts receivable(6,514,964)(1,394,991)
    Prepaid and other current assets860,631 (857,828)
    Accounts payable and accrued expenses(481,464)1,235,607 
    Accrued salaries and wages553,996 200,991 
    Lease liabilities(392,564)(363,363)
    Royalty payable1,228,605 331,495 
    Deferred revenue(354,756)(558,231)
Net cash used in operating activities(77,064)(395,085)
Cash flows from investing activities
Purchase of marketable securities(15,044,750) 
Purchase of property and equipment (50,887)
Net cash used in investing activities(15,044,750)(50,887)
Cash flows provided by financing activities 
  Proceeds from stock option and warrant exercises2,162,058 685,101
Net cash provided by financing activities2,162,058 685,101 
Effect of foreign currency translation on cash(6,985)(116,437)
Net increase (decrease) in cash and cash equivalents(12,966,741)122,692 
Cash and cash equivalents, beginning of period48,251,336 30,980,473 
Cash and cash equivalents, end of period$35,284,595 $31,103,165 
Supplemental disclosure
   Interest paid during the period$1,051,508 $ 
   Income taxes paid during the period$ $39,000 
Supplemental disclosure of non-cash finance transactions
Right of use assets obtained in exchange for new lease obligations$1,094,259 $ 
Issuance of restricted stock$19 $ 
Cashless exercise of options$ $2 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
8



Opiant Pharmaceuticals, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements

Note 1. Description of Business
 
Company 
    Opiant is a specialty pharmaceutical company developing medicines for addiction and drug overdose. The Company developed NARCAN® (naloxone hydrochloride) Nasal Spray (“NARCAN®”), a treatment to reverse opioid overdose. This product was conceived and developed by the Company, licensed to Adapt Pharma Operations Limited (“Adapt”), an Ireland based pharmaceutical company in December 2014 and approved by the U.S. Food and Drug Administration (“FDA”) in November 2015. In October 2018, Emergent BioSolutions, Inc. ("EBS") completed its acquisition of Adapt.

    The Company's current pipeline includes medicines in development for Opioid Overdose Reversal (“OOR”), Alcohol Use Disorder (“AUD”), Opioid Use Disorder (“OUD”), and Acute Cannabinoid Overdose (“ACO”). The Company is also pursuing other treatment opportunities within the addiction and drug overdose field.

    The Company has not had a bankruptcy, receivership or similar proceeding. The Company is required to comply with all regulations, rules and directives of governmental authorities and agencies applicable to the clinical testing and manufacturing and sale of pharmaceutical products.

Note 2. Basis of Presentation and Summary of Significant Accounting Policies 
Basis of Presentation
    The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and the applicable rules and regulations of the SEC for interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. The condensed consolidated balance sheet at December 31, 2020 has been derived from the audited consolidated financial statements at that date, but does not include all disclosures, including notes, required by GAAP for complete financial statements.
    The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments of a normal recurring nature considered necessary to present fairly the Company's financial position as of September 30, 2021 and December 31, 2020, results of operations for the three and nine months ended September 30, 2021 and 2020, and cash flows for the three and nine months ended September 30, 2021 and 2020. The interim results are not necessarily indicative of the results for any future interim period or for the entire year.
    The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Opiant Pharmaceuticals UK Limited, a company incorporated on November 4, 2016 under the England and Wales Companies Act of 2006. Intercompany balances and transactions are eliminated upon consolidation.  
    The accompanying condensed consolidated financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and the related notes thereto for the year ended December 31, 2020 included in the Company's Annual Report on Form 10-K filed with the SEC on March 4, 2021.
Use of Estimates
    The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and reported amounts of expenses in the financial statements and accompanying notes. Actual results could differ from those estimates. Key estimates included in the financial statements include the valuation of: deferred income tax assets, equity instruments, stock-based compensation, acquired intangibles, and allowances for accounts receivable.
Cash and Cash Equivalents
 
    The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents were approximately $35.3 million and $48.3 million at September 30, 2021 and December 31, 2020, respectively. The Company maintains cash balances at financial institutions insured up to $250 thousand by the Federal Deposit Insurance Corporation. Balances in the UK are insured up to £85 thousand by the Financial Services
9


Compensation Scheme (UK Equivalent). Although the Company’s cash balances exceeded these insured amounts at various times during the nine months ended September 30, 2021, the Company has not experienced any losses on its deposits of cash and cash equivalents for the periods presented.

Earnings (Loss) Per Share

Basic and diluted earnings (loss) per share is computed by dividing loss attributable to common stockholders by the weighted average number of shares of Common Stock outstanding during the period.
    Basic earnings (loss) per share is computed by dividing the net income (loss) available to common stockholders by the weighted-average number of shares of Common Stock outstanding during the respective period presented in the Company’s accompanying condensed consolidated financial statements. Fully-diluted earnings (loss) per share is computed similarly to basic income (loss) per share except that the denominator is increased to include the number of Common Stock equivalents (primarily outstanding options and warrants).

(in thousands, except per share data)For the Three Months Ended September 30,For the Nine Months Ended September 30,
Numerator:2021202020212020
Net Income (loss)$3,417 $725 $2,256 $(1,176)
Denominator:
Denominator for basic income (loss)
per share - weighted average shares4,462,236 4,258,105 4,359,759 4,247,045 
Effect of dilutive securities:
Equity incentive plans1,602,808 589,106 1,205,306  
Denominator for diluted income (loss) per share6,065,044 4,847,211 5,565,065 4,247,045 
Income (loss) per share - Basic$0.77 0.17 $0.52 (0.28)
Income (loss) per share - Diluted$0.56 0.15 $0.41 (0.28)


    The Company excluded the following securities from the calculation of basic and diluted net loss per share as the effect would have been antidilutive.
For the Three Months Ended September 30,For the Nine Months Ended September 30,
2021202020212020
Options to purchase common stock295,550 729,692 407,975 3,077,692 
Warrants to purchase common stock 240,000  278,800 
Unvested restricted stock  21,425  
Convertible Debt509,165  509,165  
Total804,715 969,692 938,565 3,356,492 

Foreign Currency Translation

    The functional currency of the Company's wholly-owned subsidiary, Opiant UK is the British Pound, its local currency. Consequently, its assets and liabilities are translated at current rates of exchange at the balance sheet date. Income and expense items are translated at the average foreign currency exchange rates for the period. Adjustments resulting from the translation of the financial statements of Opiant Pharmaceuticals UK Limited (“Opiant UK”), into U.S. dollars, the reporting currency, are excluded from the determination of net loss and are recorded in accumulated other comprehensive loss, a separate component of equity. Gains and losses arising on translation or settlement of foreign currency denominated transactions or balances are included in the determination of income.
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Recently Adopted Accounting Pronouncements
    From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board, ("FASB"), or other standard setting bodies and adopted by us as of the specified effective date. Unless otherwise discussed, the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s financial position or results of operations upon adoption.

    The Company has considered all other recently issued accounting pronouncements and does not believe the adoption of such pronouncements will have a material impact on its consolidated financial statements.
Note 3.     Marketable Securities
The Company invests in debt securities and has the intent and ability to hold until maturity. Therefore, the Company's Securities are classified as held-to-maturity. The Company's debt securities are all U.S. Treasury securities. The investments in debt securities are carried at either amortized cost or fair value. As of September 30, 2021, the Company had a total of $15.0 million of total marketable securities, all invested in U.S. Treasury securities all of which is classified as a short term asset as the maturity is greater than three months, but less than one year. Any debt securities with original maturities of three months or less are classified as cash equivalents.
Note 4.     Accounts Receivable
    As of September 30, 2021 and December 31, 2020, the Company had accounts receivable of $15.4 million and $8.9 million respectively, which primarily relates to royalty revenue from sales of NARCAN®.

Note 5. Prepaid Expenses and Other Current Assets
    As of September 30, 2021, the Company had prepaid expenses and other current assets of approximately $2.1 million. The Company's prepaid expenses are primarily for advance research and development payments, insurance, software licenses, prepaid rent, and other amounts that relate to future periods of service. Other current assets primarily consist of such items as other receivables and security deposits.
Note 6. Leases
    On January 1, 2019, the Company adopted a new accounting standard, Topic 842, that amends the guidance for the accounting and reporting of leases. Leases with terms of 12 months or less are expensed on a straight-line basis over the term and are not recorded in the Company's Condensed Consolidated Balance Sheets.
    The Company has entered into operating leases with terms greater than 12 months during the nine months ended September 30, 2021. In accordance with the guidance of Topic 842, the leases which are classified as operating leases are included in the Company's Condensed Consolidated Balance Sheets. The Company's operating leases do not include options to renew, do not contain residual value guarantees, do not have variable lease components, or impose significant restrictions or covenants.
    Right of use assets, "ROU assets", represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments over the respective lease term, with the ROU asset adjusted for deferred rent liability. The ROU asset is recognized as lease expense on a straight line basis over the lease term. As the implicit rate on the leases is not determinable, the Company uses judgement to estimate the incremental borrowing rate which is used as the discount rate to determine the present value of lease payments. The weighted average discount rate used was 8.8% and the weighted average remaining lease term is 4.45 years.
The ROU asset and corresponding operating lease liability recognized at lease inception during the nine months ended September 30, 2021 was $1.09 million.
    The following table summarizes information related to the Company's operating leases and are included in the Company's Balance Sheet as of September 30, 2021.
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Balance Sheet descriptionsSeptember 30, 2021
Assets:(in thousands)
Right of use assets - operating leases$998 
Liabilities:
Operating leases - current287 
Operating leases - long term716 
Total lease liabilities:$1,003 


The following table summarizes the components of operating lease cost for the three and nine months ended September 30, 2021:
Lease costs, (in thousands)
Three months ended September 30, 2021Nine months ended September 30, 2021
Operating expenses lease costs$112 $412 

    As of September 30, 2021, future minimum operating leases payments related to the Company’s operating lease liabilities were as follows:
(in thousands)
September 30, 2021
2021 (three months remaining)$118 
2022257 
2023236 
2024247 
2025276 
2026115 
Total lease payments1,249 
Less imputed interest(246)
Present value of operating lease liabilities$1,003 
Note 7. Other Non-Current Assets

As of September 30, 2021 and December 31, 2020, the Company had non-current prepaid expenses of zero and approximately $1.1 million, respectively. The Company's non-current prepaid expenses are for advance research and development payments which will be issued for projects that have estimated completion dates of more than one year. As of September 30, 2021 all prepaid research and development expenses is classified as current as the services are expected to be provided prior to September 30, 2022.
Note 8. Revenue
    The Company's primary source of revenue is from royalty and milestone payments received from NARCAN® net sales by EBS. During the three and nine months ended September 30, 2021 the Company recorded revenue of $14.0 million and $27.7 million, respectively, related to its agreement with EBS.

    On September 19, 2018, the Company entered into a contract with the Biomedical Advanced Research and Development Authority (“BARDA”), which is part of the U.S. Health and Human Services Office of the Assistant Secretary for Preparedness and Response, to accelerate the Company’s development of OPTN003, its lead product candidate. OPTN003, nasal nalmefene, is a potent, long-acting opioid antagonist currently in development for the treatment of opioid overdose. The contract will provide potential funding up to a maximum of approximately $8.1 million and cover activities related to a planned new drug application ("NDA") submission for OPTN003 with the FDA. BARDA has awarded approximately $6.5 million of the contract through September 30, 2022, with the balance expected to be funded, subject to satisfactory project progress, availability of funds and certain other conditions. During the three and nine months ended September 30, 2021 the Company recognized revenue of $0.9 million and $3.3 million, respectively related to this contract.
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Deferred revenue
    On April 17, 2018, the Company was awarded a grant of approximately $7.4 million from the National Institutes of Health’s National Institute on Drug Abuse, ("NIDA"). The grant provides the Company with additional resources for the ongoing development of OPNT003. The Company has been awarded the entire $7.4 million through the period ending March 31, 2022. Government grants are agreements that generally provide cost reimbursement for certain types of expenditures in return for research and development activities over a contractually defined period. The Company recognized revenues from grants in the period during which the related costs were incurred, provided that the conditions under which the grants were provided had been met and only perfunctory obligations were outstanding. During the three and nine months ended September 30, 2021, the Company recognized revenue of $1.4 million and $3.0 million, respectively related to this grant.
    The following is a summary of the Company’s deferred revenue activity as of September 30, 2021:
(in thousands)NIDA Grant Total
Balance as of December 31, 2020$355 $355 
Additions to deferred revenue2,187 2,187 
Recognized as revenue(2,542)(2,542)
Balance as of September 30, 2021$ $ 


Note 9. Royalty Payable

    The Company entered into various agreements and subsequently received funding from investors for use by the Company for the research and development of NARCAN®. In exchange for this funding, the Company agreed to provide investors with interest in the net profit generated from NARCAN® sales by EBS into perpetuity. As of September 30, 2021 and December 31, 2020, the Company recorded a royalty payable of $3.1 million and $1.9 million, respectively.
Note 10. Long Term Debt
As of September 30, 2021 and December 31, 2020 the Company had long term debt of $18.9 million and $18.7 million, respectively. There have been no changes to the maturity or other conditions of the debt for the nine months ended September 30, 2021.
Note 11. Stockholders' Equity
 
Common Stock
 
    During the nine months ended September 30, 2021, the Company issued 340,214 shares of Common Stock as a result of stock option exercises, and received net cash proceeds of approximately $2.2 million.
        
Stock Options
 
    On September 8, 2017, the Company held its Annual Meeting of Stockholders (the “Annual Meeting”), at which time the 2017 Long-Term Incentive Plan ("2017 Plan") was approved by stockholder vote. The 2017 Plan allows the Company to grant both incentive stock options (“ISOs”) and non-qualified stock options (“NSOs”) to purchase a maximum of 400,000 shares of the Company's Common Stock. Under the terms of the 2017 Plan, ISOs may only be granted to Company employees and directors, while NSOs may be granted to employees, directors, advisors, and consultants. The Company's Board of Directors (the "Board") has the authority to determine to whom options will be granted, the number of options, the term, and the exercise price. Options are to be granted at an exercise price not less than fair value for an ISO or an NSO. The vesting period is normally over a period of four years, but can also be one year, from the grant date. The contractual term of an option is no longer than 10 years. The 2017 Plan also allows the Company to issue restricted stock units.

    As provided in the 2017 Plan, on January 1, 2021 the number of shares available for issuance was increased by 4% of the outstanding stock as of December 31, 2020, which represents an increase of 170,324 shares. As of September 30, 2021, the Company had 101,857 shares available for future issuance under the 2017 Plan.

13


    Prior to adopting the 2017 Plan, the Company did not have a formal long-term incentive stock plan. Prior to the implementation of the 2017 Plan, the Company had discretion to provide designated employees of the Company and its affiliates, certain consultants, and advisors who perform services for the Company and its affiliates, and non-employee members of the Board and its affiliates with the opportunity to receive grants of non-qualified stock options (the "Pre-2017 Non-Qualified Stock Options"). All of the Pre-2017 Non-Qualified Stock Option Grants were intended to qualify as non-qualified stock options. There were no Pre-2017 Non-Qualified Stock Option Grants that were intended to qualify as incentive stock options.

Pre-2017 Non-Qualified Stock Options

    As of December 31, 2020, the Company had outstanding Pre-2017 Non-Qualified Stock Options to purchase, in the aggregate, 2,465,500 shares of the Company's Common Stock. During the nine months ended September 30, 2021, the Company did not grant any Pre-2017 Non-Qualified Stock Options.

    Stock option activity for the Pre-2017 Non-Qualified Stock Options for the nine months ended September 30, 2021 is presented in the table below:
 Number of SharesWeighted- average Exercise PriceWeighted- average Remaining Contractual Term (years)Aggregate Intrinsic Value
Outstanding at December 31, 20202,465,500 $6.99 4.09$2,773,190 
Exercised(337,693)5.85   
Forfeited(23,332)10.00 
Outstanding at September 30, 20212,104,475 $7.08 3.59$39,269,107 

A summary of the status of the Company’s non-vested Pre-2017 Non-Qualified Stock Options as of September 30, 2021 is presented below:
Number of OptionsWeighted Average Grant Date Fair Value
Vested at September 30, 20212,092,809 $7.06 
Non-vested at September 30, 202111,666 $10.00 

During the nine months ended September 30, 2021 and 2020, the Company recognized zero and $1 thousand, respectively, of non-cash expense related to Pre-2017 Non-Qualified Stock Options granted in prior periods. As of September 30, 2021, there was no further compensation expense to be recognized for the Pre-2017 Non-Qualified Stock Options.

The 2017 Plan

    During the nine months ended September 30, 2021, the Company granted options to a number of employees to purchase 159,585 shares of the Company’s Common Stock at exercise prices from $8.20 to $16.41 per share, which represents the closing price of the Company’s Common Stock on the date of the grants. These options were issued under the Company’s 2017 Plan and have ten-year terms. Option grants to existing employees vest as follows: 1/48th of the option shares vest each month through the fourth anniversary of the grant date. Option grants to new employees vest as follows: 25% of the option shares vest on the one year anniversary of the grant date, and then 1/48th of the option shares vest on such date each month thereafter through the fourth anniversary of the grant date. The Company valued these options using the Black-Scholes option pricing model and estimated the aggregate fair value of the option grants to be $1.4 million.

The assumptions used in the valuation of options granted under the 2017 Plan during the nine months ended September 30, 2021 were as follows:
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For the Nine Months Ended September 30, 2021
Market value of stock on measurement date
$8.2 to $16.41
Risk-free interest rate
0.5% to 1.11%
Dividend yield 
Volatility factor
75.92% to 88.79%
Term
5.50 to 6.25 years

Stock option activity for options granted under the 2017 Plan during the nine months ended September 30, 2021 is presented in the table below:
Number of Options OutstandingWeighted-average Exercise PriceWeighted-average Remaining Contractual Term (years)Aggregate Intrinsic Value
Balance at December 31, 2020611,760 $21.39 7.85$ 
Granted159,585 $12.11 
Exercised(2,521)$9.03 
Forfeited(6,044)$11.38 
Balance at September 30, 2021762,780 $19.53 7.57$6,307,064 

A summary of the status of the Company’s vested and non-vested options granted under the 2017 Plan as of September 30, 2021 is presented in the following table:
Number of SharesWeighted Average Grant Date Fair Value Per Share
Vested at September 30, 2021481,750 22.31 
Non-vested at September 30, 2021281,030 $10.29 
    
During the nine months ended September 30, 2021 and 2020, the Company recognized approximately $1.4 million and $1.6 million, respectively of non-cash expense related to options granted under the 2017 Plan. As of September 30, 2021, there was approximately $1.3 million of unrecognized compensation costs related to non-vested stock options that were granted under the 2017 Plan.

Restricted Stock Activity

    The following summarizes the restricted stock activity under the Company's 2017 Plan during the nine months ended September 30, 2021:
Number of SharesWeighted Average Fair Value Per Share
Restricted stock outstanding and unvested at December 31, 202049,600 $12.00 
Restricted stock granted76,268 $12.47 
Restricted stock vested(19,902)$10.79 
Restricted stock outstanding and unvested at September 30, 2021105,966 $12.57 

    
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    Twenty-five percent (25%) of the restricted stock units will vest on the one year anniversary of the vesting commencement date, and twenty-five percent (25%) will vest annually thereafter on the same day as the vesting commencement date. During the nine months ended September 30, 2021, the Company recognized approximately $563 thousand of non-cash expense related to restricted stock units. As of September 30, 2021, there was $0.7 million of total unrecognized compensation cost related to restricted stock units.

Inducement Equity Incentive Plan

On July 8, 2021, the Board of Directors of the Company adopted the 2021 Inducement Equity Incentive Plan (the “Inducement Plan”) and, subject to the adjustment provisions of the Inducement Plan, reserved 100,000 shares of the Company’s common stock for issuance pursuant to equity awards granted under the Inducement Plan.

During July 2021 the Company issued options to purchase 56,500 shares of common stock, and restricted stock units for 18,200 shares of common stock under the Inducement Plan.

The assumptions used in the valuation of options granted under the Inducement Plan during the nine months ended September 30, 2021 were as follows:
For the Nine Months Ended September 30, 2021
Market value of stock on measurement date$16.41 
Risk-free interest rate0.84 %
Dividend yield 
Volatility factor76.26 %
Term6.25 years

Stock option activity for options granted under the Inducement Plan during the nine months ended September 30, 2021 is presented in the table below:
Number of Options OutstandingWeighted-average Exercise PriceWeighted-average Remaining Contractual Term (years)Aggregate Intrinsic Value
Balance at December 31, 2020 
Granted56,500 $16.41 
Exercised 
Forfeited 
Balance at September 30, 202156,500 $16.41 9.8$527,145 

During the three months ended September 30, 2021, the Company recognized approximately $91 thousand of non-cash expense related to options granted under the Inducement Plan. As of September 30, 2021, there was approximately $0.5 million of total unrecognized compensation cost related to the non-vested stock options that were granted under the 2021 Inducement Equity Incentive Plan.

The following summarizes the restricted stock activity under the Inducement Plan during the nine months ended September 30, 2021:
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Number of SharesWeighted Average Fair Value Per Share
Restricted stock outstanding and unvested at December 31, 2020 
Restricted stock granted18,200 $16.41 
Restricted stock vested
Restricted stock outstanding and unvested at September 30, 202118,200 $16.41 

During the three months ended September 30, 2021, the Company recognized approximately $39 thousand of non-cash expense related to restricted stock units. As of September 30, 2021, there was approximately $260 thousand of total unrecognized compensation cost related to restricted stock units.
    
Warrants
 
During the nine months ended September 30, 2021, the Company did not issue any warrants.

Warrant activity for the nine months ended September 30, 2021 is presented in the table below:
 Number of SharesWeighted- average Exercise PriceWeighted- average Remaining Contractual Term (years)Aggregate Intrinsic Value
Outstanding at December 31, 2020278,800 $9.72 3.51$1,164,000 
Exercised $   
Forfeited $ 
Outstanding at September 30, 2021278,800 $9.72 2.76$4,465,912 
Exercisable at September 30, 2021278,800 $9.72 2.76$4,465,912 

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Note 12. Commitments and Contingencies

Commitments
    The Company has entered into various agreements related to its business activities. The following is a summary of the Company’s commitments:
Aptar Agreement
On October 26, 2020, the Company entered into a Master Services Agreement (“MSA”) with AptarGroup, Inc. (“Aptar”) to provide non-exclusive technology access and co-development services for the development and submission of an opioid antagonist for the treatment of opioid overdose using Aptar’s nasal Unidose device (the “UDS Device”). In addition to the cost of the UDS Devices, the Company expects to spend up to approximately $5.2 million over the course of the development program.
Summit Agreement

On July 22, 2020, the Company the Company entered into a Project Scope Agreement ("PSA") pursuant to a Master Services Agreement ("MSA") with Summit Biosciences, Inc. ("Summit"), to support the development and manufacture of a nasal spray device for opioid overdose, with the ability to expand to additional programs in the future. In accordance with the PSA, Summit will develop and produce certain pre-filled nasal spray products using a device previously evaluated as part of other FDA-approved nasal spray products. The Company will pay Summit estimated costs and fees up to approximately $7.5 million of which a deposit of approximately $1.1 million was paid as of September 30, 2021, which is included in current assets in the condensed consolidated balance sheet.

Torreya Agreement

    The Company entered into a consulting agreement with Torreya Partners LLP ("Torreya"), a financial advisory firm, under which Torreya agreed to provide certain financial advisory services. The Company is required to pay fees equivalent to 3.375% of all amounts received by the Company from net sales of NARCAN® into perpetuity.

During the nine months ended September 30, 2021 and 2020, the Company recorded $935 thousand and $643 thousand, respectively of expense related to the agreement with Torreya.
Exclusive License and Collaboration Agreement

    On November 19, 2015, the Company entered into an exclusive license agreement and collaboration agreement (“LOI”) with a pharmaceutical company with certain desirable proprietary information. Pursuant to the agreement, the Company is obligated to issue shares of unregistered Common Stock upon the occurrence of various milestones. No shares were required to be issued under this agreement during the nine months ended September 30, 2021 and 2020.
Supply Agreement

    On June 22, 2017, the Company entered into a license agreement (the "License Agreement") and a related supply agreement (the “Supply Agreement”) with Aegis Therapeutics LLC, acquired by Neurelis, Inc. in 2018, (the combined entity hereafter, "Neurelis", pursuant to which the Company was granted an exclusive license (the “License”) to Neurelis’ proprietary chemically synthesizable delivery enhancement and stabilization agents, including, but not limited to, Neurelis’ Intravail® absorption enhancement agents, ProTek® and HydroGel® (collectively, the “Technology”) to exploit (a) the Compounds (as such are defined in the License Agreement) and (b) a product containing a Compound and formulated using the Technology (“Product”), in each case of (a) and (b) for any and all purposes. The License Agreement restricts the Company's ability to manufacture any Aegis excipients included in the Technology (“Excipients”), except for certain instances of supply failure, supply shortage or termination of the Supply Agreement, and the Company shall obtain all supply of such Excipients from Neurelis under the Supply Agreement. The License Agreement also restricts Neurelis’s ability to compete with the Company worldwide with respect to the Exploitation (as defined in the License Agreement) of any therapeutic containing a Compound or derivative or active metabolite of a Compound without the Company's prior written consent. The effective date of the License Agreement and the Supply Agreement is January 1, 2017.

    As consideration for the grant of the License, the Company paid Neurelis two immaterial upfront payments, of which the Company paid 50% by issuing the Company's Common Stock to Neurelis with the number of shares issued equal to 75% of the average closing price of the Company's Common Stock over the 20 trading days preceding the date of payment. The License Agreement also provides for (A) additional developmental milestone payments for each Product containing a different
18


Compound equal to up to an aggregate of $1.8 million, (B) additional commercialization milestone payments for each Product containing a different Compound equal to up to an aggregate of $5.0 million, and (C) single low digit royalties on the Annual Net Sales (as defined in the License Agreement) of all Products during the Royalty Term (as defined in the License Agreement) according to a tiered royalty rate based on Annual Net Sales of the Products by the Company, the Company's sublicensees and affiliates. The Company shall also pay to Neurelis a sublicense fee based on a sublicense rate negotiated in good faith by the parties. The License Agreement contains customary representations and warranties, ownership, patent rights, confidentiality, indemnification and insurance provisions. The License Agreement shall expire upon the expiration of the Company's obligation to pay royalties under such License Agreement; provided, however, that the Company shall have the right to terminate the License granted on a Product-by-Product or country-by-country basis upon 30 days’ prior written notice to Neurelis.

    Under the terms of the Supply Agreement, Neurelis shall deliver to the Company any preclinical, clinical and commercial supply of the Excipients, which Aegis sources from various contract manufacturers. The Supply Agreement has a term of 20 years but shall terminate automatically in the event of expiration or termination of the License Agreement or at any time upon the written agreement of both parties. The Supply Agreement contains customary provisions relating to pricing for such materials, forecasts, delivery, inspection, indemnification, insurance and representations, warranties and covenants. The Supply Agreement includes technology transfer provisions for the transfer of all materials and know-how specific to the manufacturing of the Excipients that is necessary or useful for the Company to manufacture such Excipients. The Company does not have the right to manufacture such Excipients except in the event that Neurelis is unable to supply and sell any portion of the material to the Company (subject to a 60-day cure period).

    Under the License Agreement, the Company will be required to pay Neurelis $250 thousand upon the successful NDA filing.

    For the nine months ended September 30, 2021, and 2020 the Company did not have any expenses associated with the License Agreement.

Contingencies

    The Company may be subject to various legal proceedings and claims that arise in the ordinary course of business. The Company records a liability when it is probable that a loss will be incurred and the amount is reasonably estimable. There is significant judgment required in both the probability determination and as to whether an exposure can be reasonably estimated. If any legal matter, were resolved against the Company in a reporting period for amounts in excess of management’s expectations, the Company’s would reflect any potential claim in the consolidated financial statements for that reporting period.

    The Company and Emergent BioSolutions Inc., through its Adapt Pharma subsidiaries (collectively, “Plaintiffs”), filed complaints, in 2016 against Teva Pharmaceuticals Industries Ltd. (“Teva”), and in 2018 against Perrigo UK FINCO Limited Partnership (“Perrigo”), relating to Teva’s and Perrigo’s respective abbreviated new drug applications (each, an “ANDA”) seeking to market generic versions of NARCAN® (naloxone hydrochloride) Nasal Spray 4mg/spray.

    On February 12, 2020, Plaintiffs and Perrigo entered into a settlement agreement to resolve the ongoing litigation. Under the terms of the settlement, Perrigo has received a non-exclusive license under the Company's patents licensed to Adapt to make, have made and market its generic naloxone hydrochloride nasal spray under its own ANDA. Perrigo’s license will be effective as of January 5, 2033 or earlier under certain circumstances including circumstances related to the outcome of the current litigation against Teva or litigation against future ANDA filers. The Perrigo settlement agreement is subject to review by the U.S. Department of Justice and the Federal Trade Commission, and entry of an order dismissing the litigation by the U.S. District Court for the District of New Jersey.

    Closing arguments in the Teva trial were held on February 26, 2020. Plaintiffs also filed a complaint related to Teva’s ANDA seeking to market a generic version of NARCAN® (naloxone hydrochloride) Nasal Spray 2mg/spray.

    On June 5, 2020, the U.S. District Court for the District of New Jersey entered a decision in the patent litigation regarding NARCAN® (naloxone HCl) Nasal Spray 4mg/spray product. The Court ruled in favor of Teva. The Company's commercial partner Emergent BioSolutions, Inc., has appealed the decision to the Court of Appeals for the Federal Circuit. On August 2, 2021, a panel consisting of three appeals-court judges held a hearing on EBS’s appeal of the New Jersey District Court’s decision. A decision by the Court of Appeals is expected in the fourth quarter of 2021 or early 2022.


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Note 13. Subsequent Events

During October 2021, 17,064 shares of common stock subject to outstanding options were exercised, and the Company received net cash proceeds of approximately $95,000.

During October 2021, the Company issued options to purchase 3,700 shares of common stock under the 2017 Plan.

During October 2021, Pontifax Medisen Finance ("Pontifax") voluntarily converted approximately $1.7 million of the outstanding $10.0 million convertible debt held by Pontifax into a total of 85,000 shares of common stock at a conversion rate of $19.64 per share.




        
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation
    The interim consolidated financial statements included in this Quarterly Report on Form 10-Q (this "Report") and this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the financial statements and notes thereto in this Report, and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained in the Company’s Form 10-K for the year ended December 31, 2020 (the "Form 10-K"). In addition to historical information, this discussion and analysis contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements are subject to risks and uncertainties, including those set forth in Part II - Other Information, Item 1A and in the Form 10-K. Risk Factors below and elsewhere in this Report could cause actual results to differ materially from historical results or anticipated results. 
Overview
    We are a specialty pharmaceutical company developing medicines for addiction and drug overdose. We developed NARCAN® (naloxone hydrochloride) Nasal Spray ("NARCAN®"), a treatment to reverse opioid overdose. This product was conceived and developed by us, licensed to Adapt Pharma Operations Limited (“Adapt”), an Ireland based pharmaceutical company in December 2014 and approved by the U.S. Food and Drug Administration (“FDA”) in November 2015. In October 2018, Emergent BioSolutions, Inc. (“EBS”) completed its acquisition of Adapt.
    We have not consistently attained profitable operations and have historically depended upon obtaining sufficient financing to fund our operations. We anticipate if revenues are not sufficient, then additional funding will be required in the form of debt financing and/or equity financing from the sale of our Common Stock, and/or financings from the sale of interests in our prospective products and/or royalty transactions. However, we may not be able to generate sufficient revenues or raise sufficient funding to fund our operations.
    We have not had a bankruptcy, receivership or similar proceeding. We are required to comply with all regulations, rules and directives of governmental authorities and agencies applicable to the clinical testing and manufacturing and sale of pharmaceutical products.
Plan of Operation
    During the fiscal year ending December 31, 2021, we plan to continue to focus on developing medicines in our product pipeline for Opioid Overdose Reversal (“OOR”), Alcohol Use Disorder (“AUD”), Opioid Use Disorder (“OUD”), and Acute Cannabinoid Overdose (“ACO”). Our lead development product is OPNT003 - Nasal Nalmefene for OOR, which is further described below.
OPNT003 - Nasal Nalmefene for OOR
 
Development Program for OPNT003
              In 2017, National Institute of Health leadership called for the development of stronger, longer-acting formulations of antagonists to counteract the very high potency synthetic opioids that are now claiming thousands of lives each year. We are pursuing a 505(b)(2) development path for OPNT003, with the potential to submit a NDA with the FDA for the drug and intranasal delivery device combination in the first quarter of 2022. Nalmefene for injection was previously approved by the FDA for treating suspected or confirmed opioid overdose. The 505(b)(2) pathway allows companies to rely in part on the FDA’s findings of safety and efficacy for a previously approved product and to supplement these findings with a more limited set of their own studies to satisfy FDA requirements, as opposed to conducting the full array of preclinical and clinical studies that would typically be required. We have reached agreement with the FDA to perform a pharmacodynamic ("PD") study in healthy volunteers to support our OPNT003 NDA application.
In February 2021, the first patients were dosed in a confirmatory pharmacokinetic (“PK”) study for OPNT003, nasal nalmefene, for the treatment of opioid overdose. In July 2021, we announced positive top-line results from the study. The study was conducted in 68 healthy subjects and compared OPNT003, nasal nalmefene, with an intramuscular nalmefene hydrochloride injection, 1 mg, which was the comparator previously agreed upon with the FDA. According to an initial analysis, the top-line data demonstrated that nasal nalmefene achieved significantly higher plasma concentrations compared to an intramuscular injection (p<0.0001). The time for nasal nalmefene to achieve maximum plasma concentrations (Tmax) was consistent with data from the previously completed pilot study (approximately 15 minutes). The maximum plasma
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concentration (Cmax) was higher than observed in the pilot study, and the plasma half-life of nasal nalmefene (approximately 11 hours) was consistent with reported values following other routes (oral and parenteral) of administration.
                In April 2021, first subjects were dosed in a head-to-head clinical PD study comparing the effectiveness of OPNT003, nasal nalmefene, with nasal naloxone.

In November 2021, we received Fast Track Designation from the FDA for OPNT003, nasal nalmefene. Fast Track is an FDA process designed to facilitate the development and expedite review of potential therapies that seek to treat serious conditions and fill an unmet medical need. This designation enables early and frequent communication with the FDA, in addition to the potential for a rolling submission of an NDA application.
Market and Commercial potential for OPNT003
                There is a large and growing addressable market for opioid overdose reversal agents driven by sales into community based and first responder institutions, as well as directly to patients via pharmacies. The current addressable market is substantial, to ensure an opioid overdose reversal agent is available for all first responders, including fire departments, emergency medical services, federal law enforcement, local law enforcement, and other community groups. The co-prescribing of opioid overdose reversal agents alongside prescription opioids has also driven growth. It is estimated that only five percent of patients at higher risk of an opioid overdose have a naloxone prescription. Currently there are only thirteen states that have some form of mandatory co-prescription legislation in place, however several states are considering co-prescribing legislation in the near future. 
                We have full commercial rights to OPNT003, and we were awarded a grant of approximately $7.4 million from the National Institutes of Health (“NIH”). The grant provides us with additional resources for the ongoing development of OPNT003. We have been awarded the entire $7.4 million. We have also received a contract for approximately $4.6 million from the Biological Advance Research and Development Agency (“BARDA”) to fund development of this project through NDA submission. In December of 2020, BARDA provided an additional commitment of up to $3.5 million. The contract modification increases the total potential value of the BARDA contract to $8.1 million. BARDA has awarded approximately $6.5 million of the contract through September 30, 2022, with the balance expected to be funded, subject to satisfactory project progress, availability of funds and certain other conditions.
                As we continue to advance OPNT003 towards market approval and should we self-commercialize the product, we anticipate that our sales and marketing expenses will increase in several areas to support the development of a commercial platform that would allow us to commercialize OPNT003, as well as future pipeline products. The development of this commercial infrastructure includes increasing commercial personnel, pre-launch sales and marketing planning activities, establishing the supply chain and distribution. As we build this infrastructure, we are continuing to evaluate the ideal go-to-market strategy that will allow us to maximize the full commercial potential of OPNT003 and shareholder value. In July 2021, we hired a new Chief Commercial Officer to build and lead the commercial organization.
Debt Financing

On December 10, 2020 (the “Closing Date”), we entered into a Note Purchase and Security Agreement (the “Loan Agreement”) with a syndicate of Pontifax Medison Finance, a healthcare-dedicated venture and debt fund, and Kreos Capital VI (Expert Fund) LP (each a “Lender”).

The Loan Agreement provides for term loans in an aggregate principal amount of up to $50.0 million in three tranches as follows: (a) on the Closing Date, a loan in the aggregate principal amount of $20.0 million, (b) upon the submission of a new drug application ("NDA") with the FDA, a loan in the aggregate principal amount of $10.0 million, and (c) upon FDA approval of an opioid overdose product, a loan in the aggregate principal amount of $20.0 million (each a “Loan, and collectively, the “Loans”).

The outstanding principal of each term Loan bears an average interest rate of 8.75% per annum based on the date of issuance and a year consisting of 365 days. There is an interest-only period of 30 months, with interest on outstanding Loans payable on a quarterly basis based on the principal amount outstanding during the preceding quarter. After the interest-only period, principal of the outstanding Loans is payable in ten equal quarterly installments. All Loans have a maturity date of October 1, 2025.

Each Lender may, at its option, elect to convert up to half of the then-outstanding Loans and all accrued and unpaid interest thereon into shares our Common Stock. The Conversion Price shall be $19.64 per share subject to certain customary adjustments as specified in the Loan Agreement.
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Our obligations are secured by a security interest, senior to any current and future debts and to any security interest, in all of Company’s right, title, and interest in, to and under all of our property and other assets, other than its NARCAN® Nasal Spray licensed intellectual property and other limited exceptions specified in the Loan Agreement.

The Loan Agreement contains customary representations, warranties and covenants, including covenants by us limiting additional indebtedness, liens, including on intellectual property, guaranties, mergers and consolidations, substantial asset sales, investments and loans, certain corporate changes, transactions with affiliates and fundamental changes. The Loan Agreement provides for events of default customary for term loans of this type, including but not limited to non-payment, breaches or defaults in the performance of covenants, insolvency, bankruptcy and the occurrence of a material adverse effect on the Company.

On December 10, 2020, we received the first tranche of $20 million.

Impact of COVID-19 on our Business
    The spread of the SARS-CoV-2 virus ("COVID-19") since the fourth quarter of 2019 has caused an economic downturn on a global scale, as well as significant volatility in the financial markets.
                Due to stay at home orders both in the United States and United Kingdom, we have instituted a work-from-home plan for our employees. We have ensured that all employees have essential resources to work from home.
                We have not experienced a significant financial impact directly related to the COVID-19 pandemic. As of September 30, 2021, we have cash, cash equivalents, and marketable securities of $50.4 million. We believe that we have sufficient capital resources to sustain operations through at least the next 12 months from the date of the filing of this Report. As a result of this financial position, we have not required any financial assistance under the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act or other similar COVID-19 related federal and state programs or United Kingdom financial assistant programs. We have no plans to furlough any employees at this time.
                We have not experienced a significant operational impact on OPNT003 or OPNT004 programs as a result of the COVID-19 pandemic, although we cannot rule out future delays. We executed the cooperative research and development agreement (“CRADA”) with the National Institute of Health’s National Center for Advancing Translational Sciences (“NCATS”) and will collaborate to formulate OPNT004 for human studies.
                However, we decided in April 2020 to pause the start of recruitment for our OPNT002 planned Phase 2 study. Our decision follows the COVID-19 related state of emergency declarations in the United Kingdom and across Europe where our study was to take place. We have adequate cash allocated to fund the cost of our Phase 2 study in OPNT002 and will continue to monitor the situation closely.

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Results of Operations

The following table sets forth the results of operations for the periods shown (in thousands):
For the Three Months Ended September 30,For the Nine Months Ended September 30,
 20212020Increase (Decrease)20212020Increase (Decrease)
Revenues
Royalty revenue$14,041 $8,601 $5,440 $27,689 $19,057 $8,632 
Grant and contract revenue2,298 505 1,793 6,296 644 5,652 
Total revenue16,339 9,106 7,233 33,985 19,701 14,284 
Operating expenses      
General and administrative 3,379 2,729 650 8,759 8,138 621 
Research and development 4,881 2,784 2,097 12,119 4,763 7,356 
Sales and marketing1,060 914 146 3,080 3,738 (658)
Royalty expense 3,059 1,952 1,107 6,145 4,289 1,856 
Total operating expenses 12,379 8,379 4,000 30,103 20,928 9,175 
Income (loss) from operations 3,960 727 3,233 3,882 (1,227)5,109 
Other income (expense)   
Interest income(1)10 92 (82)
Interest expense(546)— (546)(1,626)— (1,626)
Gain (loss) on foreign exchange— (6)(10)(2)(8)
Total other income (expense)(543)(2)(541)(1,626)90 (1,716)
Income (loss) before income taxes3,417 725 2,692 2,256 (1,137)3,393 
Income tax (expense)— — — — (39)39 
Net income (loss)$3,417 $725 $2,692 $2,256 $(1,176)$3,432 


Comparison of Three Months ended September 30, 2021 to the Three Months ended September 30, 2020
Revenues 
We recognized $16.3 million of revenue during the three months ended September 30, 2021, compared to $9.1 million for the three months ended September 30, 2020.  For the three months ended September 30, 2021, we recognized approximately $14.0 million of revenue from our license agreement with EBS, and $2.3 million from grant and contract revenue. For the three months ended September 30, 2020, we recognized $8.6 million of revenue from our license agreement with EBS and $0.5 million from grant and contract revenue. The $5.4 million increase in revenue from our license agreement with EBS was primarily due to a $44.5 million increase in net NARCAN® sales in the three months ended September 30, 2021 compared to the three months ended September 30, 2020. The $1.8 million increase in grant and contract revenue was primarily due to the funding received from NIH and BARDA for the development of OPNT003.
General and Administrative Expenses  
Our general and administrative expenses increased by $0.6 million to $3.4 million from $2.8 million for the three months ended September 30, 2021 compared to the three months ended September 30, 2020, primarily due to an increase in legal, professional and other fees of $0.6 million.
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Research and Development Expenses