APRICUS BIOSCIENCES, INC. (Form: 10-Q, Received: 11/05/2015 17:34:54)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)



ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2015



o	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 0-22245

APRICUS BIOSCIENCES, INC.

(Exact Name of Registrant as Specified in Its Charter)




Nevada		87-0449967
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

11975 El Camino Real, Suite 300, San Diego, CA 92130

(Address of Principal Executive Offices) (Zip Code)

(858) 222-8041

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:




Title of Each Class		Name of Exchange on Which Registered
Common Stock, par value $.001		The NASDAQ Capital Market

Securities registered pursuant to Section 12(g) of the Act:

None

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 ý 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 ý 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 (check one):



Large accelerated filer	o		Accelerated filer	ý
Non-accelerated filer	o	(do not check if a smaller reporting company)	Smaller Reporting Company	o

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

As of October 30, 2015 , 50,414,481 shares of the common stock, par value $.001, of the registrant were outstanding.

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		Page
	PART I.

ITEM 1.	FINANCIAL STATEMENTS (UNAUDITED)	4

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	18

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	25

ITEM 4.	CONTROLS AND PROCEDURES	25

	PART II.

ITEM 1.	LEGAL PROCEEDINGS	25

ITEM 1A.	RISK FACTORS	25

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	38

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	38

ITEM 4.	MINE SAFETY DISCLOSURES	38
ITEM 5.	OTHER INFORMATION	38

ITEM 6.	EXHIBITS	39

SIGNATURES

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Apricus Biosciences, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)



	September 30, 2015			December 31, 2014
	(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	5,809		$	11,400
Accounts receivable	575			678
Restricted cash	280			290
Inventories	142			275
Prepaid expenses and other current assets	1,359			646
Total current assets	8,165			13,289
Property and equipment, net	1,294			1,358
Other long term assets	141			162
Total assets	$	9,600		$	14,809

Liabilities and stockholders’ equity
Current liabilities
Notes payable, net	$	2,683		$	153
Accounts payable	417			860
Accrued expenses	2,869			4,555
Accrued compensation	879			1,112
Deferred revenue	7			226
Total current liabilities	6,855			6,906
Notes payable, net	7,193			4,626
Warrant liability	3,273			—
Deferred revenue	—			1,000
Other long term liabilities	190			358
Total liabilities	17,511			12,890

Commitments and contingencies
Stockholders’ (deficit) equity
Preferred stock, $.001 par value, 10,000,000 shares authorized, no shares issued or outstanding as of September 30, 2015 and December 31, 2014	—			—
Common stock, $.001 par value, 150,000,000 shares authorized, 50,414,481 and 44,330,006 issued and outstanding as of September 30, 2015 and December 31, 2014, respectively	50			44
Additional paid-in-capital	298,582			291,727
Accumulated deficit	(306,543		)	(289,852		)
Total stockholders’ (deficit) equity	(7,911		)	1,919
Total liabilities and stockholders’ (deficit) equity	$	9,600		$	14,809

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

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Apricus Biosciences, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations (Unaudited)

(In thousands, except per share data)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
License fee revenue	$	1,000		$	1,500		$	1,350		$	6,954
Royalty revenue	188			—			351			—
Product sales	85			398			509			398
Total revenue	1,273			1,898			2,210			7,352
Cost of product sales	142			485			884			560
Gross profit	1,131			1,413			1,326			6,792
Operating expense (income)
Research and development	4,611			1,876			10,986			5,423
General and administrative	2,412			2,719			8,177			8,655
Gain on contract settlement	—			—			—			(910		)
Recovery on sale of subsidiary	—			—			—			(50		)
Deconsolidation of former French Subsidiaries	—			—			—			(846		)
Total operating expense	7,023			4,595			19,163			12,272
Loss from continuing operations before other income (expense)	(5,892		)	(3,182		)	(17,837		)	(5,480		)
Other income (expense)
Interest expense, net	(254		)	(44		)	(557		)	(220		)
Other income, net	1,112			94			1,703			511
Total other income	858			50			1,146			291
Loss from continuing operations	(5,034		)	(3,132		)	(16,691		)	(5,189		)
Income from discontinued operations	—			19			—			691
Net loss	$	(5,034	)	$	(3,113	)	$	(16,691	)	$	(4,498	)

Basic and diluted income (loss) per common share
Loss per share from continuing operations	$	(0.10	)	$	(0.08	)	$	(0.34	)	$	(0.14	)
Income per share from discontinued operations	$	—		$	—		$	—		$	0.02
Net loss per share	$	(0.10	)	$	(0.08	)	$	(0.34	)	$	(0.12	)
Weighted average common shares outstanding	50,414			39,059			49,497			38,282

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

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Apricus Biosciences, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)



	For the Nine Months Ended September 30,
	2015			2014
Cash flows from operating activities:
Net loss	$	(16,691	)	$	(4,498	)
Gain from discontinued operations	—			691
Net loss from continuing operations	(16,691		)	(5,189		)
Adjustments to reconcile net loss to net cash used in operating activities from continuing operations:
Depreciation and amortization	224			102
Non-cash interest expense	174			128
Stock-based compensation expense	912			1,456
Warrant liability revaluation	(1,804		)	—
Loss on disposal of fixed assets	56			—
Deconsolidation of former French Subsidiaries	—			(846		)
Gain on contract settlement	—			(910		)
Recovery on loss on sale of subsidiary	—			(50		)
Derivative liability revaluation	—			(517		)
Other	35			—
Changes in operating assets and liabilities from continuing operations:
Accounts receivable	103			(770		)
Inventories	133			15
Prepaid expenses and other current assets	(718		)	(598		)
Other assets	(12		)	(15		)
Accounts payable	(443		)	295
Deconsolidation of Former French Subsidiaries	—			(2,000		)
Accrued expenses	(1,686		)	(239		)
Accrued compensation	(233		)	(99		)
Deferred revenue	(1,219		)	484
Other liabilities	(163		)	(160		)
Net cash used in operating activities from continuing operations	(21,332		)	(8,913		)
Cash flows from investing activities from continuing operations:
Purchase of fixed assets, net	(216		)	(500		)
Proceeds from sale of subsidiary	—			50
Net cash used in investing activities from continuing operations	(216		)	(450		)
Cash flows from financing activities from continuing operations:
Issuance of common stock and warrants, net of offering costs	10,869			5,018
Proceeds from issuance of notes payable	5,000			—
Proceeds from the exercise of stock options	83			—
Release (deposit) of restricted cash	10			(50		)
Repayment of capital lease obligations	(5		)	(25		)
Repayment of principal on note payable	—			(1,525		)
Retirement of restricted stock	—			(42		)
Net cash provided by financing activities from continuing operations	15,957			3,376
Cash flows from discontinued operations:

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Net cash provided by operating activities of discontinued operations	—			16
Net cash provided by investing activities of discontinued operations	—			675
Net cash provided by discontinued operations	—			691
Net decrease in cash and cash equivalents	(5,591		)	(5,296		)
Cash and cash equivalents, beginning of period	11,400			21,405
Cash and cash equivalents, end of period	$	5,809		$	16,109

Non-cash investing and financing activities from continuing operations:
Issuance of 152,440 common warrants to debtholders	$	75		$	—

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

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Apricus Biosciences, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

1. BASIS OF PRESENTATION

Financial Statement Presentation

The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto as of and for the year ended December 31, 2014 included in the Apricus Biosciences, Inc. and subsidiaries (the “Company”) Annual Report on Form 10-K (“Annual Report”) filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 16, 2015. The accompanying financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. In the opinion of management, the accompanying condensed consolidated financial statements for the periods presented reflect all adjustments, consisting of only normal, recurring adjustments, necessary to fairly state the Company’s financial position, results of operations and cash flows. Certain prior year items in the statement of cash flows have been reclassified to conform to the current year presentation. The condensed consolidated balance sheet was derived from audited financial statements, but does not include all GAAP disclosures. The unaudited condensed consolidated financial statements for the interim periods are not necessarily indicative of results for the full year. The preparation of these unaudited condensed consolidated financial statements requires the Company to make estimates and judgments that affect the amounts reported in the financial statements and the accompanying notes. The Company’s actual results may differ from these estimates under different assumptions or conditions.

Liquidity

The accompanying unaudited condensed consolidated financial statements have been prepared on a basis that contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Company had an accumulated deficit of approximately $306.5 million as of September 30, 2015 and recorded a net loss of approximately $16.7 million for the nine months ended September 30, 2015 . The Company has principally been financed through the sale of its common stock and other equity securities, debt financings and up-front payments received from commercial partners for the Company’s products under development.

In February 2015, the Company entered into subscription agreements with certain purchasers pursuant to which it sold an aggregate of 6,043,955 shares of its common stock and issued warrants to purchase up to an additional 3,021,977 shares of its common stock. Each share of common stock was sold at a price of $1.82 and included one half of a warrant to purchase a share of common stock. The warrants have an exercise price of $1.82 per share, became exercisable beginning six months and one day after the date of issuance and will expire on the seventh anniversary of the date of issuance. The total net proceeds from the offering were $10.9 million after deducting expenses of approximately $0.1 million . The subscription agreements grant certain of the purchasers preemptive rights to participate in future equity issuances by the Company, subject to certain exceptions, and require that the Company obtain permission from certain of the purchasers prior to selling shares under its committed equity financing facility with Aspire Capital Fund, LLC (“Aspire Capital”).

In July 2015, the Company borrowed the remaining $5.0 million under its Loan and Security Agreement (the “Credit Facility”) with Oxford Finance LLC (“Oxford”) and Silicon Valley Bank (“SVB”) (Oxford and SVB are referred to together as the “Lenders”).

Between the $10.0 million borrowed from the Lenders, the access to additional capital under its committed equity financing facility, the $10.9 million received from the Company’s February 2015 financing, and cash received from Vitaros ^® royalties and product sales, the Company believes it has sufficient cash reserves and access to cash to fund its base operations through the fourth quarter of 2016. This includes the completion of its fispemifene phase 2b clinical trial, support of the commercialization of Vitaros ^® , and other general operating activities.

Although the Company believes it has sufficient cash reserves and access to cash to fund its base operations through the fourth quarter of 2016, the Company will need to raise substantial additional funds to finance other anticipated net cash outflows over the next year. These activities could include resubmission of a Vitaros ^® United States NDA, continued development of Room Temperature Vitaros ^® , as well as future clinical studies for fispemifene and RayVa ^™ . If the Company is unable to maintain sufficient financial resources, including by raising additional funds when needed, its business, financial condition and results of operations will be materially and adversely affected. There can be no assurance that the Company will be able to obtain the needed financing on acceptable terms or at all. Additionally, equity or debt financings may have a dilutive effect on the holdings of the Company’s existing stockholders.

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Warrant Liabilities

The Company’s outstanding common stock warrants issued in connection with its February 2015 financing are classified as liabilities in the accompanying condensed consolidated balance sheets as they contain provisions that require the Company to maintain active registration of the shares underlying such warrants, which is considered outside of the Company’s control. The warrants were recorded at fair value using the Black-Scholes option pricing model. The fair value of these warrants is re-measured at each financial reporting period with any changes in fair value being recognized as a component of other income (expense) in the accompanying condensed consolidated statements of operations.

Fair Value Measurements

The Company determines the fair value measurements of applicable assets and liabilities based on a three-tier fair value hierarchy established by accounting guidance and prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted market prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. Financial assets and liabilities that are measured or disclosed at fair value on a recurring basis, and are classified within the Level 3 designation include the common stock warrant liabilities. None of the Company’s non-financial assets and liabilities are recorded at fair value on a non-recurring basis.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

The following table presents the Company’s fair value hierarchy for assets and liabilities measured at fair value on a recurring basis (in thousands):



	Quoted Market Prices for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
As of September 30, 2015
Warrant liability related to February 2015 financing	$	—	$	—	$	3,273	$	3,273

The common stock warrant liabilities are recorded at fair value using the Black-Scholes option pricing model. The following weighted-average assumptions were used in determining the fair value of the common stock warrant liabilities valued using the Black-Scholes option pricing model as of September 30, 2015 :



Risk-free interest rate	1.45		%
Volatility	92.6		%
Dividend yield	—		%
Expected term	6.38
Weighted average fair value	$	1.08

The following table is a reconciliation for all liabilities measured at fair value using Level 3 unobservable inputs (in thousands):



	Warrant liability
Balance as of December 31, 2014	$	—
Issuance of warrants in connection with February 2015 financing	5,077
Change in fair value measurement of warrant liability, included in other income	(1,804		)
Balance as of September 30, 2015	$	3,273

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Of the inputs used to value the outstanding common stock warrant liabilities as of September 30, 2015 , the most subjective input is the Company’s estimate of expected volatility. If volatility increased to 150% , the weighted average fair market value of the common stock warrants outstanding would increase by approximately $0.9 million , or 26.5% .

Revenue Recognition

The Company generates revenues from licensing technology rights and the sale of products. The Company recognizes revenue when all of the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the Company’s price to the buyer is fixed or determinable; and (4) collectability is reasonably assured.

Payments received under commercial arrangements, such as licensing technology rights, may include non-refundable fees at the inception of the arrangements, milestone payments for specific achievements designated in the agreements, and royalties on the sale of products. The Company considers a variety of factors in determining the appropriate method of accounting under its license agreements, including whether the various elements can be separated and accounted for individually as separate units of accounting. Deliverables under the arrangement will be separate units of accounting, provided (i) a delivered item has value to the customer on a standalone basis; and (ii) the arrangement includes a general right of return relative to the delivered item, delivery or performance of the undelivered item is considered probable and substantially in the Company’s control.

Multiple Element Arrangements

The Company accounts for revenue arrangements with multiple elements by separating and allocating consideration according to the relative selling price of each deliverable. If an element can be separated, an amount is allocated based upon the relative selling price of each element. The Company determines the relative selling price of a separate deliverable using the price it charges other customers when it sells that product or service separately. If the product or service is not sold separately and third party pricing evidence is not available, the Company will use its best estimate of selling price.

Milestones

Revenue is recognized when earned, as evidenced by written acknowledgment from the collaborator or other persuasive evidence that the milestone has been achieved, provided that the milestone event is substantive. A milestone event is considered to be substantive if its achievability was not reasonably assured at the inception of the arrangement and the Company’s efforts led to the achievement of the milestone (or if the milestone was due upon the occurrence of a specific outcome resulting from the Company’s performance). Events for which the occurrence is either contingent solely upon the passage of time or the result of a counterparty’s performance are not considered to be milestone events. If both of these criteria are not met, the milestone payment is recognized over the remaining minimum period of the Company’s performance obligations under the arrangement, if any. The Company assesses whether a milestone is substantive at the inception of each arrangement.

License Fee Revenue

The Company defers recognition of non-refundable upfront license fees if it has continuing performance obligations, without which the licensed data, technology, or product has no utility to the licensee separate and independent of its performance under the other elements of the applicable arrangement. Non-refundable, up-front fees that are not contingent on any future performance by the Company and require no consequential continuing involvement on the Company’s part are recognized as revenue when the license term commences and the licensed data, technology or product is delivered. The specific methodology for the recognition of the revenue is determined on a case-by-case basis according to the facts and circumstances of the applicable agreement.

Product Sales Revenue

The Company has supply and manufacturing agreements with certain of its licensee partners for the manufacture and delivery of Vitaros ^® product. These agreements do not permit the Company’s licensee partners to return product, unless the product sold to the licensee partner is delivered with a short-dated shelf life as specified in each respective license agreement, if applicable. In those cases, the Company defers revenue recognition until the right of return no longer exists, which is the earlier of: (i) evidence that the product has been sold to an end customer or (ii) the right of return has expired. As such, the Company does not have a sales and returns allowance recorded as of September 30, 2015 .

Royalty Revenue

The Company relies on its commercial partners to sell its Vitaros ^® product in approved markets and receives royalty revenue from its commercial partners based upon the amount of those sales. Royalty revenues are computed on a quarterly basis, typically one quarter in arrears, and at the contractual royalty rate pursuant to the terms of each respective license agreement.

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Cost of Product Sales

The Company’s cost of product sales includes direct material and manufacturing overhead associated with production. Cost of product sales is also affected by manufacturing efficiencies, allowances for scrap or expired material and additional costs related to initial production quantities of new products. Cost of product sales also includes the cost of one-time manufactured samples provided to the Company’s licensee partners free of charge.

Deferred Cost of Product Sales

Deferred cost of product sales is stated at the lower of cost or market and includes product sold where title has transferred, but the criteria for revenue recognition have not been met. The Company’s deferred cost of product sales is included in prepaid expenses and other current assets in the condensed consolidated balance sheets.

Loss Per Common Share

Basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the same period. Diluted net loss per share is computed by dividing net loss by the weighted average number of common and common equivalent shares outstanding during the same period. Common equivalent shares may include stock options, restricted stock, warrants or shares related to convertible notes. The Company excludes common stock equivalents from the calculation of diluted net loss per share when the effect is anti-dilutive.

The following securities that could potentially decrease net loss per share in the future are not included in the determination of diluted loss per share as they are anti-dilutive:



	Three and Nine Months Ended September 30,
	2015	2014
Outstanding stock options	4,355,435	3,698,671
Outstanding warrants	10,034,099	6,185,492
Convertible notes payable	—	482,283
Restricted stock	—	6,250

Stock-Based Compensation

The Company estimates the fair value of each option award on the date of grant using the Black-Scholes option pricing model. The Company also issues performance-based shares which represent a right to receive a certain number of shares of common stock based on the achievement of corporate performance goals and continued employment during the vesting period. At each reporting period, the Company reassesses the probability of the achievement of such corporate performance goals and adjusts expense as necessary.

The following table presents the weighted average assumptions used by the Company to estimate the fair value of stock option grants using the Black-Scholes option-pricing model, as well as the resulting weighted average fair values:



	Nine Months Ended September 30,
	2015			2014
Risk-free interest rate	1.37%-1.87%			1.58% - 2.1%
Volatility	66.85%-101.54%			79.34%-80.75%
Dividend yield	—		%	—		%
Expected term	5.25-6.46 years			5.25- 6.69 years
Forfeiture rate	11.54		%	3.60		%
Weighted average fair value	$	1.07		$	1.61

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A summary of the Company’s stock option activity under all stock option plans during the nine months ended September 30, 2015 is as follows (in thousands):



	Number of Shares		Weighted Average Exercise Price
Outstanding as of December 31, 2014	3,956		$	2.58
Granted	1,393		$	1.44
Exercised	(41	)	$	2.05
Cancelled	(953	)	$	3.54
Outstanding as of September 30, 2015	4,355		$	2.01

The following table summarizes the total stock-based compensation expense resulting from share-based awards recorded in the Company’s condensed consolidated statements of operations (in thousands):



	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
Research and development	$	55	$	70	$	142	$	227
General and administrative	244		349		770		1,229
Total	$	299	$	419	$	912	$	1,456

Segment Information

The Company operates under one segment which develops pharmaceutical products.

Recent Accounting Pronouncements

In November 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-16, Derivatives and Hedging (Topic 815): Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share is More Akin to Debt or to Equity . This update clarifies how current guidance should be interpreted in evaluating the economic characteristics and risks of a host contract in a hybrid financial instrument that is issued in the form of a share. In addition, it clarifies that in evaluating the nature of a host contract, an entity should assess the substance of the relevant terms and features (that is, the relative strength of the debt-like or equity-like terms and features given the facts and circumstances) when considering how to weight those terms and features. The effects of initially adopting the new standard should be applied on a modified retrospective basis to existing hybrid financial instruments issued in a form of a share as of the beginning of the fiscal year for which the amendments are effective. Retrospective adoption is permitted to all relevant prior periods. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted. The Company is currently in the process of evaluating whether the adoption of this update will have a material effect on its condensed consolidated financial statements and related disclosures.

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern . The amendments in this update will require management to assess, at each annual and interim reporting period, the entity’s ability to continue as a going concern and, if management identifies conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued, to disclose in the notes to the entity’s financial statements the principal conditions or events that raised substantial doubt about the entity’s ability to continue as a going concern, management’s evaluation of their significance, and management’s plans that alleviated or are intended to alleviate substantial doubt about the entity’s ability to continue as a going concern. This new standard is effective for annual periods ending after December 15, 2016 and early adoption is permitted. The Company is currently in the process of evaluating whether the adoption of this update will have a material effect on its condensed consolidated financial statements and related disclosures.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers , which requires entities to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Entities may use a full retrospective approach or report the cumulative effect as of the date of adoption. On July 9, 2015, the FASB voted to defer the effective date by one year to December 15, 2017 for interim and annual reporting periods beginning after that date. Early adoption of ASU 2014-09 is permitted but not before the original effective date (annual periods beginning after December 15, 2016). The Company is currently in the process

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of evaluating whether the adoption of this update will have a material effect on its condensed consolidated financial statements and related disclosures.

2. VITAROS ^® LICENSING AND DISTRIBUTION AGREEMENTS

Ferring International Center S.A.

In October 2015, the Company entered into a distribution agreement with Ferring International Center S.A. (“Ferring Pharmaceuticals”), granting Ferring Pharmaceuticals the exclusive right to commercialize Vitaros ^® for the treatment of erectile dysfunction (“ED”) in Latin America, including Central America, South America and certain Caribbean countries. In October 2015, the Company received an upfront payment of $2.3 million . The Company is eligible to receive up to an additional $2.0 million in regulatory milestones and $14.0 million in aggregate sales milestones, plus high single-digit royalties on Ferring Pharmaceutical’s sales of the product.

Laboratoires Majorelle

In November 2013, the Company entered into a license agreement with Laboratoires Majorelle (“Majorelle”), granting Majorelle the exclusive right to market Vitaros ^® for the treatment of ED in France, Monaco and certain countries in Africa. To date, the product has been approved for the treatment of ED in France, where it was launched in May 2015.

In December 2013, in a related negotiation, Majorelle agreed to make severance payments to certain former employees of Scomedica SAS, NexMed Europe SAS and NexMed Pharma SAS (the “French Subsidiaries”) for an aggregate amount of approximately $2.0 million on behalf of the Company. In September 2014, the Company entered into a Manufacturing and Supply Agreement with Majorelle whereby the Company or its contract manufacturer will manufacture Vitaros ^® product and supply the product to Majorelle on a cost plus basis. During the first quarter of 2015, Groupe Parima began manufacturing product for Majorelle under its own manufacturing and supply agreement.

The Company concluded that the fair value of the Vitaros ^® license was equal to $4.0 million or the sum of the $1.8 million upfront payment received, the $0.2 million payment received for National Phase approval in France, and the $2.0 million in severance payments made by Majorelle on behalf of the Company. During the second quarter of 2014, the Company recognized $3.0 million of the $4.0 million Vitaros ^® license fair value as license fee revenue in its statement of operations. During the third quarter of 2014, the Company met the remaining contractual condition to deliver a specified amount of Vitaros ^® and therefore, the remaining $1.0 million of revenue that had previously been deferred was recognized as license fee revenue in the Company’s condensed consolidated statement of operations.

Excluding product sales and royalty payments, the Company has received $2.0 million under the license agreement to date, which includes an upfront payment and a regulatory milestone payment related to the approval of Vitaros ^® in France. In addition to revenues from the sale of product, the Company is eligible to receive up to $19.4 million in additional milestone payments, including a regulatory milestone payment of $2.0 million related to approval of the room temperature formulation of Vitaros ^® and up to €15.5 million ( $17.4 million as of September 30, 2015 ) in aggregate sales milestones. Additionally, the Company is eligible to receive tiered double-digit royalties on Majorelle’s sales of the product.

Bracco SpA

In December 2010, the Company entered into a license agreement with Bracco SpA (“Bracco”), granting Bracco the exclusive right to commercialize Vitaros ^® for the treatment of ED in Italy. The product was approved for the treatment of ED in Italy in November 2013 and launched in September 2015. To date, the Company has received $1.3 million , including an upfront payment and a regulatory milestone payment related to the approval of Vitaros ^® in Italy. The Company is eligible to receive up to an additional €4.5 million ( $5.1 million as of September 30, 2015 ) in aggregate sales milestones, plus tiered double-digit royalties on Bracco’s sales of the product.

Hexal AG, an affiliate within the Sandoz Division of the Novartis Group of Companies

The Company entered into three license agreements with Hexal AG, an affiliate within the Sandoz Division of the Novartis Group of Companies (“Sandoz”), in February 2012, December 2013 and February 2015. The agreements are collectively referred to herein as the “Sandoz Agreements.” The first agreement granted Sandoz the exclusive right to commercialize Vitaros ^® for the treatment of ED in Germany. The second agreement extended the exclusive license grant to the following countries: Austria, Belgium, Denmark, Finland, Iceland, Luxemburg, the Netherlands, Norway, Sweden and Switzerland (the “Expanded Territory”). The third agreement further extended the exclusive license grant to the following additional countries: Malaysia, Indonesia, the Philippines, Thailand, Taiwan, Vietnam, Hong Kong and Singapore (the “Expanded APAC Territory”). In June 2014, the Company also entered into a Manufacturing and Supply Agreement with Sandoz whereby the Company or its contract manufacturer will manufacture Vitaros ^® and supply it to Sandoz on a cost plus basis.

Vitaros ^® has been approved for the treatment of ED in Austria, Belgium, Denmark, Finland, Germany, Iceland, Luxemburg, the Netherlands, Norway and Sweden. The Company filed a marketing application in Switzerland with Swissmedic, the Swiss Agency

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for Therapeutic Products, for Vitaros ^® for the treatment of ED and is awaiting regulatory comments from Swissmedic. To date, Sandoz has launched the product as Vitaros ^® in Germany, Luxemburg and Sweden and as Vytaros ^® in Belgium. In July 2015, Sandoz reported that it was out of stock of Vitaros ^® in Germany. Sandoz has put a hold on releasing additional batches pending the results of an ongoing out-of-specification investigation by the Company’s contract manufacturer. Such investigation relates to a stability sample of Vitaros ^® manufactured for sale in the United Kingdom (“U.K.”). All relevant health authorities have been informed and are privy to the ongoing investigation. Sandoz continues to sell product in Sweden and Belgium and the Company’s other Vitaros ^® partners continue to release batches and sell product in territories such as the U.K., France, Spain and Italy.

Excluding product sales and royalty payments, the Company has received a total of $4.3 million to date under the Sandoz Agreements, which includes: (a) upfront payments totaling $3.0 million for Germany, the Expanded Territory and the Expanded APAC Territory; (b) a regulatory milestone payment of $0.3 million related to the approval of Vitaros ^® in Germany; and (c) launch milestones totaling $1.0 million related to the launch of the product in Sweden and Belgium in August 2014 and November 2014, respectively.

In addition to revenues from the sale of product, the Company is eligible to receive up to $48.8 million in additional milestone payments under the Sandoz Agreements, which includes: (a) up to €0.3 million ( $0.3 million as of September 30, 2015 ) in regulatory milestones related to approval of the product in the Expanded APAC Territory and approval of the room temperature formulation of Vitaros ^® ; (b) up to $1.5 million in launch milestones related to the launch of the product in Switzerland and the room temperature formulation of Vitaros ^® ; and (c) up to €41.8 million ( $46.9 million as of September 30, 2015 ) in aggregate sales milestones. Additionally, the Company is eligible to receive tiered double-digit royalties on Sandoz’s sales of the product.

During the first quarter of 2015, the Company recognized $0.35 million as license fee revenue for the upfront payment received from Sandoz for the Expanded APAC Territory.

The Company recorded $2.0 million of deferred revenue for the upfront payment received from Sandoz for the Expanded Territory because Sandoz was entitled to a $2.0 million refund if certain regulatory and manufacturing conditions were not met. In December 2014, the Company met the manufacturing requirement and recognized $1.0 million of the upfront payment as license fee revenue. In the third quarter of 2015, the Company met the regulatory condition and recognized the remaining $1.0 million of license fee revenue that had previously been deferred.

Takeda Pharmaceuticals International GmbH

In September 2012, the Company entered into a license agreement with Takeda Pharmaceuticals International GmbH (“Takeda”), granting Takeda the exclusive right to market Vitaros ^® for the treatment of ED in the U.K. In September 2013, the Company entered into a Manufacturing and Supply Agreement with Takeda whereby the Company or its contract manufacturer will manufacture Vitaros ^® product and supply the product to Takeda. The product has been approved for the treatment of ED in the U.K. and Takeda launched Vitaros ^® in the U.K. in June 2014.

Excluding product sales and royalty payments, the Company has received to date an upfront payment of $1.0 million . In addition to revenues from the sale of product, the Company is eligible to receive up to €33.9 million ( $38.1 million as of September 30, 2015 ) in additional milestone payments, including a regulatory milestone payment of €0.4 million ( $0.5 million as of September 30, 2015 ) related to approval of the room temperature formulation of Vitaros ^® and up to €33.5 million ( $37.7 million as of September 30, 2015 ) in aggregate sales milestones. Additionally, the Company is eligible to receive tiered double-digit royalties on Takeda’s sales of the product.

Recordati Ireland Ltd.

In February 2014, the Company entered into a license agreement with Recordati Ireland Ltd. (“Recordati”), granting Recordati the exclusive right to market Vitaros ^® for the treatment of ED in Spain, Ireland, Portugal, Greece, Cyprus, the CEE Countries (Central and Eastern Europe), Russia and the other CIS Countries (former Soviet Republics), Ukraine, Georgia, Turkey and certain countries in Africa. The product has been approved for the treatment of ED in Ireland, Spain, Portugal and Romania. In June 2014, the Company entered into a Manufacturing and Supply Agreement with Recordati whereby the Company or its contract manufacturer will manufacture Vitaros ^® product and supply the product to Recordati on a cost plus basis. During the third quarter of 2015, Groupe Parima began manufacturing product for Recordati under its own manufacturing and supply agreement. Recordati launched the product as Virirec ^™ in Spain in May 2015.

The Company has received to date an upfront payment of $2.5 million . The Company is eligible to receive up to $39.9 million in additional milestone payments, including up to €1.0 million ( $1.1 million as of September 30, 2015 ) in launch milestones related to the launch of the product in Russia and Turkey and up to €34.5 million ( $38.8 million as of September 30, 2015 ) in aggregate sales milestones. Additionally, the Company is eligible to receive tiered double-digit royalties on Recordati’s sales of the product.

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Mylan N.V.

In January 2012, the Company entered into a license agreement with Abbott Laboratories Limited, now a subsidiary of Mylan N.V. (“Mylan”), granting Mylan the exclusive right to commercialize Vitaros ^® for the treatment of ED in Canada. The product was approved for the treatment of ED by Health Canada in late 2010. To date, the Company has received an upfront payment of $2.5 million . The Company is eligible to receive up to an additional $13.2 million in milestone payments, including a regulatory milestone payment of $0.2 million related to approval of the room temperature formulation of Vitaros ^® and up to $13.0 million in aggregate sales milestones. Additionally, the Company is eligible to receive tiered double-digit royalties on Mylan’s sales of the product.

3. ALLERGAN IN-LICENSING AGREEMENT

In 2009, Warner Chilcott Company, Inc., now a subsidiary of Allergan, Inc. (“Allergan”), acquired the commercial rights to Vitaros ^® in the United States. In September 2015, the Company entered into a license agreement and amendment to the original agreement with Warner Chilcott Company, Inc., granting the Company exclusive rights to develop and commercialize Vitaros ^® in the United States in exchange for a $1.0 million upfront payment and an additional $1.5 million in potential regulatory milestone payments to Allergan.

Upon FDA approval of a new drug application for Vitaros ^® in the United States, Allergan has the right to exercise a one-time opt-in right to assume all future commercialization activities in the United States. If Allergan exercises its opt-in right, the Company is eligible to receive up to a total of $25.0 million in upfront and potential launch milestone payments, plus a double-digit royalty on Allergan’s net sales of the product. If Allergan does not exercise its opt-in right, the Company may commercialize the product and in return will pay Allergan a double-digit royalty on its net sales of the product.

Since the intangibles acquired in the license agreement do not have alternative future use, all costs incurred were treated as research and development expense. The Company recorded research and development expense of approximately $1.05 million during the third quarter of 2015, which represented the upfront payment made as well as transaction costs incurred.

4. FORENDO IN-LICENSING AGREEMENT

In October 2014, the Company entered into a license agreement and stock issuance agreement with Forendo Pharma Ltd. (“Forendo”), under which the Company was granted the exclusive right in the United States to develop and commercialize fispemifene, a tissue-specific selective estrogen receptor modulator (“SERM”) designed to treat symptomatic secondary hypogonadism, as well as chronic prostatitis and lower urinary tract symptoms in men.

In exchange for the license, the Company issued to Forendo approximately 3.6 million shares of common stock with a value of $5.9 million based on the Company’s closing stock price on the date of the agreement and made an upfront cash payment of $5.0 million . The Company made an additional payment of $2.5 million to Forendo in April 2015 pursuant to the terms of the agreement. This payment was previously considered deferred consideration and was recorded as a liability as of December 31, 2014 because the agreement was not terminable prior to the payment. The liability was released upon payment in April 2015.

The Company may be obligated to pay Forendo up to an additional $42.5 million based on completion of certain regulatory milestones, up to $260.0 million in sales milestones, plus tiered double-digit royalties based on its sales of the product in the United States.

The Company recognized research and development expense of $13.6 million upon the completion of the transaction in December 2014. The $13.6 million is the sum of the following: $5.0 million upfront payment made in October 2014; $5.9 million in common stock issued to Forendo; the $2.5 million cash consideration paid in April 2015; and transaction costs of $0.2 million .

5. OTHER FINANCIAL INFORMATION

Inventory

Inventory is comprised of the following (in thousands):



	September 30, 2015		December 31, 2014
Raw materials	$	78	$	106
Work in process	64		169
	$	142	$	275

Accrued Expenses

Accrued expenses are comprised of the following (in thousands):

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	September 30, 2015		December 31, 2014
Outside research and development services	$	1,724	$	838
Professional fees	610		625
Deferred compensation	177		176
Environmental remediation	75		126
Deferred consideration to Forendo (Note 4)	—		2,500
Other	283		290
	$	2,869	$	4,555

Other Long Term Liabilities

Other long term liabilities are comprised of the following (in thousands):



	September 30, 2015		December 31, 2014
Deferred compensation	$	179	$	312
Deferred rent	10		41
Capital lease payable	1		5
	$	190	$	358

Gain on Contract Settlement

The $0.9 million gain on contract settlement recorded during the six months ended June 30, 2014 represents the fair value of 388,888 escrowed shares of common stock that were returned to the Company in connection with a settlement with former managers of the French Subsidiaries. These shares were restored as authorized, unissued common stock in March 2014.

6. DEBT

Credit Facility

On October 17, 2014 (the “Closing Date”), the Company entered into the Credit Facility with the Lenders, pursuant to which the Lenders agreed, subject to certain conditions, to make term loans totaling up to $10.0 million available to the Company. The proceeds from these loans were designated to pay off existing indebtedness and for working capital and general business purposes. The first $5.0 million term loan was funded on the Closing Date. A second term loan of $5.0 million was funded at the Company’s request on July 23, 2015. Pursuant to the terms of the Credit Facility, the Lenders have a senior-secured lien on all of the Company’s current and future assets, other than its intellectual property. The Lenders have the right to declare the term loan immediately due and payable in an event of default under the Credit Facility, which includes, among other things, a material adverse change in the Company’s business, operations, or financial condition or a material impairment in the prospect of repayment of the term loan. As of September 30, 2015 , the Company was in compliance with all covenants under the Credit Facility.

The first term loan bears interest at an annual rate of 7.95% . The second term loan bears interest at an annual rate of 8.01% . The repayment schedule provides for interest-only payments in arrears until November 2015, followed by consecutive equal monthly payments of principal and interest in arrears through the maturity date, which is October 1, 2018 (the “Maturity Date”). The Company has the option to prepay the outstanding balance of the term loans in full prior to the Maturity Date, subject to a prepayment fee of up to 3% . Upon repayment of each term loan, the Company is also required to make a final payment to the Lenders equal to 6% of the original principal amount of each term loan. This final payment is being accreted over the life of the Credit Facility using the effective interest method.

On the Closing Date, the Company issued warrants to purchase up to an aggregate of 193,798 shares of common stock at an exercise price of $1.29 per share to the Lenders. On July 23, 2015, in connection with the funding of the second term loan, the Company issued additional warrants to purchase up to an aggregate of 152,440 shares of common stock at an exercise price of $1.64 per share to the Lenders. The warrants expire ten years from their dates of issuance. The initial fair value of the warrants was recorded as a discount to the principal balance and is being amortized over the life of the Credit Facility using the effective interest method.

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The Company’s notes payable balance consisted of the following (in thousands):



	September 30, 2015			December 31, 2014
Notes payable, principal	$	10,000		$	5,000
Add: accretion of final payment fee	112			16
Less: unamortized debt discount	(236		)	(237		)
	9,876			4,779
Less: current portion of notes payable, net	(2,683		)	(153		)
	$	7,193		$	4,626

The debt issuance costs, accretion of the final payment and amortization of the warrants are included in interest expense in the Company’s condensed consolidated statements of operations. The Company recognized interest expense related to the Credit Facility of $0.3 million and $0.6 million during the three and nine months ended September 30, 2015 , respectively.

7. STOCKHOLDERS' EQUITY

Common Stock Offerings

February 2015 Financing

In February 2015, the Company entered into subscription agreements with certain purchasers pursuant to which it sold an aggregate of 6,043,955 shares of its common stock and issued warrants to purchase up to an additional 3,021,977 shares of its common stock. Each share of common stock was sold at $1.82 and included one half of a warrant to purchase a share of common stock. The warrants have an exercise price of $1.82 per share, are exercisable beginning six months and one day after the date of issuance and expire on the seventh anniversary of the date of issuance. The total net proceeds from the offering were $10.9 million after deducting expenses of approximately $0.1 million . The subscription agreements grant certain of the purchasers preemptive rights to participate in future equity issuances by the Company, subject to certain exceptions, and require that the Company obtain permission from certain of the purchasers of the subscription agreements prior to selling shares under its committed equity financing facility with Aspire Capital.

Warrants

A summary of warrant activity during the nine months ended September 30, 2015 is as follows:



	Common Shares Issuable upon Exercise	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)
Outstanding at December 31, 2014	6,859,682	$	3.83	2.7
Issued	3,174,417	$	1.81	6.5
Exercised	—	$	—	—
Cancelled	—	$	—	—
Outstanding as of September 30, 2015	10,034,099	$	3.19	3.4
Exercisable as of September 30, 2015	10,034,099	$	3.19	3.4

In connection with the February 2015 financing, the Company issued warrants to purchase up to 3,021,977 shares of its common stock at an exercise price of $1.82 per share. The initial $5.1 million fair value of the warrants on the transaction date was determined using the Black-Scholes option pricing model and was recorded as the initial carrying value of the common stock warrant liability. The fair value of these warrants is remeasured at each financial reporting period with any changes in fair value recognized as a component of other income (expense) in the accompanying condensed consolidated statements of operations. As of September 30, 2015 , the fair value of the warrants was $3.3 million .

In connection with the funding of the second term loan during the third quarter of 2015, the Company issued warrants to the Lenders to purchase up to an aggregate of 152,440 shares of common stock at an exercise price of $1.64 per share.

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The following table shows the number of outstanding warrants by exercise price and date of expiration as of September 30, 2015 :



Shares Issuable Upon Exercise	Exercise Price		Expiration Date
716,356	$	2.27	October 2015
480,392	$	2.55	December 2015
2,469,136	$	5.25	February 2017
3,000,000	$	3.40	May 2018
3,021,977	$	1.82	February 2022
193,798	$	1.29	October 2024
152,440	$	1.64	July 2025
10,034,099

8. COMMITMENTS AND CONTINGENCIES

The Company is a party to certain litigation that is either judged to be not material or that arises in the ordinary course of business from time to time. The Company intends to vigorously defend its interests in these matters. The Company expects that the resolution of these matters will not have a material adverse effect on its business, financial condition, results of operations, or cash flows. However, due to the uncertainties inherent in litigation, no assurance can be given as to the outcome of these proceedings.


ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Disclosures Regarding Forward-Looking Statements

The following should be read in conjunction with the unaudited condensed consolidated financial statements and the related notes that appear elsewhere in this report as well as in conjunction with the Risk Factors section and in our Annual Report on Form 10-K for the year ended December 31, 2014 as filed with the Unites States Securities and Exchange Commission (“SEC”) on March 16, 2015. This report and our Form 10-K include forward-looking statements made based on current management expectations pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended.

Some of the statements contained in this report discuss future expectations, contain projections of results of operations or financial conditions or state other “forward-looking” information, including statements regarding the establishment of future partnerships, the timing of planned launches of Vitaros ^® in various countries by commercial partners and the success of our partners’ commercialization efforts, the planned commencement of additional clinical trials for fispemifene and RayVa ^™ , the expected timing of data results on our clinical trials, the resubmission of a new drug application for Vitaros ^® in the United States, the timing and success of our research and development efforts for Room Temperature Vitaros ^® , the sufficiency of our current cash holdings and the availability of additional funds, and the development and/or acquisition of additional products. Those statements include statements regarding the intent, belief or current expectations of Apricus Biosciences, Inc. and its subsidiaries (“we,” “us,” “our” or the “Company”) and our management team. Any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those projected in the forward-looking statements. In light of the significant risks and uncertainties inherent in the forward-looking statements included in this report, the inclusion of such statements should not be regarded as a representation by us or any other person that our objectives and plans will be achieved. There are many factors that affect our business, condensed consolidated financial position, results of operations and cash flows, including but not limited to, our dependence on commercial partners to carry out commercial launches of Vitaros ^® in various territories and the potential for delays in the timing of commercial launches, our ability to enter into partnering agreements or raise financing on acceptable terms, successful completion of clinical development programs, regulatory review and approval, anticipated revenue growth, manufacturing, competition, and/or other factors, including those set forth under the “Risk Factors” section in Part II, Item 1A and in our Annual Report on Form 10-K for the year ended December 31, 2014, many of which are outside our control.

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We operate in a rapidly changing business, and new risk factors emerge from time to time. Management cannot predict every risk factor, nor can it assess the impact, if any, of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those projected in any forward-looking statements. Accordingly, forward-looking statements should not be relied upon as a prediction of actual results and readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law.

Vitaros ^® is a registered trademark in certain countries and is pending registration in certain other countries, including the United States. Solely for convenience, we have used the ^® symbol throughout this report, even when discussing territories where the trademark registration is pending.

General

We are a Nevada corporation that was initially formed in 1987. We have operated in the pharmaceutical industry since 1995. Our current focus is on the development and commercialization of innovative products and product candidates in the areas of urology and rheumatology. Our proprietary drug delivery technology is a permeation enhancer called NexACT ^® .

We have two product candidates in Phase 2 development, fispemifene for the treatment of symptomatic male secondary hypogonadism and RayVa ^™ for the treatment of Raynaud’s phenomenon, secondary to scleroderma. We have one commercial product, Vitaros ^® for the treatment of erectile dysfunction (“ED”), which is currently in development in the United States, approved in Canada and marketed throughout Europe. In addition, we are seeking to out-license our product candidate, Femprox ^® , for female sexual interest / arousal disorder (“FSIAD”), to one or more partners for future development.

Fispemifene

Fispemifene is a once-daily, orally administered, tissue-specific selective estrogen receptor modulator designed to potentially treat a variety of men’s health conditions, including secondary hypogonadism, as well as chronic prostatitis and lower urinary tract symptoms in men. Fispemifene acts in secondary hypogonadism by inhibiting the negative feedback of testosterone production via an estrogen-blocking effect at the level of the pituitary, resulting in increased testosterone production in the testes, which in turn restores circulating testosterone levels to within, but not beyond, the normal range. Fispemifene has also shown other positive tissue effects in animal studies, such as preserving bone density, anti-proliferative activity in prostate and breast cancer, a beneficial effect on lipids, reduction of prostate inflammation and improved urodynamics.

We in-licensed the United States development and commercialization rights to fispemifene from Forendo Pharma Ltd. in October 2014. Prior to 2014, two Phase 2a clinical trials in a total of 154 men with secondary hypogonadism showed that fispemifene normalized testosterone levels while retaining (and, in some cases restoring) testicular function. We are conducting a randomized double-blind Phase 2b clinical trial in symptomatic secondary hypogonadism which began in May 2015. The primary endpoint is to measure improvements in erectile dysfunction from a baseline measurement period. We expect to complete enrollment in our Phase 2b clinical trial before the end of 2015 and to release top-line results during the first quarter of 2016. We also expect to initiate study activities in lower urinary tract symptoms in the fourth quarter of 2015. Further, we expect to release data from an ongoing nine-month chronic toxicology study in the second quarter of 2016.

Approximately 90 million men over 40 years old in the United States suffer from secondary hypogonadism, chronic non-bacterial prostatitis or lower urinary tract symptoms. In 2013, the market for testosterone replacement treatment for primary and secondary hypogonadism was approximately $1.7 billion. Based on this market size, we estimate the market opportunity for fispemifene to treat adult men with symptomatic secondary hypogonadism to be approximately $1 billion.

RayVa ^™

RayVa ^™ (alprostadil) is our product candidate for the treatment of Raynaud's phenomenon associated with scleroderma (systemic sclerosis). The RayVa ^™ product combines alprostadil, which dilates blood vessels, with our proprietary permeation enhancer, DDAIP.HCl, and is applied as an on-demand topical cream to affected extremities.

Raynaud's phenomenon is characterized by constriction of the blood vessels in response to cold or stress of the hands and feet, resulting in reduced blood flow and the sensation of pain, which can be severe. Primary Raynaud's phenomenon, which is not associated with an underlying medical condition, affects an estimated 3-5% of the United States population. Secondary Raynaud's phenomenon, affecting approximately 500,000 in the United States, is driven by an underlying medical condition, such as scleroderma, lupus or rheumatoid arthritis. Symptoms are severe and patients risk associated fingertip ulcerations. There are an estimated 100,000 adult patients with scleroderma in the United States, of which approximately 90% have secondary Raynaud's phenomenon. Approximately 80% of scleroderma patients are women. Both primary and secondary Raynaud's phenomenon disproportionately affects women.

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RayVa ^™ received clearance in May 2014 from the United States Food and Drug Administration (“FDA”) to begin clinical studies. We reported results from our Phase 2a clinical trial of RayVa ^™ for the treatment of Raynaud’s phenomenon secondary to scleroderma in September 2015, which supported moving RayVa ^™ forward into future clinical trials. We expect to initiate a Phase 2b clinical trial in the second half of 2016.

We believe that RayVa ^™ presents an attractive commercial opportunity. There is currently no approved therapy for Raynaud's phenomenon in the United States, representing an unmet medical need. Moreover, because there are only approximately 4,500 rheumatologists treating secondary Raynaud’s patients in the United States, we believe we can commercialize RayVa ^™ efficiently if we receive FDA approval.

Vitaros ^®

Vitaros ^® (alprostadil) is a topically-applied cream formulation of alprostadil, which dilates blood vessels, combined with our proprietary permeation enhancer DDAIP.HCl, which directly increases blood flow to the penis, causing an erection. We own the non-United States rights to Vitaros ^® , which we out-license to our marketing partners for commercialization in their respective territories. Allergan plc (“Allergan”) owns the rights to Vitaros ^® in the United States and in September 2015, we entered into an agreement with Allergan to license the United States development and commercialization rights for Vitaros ^® .

Vitaros ^® is currently in development in the United States, approved in Canada and marketed throughout Europe. Our European marketing partners for Vitaros ^® include Laboratoires Majorelle (“Majorelle”), Bracco S.p.A. (“Bracco”), Hexal AG (“Sandoz”), Takeda Pharmaceuticals International GmbH (“Takeda”) and Recordati Ireland Ltd. (“Recordati”). Our licensee partners began launching Vitaros ^® in certain territories in Europe beginning in the second half of 2014 and the product is now launched in France, Italy, Germany, the United Kingdom, Spain, Belgium, Luxemburg and Sweden. In addition, in October 2015, we announced that Ferring International Center S.A., (“Ferring Pharmaceuticals”) will be our Vitaros ^® distributor in certain Latin American countries. We have a second-generation Vitaros ^® product candidate in development, which is a proprietary stabilized dosage formulation that is expected to be stored at room temperature conditions, which we refer to as “Room Temperature Vitaros ^® .”

With our broad Vitaros ^® expertise and internal know-how, coupled with our proven success in obtaining regulatory approvals for Vitaros ^® in other territories, we believe we are well equipped to pursue regulatory approval for Vitaros. in the United States. We plan to initiate non-clinical studies by the end of 2015 to address issues previously raised by the FDA in a 2008 non-approvable letter, including possible safety risks associated with our proprietary permeating enhancer, DDAIP.HCl, and certain chemistry, manufacturing and control issues. We expect to re-submit a revised new drug application (“NDA”) with the FDA in the second half of 2016.

We believe Vitaros ^® offers greater market opportunity compared to other alprostadil dosage forms due to its patient-friendly delivery form as well as a competitive alternative to oral ED products. ED affects approximately 150 million men worldwide. In the United States, ED is estimated to affect 20 million men, of which approximately 5 million have been diagnosed and only approximately 1.25 million are being treated. An estimated 600,000 men are newly diagnosed each year. In the United States, the ED market is approximately $3 billion annually.

Liquidity, Capital Resources and Financial Condition

We have experienced net losses and negative cash flows from operations each year since our inception. Through September 30, 2015 , we had an accumulated deficit of approximately $306.5 million and recorded a net loss of approximately $16.7 million for the nine months ended September 30, 2015 . We have been principally financed through the sale of our common stock and other equity securities, debt financing and up-front payments received from commercial partners for our products under development.

In February 2015, we entered into subscription agreements with certain purchasers pursuant to which we sold an aggregate of 6,043,955 shares of our common stock and issued warrants to purchase up to an additional 3,021,977 shares of our common stock. Each share of common stock was sold at a price of $1.82 per unit and included one-half of a warrant to purchase a share of common stock. The warrants have an exercise price of $1.82 per share, are exercisable beginning six months and one day after the date of issuance and expire on the seventh anniversary of the date of issuance. The total net proceeds from the offering were $10.9 million after deducting expenses of approximately $0.1 million .

In July 2015, we borrowed the remaining $5.0 million available under our Loan and Security Agreement (the “Credit Facility”) with Oxford Finance LLC (“Oxford”) and Silicon Valley Bank (“SVB”) (Oxford and SVB are referred to together as the “Lenders”).

Between our access to additional capital under our committed equity financing facility with Aspire Capital Fund, LLC (“Aspire Capital”), the $10.0 million borrowed from the Lenders, the $10.9 million received from our February 2015 financing, and cash received from Vitaros ^® royalties and product sales, we believe we have sufficient cash reserves and access to cash to fund our base operations through the fourth quarter of 2016. This includes the completion of our fispemifene phase 2b clinical trial, support of

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the commercialization of Vitaros ^® , and other general operating activities. As of September 30, 2015 , net open purchase orders totaled approximately $8.3 million .

Although we believe we have sufficient cash reserves and access to cash to fund our base operations through the fourth quarter of 2016, we will need to raise substantial additional funds to finance other anticipated net cash outflows over the next year. These activities could include resubmission of a Vitaros ^® United States NDA, continued development of Room Temperature Vitaros ^® , as well as future clinical studies for fispemifene and RayVa ^™ . If we are unable to maintain sufficient financial resources, including by raising additional funds when needed, our business, financial condition and results of operations will be materially and adversely affected. There can be no assurance that we will be able to obtain the needed financing on acceptable terms or at all. Additionally, equity financings may have a dilutive effect on the holdings of our existing stockholders.

We currently have an effective shelf registration statement on Form S-3 filed with the SEC under which we may offer from time to time any combination of debt securities, common and preferred stock and warrants. We have approximately $89.0 million available under the S-3 shelf registration statement (No. 333-198066) of which $18.2 million is currently reserved under the committed equity financing facility with Aspire Capital. This equity financing facility may be terminated in our sole discretion by giving written notice. The rules and regulations of the SEC or any other regulatory agencies may restrict our ability to conduct certain types of financing activities, or may affect the timing of and amounts we can raise by undertaking such activities. Additionally, pursuant to the terms of our February 2015 financing, we must obtain written consent from one of the purchasers in that financing before issuing equity under our committed equity financing facility with Aspire Capital. This may restrict our ability to raise additional funding under such facility.

Even if we are successful in obtaining additional cash resources to support further development of our products, we may still encounter additional obstacles such as our development activities not being successful, our products not proving to be safe or effective, clinical development work not being completed in a timely manner or at all, or anticipated products not being commercially viable or successfully marketed. Additionally, our business could require additional financing if we choose to accelerate product development expenditures in advance of receiving up-front payments from development and commercial partners. If our efforts to raise additional capital when needed through equity or debt financings are unsuccessful, we may be required to delay or scale back our development plans, reduce costs and personnel or cease to operate as a going concern. These financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Critical Accounting Estimates and Policies

Our discussion and analysis of our financial condition and results of operations is based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we evaluate our estimates including those related to bad debts, inventories, other long-term assets, warrants, stock-based compensation, income taxes, and legal proceedings. We base our estimates on historical experience and on various other assumptions we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities not readily apparent from other sources. Actual results may differ from these estimates. Our critical accounting policies and estimates are discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014 and there have been no material changes during the nine months ended September 30, 2015 .

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Results of Operations

Revenues and gross profit were as follows (in thousands, except percentages):



	Three Months Ended September 30,				2015 vs 2014					Nine Months Ended September 30,				2015 vs 2014
	2015		2014		$ Change			% Change		2015		2014		$ Change			% Change
License fee revenue	$	1,000	$	1,500	$	(500	)	(33	)%	$	1,350	$	6,954	$	(5,604	)	(81	)%
Royalty revenue	188		—		188			N/M		351		—		351			N/M
Product sales	85		398		(313		)	(79	)%	509		398		111			28	%
Total revenue	1,273		1,898		(625		)	(33	)%	2,210		7,352		(5,142		)	(70	)%
Cost of product sales	142		485		(343		)	(71	)%	884		560		324			58	%
Gross profit (loss)	$	1,131	$	1,413	$	(282	)	(20	)%	$	1,326	$	6,792	$	(5,466	)	(80	)%

Revenue

License Fee Revenue

The $0.5 million decrease in license fee revenue during the three months ended September 30, 2015 was due to the recognition in 2014 of $1.0 million and $0.5 million associated with the Majorelle and Sandoz license agreements, respectively, offset by $1.0 million of license fee revenue recognized during the three months ended September 30, 2015 associated with the Sandoz license agreement. The $5.6 million decrease in license fee revenue during the nine months ended September 30, 2015 , was due to the recognition in 2014 of $4.0 million in license fee revenue related to the Majorelle license agreement, approximately $2.5 million associated with the Recordati license agreement, and approximately $0.5 million associated with the Sandoz license agreement. This was offset by the recognition of $1.4 million of license fee revenue related to the Sandoz license agreement during the nine months ended September 30, 2015 .

Royalty Revenue

Our royalty revenues are computed based on sales reported to us by our licensee partners on a quarterly basis, which are typically one quarter in arrears, and agreed upon royalty rates for the respective license agreement. Royalty revenue during the three and nine months ended September 30, 2015 of $0.2 million and $0.4 million , respectively, was related to sales of licensed Vitaros ^® product sold by Takeda, Sandoz, Recordati, and Majorelle in their respective territories.

Product Sales

Our product sales revenues are the result of shipping Vitaros ^® product to our commercialization partners. The $0.3 million decrease in product sales revenue during the three months ended September 30, 2015 as compared to the same period in the prior year, was due to our commercialization partners contracting directly with our Vitaros ^® manufacturer.

Product sales revenues were comparable for the nine months ended September 30, 2015 as compared to the same period in the prior year. This is due to lower sales in 2014 since product sales did not commence until the third quarter of 2014, offset by a decrease in 2015 as our commercialization partners work directly with our manufacturer. We expect this declining trend to continue as our remaining commercialization partners enter into contracts directly with our manufacturer.

We expect our cash inflows from operations during the remainder of 2015 will result from licensing and milestone revenues received from commercial partners as well as product sales and related royalty payments from our Vitaros ^® product. The timing of these revenues is uncertain and as such our revenue may vary significantly between periods.

Cost of Product Sales

Our cost of product sales includes direct material costs associated with the production of inventories. Cost of product sales also includes the cost of manufactured samples provided to our commercialization partners free of charge, which contributed to our negative margin. The change in cost of product sales for the three and nine months ended September 30, 2015 as compared to the same periods of the prior year is proportionate to the variance in the sale of Vitaros ^® product.

With our support, many of our commercialization partners are working directly with our contract manufacturers. We anticipate that our cost of product sales will continue to decrease as all of our commercialization partners begin to contract directly with the manufacturer to produce Vitaros ^® .

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Operating Expense (Income)

Operating expense (income) were as follows (in thousands, except percentages):



	Three Months Ended September 30,						2015 vs 2014					Nine Months Ended September 30,						2015 vs 2014
	2015			2014			$ Change			% Change		2015			2014			$ Change			% Change
Operating expense (income)
Research and development	$	4,611		$	1,876		$	2,735		146	%	$	10,986		$	5,423		$	5,563		103	%
General and administrative	2,412			2,719			(307		)	(11	)%	8,177			8,655			(478		)	(6	)%
Gain on contract settlement	—			—			—			N/M		—			(910		)	910			(100	)%
Recovery on sale of subsidiary	—			—			—			N/M		—			(50		)	50			(100	)%
Deconsolidation of former French Subsidiaries	—			—			—			N/M		—			(846		)	846			(100	)%
Total operating expense	7,023			4,595			2,428			53	%	19,163			12,272			6,891			56	%
Loss from operations	$	(5,892	)	$	(3,182	)	$	(2,710	)	85	%	$	(17,837	)	$	(5,480	)	$	(12,357	)	225	%

Research and Development Expenses

Research and development costs are expensed as they are incurred and include the cost of compensation and related expenses, as well as expenses for third parties who conduct research and development on our behalf. The $2.7 million and $5.6 million increases in research and development expense during the three and nine months ended September 30, 2015 , respectively, as compared to the same periods in the prior year, resulted primarily from increases in outside services related to the development of fispemifene and RayVa ^™ as well as $1.0 million in expense for the upfront payment to Allergan for the in-license of Vitaros ^® in the United States (see footnote 3 for further details). In addition, payroll costs increased in 2015 related to additional headcount added in order to manage our clinical and non-clinical trials. We expect to continue to incur additional expenses in 2015 related to the further development of fispemifene, resubmission of an NDA for Vitaros ^® in the United States and the further development of Room Temperature Vitaros ^® .

General and Administrative Expenses

General and administrative expenses include expenses for personnel, finance, legal, business development and investor relations. General and administrative expenses during the three and nine months ended September 30, 2015 were comparable to expenses in the same periods of the prior year.

Gain on Contract Settlement

During the first quarter of 2014, we recorded a gain on contract settlement of $0.9 million , which represented the fair value of 388,888 escrowed common shares that were returned to us in connection with the settlement with former employees of Scomedica SAS, NexMed Europe SAS and NexMed Pharma SAS (the “French Subsidiaries”). These shares were restored as authorized, unissued common stock in March 2014.

Deconsolidation of Former French Subsidiaries

During the second quarter of 2014, we released a $2.8 million liability previously reflected in our consolidated balance sheet related to the deconsolidation of our former French Subsidiaries and recognized approximately $0.8 million as a gain on deconsolidation in our statement of operations.

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Other Income and Expense

Other income and expense were as follows (in thousands, except percentages):



	Three Months Ended September 30,						2015 vs 2014					Nine Months Ended September 30,						2015 vs 2014
	2015			2014			$ Change			% Change		2015			2014			$ Change			% Change
Other income (expense)
Interest expense, net	$	(254	)	$	(44	)	$	(210	)	477	%	$	(557	)	$	(220	)	$	(337	)	153	%
Other income, net	1,112			94			1,018			1,083	%	1,703			511			1,192			233	%
Total other income (expense)	$	858		$	50		$	808		1,616	%	$	1,146		$	291		$	855		294	%

Interest Expense, Net

Interest expense increased $0.2 million and $0.3 million during the three and nine months ended September 30, 2015 , respectively, as compared to the same periods in the prior year due to interest charges in connection with the Credit Facility with the Lenders (see note 6 to our condensed consolidated financial statements for further details).

Other Income, Net

Other income, net, increased $1.0 million and $1.2 million during the three and nine months ended September 30, 2015 , respectively, as compared to the same periods in the prior year primarily due to the change in fair value related to the warrant liability incurred in connection with the February 2015 financing (see notes 1 and 7 to our condensed consolidated financial statements for further details). This was offset by the removal of the derivative liability related to our 7% Convertible Notes (the “2012 Convertible Notes”). The 2012 Convertible Notes were satisfied during the fourth quarter of 2014.

Cash Flow Summary

The following table summarizes selected items in our condensed consolidated statements of cash flows (in thousands):



	Nine Months Ended September 30,
	2015			2014
Net cash provided by (used in) continuing operations
Net cash used in operating activities from continuing operations	$	(21,332	)	$	(8,913	)
Net cash used in investing activities from continuing operations	(216		)	(450		)
Net cash provided by financing activities from continuing operations	15,957			3,376
Net cash provided by discontinued operations	—			691
Net decrease in cash and cash equivalents	$	(5,591	)	$	(5,296	)

Operating Activities from continuing operations

Cash used in operating activities increased by $12.4 million during the nine months ended September 30, 2015 as compared to the same period in the prior year due to an increase in net loss of $11.5 million from continuing operations, adjusted for non-cash items such as the decrease in stock based compensation expense of $0.5 million and the warrant liability revaluation of $1.8 million . The increase in net loss was primarily due to a decrease of $5.6 million in license fee revenue recognized during the nine months ended September 30, 2015 as compared to the same period in the prior year, as well as increased spending in the current year on research and development consulting expenses related to the development of fispemifene, RayVa ^™ and Room Temperature Vitaros ^® .

Investing Activities from continuing operations

Cash used in investing activities of $0.2 million during the nine months ended September 30, 2015 were primarily for expenditures for the purchase of fixed assets.

Financing Activities from continuing operations

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Cash provided by financing activities of $16.0 million during the nine months ended September 30, 2015 was primarily attributable to the $10.9 million in net proceeds that we received from the issuance of common stock and warrants in our offering in February 2015 as well as $5.0 million in proceeds from the funding of a second term loan in July 2015.

Off-Balance Sheet Arrangements

As of September 30, 2015 , we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.


ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in our assessment of our sensitivity to market risk since the presentation set forth in Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” in our Annual Report on Form 10-K for the year ended December 31, 2014 .

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Under the supervision and with the participation of our management, including the Chief Executive Officer (“CEO”) (principal executive officer) and the VP, Finance and Chief Accounting Officer (“CAO”) (principal financial officer), we conducted an evaluation of the effectiveness of our disclosure controls and procedures, as such term is defined under Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of September 30, 2015 . Based on this evaluation, our CEO and our CAO concluded that our

disclosure controls and procedures were not effective as of September 30, 2015 because of the material weaknesses in internal control over financial reporting described below.

Management’s Report on Internal Control Over Financial Reporting

Management, with the participation of our principal executive officer and principal financial officer, performed an assessment of the effectiveness of our internal control over financial reporting as of September 30, 2015 using criteria established in the Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment, management determined that, as of September 30, 2015 , material weaknesses existed in our internal control over financial reporting over the accounting for and disclosures of technical accounting matters in the condensed consolidated financial statements and effective monitoring and oversight over the controls in the financial reporting process. Because of these material weaknesses, management concluded that the Company did not maintain effective internal control over financial reporting as of September 30, 2015 , based on the COSO framework. For information on the progress of the remediation of the material weaknesses, see Material Weaknesses and Remediation Efforts below.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

The deficiencies resulted in an audit adjustment with respect to the consolidated financial statements for the interim period ended March 31, 2014 related to the cash flows presentation of certain noncash disclosures. Additionally, the material weaknesses could result in a misstatement of account balances or disclosures that would result in a material misstatement to the annual consolidated financial statements or interim condensed consolidated financial statements that would not be prevented or detected.

Material Weaknesses and Remediation Efforts

The material weaknesses in our internal control over financial reporting described above and our efforts to remediate such material weaknesses were disclosed in Item 9A, Controls and Procedures of our annual report on Form 10-K, for the year ended December 31, 2014. We are committed to remediate our control deficiencies that constitute the material weaknesses by implementing changes to our internal control over financial reporting and will continue to review and make the changes necessary in order to improve the overall effectiveness of our internal controls over financial reporting.

Changes in Internal Control Over Financial Reporting

As a result of the material weaknesses described above, there were changes in internal control over financial reporting during the quarter ended September 30, 2015 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting. Although these material weaknesses continued to exist as of September 30, 2015 , management believes that progress has been made with the following specific actions during the nine months ended September 30, 2015 :


•	we added more experienced accounting staff with the requisite skills and experience to support our structure and financial reporting requirements;


•	we utilized qualified outside consulting personnel, where necessary, in support of our complex technical accounting matters;


•	we continued to monitor our internal controls processes, implementing continuous process improvement changes to support the relevant financial statement assertions and presentation and disclosure; and


•	we continued to retain an outside consulting firm to review the design of our internal control over financial reporting to ensure that the processes and intended changes to the processes are addressing the relevant financial statement assertions and presentation and disclosure matters, including the monitoring and oversight of controls in the financial reporting process.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are a party to certain litigation that is either judged to be not material or that arises in the ordinary course of business from time to time. We intend to vigorously defend our interests in these matters. We expect that the resolution of these matters will not have a material adverse effect on our business, financial condition or results of operations. However, due to the uncertainties inherent in litigation, no assurance can be given as to the outcome of these proceedings.


ITEM 1A.	RISK FACTORS

The risk factors set forth below with an asterisk (*) next to the title are new risk factors or risk factors containing material changes from the risk factors previously disclosed in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2014, as filed with the SEC on March 16, 2015:

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Risks Related to the Company

We expect to continue to require external financing to fund our operations, which may not be available.

We expect to require external financing to fund our long-term operations. Such financing may not be available on terms we deem acceptable or at all. The terms of our February 2015 financing placed restrictions on our ability to issue equity under our committed equity facility with Aspire Capital.

As of September 30, 2015 , we had cash and cash equivalents of approximately $5.8 million . Based upon our current operating plan and the access to additional capital under our committed equity financing facility, we believe we have sufficient cash to fund our on-going operations through the fourth quarter of 2016. We expect to continue to have net cash outflows from operations during the remainder of 2015 as we further our Phase 2b development program for fispemifene, works towards resubmission of an NDA for Vitaros ^® in the United States, further develop Room Temperature Vitaros ^® , and incur other operating costs. While we have historically generated modest revenues from our operations, we do not believe that these revenues will be sufficient to fund our long-term ongoing operations, including the development and commercialization of our product candidates and general and administrative expenses for the foreseeable future. Given our current lack of profitability and limited capital resources, we may not be able to fully execute all of the elements of our strategic plan, including seeking additional market approvals and commercializing Vitaros ^® , and completing our development programs for RayVa ^™ and fispemifene. If we are unable to accomplish these objectives, our business prospects would be diminished and we will likely be unable to achieve profitability.

We have a history of operating losses and an accumulated deficit, and we may be unable to generate sufficient revenue to achieve profitability in the future.

We only began generating revenues from the commercialization of Vitaros ^® in the third quarter of 2014, we have never been profitable and we have incurred an accumulated deficit of approximately $306.5 million from our inception through September 30, 2015 . We have incurred these losses principally from costs incurred in funding the research, development and clinical testing of our product candidates, from our general and administrative expenses and from our efforts to support commercialization of Vitaros ^® by our partners. We expect to continue to incur significant operating losses and capital expenditures for the foreseeable future.

Our ability to generate revenues and become profitable depends, among other things, on (1) the successful development, approval and commercialization of our product candidates including fispemifene and RayVa ^™ , and (2) the successful development of Vitaros ^® in the United States. and the commercialization of Vitaros ^® in the United States. and other markets outside of the United States. If we are unable to accomplish these objectives, we may be unable to achieve profitability and would need to raise additional capital to sustain our operations.

Revenues based on Vitaros ^® represent a substantial portion of our current and expected future revenues.

Our marketing partners are obligated to pay us royalties on their sales of Vitaros ^® . These payments are expected to be a substantial portion of our ongoing revenues for some time. As a result, any setback that may occur with respect to Vitaros ^® could significantly impair our operating results and/or reduce the market price of our stock. Setbacks for Vitaros ^® could include problems with shipping, distribution, manufacturing, product safety, marketing, government regulation or reimbursement, licenses and approvals, intellectual property rights, competition with existing or new products and physician or patient acceptance of the product, as well as higher than expected total rebates, returns or discounts.

In markets where Vitaros ^® is approved, we are substantially dependent on marketing partners to successfully commercialize Vitaros ^® .*

In markets where Vitaros ^® has received regulatory approval, we do not have or expect to have any sales or marketing infrastructure. Accordingly, our operating results and long-term success is substantially dependent on the commercialization efforts of our worldwide marketing partners. In jurisdictions where we have commercialized our products with partners the amount of revenue we receive from product sales will be lower than if we commercialized directly, as we will be required to share the revenues with our partners. If our partners’ commercialization efforts for Vitaros ^® are unsuccessful, we may realize little or no revenue from sales in such markets.

In addition, distribution of Vitaros ^® requires cold-chain distribution, whereby the product must be maintained between specified temperatures. If a difficulty arises in our partner’s cold-chain distribution processes, through our partner’s failure to maintain Vitaros ^® between specified temperatures, Vitaros ^® could be damaged or spoiled and rendered unusable. Our marketing partners may also be required to repackage Vitaros ^® in certain smaller territories where Vitaros ^® has been approved, or our marketing partners may make claims about applications of Vitaros ^® beyond uses approved by regulators. Any failure by our partners to comply with packaging, labeling, advertising or promoting requirements in any jurisdiction may result in restrictions on the marketing or manufacturing of Vitaros ^® , withdrawal of the product from the market or voluntary or mandatory product recalls, which could negatively affect our potential future revenues. Our marketing partners independently determine when to order new product and whether to release Vitaros ^® in compliance with their own policies and guidelines. Our partners’ internal product release guidelines, over which we have no control, may be more restrictive than local regulations. This may result in delays of sales,

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delivery or new orders of our product. For example, in July 2015, Sandoz reported that it was out of stock of Vitaros ^® in Germany because it has put a hold on releasing additional batches pending the results of an ongoing out-of-specification investigation by our contract manufacturer. We cannot give any assurance that Sandoz will resume product orders in Germany soon, or at all.

Any failure of our partners to adequately perform their obligations under our license agreements for Vitaros ^® or any of our other product candidates or the termination of such agreements could have a material and adverse impact on our business.

We and our licensees depend upon third party manufacturers for our products Vitaros ^® , fispemifene, and RayVa ^™ and for the raw materials, components, chemical supplies, and dispensers required for our finished products.

We do not manufacture any of our products or product candidates. As such, we are dependent on third party manufacturers for the supply of these products and product candidates. The manufacturing process for our products is highly regulated and regulators may refuse to qualify new suppliers and/or terminate manufacturing at existing facilities that they believe do not comply with regulations. Further, our commercial partners may require changes in the product specifications which could cause delays or additional costs to be incurred. The inability of our contract manufacturers to successfully produce commercial quantities of Vitaros ^® with an acceptable shelf-life could delay or prevent a commercial launch in certain territories, which would negatively affect our potential future revenues.

Our third-party manufacturers and suppliers are subject to numerous regulations, including Good Manufacturing Practices, FDA regulations governing manufacturing processes and related activities and similar foreign regulations. Our third-party manufacturers and suppliers are independent entities who are subject to their own operational and financial risks that are out of our control. If we or any of these third-party manufacturers or suppliers fail to perform as required or fail to comply with the regulations of the FDA and other applicable governmental authorities, our ability to deliver our products on a timely basis, receive royalties or continue our clinical trials would be adversely affected. Also, the manufacturing processes of our manufacturing partners may be found to violate the proprietary rights of others, which could interfere with their ability to manufacture products on a timely and cost effective basis.

In addition, we and our licensees are also dependent on third party manufacturers and suppliers of raw materials, components, chemical supplies for the active drugs in our products and product candidates under development for the formulation and supply of our NexACT ^® enhancers and finished products. We are dependent on these third-party manufacturers for dispensers that are essential in the production of our products Vitaros ^® and other products and product candidates. These raw materials, components, chemical supplies, finished products and dispensers must be supplied on a timely basis and at satisfactory quality levels.

If our third party product manufacturers or suppliers of raw materials, components, chemical supplies, finished products and dispensers fail to produce quality products on time and in sufficient quantities, or if we are unable to secure adequate alternative sources of supply for such materials, components, chemicals, finished products and dispensers, our results would suffer, as we or our licensees would encounter costs and delays in re-validating new third party suppliers.

Our financial prospects depend in part on the ability of our contract manufacturers and our suppliers to produce and deliver Vitaros ^® in Canada, Europe and other countries within the approved product specifications. If Vitaros ^® is not able to be manufactured and provided to customers within the desired specifications and if those specifications cannot be maintained in accordance with approved label requirements, the expected sales by our partners may not be possible and our financial results would be negatively impacted.*

We are dependent upon our suppliers and manufacturers of active drug substance, proprietary excipient and other components used in Vitaros ^® to produce and deliver these materials for Vitaros ^® manufacturing according to the approved quality specifications filed with the regulatory authorities and according to GMP. If these suppliers or manufacturers are not able to supply these materials in a consistent and timely manner, or fail to meet the regulatory requirements to include Vitaros ^® product specifications, then Vitaros ^® would not be able to be manufactured.

Similarly, we are dependent upon contract manufacturers to produce Vitaros ^® dosage form according to the approved specifications for each territory. If the manufacturers are not able to make Vitaros ^® for any reason, such as an unexpected plant shutdown, failure of certain inspections by regulatory authorities, equipment failure or inability to meet approved regulatory specifications for Vitaros ^® , then Vitaros ^® would not be able to be delivered to our partners.

It is possible that our contract manufacturers will not be able to successfully manufacture according to the requirements, and any unforeseen delay, inability to manufacture, or any unforeseen circumstance whereby the approved product label cannot be maintained could significantly impact our financial results. In July 2015, Sandoz reported that it was out of stock of Vitaros ^® in Germany. Sandoz has put a hold on releasing additional batches pending the results of an ongoing out-of-specification investigation by our contract manufacturer. Such investigation relates to a stability sample of Vitaros ^® manufactured for sale in the United Kingdom. All relevant health authorities have been informed and are privy to the ongoing investigation. Sandoz continues to sell product in Sweden and Belgium and our other Vitaros ^® partners continue to release batches and sell product in the U.K., France, Spain and Italy. There can be no assurances that we will not experience similar manufacturing issues in the future.

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The product specifications for Vitaros ^® , and other pharmaceutical products, are governed by the applicable jurisdiction’s regulatory authorities and those specifications may affect the ability of our partners to manufacture a product with a desired product shelf-life, prescribing information or other product characteristics that impact their marketing goals. Such product specifications are specific to each individual jurisdiction’s market-approval directives and are generally not applicable to those product specifications approved by other countries’ regulatory authorities.

The manufacturing specifications for producing Vitaros ^® in Canada affect the expected shelf-life that can be achieved for the product. Mylan, Inc., our marketing partner in Canada, is working with their contract manufacturer to optimize the shelf-life period for the cold-chain product prior to launch. If any of our partners are unable to achieve the desired product shelf life within approved specifications, our financial results could be negatively impacted.

Pre-clinical and clinical trials are inherently unpredictable. If we or our partners do not successfully conduct the clinical trials or gain regulatory approval, we or our partners may be unable to market our product candidates.

Through pre-clinical studies and clinical trials, our product candidates, such as fispemifene, RayVa ^™ and Femprox ^® , must be demonstrated to be safe and effective for their indicated uses. Results from pre-clinical studies and early clinical trials may not be indicative of, or allow for, prediction of results in later-stage testing. Many of the pre-clinical studies that we have conducted are in animals with “models” of human disease states. Although these tests are widely used as screening mechanisms for drug candidates before being advanced to human clinical studies, results in animal studies are less reliable predictors of safety and efficacy than results of human clinical studies. Future clinical trials may not demonstrate the safety and effectiveness of our product candidates or may not result in regulatory approval to market our product candidates. Commercial sales in any territory cannot begin until approval is received from the applicable regulatory authorities, including the FDA in the United States.

Our business is dependent in part on the success of our product candidates, which will require significant additional clinical testing before we can seek regulatory approval and potentially commercialize products. ^*

Our future success depends in part on our ability to obtain regulatory approval for, and then successfully commercialize our product candidates. Our product candidates will require additional clinical and non-clinical development, regulatory review and approval in multiple jurisdictions, substantial investment, access to sufficient commercial manufacturing capacity and significant marketing efforts before we can generate any revenues from product sales. We are not permitted to market or promote our product candidates in the United States before we receive regulatory approval from the United States FDA and comparable foreign regulatory authorities in overseas jurisdictions, and we may not receive such regulatory approvals on a timely basis, or at all.

Our clinical development plan for RayVa ^™ includes a now completed Phase 2a clinical trial, a Phase 2b clinical trial and up to two Phase 3 clinical trials in patients with Raynaud’s Phenomenon secondary to scleroderma. We reported results on the Phase 2a clinical trial in September 2015, which supported moving RayVa ^™ forward into future clinical trials expected to begin in 2016. Our clinical development plan for fispemifene includes Phase 2 and 3 clinical trials in patients with secondary hypogonadism. We initiated a Phase 2b clinical trial for fispemifene in May 2015. There is no guarantee that we will commence our planned clinical trials or that our ongoing clinical trials will be completed on time or at all, and the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials. Even if such regulatory authorities agree with the design and implementation of our clinical trials, we cannot guarantee that such regulatory authorities will not change their requirements in the future. In addition, even if the clinical trials are successfully completed, we cannot guarantee that the FDA or foreign regulatory authorities will interpret the results as we do, and more trials could be required before we submit our product candidates for approval. To the extent that the results of the clinical trials are not satisfactory to the FDA or foreign regulatory authorities for support of a marketing application, approval of our product candidates may be significantly delayed, or we may be required to expend significant additional resources, which may not be available to us, to conduct additional trials in support of potential approval of our product candidates.

We cannot anticipate when or if we will seek regulatory review of our product candidates for any indication. We in-licensed the rights to Vitaros ^® in the United States in September 2015. We expect to resubmit an NDA in the second half of 2016. An NDA must include extensive pre-clinical and clinical data and supporting information to establish the drug candidate’s safety and effectiveness for each desired indication. The NDA must also include significant information regarding the chemistry, manufacturing and controls for the product. Obtaining approval of an NDA is a lengthy, expensive and uncertain process and may not be obtained on a timely basis, or at all. We have not received marketing approval for any product candidates in the United States, and we cannot be certain that our product candidates will be successful in clinical trials or receive regulatory approval for any indication. If we do not receive regulatory approvals for and successfully commercialize our product candidates on a timely basis or at all, we may not be able to continue our operations. Even if we successfully obtain regulatory approvals to market our product candidates, our revenues will be dependent, in part, on our ability to commercialize our product candidates and on the favorableness of the labeling language granted as well as the size of the markets in the territories for which we gain regulatory approval and have commercial rights. If the markets for the treatment of Raynaud’s Phenomenon secondary to scleroderma or secondary hypogonadism, chronic prostatitis and lower urinary tract symptoms in men are not as significant as we estimate, our business and prospects will be harmed.

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If we are unable to adequately establish, maintain and protect our intellectual property rights, we may incur substantial litigation costs and may be unable to generate significant product revenue.

Protection of the intellectual property for our products and product candidates is of material importance to our business in the United States and other countries. We have sought and will continue to seek proprietary protection for our product candidates to attempt to prevent others from commercializing equivalent products. Our success may depend on our ability to (1) obtain effective patent protection within the United States and internationally for our proprietary technologies and products, (2) defend patents we own, (3) preserve our trade secrets and (4) operate without infringing upon the proprietary rights of others. In addition, we have agreed to indemnify certain of our partners for certain liabilities with respect to the defense, protection and/or validity of our patents and would also be required to incur costs or forgo revenue if it is necessary for our partners to acquire third party patent licenses in order for them to exercise the licenses acquired from us.

While we have obtained patents and have many patent applications pending, the extent of effective patent protection in the United States and other countries is highly uncertain and involves complex legal and factual questions. No consistent policy addresses the breadth of claims allowed in, or the degree of protection afforded under, patents of medical and pharmaceutical companies. Patents we currently own or may obtain might not be sufficiently broad enough to protect us against competitors with similar technology. Any of our patents could be invalidated or circumvented.

Furthermore, holders of competing patents could allege that our activities infringe on their rights and could potentially prevail in litigation against us. We have also sold certain patents in transactions where we have licensed rights to our drug candidates. In certain of these transactions, we have agreed to indemnify the purchaser from third party patent claims, which could expose us to potentially significant damages for patents that we no longer own. Any litigation could result in substantial cost to us and would divert management’s attention, which may harm our business. In addition, our efforts to protect or defend our proprietary rights may not be successful or, even if successful, may result in substantial cost to us.

We face a high degree of competition.

We are engaged in a highly competitive industry. We and our licensees compete against many companies and research institutions that research, develop and market products in areas similar to those in which we operate. For example, Viagra ^® (Pfizer), Cialis ^® (Lilly), Levitra ^® (Glaxo Smith Kline), Stendra ^® (Endo Pharmaceuticals, Inc.), and Spedra ^® (Menarini Group) are currently approved for treatment of ED. Various companies have testosterone replacement therapies on the market for hypogonadism, such as Androgel (Abbott Labs), Axiron (Eli Lilly), Repros Therapeutics, and Testim, Testopel, Striant, Aveed and Fortesta (Endo Pharmaceuticals, Inc.).

These and other competitors may have specific expertise and development technologies that are better than ours. Many of these competitors, which include large pharmaceutical companies, have substantially greater financial resources, larger research and development capabilities and substantially greater experience than we do. Accordingly, our competitors may successfully develop competing products. We are also competing with other companies and their products with respect to manufacturing efficiencies and marketing capabilities, areas where we have limited or no direct experience.

A number of other companies have attempted to gain approval in the United States and foreign countries for products similar to Femprox ^® for indications similar to Female Sexual Interest and Arousal Disorder and have not been successful. ^*

There have been numerous other companies that have tried to gain regulatory approval for a product in the United States or in any other country to treat FSIAD. To date, to our knowledge, the only product approved by the FDA or any other regulatory agency is Sprout Pharmaceuticals (recently acquired by Valeant Pharmaceuticals) for its drug Addyi ^™ for the treatment of Hypoactive Sexual Desire Disorder (“HSDD”) in women and no other products are currently on the market for this disorder or a similar disorder. A number of companies such as BioSante for its drug LibiGel ^® , Proctor & Gamble for its drug Intrinsa ^® and Boehringer Ingelheim for its drug Girosa ^® , have invested substantial resources in pre-clinical and clinical development on such products and have failed to have them approved by the FDA. There is no guarantee that our product candidate, Femprox ^® , will be approved by the FDA or any other regulatory agency or that we will realize any revenues from sales of or for the partnering agreements for Femprox ^® .

Our pharmaceutical expenditures may not result in commercially successful products.

We cannot be sure our business expenditures will result in the successful acquisition, development or launch of products that will prove to be commercially successful or will improve the long-term profitability of our business. If such business expenditures do not result in successful acquisition, development or launch of commercially successful brand products, our results of operations and financial condition could be materially adversely affected.

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Business development activity involves numerous risks, including the risks that we may be unable to integrate an acquired business successfully and that we may assume liabilities that could adversely affect us.

In order to augment our product pipeline or otherwise strengthen our business, we may decide to acquire or license additional businesses, products and technologies. Acquisitions could require us to raise significant capital and involve many risks, including, but not limited to, the following:


•	difficulties in achieving identified financial revenue synergies, growth opportunities, operating synergies and cost savings;


•	difficulties in assimilating the personnel, operations and products of an acquired company, and the potential loss of key employees;


•	difficulties in consolidating information technology platforms, business applications and corporate infrastructure;


•	difficulties in integrating our corporate culture with local customs and cultures;


•	possible overlap between our products or customers and those of an acquired entity that may create conflicts in relationships or other commitments detrimental to the integrated businesses;


•	our inability to achieve expected revenues and gross margins for any products we may acquire;


•	the diversion of management’s attention from other business concerns;


•	risks and challenges of entering or operating in markets in which we have limited or no prior experience, including the unanticipated effects of export controls, exchange rate fluctuations, foreign legal and regulatory requirements, and foreign political and economic conditions; and


•	difficulties in reorganizing, winding-down or liquidating operations if not successful.

In addition, foreign acquisitions involve numerous risks, including those related to changes in local laws and market conditions and due to the absence of policies and procedures sufficient to assure compliance by a foreign entity with United States regulatory and legal requirements. Business development activities require significant transaction costs, including substantial fees for investment bankers, attorneys, and accountants. Any acquisition could result in our assumption of material unknown and/or unexpected liabilities. We also cannot be assured that we will achieve any cost savings or synergies relating to recent or future acquisitions. Additionally, in any acquisition agreement, the negotiated representations, warranties and agreements of the selling parties may not entirely protect us, and liabilities resulting from any breaches could exceed negotiated indemnity limitations. These factors could impair our growth and ability to compete, divert resources from other potentially more profitable areas, or otherwise cause a material adverse effect on our business, financial position and results of operations.

The financial statements of acquired companies, or those that may be acquired in the future, are prepared by management of such companies and are not independently verified by our management. In addition, any pro forma financial statements prepared by us to give effect to such acquisitions may not accurately reflect the results of operations of such companies that would have been achieved had the acquisition of such entities been completed at the beginning of the applicable periods.

We may be subject to product liability and similar claims, which may lead to a significant financial loss if our insurance coverage is inadequate.

We are exposed to potential product liability risks inherent in the development, testing, manufacturing, marketing and sale of human therapeutic products. Product liability insurance for the pharmaceutical industry is extremely expensive, difficult to obtain and may not be available on acceptable terms, if at all. Although we maintain various types of insurance, we have no guarantee that the coverage limits of such insurance policies will be adequate. If liability claims were made against us, it is possible that our insurance carriers may deny, or attempt to deny, coverage in certain instances. A successful claim against us if we are uninsured, or which is in excess of our insurance coverage, if any, could have a material adverse effect upon us and on our financial condition.

Our business and operations would be adversely impacted in the event of a failure or security breach of our information technology infrastructure.

We rely upon the capacity, reliability and security of our information technology hardware and software infrastructure, including internet-based systems, and our ability to expand and update this infrastructure in response to our changing needs. We are constantly updating our information technology infrastructure. Any failure to manage, expand and update our information technology infrastructure or any failure in the operation of this infrastructure could harm our business.

Despite our implementation of security measures, our systems and those of our business partners may be vulnerable to damages from cyber-attacks, computer viruses, natural disasters, unauthorized access, telecommunication and electrical failures, and other similar disruptions. Our business is also potentially vulnerable to break-ins, sabotage and intentional acts of vandalism by third parties as well as employees. Any system failure, accident or security breach could result in disruptions to our operations, could lead to the loss of trade secrets or other intellectual property, could lead to the public exposure of personal information of our

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employees, clinical trial participants and others, and could result in a material disruption to our clinical and commercialization activities and business operations. To the extent that any disruption or security breach results in a loss or damage to our data, or inappropriate disclosure of confidential information, it could harm our business and cause us to incur liability. In addition, we may be required to incur significant costs to protect against damage caused by these disruptions or security breaches in the future.

If we fail to attract and retain senior management and key scientific personnel, we may be unable to successfully operate our business. ^*

Our success depends, in part, on our ability to attract, retain and motivate highly qualified management and scientific personnel and on our ability to develop and maintain important relationships with healthcare providers, clinicians and scientists. We are highly dependent upon our senior management and scientific staff. We have incurred attrition at the senior management level in the past, and although we have employment agreements with five of our executives, these agreements are generally terminable at will at any time, and, therefore, we may not be able to retain their services as expected. The loss of services of one or more members of our senior management and scientific staff could delay or prevent us from successfully operating our business. Competition for qualified personnel in the biotechnology and pharmaceuticals field is intense, particularly in the San Diego, California area, where our offices are located. We may need to hire additional personnel to support development and commercial efforts for Vitaros ^® and to support our further development of fispemifene and RayVa ^™ . We may not be able to attract and retain qualified personnel on acceptable terms.

Our ability to maintain, expand or renew existing business relationships and to establish new business relationships, particularly in the drug development sector, also depends on our ability to subcontract and retain scientific staff with the skills necessary to keep pace with continuing changes in drug development technologies.

From time to time we are subject to various legal proceedings, which could expose us to significant liabilities.

We, as well as certain of our officers and distributors, are subject, from time to time, to a number of legal proceedings, including those legal proceedings described in the notes to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2014. Litigation is inherently unpredictable, and any claims and disputes may result in significant legal fees and expenses regardless of merit and could divert management’s time and other resources. If we are unable to successfully defend or settle any claims asserted against us, we could be liable for damages and be required to alter or cease certain of our business practices or product lines. Any of these outcomes could cause our business, financial performance and cash position to be negatively impacted. There is no guarantee of a successful result in any of these lawsuits regardless of merit, either in defending these claims or in pursuing counterclaims.

Management’s determination that a material weakness exists in our internal controls over financial reporting could have a material adverse impact on our ability to produce timely and accurate financial statements.

The Sarbanes-Oxley Act requires that we report annually on the effectiveness of our internal controls over financial reporting. Among other things, we must perform systems and processes evaluation testing. This includes an assessment of our internal controls to allow management to report on, and our independent public accounting firm to attest to, our internal controls over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. Management performed an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2014 using criteria established by the Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment, management determined that, as of December 31, 2014 , material weaknesses exist in our internal control over financial reporting over the accounting for and disclosures of technical accounting matters in the condensed consolidated financial statements and effective monitoring and oversight over the controls in the financial reporting process. Because of these material weaknesses, management concluded that the Company did not maintain effective internal control over financial reporting as of December 31, 2014 , based on the COSO framework.

For information on the progress of the remediation of the material weaknesses, see the material weaknesses and remediation efforts section under Item 9A in our Annual Report on Form 10-K for the year ended December 31, 2014. Our future assessment, or the future assessment by our independent registered public accounting firm, may reveal additional material weaknesses in our internal controls. If not remediated, a material weakness, and any future potential material weaknesses identified by management could result in future errors in our financial statements or in documents we file with the SEC.

The terms of our Credit Facility place restrictions on our operating and financial flexibility.*

On October 17, 2014, we entered into the Credit Facility with the Lenders that is secured by substantially all of our assets, excluding intellectual property. The principal balance under the Credit Facility was $5.0 million at closing on October 17, 2014. On July 23, 2015, we borrowed an additional $5.0 million , which increased the principal balance under the Credit Facility to $10.0 million .

The Credit Facility includes affirmative and negative covenants applicable to us and any subsidiaries we create in the future. The affirmative covenants include, among others, covenants requiring us to maintain our legal existence and governmental approvals, deliver certain financial reports and maintain insurance coverage. The negative covenants include, among others, restrictions on

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our transferring collateral, incurring additional indebtedness, engaging in mergers or acquisitions, paying dividends or making other distributions, making investments, creating liens, selling assets, and suffering a change in control, in each case subject to certain exceptions.

The Credit Facility also includes events of default, the occurrence and continuation of which provide Oxford, as collateral agent, with the right to exercise remedies against us and the collateral securing the term loans under the Credit Facility, including foreclosure against our properties securing the Credit Facility, including our cash. These events of default include, among other things, our failure to pay any amounts due under the Credit Facility, a breach of covenants under the Credit Facility, our insolvency, a material adverse change, the occurrence of any default under certain other indebtedness in an amount greater than $250,000, and a final judgment against us in an amount greater than $250,000.

If we fail to comply with our obligations in our intellectual property licenses and funding arrangements with third parties, we could lose rights that are important to our business.

We are party to license agreements with Allergan and Forendo Pharma Ltd. that imposes diligence, development and commercialization timelines, milestone payment, royalty, insurance and other obligations on us. Under our existing licensing agreements, we are obligated to pay royalties on net product sales of Vitaros ^® or fispemifene to the extent they are covered by the agreements. If we fail to comply with our obligations, our counterparties may have the right to terminate these agreements, in which event we might not be able to develop, manufacture or market any product that is covered by these agreements or may face other penalties under the agreements. Such an occurrence could materially adversely affect the value of product candidates being developed using rights licensed to us under any such agreement. Termination of these agreements or reduction or elimination of our rights under these agreements may result in our having to negotiate new or reinstated agreements with less favorable terms, or cause us to lose our rights under these agreements, including our rights to important intellectual property or technology.

We may enter into license agreements in the future that could also impose diligence, development and commercialization timelines, milestone payments, royalty, insurance and other obligations.

Industry Risks

Instability and volatility in the financial markets in the global economy are likely to have a negative impact on our ability to raise necessary funds.

During the past several years, there has been substantial volatility in financial markets due in part to the global economic environment. In addition, there has been substantial uncertainty in the capital markets and access to financing is uncertain. These conditions are likely to have an adverse effect on our industry, licensing partners and business, including our financial condition, results of operations and cash flows.

We expect to need to raise capital through equity sales and/or incur indebtedness, if available, to finance operations. However, continued volatility in the capital markets may have an adverse effect on our ability to fund our business strategy through sales of capital stock or through borrowings, in the public or private markets on terms that we believe to be reasonable, if at all.

Changes in trends in the pharmaceutical and biotechnology industries, including difficult market conditions, could adversely affect our operating results.

Industry trends and economic and political factors that affect pharmaceutical, biotechnology and medical device companies also affect our business. In the past, mergers, product withdrawals, liability lawsuits and other factors in the pharmaceutical industry have slowed decision-making by pharmaceutical companies and delayed drug development projects. Continuation or increases in these trends could have an adverse effect on our business.

The biotechnology, pharmaceutical and medical device industries generally, and more specifically drug discovery and development, are subject to increasingly rapid technological changes. Our competitors might develop technologies, services or products that are more effective or commercially attractive than our current or future technologies, services or products, or that render our technologies, services or products less competitive or obsolete. If competitors introduce superior technologies, services or products and we cannot make enhancements to our technologies, services or products to remain competitive, our competitive position, and in turn our business, revenue and financial condition, would be materially and adversely affected.

We and our licensees are subject to numerous and complex government regulations which could result in delay and expense.

Governmental authorities in the United States and other countries heavily regulate the testing, manufacture, labeling, distribution, advertising and marketing of our proposed product candidates. None of our proprietary products under development have been approved for marketing in the United States. Before any products we develop are marketed, FDA and comparable foreign agency approval must be obtained through an extensive clinical study and approval process.

The failure to obtain requisite governmental approvals for our product candidates under development in a timely manner, or at all, would delay or preclude us and our licensees from marketing our product candidates or limit the commercial use of our product candidates, which could adversely affect our business, financial condition and results of operations.

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Because we intend that our product candidates will also be sold and marketed outside the United States, we and/or our licensees will be subject to foreign regulatory requirements governing the conduct of clinical trials, product licensing, pricing and reimbursements. These requirements vary widely from country to country. The failure to meet each foreign country’s requirements could delay the introduction of our proposed product candidates in the respective foreign country and limit our revenues from sales of our proposed product candidates in foreign markets.

We face uncertainty related to healthcare reform, pricing and reimbursement, which could reduce our revenue.

In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could, among other things, prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities and affect our ability to profitably sell Vitaros ^® or any products for which we obtain marketing approval.

For example, in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care Education Reconciliation Act, collectively the Affordable Care Act, was enacted to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for health care and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms. Among the provisions of the Affordable Care Act of importance to our potential drug candidates are the following:


•	an annual, nondeductible fee payable by any entity that manufactures or imports specified branded prescription drugs and biologic agents;


•	an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program;


•	a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected;


•	a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries under their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D;


•	extension of manufacturers’ Medicaid rebate liability to individuals enrolled in Medicaid managed care organizations;


•	expansion of eligibility criteria for Medicaid programs;


•	expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program;


•	a new requirement to annually report drug samples that manufacturers and distributors provide to physicians; and a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research.

Although it is too early to determine the full effect of the Affordable Care Act, the law has continued the downward pressure on pharmaceutical pricing, especially under the Medicare program, and increased the industry’s regulatory burdens and operating costs.

In addition, other legislative changes have been proposed and adopted since the PPACA was enacted. For example, in August 2011, the President signed into law the Budget Control Act of 2011, which, among other things, created the Joint Select Committee on Deficit Reduction to recommend to Congress proposals in spending reductions. The Joint Select Committee did not achieve a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, triggering the legislation’s automatic reduction to several government programs. This included reductions to Medicare payments to providers of 2% per fiscal year, which went into effect in April 2013 and, due to subsequent legislative amendments to the statute, will stay in effect through 2024 unless additional Congressional action is taken. Additionally, in January 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, reduced Medicare payments to several providers. We expect that additional state and federal healthcare reform measures will be adopted in the future, particularly following the 2016 presidential election cycle, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our products and product candidates or additional pricing pressures.

If reimbursement for our products is substantially less than we expect in the future, or rebate obligations associated with them are substantially increased, our business could be materially and adversely impacted. Further, numerous foreign governments are also undertaking efforts to control growing healthcare costs through legislation, regulation and voluntary agreements with medical care providers and pharmaceutical companies.

Sales of Vitaros ^® and other product candidates, if approved, will depend in part on the availability of coverage and reimbursement from third-party payers such as United States and foreign government insurance programs, including Medicare and Medicaid, private health insurers, health maintenance organizations and other health care related organizations. Both the federal and state

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governments in the United States and foreign governments continue to propose and pass new legislation affecting coverage and reimbursement policies, which are designed to contain or reduce the cost of health care. Further federal and state proposals and healthcare reforms are likely that could limit the prices that can be charged for the product candidates that we develop and may further limit our commercial opportunity. There may be future changes that result in reductions in current coverage and reimbursement levels for our products and we cannot predict the scope of any future changes or the impact that those changes would have on our operations.

Adoption by the medical community of Vitaros ^® and other product candidates, if approved, may be limited if third-party payers will not offer coverage. Cost control initiatives may decrease coverage and payment levels for drugs, which in turn would negatively affect the price that we will be able to charge. We are unable to predict all changes to the coverage or reimbursement methodologies that will be applied by private or government payers to any drug candidate we have in development. Any denial of private or government payer coverage or inadequate reimbursement for our products could harm our business and reduce our revenue.

The FDA regulatory approval process is lengthy and time-consuming, and if we experience significant delays in the clinical development and regulatory approval of our product candidates, our business may be substantially harmed.

We may experience delays in commencing and completing clinical trials of our product candidates. We do not know whether planned clinical trials will begin on time, need to be redesigned, enroll patients on time or be completed on schedule, if at all. Any of our planned clinical trials may be delayed for a variety of reasons, including delays related to:


•	the availability of financial resources for us to commence and complete our planned clinical trials;


•	reaching agreement on acceptable terms and pricing with prospective contract research organizations (“CROs”) and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and clinical trial sites;


•	obtaining independent institutional review board (“IRB”) approval at each clinical trial site;


•	obtaining regulatory approval to commence clinical trials in each country;


•	recruiting a sufficient number of eligible patients to participate in a clinical trial;


•	having patients complete a clinical trial or return for post-treatment follow-up;


•	clinical trial sites deviating from trial protocol or dropping out of a trial;


•	adding new clinical trial sites; or


•	manufacturing sufficient quantities of our product candidate for use in clinical trials.

Patient enrollment is a significant factor in the timing of clinical trials and is affected by many factors including the size and nature of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the clinical trial, the design of the clinical trial, competing clinical trials and clinicians’ and patients’ perceptions as to the potential advantages or potential side effects of the drug candidate being studied in relation to other available therapies, including any new drugs that may be approved for the indications we are investigating.

We could encounter delays if physicians encounter unresolved ethical issues associated with enrolling patients in clinical trials of our product candidates in lieu of prescribing existing treatments that have established safety and efficacy profiles. Further, a clinical trial may be suspended or terminated by us, the IRBs in the institutions in which such trials are being conducted, the Data Monitoring Committee for such trial (if included), or by the FDA or other regulatory authorities due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a product candidate, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. Furthermore, we rely on CROs and clinical trial sites to ensure the proper and timely conduct of our clinical trials. While we have agreements governing the CROs’ services, we have limited influence over their actual performance. If we experience termination of, or delays in the completion of, any clinical trial of our product candidates, the commercial prospects for our product candidates will be harmed, and our ability to generate product revenues will be delayed. In addition, any delays in completing our clinical trials will increase our costs, slow down our product development and approval process and jeopardize our ability to commence product sales and generate revenues from our product candidates. Any of these occurrences may harm our business, prospects, financial condition and results of operations. Furthermore, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates.

If we are unable to obtain regulatory approval of our product candidates, we will not be able to commercialize our product candidates and our business will be adversely impacted.

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If we fail to obtain regulatory approval to market our product candidates, we will be unable to sell our product candidates, which will impair our ability to generate additional revenues. To receive approval, we must, among other things, demonstrate with substantial evidence from clinical trials that the product candidate is both safe and effective for each indication for which approval is sought. Failure can occur in any stage of development. Satisfaction of the approval requirements is unpredictable but typically takes several years following the commencement of clinical trials, and the time and money needed to satisfy them may vary substantially, based on the type, complexity and novelty of the pharmaceutical product. We cannot predict if or when our existing and planned clinical trials will generate the data necessary to support an NDA and if, or when, we might receive regulatory approvals for our product candidates.

Our product candidates could fail to receive regulatory approval for many reasons, including the following:


•	the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials;


•	we may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that our product candidates are safe and effective for any of the proposed indications;


•	the results of clinical trials may not meet the level of statistical significance required by the FDA or comparable foreign regulatory authorities for approval;


•	we may be unable to demonstrate that our product candidates’ clinical and other benefits outweigh their safety risks;


•	the FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from preclinical studies or clinical trials;


•	the data collected from clinical trials of our product candidates may not be sufficient to the satisfaction of the FDA or comparable foreign regulatory authorities to support the submission of an NDA or other comparable submission in foreign jurisdictions or to obtain regulatory approval in the United States or elsewhere;


•	the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes or facilities of third-party manufacturers with which we contract for clinical and commercial supplies;


•	the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval; and


•	even after following regulatory guidance or advice, the FDA or comparable foreign regulatory authorities may still reject our ultimate regulatory submissions since their guidance is generally considered non-binding and the regulatory authorities have the authority to revise or adopt new and different guidance at any time.

This lengthy approval process as well as the unpredictability of future clinical trial results may result in our failure to obtain regulatory approval to market our product candidates, which would significantly harm our business, prospects, financial condition and results of operations. In addition, any approvals that we obtain may not cover all of the clinical indications for which we are seeking approval, or could contain significant limitations in the form of narrow indications, warnings, precautions or contra-indications with respect to conditions of use. In such event, our ability to generate revenues would be greatly reduced and our business would be harmed.

Even if we receive regulatory approval for our product candidates, we will be subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expense. Additionally, our product candidates, if approved, could be subject to labeling and other restrictions and market withdrawal and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our product candidates.

Any regulatory approvals that we receive for our product candidates may contain requirements for potentially costly post-marketing testing, including Phase 4 clinical trials, and surveillance to monitor the safety and efficacy of the product candidate. The FDA may also require additional risk management activities and labeling which may limit distribution or patient/prescriber uptake. An example would be the requirement of a risk evaluation and mitigation strategy (“REMS”) in order to approve our product candidates, which could entail requirements for a medication guide, physician communication plans or additional elements to ensure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. In addition, if the FDA or a comparable foreign regulatory authority approves our product candidates, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion, import, export and record-keeping for our product candidates will be subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing information and reports, and registration. We are also required to maintain continued compliance with cGMP requirements and current good clinical practice (“cGCP”) requirements for any clinical trials that we conduct post-approval. Later discovery of previously unknown problems with our product candidates or other manufacturers’ products in the same class, including adverse events of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in, among other things:

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•	restrictions on the marketing or manufacturing of our product candidates, withdrawal of the product from the market, or voluntary or mandatory product recalls;


•	fines, warning letters or holds on clinical trials;


•	refusal by the FDA to approve pending applications or supplements to approved applications filed by us or suspension or revocation of license approvals;


•	product seizure or detention, or refusal to permit the import or export of our product candidates; and


•	injunctions or the imposition of civil or criminal penalties.

The FDA’s and other regulatory authorities’ policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability, which would adversely affect our business, prospects, financial condition and results of operations.

Our relationships with investigators, health care professionals, consultants, third-party payors, and customers are subject to applicable healthcare regulatory laws, which could expose us to penalties.

Our business operations and arrangements with investigators, healthcare professionals, consultants, marketing partners, third-party payors and customers, may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations. These laws may constrain the business or financial arrangements and relationships through which we conduct our operations, including how we research, market, sell and distribute our products and product candidates for which we obtain marketing approval. Such laws include:

•

the federal Anti-Kickback Statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under a federal healthcare program such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of the federal Anti-Kickback Statute or specific intent to violate it to have committed a violation; in addition, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act;


•	the federal False Claims Act imposes criminal and civil penalties, including civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government;

•

the federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it to have committed a violation;


•	HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and its implementing regulations, also imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information;

•

the federal Physician Payment Sunshine Act, which requires manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to the government information related to payments or other “transfers of value” made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, and requires applicable manufacturers and group purchasing organizations to report annually to the government ownership and investment interests held by the physicians described above and their immediate family members and payments or other “transfers of value” to such physician owners (manufacturers are required to submit reports to the government by the 90 ^th day of each calendar year); and

•

analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third party payors, including private insurers; state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government; state laws that require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; and state and foreign laws governing the privacy

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and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.

Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business practices do not comply with current or future statutes, regulations, agency guidance or case law involving applicable healthcare laws. If our operations are found to be in violation of any of these or any other health regulatory laws that may apply to us, we may be subject to significant penalties, including the imposition of significant civil, criminal and administrative penalties, damages, monetary fines, disgorgement, individual imprisonment, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of our operations, any of which could adversely affect our ability to operate our business and our results of operations. Defending against any such actions can be costly, time-consuming and may require significant financial and personnel resources. Therefore, even if we are successful in defending against any such actions that may be brought against us, our business may be impaired.

Our product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences following marketing approval, if any.

Undesirable side effects caused by our product candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other comparable foreign authorities. Results of our trials could reveal a high and unacceptable severity and prevalence of undesirable side effects. In such an event, our trials could be suspended or terminated and the FDA or comparable foreign regulatory authorities could order us to cease further development of or deny approval of our product candidates for any or all targeted indications. The drug-related side effects could affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. Any of these occurrences may harm our business, financial condition and prospects significantly.

Additionally if one or more of our product candidates receives marketing approval, and we or others later identify undesirable side effects caused by such products, a number of potentially significant negative consequences could result, including:


•	regulatory authorities may withdraw approvals of such product;


•	regulatory authorities may require additional warnings on the label;


•	we may be required to create a medication guide outlining the risks of such side effects for distribution to patients;


•	we could be sued and held liable for harm caused to patients; and


•	our reputation may suffer.

Any of these events could prevent us from achieving or maintaining market acceptance of the particular product candidate, if approved, and could significantly harm our business, results of operations and prospects.

Our employees, independent contractors, principal investigators, CROs, consultants, commercial partners and vendors are subject to a number of regulations and standards.

We are exposed to the risk that employees, independent contractors, principal investigators, CROs, consultant and vendors may engage in fraudulent or other illegal activity for which we may be held responsible. Misconduct by these parties could include intentional, reckless and/or negligent conduct or disclosure of unauthorized activities to us that violates: (1) the laws of the FDA and other similar foreign regulatory bodies; including those laws that require the reporting of true, complete and accurate information to the FDA and other similar foreign regulatory bodies, (2) manufacturing standards, (3) healthcare fraud and abuse laws in the United States and similar foreign fraudulent misconduct laws, or (4) laws that require the true, complete and accurate reporting of financial information or data. These laws may impact, among other things, our current activities with principal investigators and research subjects, as well as proposed and future sales, marketing and education programs. In particular, the promotion, sales and marketing of healthcare items and services, as well as certain business arrangements in the healthcare industry, are subject to extensive laws designed to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, structuring and commission(s), certain customer incentive programs and other business arrangements generally. Activities subject to these laws also involve the improper use of information obtained in the course of patient recruitment for clinical trials. If we obtain FDA approval for any of our product candidates and begin commercializing those products in the United States, our potential exposure under such laws will increase significantly, and our costs associated with compliance with such laws are also likely to increase. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of civil, criminal and administrative penalties, damages, monetary fines, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of our operations, any of which could adversely affect our ability to operate our business and our results of operations.

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We rely on third parties to conduct our preclinical studies and clinical trials. These third parties may not perform as contractually required or expected and issues may arise that could delay the completion of clinical trials and impact regulatory approval of our product candidates. *

We sometimes rely on third parties, such as CROs, medical institutions, academic institutions, clinical investigators and contract laboratories to conduct our preclinical studies and clinical trials. We are responsible for confirming that our preclinical studies are conducted in accordance with applicable regulations and that each of our clinical trials is conducted in accordance with its general investigational plan and protocol. The FDA and the European Medicines Agency require us to comply with good laboratory practices for conducting and recording the results of our preclinical studies and cGCP, for conducting, monitoring, recording and reporting the results of clinical trials to assure that data and reported results are accurate and that the clinical trial participants are adequately protected. Our reliance on third parties does not relieve us of these responsibilities. If the third parties conducting our clinical trials do not perform their contractual duties or obligations, do not meet expected deadlines, fail to comply with cGCP, do not adhere to our clinical trial protocols or otherwise fail to generate reliable clinical data, we may need to enter into new arrangements with alternative third parties and our clinical trials may be more costly than expected or budgeted, extended, delayed or terminated or may need to be repeated, and we may not be able to obtain regulatory approval for or commercialize the product candidate being tested in such trials.

Our CROs may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical studies or other drug development activities that could harm our competitive position. If our CROs do not successfully carry out their contractual duties or obligations, fail to meet expected deadlines or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements, or for any other reasons, our clinical studies may be extended, delayed or terminated and we may not be able to obtain regulatory approval for, or successfully commercialize our product candidates.

Further, if our contract manufacturers are not in compliance with regulatory requirements at any stage, including post-marketing approval, we may be fined, forced to remove a product from the market and/or experience other adverse consequences, including delays, which could materially harm our business.

Risks Related to Owning Our Common Stock

We are vulnerable to volatile stock market conditions.

The market prices for securities of biopharmaceutical and biotechnology companies, including ours, have been highly volatile. The market has from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. In addition, future announcements, such as the results of testing and clinical trials, the status of our relationships with third-party collaborators, technological innovations or new therapeutic products, governmental regulation, developments in patent or other proprietary rights, litigation or public concern as to the safety of products developed by us or others and general market conditions concerning us, our competitors or other biopharmaceutical companies, may have a significant effect on the market price of our common stock. In the past, when the market price of a stock has been volatile, holders of that stock have been more likely to initiate securities class action litigation against the company that issued the stock. If any of our stockholders brought a lawsuit against us, we could incur substantial costs defending the lawsuit. Such a lawsuit could also divert the time and attention of our management

We do not expect to pay dividends on our common stock in the foreseeable future.

Although our stockholders may in the future receive dividends if and when declared by our board of directors, we do not intend to declare dividends on our common stock in the foreseeable future. Therefore, you should not purchase our common stock if you need immediate or future income by way of dividends from your investment.

We may issue additional shares of our capital stock that could dilute the value of your shares of common stock.*

We are authorized to issue 160,000,000 shares of our capital stock, consisting of 150,000,000 shares of our common stock and 10,000,000 shares of our preferred stock. Pursuant to the Common Stock Purchase Agreement with Aspire Capital entered into in August 2014, we may, from time to time under certain restrictions, sell up to $22.0 million worth of our common stock, of which $18.2 million remained available as of September 30, 2015 . In light of our future capital needs, we may also issue additional shares of common stock at or below current market prices or issue convertible securities. These issuances would dilute the book value of existing stockholders common stock and could depress the value of our common stock.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.


ITEM 5.	OTHER INFORMATION

Not applicable.

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ITEM 6.	EXHIBITS



EXHIBITS NO.		DESCRIPTION



2.1		Amendment to Stock Purchase Agreement, dated June 13, 2014, by and between Apricus Biosciences, Inc. and Samm Solutions, Inc. (doing business as BTS Research and formerly doing business as BioTox Sciences) (incorporated herein by reference to Exhibit 2.1 to the Company’s Form 10-Q filed with the Securities and Exchange Commission on August 11, 2014).

3.1		Amended and Restated Articles of Incorporation of Apricus Biosciences, Inc. (incorporated herein by reference to Exhibit 2.1 to the Company’s Registration Statement on Form 10-SB filed with the Securities and Exchange Commission on March 14, 1997).

3.2		Certificate of Amendment to Articles of Incorporation of Apricus Biosciences, Inc., dated June 22, 2000 (incorporated herein by reference to Exhibit 3.2 to the Company’s Form 10-K filed with the Securities and Exchange Commission on March 31, 2003).

3.3		Certificate of Amendment to Articles of Incorporation of Apricus Biosciences, Inc., dated June 14, 2005 (incorporated herein by reference to Exhibit 3.4 to the Company’s Form 10-K filed with the Securities and Exchange Commission on March 16, 2006).

3.4		Certificate of Amendment to Amended and Restated Articles of Incorporation of Apricus Biosciences, Inc., dated March 3, 2010 (incorporated herein by reference to Exhibit 3.6 to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2010).

3.5		Certificate of Correction to Certificate of Amendment to Amended and Restated Articles of Incorporation of Apricus Biosciences, Inc., dated March 3, 2010 (incorporated herein by reference to Exhibit 3.7 to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2010).

3.6		Certificate of Designation for Series D Junior-Participating Cumulative Preferred Stock (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-A12GK filed with the Securities and Exchange Commission on March 24, 2011).

3.7		Certificate of Change filed with the Nevada Secretary of State (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the Securities Exchange Commission on June 17, 2010).

3.8		Certificate of Amendment to Amended and Restated Articles of Incorporation of Apricus Biosciences, Inc., dated September 10, 2010 (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 10, 2010).

3.9		Fourth Amended and Restated Bylaws, dated December 18, 2012 (incorporated herein by reference to Exhibit 3.9 to the Company’s Form 10-K filed with the Securities and Exchange Commission on March 18, 2013).

3.10		Certificate of Withdrawal of Series D Junior Participating Cumulative Preferred Stock, dated May 15, 2013 (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 16, 2013).

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4.1		Form of Warrant, dated September 17, 2010 (incorporated herein by reference to Exhibit 4.6 of Amendment No. 2 to the Company’s Registration Statement on Form S-1 (File No. 333-169132) filed with the Securities and Exchange Commission on September 28, 2010).

4.2		Form of Warrant Certificate (incorporated herein by reference to Exhibit 4.7 of Amendment No. 2 to the Company’s Registration Statement on Form S-1 (File No. 333-169132) filed with the Securities and Exchange Commission on September 28, 2010).

4.3		Form of Common Stock Certificate (incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 24, 2011).

4.4		Form of Warrant (incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 13, 2012).

4.5		Form of Warrant (incorporated herein by reference to Exhibit 1.1 to the Company’s Current Report on From 8-K filed with the Securities and Exchange Commission on May 24, 2013).

4.6		Form of Warrant issued to the Holders under the Amendment Agreement, dated as of October 17, 2014, by and among Apricus Biosciences, Inc., The Tail Wind Fund Ltd., Solomon Strategic Holdings, Inc., and Tail Wind Advisory & Management Ltd. (incorporated herein by reference to Exhibit 4.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission on October 20, 2014).

4.7		Form of Warrant issued to the lenders under the Loan and Security Agreement, dated as of October 17, 2014, by and among Apricus Biosciences, Inc., NexMed (U.S.A.), Inc., NexMed Holdings, Inc. and Apricus Pharmaceuticals USA, Inc., as borrowers, Oxford Finance LLC, as collateral agent, and the lenders party thereto from time to time including Oxford Finance LLC and Silicon Valley Bank. (incorporated herein by reference to Exhibit 4.2 to the Company’s Form 8-K filed with the Securities and Exchange Commission on October 20, 2014).

4.8		Form of Warrant (incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 12, 2015).

10.1†		License Agreement and Amendment, by and between NexMed (U.S.A.), Inc. and Warner Chilcott Company, LLC, dated September 9, 2015.

31.1		Chief Executive Officer’s Certificate, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Chief Accounting Officer’s Certificate, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Chief Executive Officer’s Certificate, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (1)

32.2		Chief Accounting Officer’s Certificate, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (1)

101.INS		XBRL Instance Document. (1)

101.SCH		XBRL Taxonomy Extension Schema. (1)

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101.CAL		XBRL Taxonomy Extension Calculation Linkbase. (1)

101.DEF		XBRL Taxonomy Extension Definition Linkbase. (1)

101.LAB		XBRL Taxonomy Extension Label Linkbase. (1)

101.PRE		XBRL Taxonomy Extension Presentation Linkbase. (1)


(1)	Furnished, not filed.

† Confidential treatment has been requested for portions of this exhibit. Those portions have been omitted and filed

separately with the Securities and Exchange Commission.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	Apricus Biosciences, Inc.

Date: November 5, 2015	/s/ CATHERINE BOVENIZER
	Catherine Bovenizer
	Vice President, Chief Accounting Officer

Exhibit 10.1

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24B-2 OF THE EXCHANGE ACT OF 1934.

LICENSE AGREEMENT AND AMENDMENT

by and between

WARNER CHILCOTT COMPANY, LLC (SUCCESSOR-IN-INTEREST TO WARNER CHILCOTT COMPANY, INC.)

and

NEXMED (U.S.A.), INC.

Dated as of September 9, 2015

[***] Confidential Information, indicated by [***], has been omitted by this filing and filed separately with the Securities and Exchange Commission.



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ARTICLE 1 DEFINITIONS		1
ARTICLE 2 GRANT OF RIGHTS AND AMENDMENTS		14
2.1	Grants to NexMed	15
2.2	Existing License Agreement	15
2.3	Sublicenses	16
2.4	Subcontracting	16
2.5	Assignment of Product Trademark	16
2.6	Use of the Allergan Corporate Names	17
2.7	Retention of Rights	17
2.8	Assignment of Existing IND and Existing NDA	17
2.9	Disclosure	17
2.1	Authorized Generic Versions	17
2.11	Amendment of Existing APA and Existing License Agreement	18
ARTICLE 3 JOINT STEERING COMMITTEE		19
3.1	Joint Steering Committee	19
3.2	Specific Responsibilities	20
3.3	General Provisions Applicable to the JSC	20
ARTICLE 4 DEVELOPMENT AND REGULATORY		22
4.1	Development	22
4.2	Regulatory Matters	23
4.3	Compliance	23
ARTICLE 5 COMMERCIALIZATION		23
5.1	Diligence	23
5.2	Compliance with Applicable Law	24
5.3	Commercialization Reports	24
5.4	Sales and Distribution	24
5.5	Markings	24
ARTICLE 6 ALLERGAN OPTION		24
6.1	Option	25
6.2	Safety Data Exchange Agreement	25
6.3	Notice; Exercise; HSR	25
6.4	Effect of Option Exercise	26
ARTICLE 7 MANUFACTURE AND SUPPLY		29
7.1	In General	29
7.2	Supply Agreement	29
ARTICLE 8 PAYMENTS		29
8.1	Upfront Payment	29
8.2	Milestones	29
8.3	Royalties	31
8.4	Mode of Payment	32

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[***] Confidential Information, indicated by [***], has been omitted by this filing and filed separately with the Securities and Exchange Commission.



8.5	Taxes.	32
8.6	Interest on Late Payments	33
8.7	Financial Records	33
8.8	Audit	33
8.9	Audit Dispute	34
8.1	Confidentiality	34
ARTICLE 9 INTELLECTUAL PROPERTY		34
9.1	Ownership of Intellectual Property	34
9.2	Prosecution and Maintenance of Patents	35
9.3	Enforcement of Patents	36
9.4	Infringement Claims by Third Parties	37
9.5	Invalidity or Unenforceability Defenses or Actions	38
9.6	Product Trademark	39
ARTICLE 10 Confidentiality AND Non-Disclosure		40
10.1	Confidential Information	40
10.2	Confidentiality Obligations	41
10.3	Permitted Disclosures	41
10.4	Registration, Filing and Disclosure of the Agreement	42
10.5	Use of Name	43
10.6	Press Releases	43
10.7	Publications	43
10.8	Return or Destruction of Confidential Information	44
10.9	Privileged Communications.	44
ARTICLE 11 REPRESENTATIONS AND WARRANTIES		45
11.1	Mutual Representations and Warranties	45
11.2	Representations, Warranties and Covenants of NexMed	45
11.3	Representations, Warranties and Covenants of Allergan	46
11.4	DISCLAIMER OF WARRANTY	47
ARTICLE 12 Indemnity		47
12.1	Indemnification of Allergan	47
12.2	Indemnification of NexMed	48
12.3	Notice of Claim	48
12.4	Control of Defense	49
12.5	Limitation on Damages and Liability	51
12.6	Insurance	51
ARTICLE 13 Term and Termination		51
13.1	Term	51
13.2	Termination of this Agreement for Material Breach	51
13.3	Termination of this Agreement for Cessation of Development or Failure to Obtain Approval	57
13.4	Termination Upon Insolvency	57
13.5	Termination of this Agreement for Patent Challenge	57
13.6	Rights in Bankruptcy	58

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[***] Confidential Information, indicated by [***], has been omitted by this filing and filed separately with the Securities and Exchange Commission.



13.7	Accrued Rights; Surviving Obligations	58
ARTICLE 14 Miscellaneous		58
14.1	Force Majeure	58
14.2	Assignment	59
14.3	Severability	60
14.4	Governing Law and Service	60
14.5	Dispute Resolution; Arbitration.	60
14.6	Notices	62
14.7	Entire Agreement; Amendments	63
14.8	Equitable Relief	64
14.9	Waiver and Non-Exclusion of Remedies	64
14.1	No Benefit to Third Parties	64
14.1	Further Assurance	64
14.1	Relationship of the Parties	64
14.1	Counterparts	65
14.1	References	65
14.2	Construction	65

Schedules

Schedule 1.7		Allergan Corporate Names
Schedule 1.11		Allergan Patents
Schedule 1.28		Compound
Schedule 1.121		Supply Term Sheet

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[***] Confidential Information, indicated by [***], has been omitted by this filing and filed separately with the Securities and Exchange Commission.

LICENSE AGREEMENT AND AMENDMENT

This License Agreement and Amendment (this “ Agreement ”) is made and entered into effective as of September 9 , 2015 (the “ Effective Date ”) by and between Warner Chilcott Company, LLC (successor-in-interest to Warner Chilcott Company, Inc. (“ Warner ”)), a limited liability company organized under the laws of Puerto Rico (“ Allergan ”) and NexMed (U.S.A.), Inc., a corporation organized under the laws of Nevada (“ NexMed ”) and amends that certain Asset Purchase Agreement by and between NexMed and Warner, dated as of February 3, 2009 (the “ Existing APA ”) and that certain License Agreement by and between NexMed and Warner, dated as of February 3, 2009 (the “ Existing License Agreement ”) in the manner set forth herein. Allergan and NexMed are sometimes referred to herein individually as a “ Party ” and collectively as the “ Parties .”

RECITALS

WHEREAS, pursuant to the Existing APA and the Existing License Agreement (as defined herein), Allergan owns or otherwise controls certain intellectual property relating to the use of alprostadil for the topical treatment of erectile dysfunction;

WHEREAS, NexMed is a specialty pharmaceutical company with a focus on developing and commercializing products for men’s health;

WHEREAS, Allergan wishes to grant to NexMed, and NexMed wishes to take, a license under such intellectual property rights to develop and, unless Allergan exercises its opt-in right (as described below), commercialize and otherwise exploit the Products (as defined herein) in the Territory (as defined herein) for the topical treatment of erectile dysfunction, in each case in accordance with the terms and conditions set forth below;

WHEREAS, NexMed wishes to grant to Allergan, and Allergan wishes to take, an option to obtain the rights under the applicable intellectual property rights to commercialize the Products in the Territory for the topical treatment of erectile dysfunction, in accordance with the terms and conditions set forth below; and

WHEREAS, the Parties have agreed to amend the Existing APA and the Existing License Agreement to reflect the revised business arrangement between the Parties as set forth herein.

NOW, THEREFORE, in consideration of the premises and the mutual promises and conditions hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, do hereby agree as follows:

ARTICLE 1
DEFINITIONS

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[***] Confidential Information, indicated by [***], has been omitted by this filing and filed separately with the Securities and Exchange Commission.

Unless otherwise specifically provided herein, the following terms shall have the following meanings:

1.1 “ Accountant ” has the meaning set forth in Section 8.9.

1.2 “ Affiliate ” means, with respect to a Person, any Person that, directly or indirectly, through one (1) or more intermediaries, controls, is controlled by or is under common control with such first Person at any time during the Term for so long as such Person controls, is controlled by or is under common control with such first Person. For purposes of this definition, “control” and, with correlative meanings, the terms “controlled by” and “under common control with” means: (a) the possession, directly or indirectly, of the power to direct the management or policies of a business entity, whether through the ownership of voting securities, by contract relating to voting rights or corporate governance or otherwise; or (b) the ownership, directly or indirectly, of more than fifty percent (50%) of the voting securities or other ownership interests of a business entity (or, with respect to a limited partnership or other similar entity, its general partner or controlling entity).

1.3 “ AG Launch ” has the meaning set forth in Section 2.10.1.

1.4 “ AG Launch Date ” has the meaning set forth in Section 2.10.1.

1.5 “ Agreement ” has the meaning set forth in the preamble hereto.

1.6 “ Allergan ” has the meaning set forth in the preamble hereto.

1.7 “ Allergan Corporate Names ” means the Trademarks and logos identified on Schedule 1.7 and such other names and logos as Allergan may designate in writing from time to time.

1.8 “ Allergan Indemnitees ” has the meaning set forth in Section 12.1.

1.9 “ Allergan Know-How ” means any Transferred Technology and Licensed Know-How (as such terms are defined in the Existing APA) Controlled by Allergan or any of its Affiliates as of the Effective Date.

1.10 “ Allergan Licensed NexMed Patents ” means the Licensed Patents as such term is defined in the Existing License Agreement.

1.11 “ Allergan Patents ” means, with respect to a Product, the Patents listed on Schedule 1.11 and any other Allergan Licensed NexMed Patents.

1.12 “ Allergan-Managed Patents ” means all of the Allergan Patents other than the NexMed-Managed Patents.

1.13 “ Arbitrators ” has the meaning set forth in Section 14.5.2(a).

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[***] Confidential Information, indicated by [***], has been omitted by this filing and filed separately with the Securities and Exchange Commission.

1.14 “ Applicable Law ” means applicable laws, rules and regulations, including any rules, regulations, guidelines or other requirements of the Regulatory Authorities that may be in effect from time to time.

1.15 “ Authorized Generic Term ” means, on an Authorized Generic Version-by-Authorized Generic Version basis, the period commencing on the First Commercial Sale of such Authorized Generic Version and expiring upon the first (1st) anniversary of the First Commercial Sale of such Authorized Generic Version.

1.16 “ Authorized Generic Version ” means, with respect to a Licensed Product or an Optioned Product, any other pharmaceutical product intended for use in the Field that (a) is sold under the NDA for such Licensed Product or Optioned Product, (b) is sold without a Trademark or under a different Trademark than such Licensed Product or Optioned Product and (c) has an NDC number that differs from the NDC number for such Licensed Product or Optioned Product (other than on a temporary basis as may be necessary to launch such other pharmaceutical product in the Territory).

1.17 “ Breaching Party ” has the meaning set forth in Section 13.2.

1.18 “ Business Day ” means a day other than a Saturday, Sunday or a day on which banking institutions in New York, New York or Dublin, Ireland are permitted or required to be closed.

1.19 “ Calendar Quarter ” means each successive period of three (3) consecutive calendar months commencing on January 1, April 1, July 1 or October 1, except that the first Calendar Quarter of the Term shall commence on the Effective Date and end on the day immediately prior to the first to occur of January 1, April 1, July 1 and October 1 after the Effective Date and the last Calendar Quarter shall end on the last day of the Term.

1.20 “ Calendar Year ” means each successive period of twelve (12) consecutive calendar months commencing on January 1 and ending on December 31, except that the first Calendar Year of the Term shall commence on the Effective Date and end on December 31 of the year in which the Effective Date occurs and the last Calendar Year of the Term shall commence on January 1 of the year in which the Term ends and end on the last day of the Term.

1.21 “ Challenge ” means any challenge to the patentability or validity of a Patent by: (a) filing a declaratory judgment action in which any such Patent is alleged to be invalid or unenforceable; (b) citing prior art pursuant to 35 U.S.C. §122 or §301, filing a request for re-examination of any such Patent pursuant to 35 U.S.C. §302 or §311, filing a petition to request an inter partes review of any such Patent pursuant to 35 U.S.C. §311, or filing a petition to request a post-grant review of any such Patent pursuant to 35 U.S.C. §321; or (c) filing or commencing any re-examination, opposition, cancellation, nullity or similar proceeding against any such Patent in any country, in each case of the foregoing ((a), (b), and (c)) in any judicial or administrative proceeding in the United States, including before the U.S. Patent and Trademark Office; provided, however, that it shall not be deemed a “Challenge” hereunder for a Party to take any of the foregoing actions with regard to any such Patent in response to any claim, action

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or suit by the other Party or any of its Affiliates or its or their (sub)licensees that any product (other than a Product) infringes any such Patent.

1.22 “ Clinical Data ” means all data, reports and results with respect to the Compound or any Product made, collected or otherwise generated under or in connection with a Clinical Study.

1.23 “ Clinical Studies ” means human clinical trials for a Product and any other tests and studies for a Product in human subjects.

1.24 “ Commercially Reasonable Efforts ” means, with respect to the performance of any Development or commercialization activities with respect to a Product, the carrying out of such activities using the level of efforts and resources comparable to the efforts and resources commonly used in the pharmaceutical or biotechnology industry for compounds or products of similar market potential at a similar stage in development or product life considering conditions then prevailing and taking into account, without limitation, issues of safety and efficacy, expected and actual cost, expense and time to develop, expected and actual profitability, expected and actual competitiveness of alternative Third Party products (including generic products) in the marketplace, the nature and extent of expected and actual market exclusivity (including patent coverage and regulatory exclusivity), the expected and actual reimbursability and pricing, the expected and actual amounts of marketing and promotional expenditures required, product profile (including the expected and actual labeling), anticipated timing of commercial entry, the regulatory environment and status of the product (including the likelihood of regulatory approval), and other relevant scientific, technical and commercial factors. For clarity, Allergan’s obligations to use Commercially Reasonable Efforts under this Agreement shall be subject to NexMed satisfying its obligations hereunder, including its supply obligations under Section 7.2.

1.25 “ Commercializing Party ” means NexMed, unless Allergan exercises its Option, in which case Commercializing Party means Allergan.

1.26 “ Competing Product ” has the meaning set forth in Section 11.2.2(a).

1.27 “ Complaining Party ” has the meaning set forth in Section 13.2.

1.28 “ Compound ” means alprostadil, which has the structure set forth on Schedule 1.28 .

1.29 “ Confidential Information ” has the meaning set forth in Section 10.1.

1.30 “ Control ” means, with respect to any Technology, Regulatory Documentation, Patent, or other intellectual property right, possession of the right, whether directly or indirectly, and whether by ownership, license or otherwise (other than by operation of the license and other grants in Section 2.1, Section 6.4, or Section 13.7), to assign or grant a license, sublicense or other right to or under such Technology, Regulatory Documentation,

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Patent, or other intellectual property right as provided for herein without violating the terms of any agreement or other arrangement with any Third Party.

1.31 “ Controlling Party ” has the meaning set forth in Section 9.4.1.

1.32 “ Development ” means, with respect to a Product, all activities related to research, preclinical and other non-clinical testing, test method development and stability testing, toxicology, formulation, Manufacture process development, Clinical Studies, including Manufacturing in support thereof (but excluding any commercial Manufacturing), statistical analysis and report writing, the preparation and submission of Regulatory Documentation, regulatory affairs with respect to the foregoing and all other activities necessary or reasonably useful or otherwise requested or required by a Regulatory Authority as a condition or in support of obtaining or maintaining a Regulatory Approval for such Product. When used as a verb, “ Develop ” means to engage in Development.

1.33 “ Disclosing Party ” has the meaning set forth in Section 10.1.

1.34 “ Dollars ” or “ $ ” means United States Dollars.

1.35 “ Effective Date ” has the meaning set forth in the preamble hereto.

1.36 “ Enforcing Party ” means, (a) NexMed, unless and until Allergan exercises its Option with respect to any Licensed Product and (b) Allergan, from and after Allergan’s exercise of its Option with respect to any Licensed Product.

1.37 “ Estimated Third Party Generic Launch Date ” has the meaning set forth in Section 2.10.1.

1.38 “ Executive Officers ” means (a) with respect to commercialization matters, the Executive Vice President of Brand Pharma of Allergan and the Chief Executive Officer of NexMed and (b) with respect to Development matters, the Executive Vice President of Brand R&D of Allergan and the Chief Executive Officer of NexMed.

1.39 “ Exercise Effective Date ” means, with respect to a Licensed Product for which Allergan delivers an Option Exercise Notice during the Option Period with respect to such Licensed Product, the date on which NexMed receives payment from Allergan pursuant to Section 8.2.2.

1.40 “ Existing APA ” has the meaning set forth in the preamble to this Agreement.

1.41 “ Existing IND ” means IND# 117-064.

1.42 “ Existing License Agreement ” has the meaning set forth in the preamble to this Agreement.

1.43 “ Existing NDA ” means NDA# 22-197.

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1.44 “ Exploit ” means, with respect to a Product, to make, have made, import, use, sell or offer for sale, including to research, Develop, commercialize, register, Manufacture, have Manufactured, hold or keep (whether for disposal or otherwise), have used, export, transport, distribute, promote, market, have sold or otherwise dispose of such Product and “ Exploitation ” means the act of Exploiting such Product.

1.45 “ FDA ” means the United States Food and Drug Administration and any successor agency thereto.

1.46 “ FFDCA ” means the United States Food, Drug, and Cosmetic Act, as amended from time to time.

1.47 “ Field ” means (a) with respect to the Refrigerated Product and the Room Temperature Product, the topical treatment of male erectile dysfunction under a prescription from a healthcare provider with authority to prescribe in the Territory and (b) with respect to the OTC Product, the topical treatment of male erectile dysfunction without a prescription from a healthcare provider with authority to prescribe in the Territory.

1.48 “ Filed ” means, with respect to an NDA for seeking Regulatory Approval for a Product, receipt by NexMed of written notice from the FDA that such NDA has been deemed acceptable for filing and filed by the FDA pursuant to 21 C.F.R. 314.101, or any successor regulation.

1.49 “ First Commercial Sale ” means, with respect to a Product, the first sale to a Third Party for monetary value for use or consumption by the general public of such Product in the Territory after the FDA has approved the NDA for such Product in the applicable Field. Sales prior to the approval of the applicable NDA, such as so-called “treatment IND sales”, “named patient sales” and “compassionate use sales”, shall not constitute a First Commercial Sale.

1.50 “ Force Majeure Event ” has the meaning set forth in Section 14.1.

1.51 “ GAAP ” means United States generally accepted accounting principles consistently applied.

1.52 “ Generic Product ” means, with respect to a Licensed Product, any pharmaceutical product other than such Licensed Product approved by the FDA that contains alprostadil such that such other pharmaceutical product is approved by the FDA by making reference to the NDA of such Licensed Product. For clarity, a pharmaceutical product that has been approved by the FDA as a Refrigerated Product shall not be deemed to be a Generic Product as it relates to the Room Temperature Product.

1.53 “ Hatch-Waxman Act ” means the Drug Price Competition and Patent Term Restoration Act of 1984, as amended.

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1.54 “ HSR Act ” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (15 U.S.C. §18a), as amended.

1.55 “ HSR Filing ” has the meaning set forth in Section 6.3.3.

1.56 “ HSR Notice ” has the meaning set forth in Section 6.3.3.

1.57 “ IMS ” means IMS Health Holdings, Inc.

1.58 “ IND ” means an investigational new drug application filed with the FDA for authorization to commence Clinical Studies in the Territory (including all additions, supplements, extensions and modifications thereto) and its equivalent in other countries or regulatory jurisdictions.

1.59 “ Indemnification Claim Notice ” has the meaning set forth in Section 12.3.

1.60 “ Indemnified Party ” has the meaning set forth in Section 12.3.

1.61 “ Indemnifying Party ” means the Party from whom indemnification is sought pursuant to Section 12.1 or Section 12.2.

1.62 “ Infringement ” has the meaning set forth in Section 9.3.1.

1.63 “ Infringement Notice ” has the meaning set forth in Section 9.3.1.

1.64 “ Invoiced Sales ” has the meaning set forth in the definition of “Net Sales.”

1.65 “ Joint Know-How ” has the meaning set forth in Section 9.1.2.

1.66 “ Joint Patents ” has the meaning set forth in Section 9.1.2.

1.67 “ Joint Steering Committee ” or “ JSC ” has the meaning set forth in Section 3.1.

1.68 “ LIBOR ” means the London Interbank Offered Rate for deposits in Dollars having a maturity of one (1) month published by the British Bankers’ Association, as adjusted from time to time on the first London business day of each month.

1.69 “ Licensed Product ” means any Product that is not an Optioned Product, excluding any Authorized Generic Version of any such Product (unless the rights to launch the applicable Authorized Generic Version are transferred back to NexMed in accordance with Section 2.10.2). As of the Effective Date, each Product (other than an Authorized Generic Version thereof) is a Licensed Product and shall remain a Licensed Product unless and until Allergan exercises its Option pursuant to Section 6.3.2 (including payment therefor).

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1.70 “ Losses ” has the meaning set forth in Section 12.1.

1.71 “ Manufacture ” and “ Manufacturing ” means, with respect to a Product, all activities related to the production, manufacture, processing, filling, finishing, packaging, labeling, shipping, holding, Manufacture process development, stability testing, quality assurance or quality control of such Product or any intermediate thereof.

1.72 “ Milestone Event ” means each of the events identified as a milestone event in Section 8.2.1 or Section 8.2.2.

1.73 “ NDA ” means a New Drug Application as defined in the FFDCA and the regulations promulgated thereunder (including all additions, supplements, extensions and modifications thereto).

1.74 “ Net Profits ” means, with respect to an Authorized Generic Version of a Licensed Product for any period, Net Sales of such Authorized Generic Version during such period less the cost of goods including (a) all amounts payable by Allergan to obtain supply of such Authorized Generic Version and (b) all other costs incurred by Allergan associated with the Manufacture of such Authorized Generic Version, including the cost of freight, insurance, holding, fees, taxes, export licenses, import licenses, customs formalities, and other similar costs.

1.75 “ Net Sales ” means, with respect to a Product for any period, the total amount billed or invoiced on sales of such Product during such period by any Seller with respect thereto in the Territory to Third Parties (including wholesalers or distributors) (“ Invoiced Sales ”), less the following deductions that are attributable to such Net Sales:

1.75.1 trade, cash and quantity discounts;

1.75.2 price reductions or rebates, retroactive or otherwise, imposed by, negotiated with or otherwise paid to Regulatory Authorities;

1.75.3 amounts repaid or credited by reason of rejections, defects, recalls or returns, or because of retroactive price reductions, including rebates or wholesaler charge backs;

1.75.4 the portion of administrative fees paid during the relevant time period to group purchasing organizations or pharmaceutical benefit managers relating to such Product;

1.75.5 any invoiced amounts that are not collected by any Seller, including bad debts;

1.75.6 freight insurance, and other transportation charges to the extent added to the sale price and set forth separately as such in the total amount invoiced, as well as any fees for services provided by wholesalers and warehousing chains related to the distribution of such Product; and

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1.75.7 any other similar and customary deductions that are consistent with GAAP.

If any amount is specifically identifiable or reasonably allocable to more than one deduction set forth above, such amount shall only be deducted once.

Net Sales shall not include transfers or dispositions for charitable, promotional, pre-clinical, clinical, regulatory, or governmental purposes. Net Sales shall not include sales between or among Sellers.

Subject to the above, Net Sales shall be calculated in accordance with the standard internal policies and procedures of the applicable Seller, which must be in accordance with GAAP.

1.76 “ NexMed ” has the meaning set forth in the preamble hereto.

1.77 “ NexMed Agreement Know-How ” means all Technology that is conceived, discovered, developed or otherwise made by or on behalf of NexMed, any of its Affiliates or any of its or their respective (sub)licensees in connection with the work conducted under or in connection with this Agreement, whether or not patented or patentable, but excluding any Joint Know-How.

1.78 “ NexMed Agreement Patent ” means any Patent Controlled by NexMed or any of its Affiliates that claims any NexMed Agreement Know-How, but excluding any Joint Patent.

1.79 “ NexMed Indemnitees ” has the meaning set forth in Section 12.2.

1.80 “ NexMed Know-How ” means, with respect to a Product, all Technology Controlled by NexMed or any of its Affiliates as of the Effective Date or at any time during the Term that is (a) not generally known and (b) necessary or reasonably useful for the Exploitation of such Product in the applicable Field in the Territory, including any NexMed Agreement Know-How, but excluding any Technology to the extent claimed by any published NexMed Patent.

1.81 “ NexMed-Managed Patents ” means (a) the NexMed Patents and (b) the Allergan Licensed NexMed Patents.

1.82 “ NexMed Patents ” means, with respect to a Product, all Patents Controlled by NexMed or any of its Affiliates as of the Effective Date or at any time during the Term that claim any Exploitation of such Product in the applicable Field in the Territory, including any NexMed Agreement Patents.

1.83 “ NexMed Product Agreement ” means, with respect to a Product, any agreement entered into by and between NexMed or any of its Affiliates or its or their respective Sublicensees, on the one hand, and one or more Third Parties, on the other hand, that is necessary or reasonably useful for the Exploitation of such Product in the applicable Field in the Territory,

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including (a) any agreement pursuant to which NexMed, its Affiliates or its or their respective Sublicensee receives any license or other rights to Exploit such Product in the Territory, (b) supply agreements pursuant to which NexMed, its Affiliates or its or their respective Sublicensees obtain or will obtain quantities of such Product for the Territory, (c) clinical trial agreements for Development in or for the Territory, (d) contract research organization agreements pertaining to the Territory and (e) service agreements pertaining to the Territory; in each case, ((a) through (e)), irrespective of whether such agreement is exclusive to the Territory.

1.84 “ Non-Controlling Party ” means, with respect to any infringement claim by a Third Party, the Party that is not the Controlling Party.

1.85 “ Non-Enforcing Party ” means, at any time, the Party that is not the Enforcing Party.

1.86 “ Non-Prosecuting Party ” has the meaning set forth in Section 9.2.3.

1.87 “ Option ” has the meaning set forth in Section 6.1.

1.88 “ Option Data Package ” means: (a) all summaries, analyses, results and raw scientific data generated or compiled by or on behalf of NexMed with respect to any Product, including Clinical Data (including the SAS Database System or any other similar database that stores such Clinical Data); (b) all Regulatory Documentation, including copies of any material written communications, submissions, or fillings to, from, or with the FDA related to any Product; (c) a schedule identifying all Patents owned or otherwise controlled by NexMed or any of its Affiliates that claim any Product, including Patents that claim the composition of matter of or any method of using a Product; (d) any and all reports regarding the intellectual property status of any Product; provided, that NexMed shall not be required to provide privileged information with respect to such intellectual property status, unless and until procedures reasonably acceptable to NexMed are in place to protect such privilege; (e) any plans or data regarding marketing opportunity or commercialization for any Product in the applicable Field in the Territory; (f) copies of all NexMed Product Agreements with respect to the Products; and (g) any other information that would be reasonably necessary or useful for Allergan to make an informed decision regarding whether to exercise its Option with respect to the Products.

1.89 “ [***] Milestone ” has the meaning set forth in Section 8.2.2.

1.90 “ Option Exercise Notice ” has the meaning set forth in Section 6.3.2(a).

1.91 “ [***] Milestone Payment ” has the meaning set forth in Section 8.2.2.

1.92 “ Option Period ” has the meaning set forth in Section 6.3.2(a).

1.93 “ Optioned Product ” means any Product with respect to which Allergan has exercised its Option pursuant to Section 6.3.2. For clarity, an Authorized Generic Version of a Product sold by or on behalf of Allergan or any of its Affiliates is not an Optioned Product.

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1.94 “ Orange Book ” means the FDA’s publication, Approved Drug Products with Therapeutic Equivalence Evaluations , commonly known as the Orange Book.

1.95 “ OTC Product ” means a topical product intended for use in the Field that (a) contains the Compound as an active ingredient and (b) is approved for sale to consumers without a prescription from a healthcare provider with authority to prescribe in the Territory, whether or not such product requires refrigeration or freezing by the consumer.

1.96 “ [***] Milestone ” has the meaning set forth in Section 8.2.2.

1.97 “ Party ” and “ Parties ” each has the meaning set forth in the preamble hereto.

1.98 “ Patents ” means (a) all national, regional and international patents and patent applications, including provisional patent applications, (b) all patent applications that claim, directly or indirectly, priority to any patent or patent applications in clause (a), including divisionals, continuations, continuations-in-part, provisionals, converted provisionals, continued prosecution applications and requests for continued examination, (c) any and all patents that have issued or in the future issue from any of foregoing patent applications in clause (a) or clause (b), including utility models, petty patents and design patents and certificates of invention, and (d) any and all extensions or restorations by existing or future extension or restoration mechanisms, including revalidations, reissues, re-examinations or any other post-grant proceeding, extensions (including any supplementary protection certificates and the like) of any of the foregoing patents or patent applications in clause (a), clause (b) or clause (c).

1.99 “ Payee Party ” means (a) with respect to any Payment payable by NexMed to Allergan under this Agreement, Allergan and (b) with respect to any Payment payable by Allergan to NexMed under this Agreement, NexMed.

1.100 “ Paying Party ” means (a) with respect to any Payment payable by NexMed to Allergan under this Agreement, NexMed and (b) with respect to any Payment payable by Allergan to NexMed under this Agreement, Allergan.

1.101 “ Payments ” means any royalties, milestones and other amounts payable by one Party to the other Party pursuant to this Agreement.

1.102 “ Person ” means an individual, sole proprietorship, partnership, limited partnership, limited liability partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture or other similar entity or organization, including a government or political subdivision, department or agency of a government.

1.103 “ Phase III Clinical Trial ” means a human clinical study of a Product on a sufficient number of subjects that is designed to establish that the use of such Product is safe and efficacious for its intended use and to determine warnings, precautions, and adverse reactions that are associated with such Product in the dosage range(s) to be approved, which study is

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intended to support Regulatory Approval of such Product, including all tests and studies that are required by the FDA from time to time, pursuant to Applicable Law or otherwise.

1.104 “ Product ” means each of the Refrigerated Product, the Room Temperature Product or the OTC Product, as applicable, including any Authorized Generic Version of any of the foregoing.

1.105 “ Product Information ” has the meaning set forth in Section 10.1.

1.106 “ Product Labeling ” means, with respect to a Product, (a) the Regulatory Authority‑approved full prescribing information for such Product in the Territory, including any required patient information and (b) all labels and other written, printed or graphic matter upon a container, wrapper or any package insert utilized with or for such Product in the Territory.

1.107 “ Product Trademark ” means U.S. Trademark Application No. 86600416 for VITAROS ^™ for pharmaceutical preparations for the treatment of sexual dysfunction, with an application date of April 16, 2015, and all federal, state and common law rights therein. Except with respect to the use of this term in Section 2.5 hereof, all other uses of the term Product Trademark shall include all variations and derivatives thereof and all registrations and applications thereof in the Territory.

1.108 “ Prosecuting Party ” has the meaning set forth in Section 9.2.3.

1.109 “ Receiving Party ” has the meaning set forth in Section 10.1.

1.110 “ Refrigerated Product ” means a topical product intended for use in the Field that (a) contains the Compound as an active ingredient, (b) is in a formulation that must be refrigerated or frozen by a patient (such as the VITAROS ^™ formulation in existence of the Effective Date) and (c) requires a prescription from a healthcare provider with authority to prescribe in the Territory.

1.111 “ Regulatory Approval ” means, with respect to a Product, any and all approvals (including NDAs), licenses, registrations or authorizations of any Regulatory Authority necessary to commercially distribute, sell or market such Product inside or outside the Territory, including, if applicable, (a) pre- and post-approval marketing authorizations (including any prerequisite Manufacturing approval or authorization related thereto) and (b) labeling approval.

1.112 “ Regulatory Authority ” means any applicable supra-national, federal, national, regional, state, or local regulatory agencies, departments, bureaus, commissions, councils or other government entities regulating or otherwise exercising authority with respect to the Exploitation of the Compound or a Product inside or outside the Territory.

1.113 “ Regulatory Documentation ” means all (a) applications (including all INDs and NDAs), registrations, licenses, authorizations and approvals (including all Regulatory Approvals), (b) correspondence and reports submitted to or received from Regulatory Authorities

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(including minutes and official contact reports relating to any communications with any Regulatory Authority) and all supporting documents with respect thereto, including all regulatory drug lists, advertising and promotion documents, adverse event files and complaint files, in each case ((a) and (b)), relating to a Product.

1.114 “ Regulatory Exclusivity Period ” means, with respect to a Product, a period of exclusivity (other than Patent exclusivity), granted or afforded by Applicable Law or by a Regulatory Authority in the Territory, that confers data, marketing, or other exclusivity with respect to such Product in the Territory.

1.115 “ Room Temperature Product ” means a topical product intended for use in the Field that (a) contains the Compound as an active ingredient, (b) is in a formulation that is not required to be refrigerated or frozen by a patient and (c) requires a prescription from a healthcare provider with authority to prescribe in the Territory.

1.116 “ Royalty Term ” means (a) with respect to a Licensed Product, the period beginning on the date of the First Commercial Sale of such Licensed Product and ending on the latest to occur of (i) the expiration of the last-to-expire Allergan Patent, NexMed Patent, or Joint Patent that includes a Valid Claim that covers such Licensed Product, (ii) the expiration of the Regulatory Exclusivity Period for such Licensed Product and (iii) the fifteenth (15th) anniversary of the First Commercial Sale of such Licensed Product and (b) with respect to an Optioned Product, the period beginning on the later of the date of the First Commercial Sale of such Optioned Product and the Exercise Effective Date therefor, and ending on the latest to occur of (i) the expiration of the last-to-expire Allergan Patent, NexMed Patent, or Joint Patent that includes a Valid Claim that covers such Optioned Product, (ii) the expiration of the Regulatory Exclusivity Period for such Optioned Product and (iii) the fifteenth (15th) anniversary of the First Commercial Sale of such Optioned Product.

1.117 “ SDEA ” has the meaning set forth in Section 6.2.

1.118 “ Seller ” means (a) with respect to any Licensed Product, NexMed or any of its Affiliates or its or their respective Sublicensees and (b) with respect to any Optioned Product, Allergan or any of its Affiliates or its or their respective Sublicensees.

1.119 “ Sublicensee ” means a Person, other than an Affiliate, that is granted a sublicense by (a) NexMed under the grant in Section 2.1 as provided in Section 2.3, or (b) Allergan under the grant in Section 6.4.2.

1.120 “ Supply Agreement ” has the meaning set forth in Section 7.2.

1.121 “ Supply Term Sheet ” means the term sheet attached hereto as Schedule 1.121 .

1.122 “ Tax ” or “ Taxes ” has the meaning set forth in Section 8.5.

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1.123 “ Technology ” means, whether or not patentable, any and all proprietary ideas, inventions, discoveries, trade secrets, processes, formulae, data, know-how, improvements, inventions, chemical materials, assays, techniques, marketing plans, strategies, customer lists, biologic materials, results, designs, specifications, methods, formulations, ideas, technical information (including structural and functional information), process information, pre-clinical information, clinical information, any and all proprietary biological, chemical, pharmacological, toxicological, pre-clinical, clinical, assay, control and manufacturing data and materials or other information.

1.124 “ Term ” has the meaning set forth in Section 13.1.

1.125 “ Termination Notice Period ” has the meaning set forth in Section 13.2.

1.126 “ Territory ” means the United States of America, including its possessions and territories.

1.127 “ Third Party ” means any Person other than Allergan, NexMed and their respective Affiliates.

1.128 “ Third Party Claims ” has the meaning set forth in Section 12.1.

1.129 “ Trademark ” means any word, name, symbol, color, designation or device or any combination thereof that functions as a source identifier, including any trademark, trade dress, brand mark, service mark, trade name, brand name, logo or business symbol, whether or not registered.

1.130 “ Unresolved Committee Matter ” has the meaning set forth in Section 3.3.3(b).

1.131 “ Valid Claim ” means (a) any claim of an issued and unexpired Patent in the Territory that (i) has not been held permanently revoked, unenforceable or invalid by a decision of a court or governmental agency of competent jurisdiction that is unappealable or unappealed within the time allowed for appeal and (ii) has not been abandoned, disclaimed, denied or admitted to be invalid or unenforceable through reissue or disclaimer or otherwise in the Territory or (b) any claim of a pending Patent application that has not been abandoned or finally disallowed without the possibility of appeal or re-filing of the application.

1.132 “ Warner ” has the meaning set forth in the preamble hereto.

ARTICLE 2
GRANT OF RIGHTS AND AMENDMENTS

2.1 Grants to NexMed . Subject to Section 2.2 and the other terms and conditions of this Agreement, Allergan hereby grants to NexMed:

2.1.1 an exclusive (including with regard to Allergan and its Affiliates) license (or sublicense), with the right to grant sublicenses in accordance with Section 2.3, under

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the Allergan Patents, the Allergan Know-How and Allergan’s interest in the Joint Know-How and Joint Patents, in each case, solely to Exploit each Licensed Product in the applicable Field in the Territory;

2.1.2 if Allergan exercises its Option pursuant to Section 6.3.2, a non-exclusive license, with no right to grant sublicenses, to Develop and obtain Regulatory Approval for the Products in accordance with the terms of this Agreement; and

2.1.3 subject to Section 2.6, a limited, non-exclusive license, with the right to grant sublicenses in accordance with Section 2.3, to use the Allergan Corporate Names solely as necessary for NexMed to perform its obligations under Section 5.5 and for no other purpose.

Notwithstanding Section 2.02 of the Existing License Agreement, Allergan shall not be responsible or liable for, and shall not guarantee or remain obligated for the performance or failure of performance of, NexMed or any of its Affiliates or (sub)licensees under this Agreement.

2.2 Existing License Agreement.

2.2.1 NexMed does hereby agree not to enforce against Allergan any claims under the Existing License Agreement to the extent any such claim is caused by or is the result of any act or omission by or on behalf of NexMed under this Agreement.

2.2.2 Notwithstanding Section 2.02 of the Existing License Agreement, Allergan shall not be responsible or liable and shall not guarantee or remain obligated for the performance (or failure of performance) of NexMed or any of its Affiliates or its or their licensees or Sublicensees, in each case, as sublicensee of Allergan under the Existing License Agreement.

2.2.3 Each Party’s rights and obligations under Sections 4.02 through 4.05 of the Existing License Agreement shall be subject to and subordinate to the terms of this Agreement.

2.2.4 Notwithstanding Section 6.05 of the Existing License Agreement, Allergan shall not exercise its right to terminate the Existing License Agreement except in connection with the termination of this Agreement in accordance with the terms of this Agreement.

2.2.5 Notwithstanding Section 7.09 of the Existing License Agreement, neither Party shall assign its rights or obligations under the Existing License Agreement except in connection with the assignment of this Agreement in accordance with the terms of this Agreement.

2.3 Sublicenses . The rights and licenses granted to NexMed under Section 2.1 shall include the right, with the consent of Allergan, not to be unreasonably conditioned,

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withheld or delayed, to grant sublicenses to its Affiliates or Third Parties to Exploit the Compound and each Licensed Product in the applicable Field in the Territory; provided, that in no event shall NexMed’s ability to grant sublicenses under this Section 2.3 conflict with or otherwise diminish Allergan’s Option rights under this Agreement; provided, further, that NexMed shall (a) remain jointly and severally liable for the performance or non-performance of any such Affiliate or Sublicensee, (b) require each such Affiliate and Sublicensee to agree in writing to be bound by the applicable terms and conditions of this Agreement, including ARTICLE 6, ARTICLE 8, ARTICLE 9, and ARTICLE 10, and (c) provide to Allergan a written notice setting forth in reasonable detail the nature of such sublicense and the identity of the Affiliate or Sublicensee (which written notice shall include a copy of any such proposed sublicense agreement). In connection with the grant of any permitted sublicense hereunder, NexMed shall ensure that each such Affiliate or Sublicensee accepts and complies with all of the terms and conditions of this Agreement as if such Affiliate or Sublicensee were a party to this Agreement and NexMed shall guarantee and remain obligated for the performance (or failure of performance) of any Affiliate or Sublicensee hereunder. Any such sublicenses shall be consistent with, and subject and subordinate to, the terms and conditions of this Agreement and the Existing License Agreement.

2.4 Subcontracting . NexMed may subcontract any of the Exploitation of any Licensed Product in the applicable Field in the Territory; provided, that with respect to any such approved subcontracting, (a) NexMed shall oversee the performance by its subcontractors of the subcontracted activities in a manner that would be reasonably expected to result in their timely and successful completion and shall remain responsible for the performance of such activities in accordance with this Agreement and (b) any agreement pursuant to which NexMed engages a subcontractor must (i) be consistent with this Agreement and (ii) without limiting the foregoing clause (i), contain terms obligating such subcontractor to: (A) comply with confidentiality provisions that are at least as restrictive as those set forth in ARTICLE 10; (B) provide Allergan with substantially the same rights with respect to any intellectual property arising from the performance of the subcontracted obligation as Allergan would have under this Agreement if such intellectual property had arisen from the performance of such obligation by NexMed; and (C) permit Allergan rights of inspection, access and audit substantially similar to those provided to Allergan under this Agreement.

2.5 Assignment of Product Trademark. Allergan hereby agrees to assign to NexMed all of Allergan’s right, title, and interest in and to the Product Trademark (together with any goodwill associated therewith) when the timing of such assignment becomes appropriate under 15 U.S.C. § 1060. Nexmed hereby covenants, warrants and agrees to use the Product Trademark (and any variations or derivatives thereof) solely to Exploit Licensed Products in the applicable Field in the Territory.

2.6 Use of the Allergan Corporate Names . With respect to any Allergan Corporate Names licensed to NexMed under Section 2.1, NexMed shall, and shall cause its Affiliates and its and their respective Sublicensees and subcontractors to: (a) conform to the guidelines of Allergan in effect from time to time (as notified to NexMed) with respect to manner of use and to maintain the quality standards of Allergan for goods sold and services

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provided in connection with the Allergan Corporate Names; (b) promptly notify Allergan of any actual, threatened or suspected infringement, imitation or misuse of any Allergan Corporate Name of which it becomes aware; (c) assign to Allergan any rights in any Allergan Corporate Name that NexMed shall acquire through use or otherwise; (d) not use the Allergan Corporate Names in combination with any other mark, word, symbol or logo, other than those agreed to in advance by Allergan; (e) not do, or omit to do, or permit to be done, any act which will weaken, damage or be detrimental to the Product Trademark or the reputation or goodwill associated with the Product Trademark; (f) not use the Product Trademark in a manner which may result in it becoming generic or diluted or which could otherwise invalidate or jeopardize any registration or application for registration of the Product Trademark; and (g) execute any documents required in the reasonable opinion of Allergan to be entered as a “registered user” or recorded licensee of the Allergan Corporate Names or to be removed as registered user or licensee thereof.

2.7 Retention of Rights. Except as otherwise expressly provided in this Agreement, in no event shall a Party, as a result of this Agreement, obtain any ownership interest or other right in any Technology, Corporate Name, Trademark or Patent rights of the other Party, including items Controlled or Developed by such other Party, or provided by such other Party to the receiving Party at any time under this Agreement.

2.8 Assignment of Existing IND and Existing NDA. Allergan hereby assigns to NexMed all of Allergan’s right, title, and interest in and to the Existing IND and the Existing NDAs and any Regulatory Documentation (including any existing Regulatory Approvals) owned by Allergan and held in Allergan’s name as of the Effective Date that pertain solely to a Licensed Product.

2.9 Disclosure. Allergan shall use Commercially Reasonable Efforts to disclose and make available to NexMed (a) within thirty (30) days after the Effective Date (i) the Existing IND and (ii) the Existing NDA, and (b) within ninety (90) days after the Effective Date, copies of any material written communications to or from the FDA related to a Licensed Product dated after December 31, 2009, in each case ((a) or (b)), to the extent in the possession of Allergan; provided, that Allergan shall be under no obligation to provide NexMed any of the foregoing that Allergan is unable to readily locate. Except as expressly provided in the preceding sentence, Allergan shall have no obligation to provide NexMed any other Technology or any equipment.

2.10 Authorized Generic Versions.

2.10.1 NexMed hereby appoints Allergan as the exclusive distributor of any Authorized Generic Version of each Licensed Product in the Territory. Except as set forth below, NexMed shall not, during the Term, either directly or indirectly, through an Affiliate or under a contract with a Third Party, advertise, market, accept orders for, sell, ship or distribute any Authorized Generic Version of each Product in the Territory (“ AG Launch ”). Allergan shall notify NexMed as early as reasonably possible of any expected launch by a Third Party of a Generic Product, which date Allergan shall determine in good faith (the “ Estimated Third Party Generic Launch Date ”); provided, that Allergan shall not be responsible or liable for any inaccuracies or errors in its determination of such Estimated Third Party Generic Launch Date.

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The Parties shall discuss and consider in good faith the date on which Allergan will first AG Launch the Authorized Generic Version (“ AG Launch Date ”). Allergan shall have final decision-making authority to determine whether and when to launch the Authorized Generic Version of each Product in the Territory; provided, that the AG Launch Date shall occur no sooner than [***] ([***]) weeks in advance of any Estimated Third Party Generic Launch Date. Allergan shall be permitted to book orders for the Authorized Generic Version of a Product at least [***] ([***]) months in advance of the Estimated Third Party Generic Launch Date. NexMed and Allergan shall communicate to each other on an ongoing basis regarding developments which may affect the applicable AG Launch Date, the delivery date for product necessary for commercial launch on the AG Launch Date, and information necessary to package and label the Authorized Generic Version for marketing and sale.

2.10.2 If Allergan has not exercised its right to AG Launch an Authorized Generic Version of a Product pursuant to Section 2.10.1 within [***] ([***]) days following the launch of a Generic Product of such Product, NexMed may request the consent of Allergan to AG Launch such Authorized Generic Version, such consent not to be unreasonably conditioned, withheld or delayed.

2.10.3 For clarity, the rights granted under this Section 2.10 shall be on a Licensed Product-by-Licensed Product basis.

2.10.4 Allergan shall be solely responsible for invoicing and booking sales, establishing all terms of sale (including pricing and discounts) and warehousing and distributing any Authorized Generic Version of a Product in the Territory and shall perform all related services, in each case, in a manner consistent with the terms and conditions of this Agreement. Allergan shall be solely responsible for handling all returns, recalls and withdrawals, order processing, invoicing and collection, distribution and inventory and receivables with respect to any Authorized Generic Version of a Product in the Territory.

2.11 Amendment of Existing APA and Existing License Agreement.

2.11.1 Existing APA. As of the Effective Date, the Existing APA shall be amended as follows:

(a) The definition of “Assumed Liabilities” in Section 1.01 of the Existing APA is hereby amended so that (i) such definition shall be limited under each clause ((a) and (b)) to those obligations and liabilities that are filed, claimed, or incurred prior to the Effective Date of this Agreement; and (ii) such definition shall expressly exclude any and all obligations and liabilities occurring on or after the Effective Date of this Agreement, even if they relate to acts or omissions prior to the Effective Date of this Agreement.

(b) Section 2.05 of the Existing APA is hereby amended so that Allergan shall not have any continuing liability or obligation to make any further payments thereunder.

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(d) Sections 5.03 and 5.04 of the Existing APA are hereby deleted in their entirety.

(e) Section 6.02 of the Existing APA is hereby deleted in its entirety.

2.11.2 Existing License Agreement. As of the Effective Date, the Existing License Agreement shall be amended as follows:

(a) Section 2.05 of the Existing License Agreement is hereby deleted in its entirety and Allergan retains all rights to Develop and commercialize the OTC Product in the Field in the Territory (as such terms are defined in the Existing License Agreement) under the Existing License Agreement, subject only to the grants to NexMed under this Agreement.

(b) Section 3.01 of the Existing License Agreement is hereby amended so that, for as long as the confidentiality obligations under ARTICLE 10 of this Agreement remain in effect, Section 3.01 of the Existing License Agreement shall not apply to any Confidential Information as such term is defined in this Agreement.

(d) Section 6.04 of the Existing License Agreement is hereby amended to delete all but the first sentence.

ARTICLE 3
JOINT STEERING COMMITTEE

3.1 Joint Steering Committee. Upon [***], the Parties shall establish a joint steering committee (the “ Joint Steering Committee ” or “ JSC ”), which shall consist of three (3) representatives from each of the Parties (or, with respect to Allergan, such other number as Allergan may determine in its sole discretion), each with the requisite experience and seniority to enable such person to make decisions on behalf of the Party appointing him or her with respect to the issues falling within the jurisdiction of the JSC. From time to time, each Party may substitute one or more of its representatives to the JSC on written notice to the other Party. Allergan and NexMed shall each select from their representatives a co-chairperson for the JSC, and each Party may change its designated co-chairperson from time to time upon written notice to the other Party. Notwithstanding the foregoing, Allergan shall have the right at any time, on written notice to NexMed, to suspend or dissolve the JSC.

3.2 Specific Responsibilities. Notwithstanding Section 4.1 and Section 4.2, the JSC shall have overall responsibility for monitoring and providing general oversight with

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respect to NexMed’s Development, commercialization, and regulatory activities under this Agreement. In particular, the JSC shall:

3.2.1 serve as a forum for discussing strategies for obtaining and maintaining Regulatory Approval for the Products in the applicable Field in the Territory and oversee regulatory matters in the applicable Field in the Territory with respect to the Products;

3.2.2 review and comment on all material regulatory filings and documents (including INDs, NDAs, material labeling supplements, Regulatory Authority meeting requests, and core data sheets) with respect to the Products in the applicable Field in the Territory;

3.2.3 serve as a forum for monitoring and discussing proposed Development activities with respect to the Products in the applicable Field in the Territory;

3.2.4 oversee the conduct of Development activities and reporting in connection therewith pursuant to Section 4.1.2;

3.2.5 serve as a forum for monitoring and discussing NexMed’s annual commercialization plans and budgets, and any updates thereto, with respect to the Products in the applicable Field in the Territory; and

3.2.6 perform such other functions as are set forth herein or as the Parties may mutually agree in writing.

3.3 General Provisions Applicable to the JSC.

3.3.1 Meetings and Minutes. The JSC shall meet quarterly or as otherwise agreed to by the Parties, with the location of such meetings alternating between locations designated by Allergan and locations designated by NexMed, with the location of the first meeting designated by Allergan. The co-chairpersons of the JSC shall be responsible for calling meetings on no less than ten (10) Business Days’ (or such other time period as the Parties may agree) notice unless exigent circumstances require shorter notice. Each Party shall make all proposals for agenda items at least five (5) Business Days (or such other time period as the Parties may agree) in advance of the applicable meeting and shall provide all appropriate information with respect to such proposed items at least five (5) Business Days (or such other time period as the Parties may agree) in advance of the applicable meeting; provided that under exigent circumstances requiring input by the JSC, a Party may provide its agenda items to the other Party within a shorter period of time in advance of the meeting or may propose that there not be a specific agenda for a particular meeting, so long as the other Party consents to such later addition of such agenda items or the absence of a specific agenda for such meeting (which consent shall not be unreasonably conditioned, withheld or delayed). The co-chairpersons of the JSC shall prepare and circulate for review and approval of the Parties minutes of each meeting within thirty (30) days (or such other time period as the Parties may agree) after the meeting. The Parties shall agree on the minutes of each meeting promptly, but in no event later than the next meeting of the JSC.

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3.3.2 Procedural Rules. The JSC shall have the right to adopt such standing rules as shall be necessary for its work, to the extent that such rules are not inconsistent with this Agreement. A quorum of the JSC shall exist whenever there is present at a meeting at least one (1) representative appointed by each Party. Representatives of the Parties on the JSC may attend a meeting either in person or by telephone, video conference or similar means in which each participant can hear what is said by and be heard by, the other participants. Representation by proxy shall be allowed. Other employees or consultants of a Party who are not representatives of such Party on the JSC may attend meetings of the JSC; provided, however, that such attendees (a) shall not vote or otherwise participate in the decision-making process of the JSC, (b) are bound by obligations of confidentiality and non-disclosure at least as protective of the other Party as those set forth in this Agreement, and (c) in the case of non‑employees of a Party, shall be subject to the consent of the other Party, which shall not be unreasonably conditioned, withheld or delayed. Each Party shall be responsible for all of its own expenses of participating in the JSC (and any subcommittee or working team).

3.3.3 Decision-Making.

(a) Subject to this Section 3.3.3, the JSC shall take action by unanimous vote of the Parties at a meeting at which a quorum exists, with each Party having a single vote irrespective of the number of representatives of such Party in attendance. The Parties’ representatives on the JSC shall use good faith efforts to reach consensus on all matters within its decision-making authority.

(b) Without limiting the other rights and obligations of the Parties under this Agreement, if the JSC cannot, or does not, reach consensus on an issue or dispute at a meeting or within a period of ten (10) Business Days thereafter (an “ Unresolved Committee Matter ”), then such Unresolved Committee Matter shall be submitted to the Executive Officers for attempted resolution in accordance with Section 14.5.1. If the Executive Officers are unable to resolve any Unresolved Committee Matter within the thirty- (30-) day period set forth in Section 14.5.1, then such Unresolved Committee Matter shall be resolved (if either Party wishes to do so) through arbitration in accordance with Section 14.5.2.

3.3.4 Limitations on Authority. Each Party shall retain the rights, powers, and discretion granted to it under this Agreement and no such rights, powers, or discretion shall be delegated to or vested in the JSC unless such delegation or vesting of rights is expressly provided for in this Agreement or the Parties expressly so agree in writing. The JSC shall not have the power to amend, modify, or waive compliance with any provision of this Agreement, which may only be amended or modified as provided in Section 14.7 or compliance with which may only be waived as provided in Section 14.9.

3.3.5 Subcommittees and Working Teams. From time to time the JSC may establish and delegate duties to such subcommittees or working teams as it deems necessary to achieve the objectives of this Agreement; provided, that (a) each such subcommittee or working team shall have appropriate representation from each Party; (b) the activities of such subcommittee or working team shall be subject to the oversight, review and approval of, and

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shall report to, the JSC; and (c) in no event shall the authority of any such subcommittee or working team exceed that specified for the JSC under this Agreement.

ARTICLE 4
DEVELOPMENT AND REGULATORY

4.1 Development.

4.1.1 Diligence. Subject to Section 3.2, NexMed shall, at its sole cost and expense, use Commercially Reasonable Efforts to Develop and obtain and maintain Regulatory Approvals for the Products for use in the applicable Field in the Territory. For clarity, NexMed shall remain obligated to use Commercially Reasonable Efforts to develop the Products (e.g., a Room Temperature Product and OTC Product) irrespective of whether Allergan exercises its Option under Section 6.3.2 (including payment therefor). For further clarity, once Allergan exercises its Option under Section 6.3.2, NexMed shall continue to use Commercially Reasonable Efforts to Develop and obtain Regulatory Approval for the Products in the Territory for which Regulatory Approvals have not yet been obtained in the Territory and to maintain such Regulatory Approvals until the Products have been transitioned to Allergan.

4.1.2 Reports. With respect to each Product, at least once per Calendar Quarter until Regulatory Approval is obtained for such Product in the applicable Field in the Territory and thereafter annually, and, with respect to each Product, within ten (10) Business Days after an NDA has been Filed for such Product for use in the applicable Field, NexMed shall provide Allergan with a written report describing in detail: (a) the Development activities NexMed has performed, or caused to be performed, with respect to such Product since the preceding report (or since the Effective Date with respect to the first such report), including any filings, submissions, communications or meetings with any Regulatory Authorities; (b) NexMed’s Development activities in process with respect to such Product; and (c) the future Development activities NexMed expects to initiate during the following twelve (12) months with respect to such Product (including any filings, submissions, communications or meetings with any Regulatory Authorities), including with respect to clauses (b) and (c), (x) the estimated timeline for the completion of such Development activities and (y) whether NexMed plans to subcontract any such activities. Upon Allergan’s request, the Parties shall meet and discuss in good faith the subject matter of any such report and NexMed shall consider in good faith Allergan’s comments with respect thereto.

4.1.3 Records. NexMed shall maintain, or cause to be maintained, records with respect to its Development activities hereunder in sufficient detail and in good scientific manner appropriate for patent and regulatory purposes, and in compliance with Applicable Law, which shall be complete and accurate and shall properly reflect all work done and results achieved in the performance of such Development activities. Such records shall be retained for at least three (3) years or such longer period as may be required by Applicable Law. NexMed shall use diligent efforts to ensure that such records and documentation include only information with respect to the applicable Development activities under this Agreement and do not include, and are not commingled with, records of activities outside of this Agreement.

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Allergan shall have the right, during normal business hours and upon reasonable notice, to inspect and copy any such records.

4.2 Regulatory Matters .

4.2.1 Subject to Section 3.2, NexMed shall have the right and responsibility for preparing, obtaining and maintaining all Regulatory Approvals and other submissions, and for conducting communications with the Regulatory Authorities, with respect to each Product in the applicable Field in the Territory, and shall use Commercially Reasonable Efforts to prepare, obtain and maintain all such Regulatory Approvals; provided, that if Allergan exercises its Option pursuant to Section 6.3.2 (including payment therefor), Allergan shall assume responsibility for maintaining Regulatory Approvals, and for conducting communications with the Regulatory Authorities, with respect to each Product for which NexMed obtains Regulatory Approval. Except as provided in Section 6.4, all Regulatory Approvals relating to the Licensed Products in the applicable Field in the Territory shall be owned by, and shall be the sole property and held in the name of, NexMed or its designated Affiliate.

4.2.2 NexMed shall provide Allergan with a reasonable opportunity to review and comment on all material regulatory filings and documents (including INDs, NDAs, material labeling supplements, Regulatory Authority meeting requests, and core data sheets) with respect to the Products in the applicable Field in the Territory. NexMed shall consider in good faith Allergan’s comments with respect thereto.

4.3 Compliance . NexMed shall perform or cause to be performed any and all of its Development activities under this Agreement in a good scientific manner and in compliance with all Applicable Law.

ARTICLE 5
COMMERCIALIZATION

5.1 Diligence . The Commercializing Party shall, at its sole cost and expense, use Commercially Reasonable Efforts to commercialize the Products in the applicable Field in the Territory; provided, however, that Allergan’s obligations under this Section 5.1 are subject to NexMed satisfying its obligations hereunder with respect to the Optioned Product, including obtaining Regulatory Approval with respect to Developing and supplying the Products; and provided, further, that Allergan shall have no obligation to commercialize any OTC Product under this Agreement.

5.2 Compliance with Applicable Law . The Commercializing Party shall, and shall cause its Affiliates to, comply with all Applicable Law with respect to the commercialization of the Products in the applicable Field in the Territory.

5.3 Commercialization Reports. With respect to each Product being commercialized, at least once per Calendar Year, the Commercializing Party shall provide the other Party with a written report describing in detail the commercialization activities the

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Commercializing Party has performed, or caused to be performed, with respect to such Product since the preceding report (or since the Effective Date with respect to the first such report). Upon the non-Commercializing Party’s request, the Parties shall meet and discuss in good faith the subject matter of any such report and the Commercializing Party shall consider in good faith the non-Commercializing Party’s comments with respect thereto.

5.4 Sales and Distribution . The Commercializing Party shall be solely responsible for invoicing and booking sales, establishing all terms of sale (including pricing and discounts) and warehousing and distributing each Product being commercialized in the applicable Field in the Territory and shall perform all related services, in each case, in a manner consistent with the terms and conditions of this Agreement. The Commercializing Party shall be solely responsible for handling all returns, recalls and withdrawals, order processing, invoicing and collection, distribution and inventory and receivables with respect to each Product being commercialized in the applicable Field in the Territory.

5.5 Markings . To the extent required by Applicable Law or requested by Allergan (if Allergan is the non-Commercializing Party), the promotional materials, packaging and Product Labeling for each Licensed Product being commercialized by NexMed (if NexMed is the Commercializing Party) or any of its Affiliates in connection with such Licensed Product in the applicable Field in the Territory shall contain the Allergan Corporate Names; provided, for clarity, that in no event shall NexMed use the Allergan Corporate Names with respect to the promotional materials, packaging and Product Labeling for such Licensed Product, unless and only to the extent required by Applicable Law or otherwise requested by Allergan. The manner in which the Allergan Corporate Names are to be presented on promotional materials, packaging and Product Labeling for each Licensed Product being commercialized in the applicable Field in the Territory shall be subject to (a) prior review and approval by Allergan, such approval not to be unreasonably conditioned, withheld or delayed and (b) Section 2.6.

ARTICLE 6
ALLERGAN OPTION

6.1 Option . Subject to the terms and conditions hereof, NexMed hereby grants to Allergan an option to obtain the exclusive right to Exploit the Products in the applicable Field in the Territory pursuant to the terms and conditions of this Agreement (the “ Option ”).

6.2 Safety Data Exchange Agreement. If Allergan exercises its Option pursuant to Section 6.3.2 (including payment therefor), the Parties shall execute an amendment to this Agreement stating that the Parties shall enter into a Safety Data Exchange Agreement (“ SDEA ”) to establish the roles and responsibilities of the Parties for exchanging safety data related to the Products. The SDEA shall include all terms necessary to allow the Parties to maintain compliance with all laws applicable to pharmacovigilance requirements for the clinical development and marketing of the Products in the Territory. In the event that the Parties delegate obligations with respect to pharmacovigilance to a Third Party, they shall ensure that such Third Party is included in the SDEA as a contracting party. Allergan will be responsible for the reporting of adverse events in the Territory to the appropriate Regulatory Authority. NexMed

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shall retain control of and shall maintain a global safety database for the Licensed Products and Allergan shall have a right of access to such global safety database.

6.3 Notice; Exercise; HSR .

6.3.1 Notice. Within ten (10) Business Days after an NDA has been Filed for the first Licensed Product for use in the applicable Field, NexMed shall notify Allergan that such NDA has been Filed and deliver the Option Data Package with respect to the Licensed Products to Allergan. Within five (5) Business Days after the FDA has approved an NDA with respect to any Licensed Product for use in the applicable Field, NexMed shall notify Allergan that such NDA has been approved and provide Allergan a copy of such approved NDA. In addition to the information included in the Option Data Package with respect to the Licensed Products, NexMed shall promptly make available to Allergan such other material information relating to the Licensed Products as Allergan may reasonably request in order to make an informed decision regarding the exercise of its Option with respect to the Licensed Products.

6.3.2 Exercise.

(a) Subject to Section 6.3.2(b), in order to exercise its Option with respect to the Products, Allergan must deliver to NexMed written notice of its exercise of such Option (such notice, an “ Option Exercise Notice ”) during the period beginning on the date the FDA approves an NDA for the first Licensed Product for use in the applicable Field and ending [***] ([***]) days after the later of such date and the date Allergan receives the complete Option Data Package for the Licensed Products (and such other information that Allergan may reasonably request pursuant to Section 6.3.1 (the “ Option Period ”)).

(b) For clarity, if Allergan exercises its Option with respect to the first Licensed Product during the Option Period, Allergan shall (a) have been deemed to have exercised its Option with respect to all Licensed Products and (b) have rights to commercialize all Products under this Agreement. In the event that Allergan does not exercise its Option with respect to the first Licensed Product during the Option Period with respect thereto, the Option under Section 6.3.2 shall immediately terminate.

6.3.3 HSR. If Allergan determines that any notifications are required under the HSR Act with respect to Allergan’s exercise of its Option with respect to the Products, then it shall so notify NexMed thereof at any time during the period commencing on the first day of the Option Period for such Product and ending on the date, if any, Allergan delivers the Option Exercise Notice with respect to such Product to NexMed during such Option Period (notice of any such required notifications, an “ HSR Notice ”). If Allergan delivers NexMed an HSR Notice with respect to Allergan’s exercise of its Option with respect to the Products, then each Party shall, as promptly as practicable after the date Allergan delivers such HSR Notice to NexMed, file or cause to be filed with the U.S. Federal Trade Commission and the U.S. Department of Justice any notifications required to be filed under the HSR Act with respect to Allergan’s exercise of its Option with respect to the applicable Product (the “ HSR Filing ”); provided that each Party shall make its HSR Filing within ten (10) Business Days after the date Allergan delivers such HSR Notice to NexMed. Each Party shall use its reasonable best efforts to respond

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promptly to any requests for additional information made by such agencies, and to cause the waiting period (and any extension thereof) under the HSR Act to terminate or expire at the earliest possible date after the date of filing. Each Party is responsible for its own filing fees and for the costs and expenses of its own legal and other advice in preparing and conducting any HSR Filing and the Parties shall split the filings fees with respect to any HSR Filing 50/50.

6.4 Effect of Option Exercise . With respect to the Optioned Products, subject to the other terms and conditions of this Agreement, and effective upon receipt by NexMed of payment pursuant to Section 8.2.2 with respect to the Optioned Products:

6.4.1 All licenses granted by Allergan in Section 2.1 shall terminate, except that NexMed shall retain a non-exclusive license solely to perform its Development and regulatory rights or obligations with respect to Products that have not yet received Regulatory Approval in the applicable Field in the Territory. NexMed shall no longer have any rights or obligations under ARTICLE 5 with respect to Optioned Products.

6.4.2 NexMed hereby grants to Allergan an exclusive (including with regard to NexMed and its Affiliates) license (or sublicense) with the right to grant sublicenses through multiple tiers under the NexMed Patents, the NexMed Know-How and NexMed’s interest in the Joint Know-How and Joint Patents to Exploit the Optioned Products in the applicable Field in the Territory, except that NexMed shall retain the non-exclusive right to perform its Development and regulatory rights or obligations with respect to Products that have not yet received Regulatory Approval in the applicable Field in the Territory.

6.4.3 Unless otherwise agreed by the Parties, NexMed hereby assigns to Allergan all of NexMed’s right, title, and interest in and to (a) the Product Trademark, (including any variations or derivatives thereof) and all other Trademarks, including any trade dress rights, that are used or held for use, or that are intended for use, with any of the Optioned Products, together with all federal, state and common law rights therein and thereto, all registrations and applications thereof, and all goodwill associated with any of the foregoing in the Territory, and (b) all existing Regulatory Documentation with respect to the Optioned Products, including the Existing IND, the Existing NDA and any other Regulatory Documentation assigned by Allergan to NexMed pursuant to Section 2.8, and Allergan hereby grants NexMed a non-exclusive right of reference with respect to such Regulatory Documentation solely to enable NexMed to perform its obligations, or exercise its rights, under this Agreement with respect to the Optioned Products in the applicable Field in the Territory.

6.4.4 As between the parties, Allergan shall have all rights, title and interest in the Territory to use, seek to register, register, protect, defend, maintain and enforce in the Territory any Trademarks that correspond to any Trademarks, including any trade dress rights and any variations and derivatives thereof, that are owned or controlled by NexMed outside the Territory and that are used or held for use or that are intended for use with any of the Products outside the Territory.

6.4.5 NexMed shall use Commercially Reasonable Efforts to disclose and make available to Allergan the Regulatory Documentation with respect to the Optioned

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Products within five (5) Business Days after the Exercise Effective Date with respect to such Optioned Products and thereafter, when and as such Regulatory Documentation becomes available.

6.4.6 Promptly following the Exercise Effective Date with respect to the Optioned Products, the Parties shall enter into an agreement to ensure a smooth and orderly transition of the Exploitation of each Optioned Product to Allergan or its designee, as well as an agreement governing the Parties’ respective rights and responsibilities with respect to the coordination of safety-related regulatory obligations, including the reporting of adverse events and other safety or quality data with respect to the Products. Each such agreement shall set forth terms and conditions with respect to such activities that are reasonable and customary in the industry for agreements of that nature.

6.4.7 Without limiting NexMed’s obligations under ARTICLE 4 with respect to Optioned Products for which it has not yet obtained Regulatory Approval or under ARTICLE 7 with respect to the Manufacture of the Optioned Products by NexMed, Allergan shall have the right to obtain and maintain all Regulatory Approvals and other submissions, and to conduct communications with the Regulatory Authorities, with respect to the Optioned Products in the applicable Field in the Territory. Unless otherwise agreed by the Parties, all Regulatory Approvals relating to the Optioned Products in the applicable Field in the Territory (other than Regulatory Approvals and related communications with respect to the Manufacture of the Optioned Products by NexMed) shall be owned by, and shall be the sole property and held in the name of, Allergan or its designated Affiliate. NexMed shall be responsible for obtaining and maintaining all Regulatory Approvals, making all submissions, and conducting all communications with the Regulatory Authorities with respect to its Manufacture of an Optioned Product.

6.4.8 Unless otherwise agreed by the Parties, NexMed shall assign (or cause its Affiliates to assign) to Allergan all NexMed Product Agreements relating to the Optioned Product, unless, with respect to any such NexMed Product Agreement, such NexMed Product Agreement expressly prohibits such assignment or relates to Products other than the Optioned Products or relates to countries inside and outside the Territory, in which case NexMed shall cooperate with Allergan in all reasonable respects to secure the consent of the applicable Third Party to such assignment or to bifurcate such agreement, and if any such consent cannot be obtained with respect to the NexMed Product Agreement or such agreement cannot be bifurcated, NexMed shall obtain for Allergan substantially all of the practical benefit and burden under such NexMed Product Agreement, including by (i) entering into appropriate and reasonable alternative arrangements on terms mutually agreeable to Allergan and NexMed and (ii) subject to the consent and control of Allergan, enforcing, at Allergan’s cost and expense and for the account of Allergan, any and all rights of NexMed against the other party thereto arising out of the breach or cancellation thereof by such other party or otherwise.

6.4.9 Any further commercialization of the Optioned Products shall be subject to the terms of ARTICLE 5.

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6.4.10 Allergan shall be solely responsible for invoicing and booking sales, establishing all terms of sale (including pricing and discounts) and warehousing and distributing the Optioned Product in the applicable Field in the Territory and shall perform all related services, in each case, in a manner consistent with the terms and conditions of this Agreement. Allergan shall be solely responsible for handling all returns, recalls and withdrawals, order processing, invoicing and collection, distribution and inventory and receivables with respect to such Optioned Product in the applicable Field in the Territory.

6.4.11 Allergan may subcontract any of the Exploitation of any Optioned Product in the applicable Field in the Territory; provided, that with respect to any such approved subcontracting (a) Allergan shall oversee the performance by its subcontractors of the subcontracted activities in a manner that would be reasonably expected to result in their timely and successful completion and shall remain responsible for the performance of such activities in accordance with this Agreement and (b) any agreement pursuant to which NexMed engages a subcontractor must (i) be consistent with this Agreement and (ii) without limiting the foregoing clause (i), contain terms obligating such subcontractor to comply with confidentiality provisions that are at least as restrictive as those set forth in ARTICLE 10.

6.4.12 The applicable [***] Milestone Payment and royalties with respect to such Optioned Product shall become payable by Allergan to NexMed pursuant to Section 8.2.2 and Section 8.3, as applicable.

6.4.13 NexMed shall duly execute and deliver or cause to be duly executed and delivered, such further instruments and do and cause to be done such further acts and things, including the filing of such assignments, agreements, documents and instruments, as Allergan may reasonably request to transfer the Products to Allergan as contemplated by this Agreement.

ARTICLE 7
MANUFACTURE AND SUPPLY

7.1 In General . The Commercializing Party shall be responsible for the Manufacture of the Products (for clarity, excluding any Authorized Generic Version of any Licensed Product, which shall be Manufactured solely by NexMed); provided, that if Allergan is the Commercializing Party, NexMed shall for a period not to exceed [***] ([***]) months (or such longer period as may be reasonably required for Allergan to establish and qualify an alternative source) supply to Allergan the Optioned Products and/or the Authorized Generic Version of the Optioned Products at its cost plus [***] percent ([***]%). During this [***] ([***]) month period (or such longer period as may be reasonably required), NexMed shall use Commercially Reasonable Efforts to introduce Allergan to its supplier and arrange for Allergan to receive its supply of the Optioned Products directly from such supplier under the same terms as those previously negotiated by NexMed. If Allergan exercises its right to AG Launch an Authorized Generic Version of a Product pursuant to Section 2.10.1 while NexMed is the Commercializing Party, NexMed shall supply such Authorized Generic Version to Allergan at its cost plus [***] percent ([***]%). For clarity, Allergan shall have no right to receive supply of

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Product (including any Authorized Generic Version) intended for Exploitation outside the Territory or outside the Field.

7.2 Supply Agreement. As soon as reasonably practicable after the Effective Date, the Parties shall enter into a supply agreement reflecting the terms and conditions set forth in the Supply Term Sheet (the “ Supply Agreement ”) and such additional terms as are agreed by the Parties in good faith, which, for clarity, shall supplement and shall not materially expand, limit or change the terms and conditions set forth in the Supply Term Sheet; provided, that (a) NexMed’s supply obligations under this ARTICLE 7 shall not be contingent on the preparation and execution of the Supply Agreement between the Parties and (b) if the Parties are unable to agree upon the terms and conditions of the Supply Agreement, then NexMed shall fulfill its supply obligations based on the terms and conditions of the Supply Term Sheet.

ARTICLE 8
PAYMENTS

8.1 Upfront Payment . No later than ten (10) Business Days after the Effective Date, NexMed shall pay Allergan an upfront amount equal to $1,000,000. Such payment shall be non-refundable and non-creditable against any other payments due hereunder.

8.2 Milestones .

8.2.1 Regulatory Milestone. NexMed shall pay Allergan the following non-refundable, non-creditable milestone payment within ten (10) Business Days after the achievement of the Milestone Event with respect to the first Licensed Product to achieve such Milestone Event:



Milestone Event	Payment
[***]	$1,500,000

8.2.2 [***] Milestones. If Allergan exercises its Option pursuant to Section 6.3.2 with respect to the Products, Allergan shall pay to NexMed the non-refundable, non-creditable amount set forth below with respect to such Product (each, an “[***] Milestone Payment ”) within ten (10) Business Days after the later of: (a) the achievement of the corresponding Milestone Event with respect to such Product, (b) Allergan’s exercise of its Option with respect to such Product, and (c) if Allergan delivers an HSR Notice to NexMed pursuant to Section 6.3.3 with respect to Allergan’s exercise of its Option with respect to such Product, the expiration or earlier termination of the waiting period (or any extension thereof) under the HSR Act with respect thereto:

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Milestone Event	[***] Milestone Payment
[*] (the “[*] Milestone ”)	$[***]
[*] (the “[*] Milestone ”)	$[***]

For clarity, if Allergan delivers an HSR Notice and Allergan is unable to proceed with exercising the Option due to restrictions under the HSR Act, then Allergan shall not be obligated to pay NexMed either the [***] Milestone or the [***] Milestone.

8.2.3 Determination that Milestone Event Has Occurred. The Paying Party shall notify the Payee Party promptly of the achievement of each Milestone Event. In the event that, notwithstanding the fact that the Paying Party has not provided the Payee Party such a notice, the Payee Party believes that any such Milestone Event has been achieved, it shall so notify the Paying Party in writing and the Parties shall promptly meet and discuss in good faith whether such Milestone Event has been achieved. Any dispute under this Section 8.2.3 regarding whether or not a Milestone Event has been achieved shall be subject to resolution in accordance with Section 14.5.

8.2.4 Each payment in this Section 8.2 shall be payable only upon the first achievement of such milestone and no amounts shall be due for subsequent or repeated achievements of such milestone.

8.2.5 For clarity, no payment shall be due under this Section 8.2 with respect to any Authorized Generic Version of a Licensed Product.

8.3 Royalties .

8.3.1 Licensed Product Royalties. During the applicable Royalty Term with respect to each Licensed Product, NexMed shall pay Allergan a royalty of twenty percent (20%) on Net Sales of such Licensed Product in the Territory.

8.3.2 Optioned Product Royalties. If Allergan exercises its Option pursuant to Section 6.3.2 with respect to the Products, then during the applicable Royalty Term with respect to each Optioned Product, Allergan shall pay NexMed a royalty of [***] percent ([***]%) on Net Sales of such Optioned Product in the Territory. For clarity, no payments shall be due under this Section 8.3.2 with respect to Authorized Generic Versions of a Product.

8.3.3 Authorized Generic and Optioned Product Payments. During the applicable Authorized Generic Term with respect to a Product, Allergan shall pay NexMed [***] percent ([***]%) of Net Profits for any Authorized Generic Version of such Product in the Territory. For clarity, no payment shall be due under this Section 8.3.3 with respect to an Optioned Product.

8.3.4 Generic Entry . Notwithstanding the foregoing, if at any time sales of Generic Products and Authorized Generic Versions of a Product have achieved [***]

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percent ([***]%) market penetration (based on unit volume of such Product and such Generic Products and Authorized Generic Versions as reported by IMS in a Calendar Quarter), then any payments owed with respect to such Product pursuant to this Section 8.3 will be reduced by [***] percent ([***]%) for the remainder of the applicable Royalty Term, such reduction to be prorated appropriately for the then-current Calendar Quarter.

8.3.5 Blended Royalty.

(a) NexMed acknowledges that (i) the Allergan Know-How and the Technology included in the Existing IND and Existing NDA assigned by Allergan to NexMed pursuant to Section 2.8 are proprietary and valuable and that without the Allergan Know-How and such Technology, NexMed would not be able to obtain and maintain Regulatory Approvals with respect to the Licensed Products in the applicable Fields in the Territory, (ii) the Existing IND and Existing NDA will allow NexMed to obtain and maintain the Regulatory Exclusivity Period with respect to each of the Licensed Products in the applicable Field in the Territory, (iii) access to the Allergan Know-How and the rights with respect to the Existing IND and Existing NDA have provided NexMed with a competitive advantage in the marketplace beyond the exclusivity afforded by the Allergan Patents and the applicable Regulatory Exclusivity Periods, and (iv) the royalties set forth in Section 8.3.1, are, in part, intended to compensate Allergan for such exclusivity and such competitive advantage. The Parties agree that the royalty rates set forth in Section 8.3.1 reflect an efficient and reasonable blended allocation of the value provided by Allergan to NexMed.

(b) Allergan acknowledges that (i) the NexMed Know-How and the Technology included in the Regulatory Documentation to be assigned by NexMed to Allergan pursuant to Section 6.4.3 are proprietary and valuable and that without the NexMed Know-How and such Technology, Allergan would not be able to maintain Regulatory Approvals with respect to each of the Optioned Products in the applicable Field in the Territory, (ii) such Regulatory Approvals will allow Allergan to obtain and maintain the Regulatory Exclusivity Period with respect to the Optioned Products in the applicable Fields in the Territory, (iii) access to the NexMed Know-How and the rights with respect to such Regulatory Documentation will provide Allergan with a competitive advantage in the marketplace beyond the exclusivity afforded by the NexMed Patents and the applicable Regulatory Exclusivity Periods, and (iv) the royalties set forth in Section 8.3.2, are, in part, intended to compensate NexMed for such exclusivity and such competitive advantage. The Parties agree that the royalty rates set forth in Section 8.3.2 reflect an efficient and reasonable blended allocation of the value provided by NexMed to Allergan.

8.3.6 Payment Dates and Reports. With respect to each Product, royalty payments and Net Profit payments, if applicable, with respect to such Product shall be made by the Paying Party with respect thereto within forty five (45) days after the end of each Calendar Quarter commencing with the Calendar Quarter in which the first day of the Royalty Term or Authorized Generics Term, as applicable, for such Product occurs. The Paying Party shall also provide to the Payee Party, at the same time each such payment is made, a report showing: (a) the Net Sales of such Product in the Territory for the applicable period; (b) the

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basis for any deductions from Invoiced Sales to determine Net Sales; (c) with respect to royalty payments, a calculation of the amount of royalty due to the Payee Party; and (d) with respect to Net Profit payments, a calculation of the amount of Net Profits due to NexMed.

8.4 Mode of Payment . All payments to the Payee Party under this Agreement shall be made by deposit of Dollars in the requisite amount to such bank account as the Payee Party may from time to time designate by written notice to the Paying Party.

8.5 Taxes. Any Payment payable by the Paying Party to the Payee Party pursuant to this Agreement shall be paid free and clear of any and all taxes, duties, levies, imposts, assessments, deductions, fees, and other similar charges (“ Taxes ”). Except as provided in this Section 8.5, each Party is responsible for its own Taxes imposed on or measured by net income or overall gross income (including branch profits), gross receipts, capital, ability or right to do business, property, and franchise or similar taxes pursuant to Applicable Law. If any Applicable Law requires the deduction or withholding of any Tax from any Payment, then the Paying Party shall be entitled to make such deduction or withholding and shall timely pay the full amount deducted or withheld to the relevant governmental entity in accordance with Applicable Law; provided, however, if any Applicable Law requires the deduction or withholding of any Tax from any Payment, the Paying Party shall increase the Payment as necessary so that after such liability, deduction or withholding has been made, the relevant Payee Party receives the amount it would have received had no such deduction or withholding been required or made. If the Payee Party is entitled under any applicable tax treaty to a reduction of rate of, or the elimination of, applicable withholding Tax, it may deliver to the Paying Party or the appropriate governmental entity (with the assistance of the Paying Party to the extent that this is reasonably required and is expressly requested in writing) the prescribed forms necessary to reduce the applicable rate of withholding or to relieve the Paying Party of its obligation to withhold such Tax, and the Paying Party shall apply the reduced rate of withholding, or dispense with withholding, as the case may be; provided, that the Paying Party has received evidence, in a form satisfactory to the Paying Party, of the Payee Party’s delivery of all applicable forms (and, if necessary, its receipt of appropriate governmental authorization) at least ten (10) days prior to the date that the applicable Payment is due. If, in accordance with the foregoing, the Paying Party withholds any amount, it shall make timely payment to the proper governmental entity of the withheld amount and send to the Payee party proof of such payment within ten (10) days following such payment. The Parties shall reasonably cooperate to minimize any such withholding Taxes. If either Party assigns this Agreement to an Affiliate or Third Party pursuant to Section 14.2 and, as a result of such assignment, payments made hereunder are subject to additional withholding Tax after any minimization due to exemptions or reductions as permitted by Applicable Law (e.g., applicable tax treaties), such assigning Party shall be responsible for the resulting additional withholding Taxes; provided, however, that if the non-assigning Party derives a Tax benefit (including through the use of foreign Tax credit) determined on a with and without basis as a result of such additional withholding, then the non-assigning Party shall promptly reimburse the assigning Party for the amount of such benefit; provided, further, that the non-assigning Party shall take all commercially reasonable actions necessary to obtain any Tax reductions, exemptions, minimization, or benefit (including through the use of foreign Tax

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credit) with respect to such additional withholding Taxes and to defend such benefit in a Tax audit.

8.6 Interest on Late Payments . If any Payment due to the Payee Party under this Agreement is not paid when due, then the Paying Party shall pay interest thereon and on any unpaid accrued interest (before and after any judgment) at an annual rate (but with interest accruing on a daily basis) of three hundred (300) basis points above LIBOR, such interest to run from the date upon which payment of such amount became due until payment thereof in full together with such accrued interest.

8.7 Financial Records . The Paying Party shall, and shall cause its Affiliates and its and their respective Sublicensees to, keep complete and accurate books and records pertaining to the sale, delivery and use of each applicable Product, including books and records of Invoiced Sales (including any deductions therefrom) and Net Sales of such Product in the applicable Field in the Territory. The Paying Party shall, and shall cause its Affiliates and its and their respective Sublicensees to, retain such books and records, until the later of three (3) years after the end of the period to which such books and records pertain and the expiration of the applicable tax statute of limitations (or any extensions thereof), or for such longer period as may be required by Applicable Law.

8.8 Audit . At the request of the Payee Party, the Paying Party shall, and shall cause its Affiliates and its and their respective Sublicensees to, permit an independent certified public accountant retained by the Payee Party, at reasonable times and upon reasonable notice, to audit the books and records maintained pursuant to Section 8.7. Such audits may not (a) be conducted for any Calendar Quarter more than three (3) years after the end of the calendar year in which such Calendar Quarter occurs, (b) be conducted more than once in any twelve (12)-month period (unless a previous audit during such twelve (12)-month period revealed an underpayment with respect to such period or the Paying Party restates or revises such books and records for such twelve (12)-month period) or (c) be repeated for any Calendar Quarter. Except as provided below, the cost and expense of any audit shall be borne by the Payee Party, unless the audit reveals a variance of more than five percent (5%) from the reported amounts, in which case the Paying Party shall bear the cost and expense of the audit. Unless disputed pursuant to Section 8.9, if such audit concludes that additional payments were owed or that excess payments were made during such period, the Paying Party shall pay the additional amounts, with interest from the date originally due as provided in Section 8.6, or the Payee Party shall reimburse such excess payments, in either case, within thirty (30) days after the date on which such audit is completed and the conclusions thereof are notified to the Parties.

8.9 Audit Dispute . In the event of a dispute over the results of any audit conducted pursuant to Section 8.8, the Parties shall work in good faith to resolve such dispute. If the Parties are unable to reach a mutually acceptable resolution of any such dispute within ten (10) days, either Party shall have the right to submit the dispute for arbitration to a certified public accounting firm selected by each Party’s certified public accountants or to such other Person as the Parties shall mutually agree (the “ Accountant ”). The decision of the Accountant shall be final and the costs and expenses of such arbitration as well as the initial audit shall be

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borne between the Parties in such manner as the Accountant shall determine. Not later than thirty (30) days after such decision and in accordance with such decision, the Paying Party shall pay the additional royalties, with interest from the date originally due as provided in Section 8.6 or the Payee Party shall reimburse such excess payments, as applicable.

8.10 Confidentiality . The Parties shall treat all information subject to review under this ARTICLE 8 in accordance with the confidentiality provisions of ARTICLE 10 and the Parties shall cause the independent public accountant retained by such Party pursuant to Section 8.9 or the Accountant, as applicable, to enter into a reasonably acceptable confidentiality agreement that includes an obligation to retain all such financial information in confidence.

ARTICLE 9
INTELLECTUAL PROPERTY

9.1 Ownership of Intellectual Property .

9.1.1 Ownership of Technology. Subject to the licenses granted under Section 2.1, Section 6.4.2, or Section 13.2.1, as applicable, as between the Parties, each Party shall own and retain all right, title and interest in and to any and all: (a) Technology and inventions that are conceived, discovered, developed or otherwise made by or on behalf of such Party, any of its Affiliates or any of its or their respective (sub)licensees under or in connection with this Agreement, whether or not patented or patentable, and any and all Patents and other intellectual property rights with respect thereto, except to the extent that any such Technology or any Patent or intellectual property rights with respect thereto, is Joint Know-How or Joint Patents, and (b) other Technology and inventions, Patents and other intellectual property rights that are owned or otherwise Controlled by such Party, or any of its Affiliates or any of its or their respective (sub)licensees.

9.1.2 Ownership and Use of Joint Patents and Joint Know-How. As between the Parties, the Parties shall each own an equal, undivided interest in any and all (a) Technology and inventions that are conceived, discovered, developed or otherwise made jointly by or on behalf of NexMed, any of its Affiliates or any of its or their respective (sub)licensees, on the one hand, and Allergan, any of its Affiliates or any of its or their respective (sub)licensees, on the other hand, in connection with the work conducted under or in connection with this Agreement, whether or not patented or patentable (the “ Joint Know-How ”), and (b) Patents and other intellectual property rights with respect to the Technology and inventions described in the foregoing clause (a) (the “ Joint Patents ”). Each Party shall promptly disclose to the other Party in writing, and shall cause its Affiliates and its and their respective (sub)licensees to so disclose, the conception, discovery, development or making of any Joint Know-How or Joint Patents. Subject to the license grants set forth in Section 2.1, Section 6.4.2, or Section 13.2.1, as applicable, each Party and its Affiliates shall have the right to use and otherwise exploit any Joint Know-How or Joint Patents for any purpose in the Territory in any manner and for any purpose outside of this Agreement without any duty to share profits with, or provide an accounting to, the other Party with respect to such use and exploitation.

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9.1.3 United States Law. The determination of whether Technology and inventions are conceived, discovered, developed, or otherwise made by a Party or any of its Affiliates or its or their respective (sub)licensees for the purpose of allocating proprietary rights (including Patent, copyright or other intellectual property rights) therein, shall, for purposes of this Agreement, be made in accordance with Applicable Law in the United States as such law exists as of the Effective Date irrespective of where such conception, discovery, development or making occurs. Each Party shall, without additional compensation, cooperate to make any necessary assignments to fully effect the ownership provided for in Section 9.1.1 or Section 9.1.2, as applicable.

9.1.4 Ownership of Allergan Corporate Names. Subject to the licenses granted in Section 2.1, as between the Parties, Allergan shall retain all right, title and interest in and to the Allergan Corporate Names.

9.2 Prosecution and Maintenance of Patents .

9.2.1 Allergan-Managed Patents in the Territory. Allergan shall maintain (including with respect to related interference, derivation, re-issuance, re-examination, opposition and other post-grant proceedings) the Allergan-Managed Patents in the Territory at its sole cost and expense.

9.2.2 NexMed-Managed Patents in the Territory. NexMed shall prepare, file, prosecute and maintain (including with respect to related interference, derivation, re-issuance, re-examination, opposition and other post-grant proceedings) the NexMed-Managed Patents in the Territory at its sole cost and expense.

9.2.3 Cooperation. The Party that has the right to prepare, file, prosecute and maintain the Allergan-Managed Patents or the NexMed-Managed Patents, as applicable (the “ Prosecuting Party ”) shall keep the other Party (the “ Non-Prosecuting Party ”) informed of all steps to be taken in the preparation and prosecution of all applications filed by it pursuant to Section 9.2.1 or Section 9.2.2, as applicable and shall furnish the Non-Prosecuting Party with copies of such applications for Patents, amendments thereto and other related correspondence to and from patent offices, and, to the extent reasonably practicable, permit the Non-Prosecuting Party an opportunity to offer its comments thereon before making a submission to a patent office and the Prosecuting Party shall consider in good faith the Non-Prosecuting Party’s comments. The Non-Prosecuting Party shall offer its comments, if any, promptly. The Non-Prosecuting Party shall assist the Prosecuting Party at the reasonable request of the Prosecuting Party from time to time in connection with its activities set forth in Section 9.2.1 or Section 9.2.2, as applicable.

9.2.4 Patent Listings . Notwithstanding Section 9.2.3, NexMed shall not list any Patent in the FDA’s Orange Book without the prior written consent of Allergan (such consent not to be unreasonably conditioned, withheld or delayed), irrespective of whether Allergan has exercised its Option pursuant to Section 6.3.2.

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9.2.5 Common Ownership Under Joint Research Agreements. Notwithstanding anything to the contrary in this ARTICLE 9, neither Party shall have the right to make an election under 35 U.S.C. 102(c) when exercising its rights under this ARTICLE 9 without the prior written consent of the other Party. With respect to any such permitted election, the Parties shall coordinate their activities with respect to any submissions, filings, or other activities in support thereof. The Parties acknowledge and agree that this Agreement is a “joint research agreement” as defined in 35 U.S.C. 100(h).

9.3 Enforcement of Patents .

9.3.1 Notice. If either Party becomes aware of (a) any suspected infringement of any Allergan Patent, NexMed Patent or Joint Patent in the Territory or (b) any certification filed under the Hatch-Waxman Act claiming that any Allergan Patent, NexMed Patent or Joint Patent is invalid or unenforceable or claiming that no Allergan Patents, NexMed Patents or Joint Patents would be infringed by the making, use, offer for sale, sale or import of a product for which an application under the Hatch-Waxman Act is filed (each of clauses (a) and (b), an “ Infringement ”), such Party shall promptly notify the other Party and provide it with all details of such Infringement of which it is aware (each, an “ Infringement Notice ”); provided, that each Party shall give the other Party an Infringement Notice not later than three (3) Business Days after it becomes aware of any Infringement described in clause (b) above.

9.3.2 Enforcement. The Enforcing Party shall have the first right, but not the obligation, through counsel reasonably acceptable to the other Party, to initiate an infringement action with respect to any Infringement of any Allergan Patent, NexMed Patent or Joint Patent at its sole cost and expense. If the Enforcing Party does not initiate such an infringement action within ninety (90) days (or twenty five (25) days in the case of any Infringment described in clause (b) of the definition thereof) of learning of an Infringement, or earlier notifies the Non-Enforcing Party in writing of its intent not to so initiate an action, then the Non-Enforcing Party shall have the right, but not the obligation, to bring such an action; provided that, except with respect to any Infringement described in clause (b) of the definition thereof, if the Enforcing Party has commenced negotiations with an alleged infringer for discontinuance of such Infringement within such ninety (90)-day period, the Enforcing Party shall have an additional ninety (90) days to conclude its negotiations before the Non-Enforcing Party may bring suit for such Infringement.

9.3.3 Settlement. The Party that initiates an infringement action with respect to any Infringement of any Allergan Patent, NexMed Patent or Joint Patent pursuant to Section 9.3.2 also shall have the right to control settlement of such claim; provided, that (a) no settlement shall be entered into without the prior consent of the other Party if such settlement would adversely affect or diminish the rights and benefits of the other Party under this Agreement, or impose any new obligations or adversely affect any obligations of the other Party under this Agreement and (b) the initiating Party shall not be entitled to settle any such claim by granting a license or covenant not to sue under or with respect to the Patents or other intellectual property rights owned or otherwise controlled by the other Party without the prior written consent of such Party, such consent not to be unreasonably conditioned, withheld or delayed.

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9.3.4 Cooperation. If a Party is entitled to and brings an infringement action in accordance with this Section 9.3, the other Party shall cooperate fully, including being joined as a party plaintiff in such action, providing access to relevant documents and other evidence and making its employees available at reasonable business hours. If a Party pursues an action against such alleged Infringement, it shall consider in good faith any comments from the other Party and shall keep the other Party reasonably informed of any steps taken to preclude such Infringement.

9.3.5 Costs and Recovery. Each Party shall bear its own costs and expenses relating to any Infringement action commenced pursuant to this Section 9.3. Any damages or other amounts collected shall be first allocated to reimburse the Parties for their costs and expenses in making such recovery (which amounts shall be allocated pro rata if insufficient to cover the totality of such costs and expenses). Any remainder after such reimbursement is made shall be retained by the Party pursuing such Infringement action, and if such Party is the Enforcing Party, then such remainder shall be deemed Net Sales and be subject to the royalty obligations in Section 8.3.1 or Section 8.3.2, as applicable.

9.4 Infringement Claims by Third Parties .

9.4.1 Defense of Third Party Claims. If a Third Party asserts that a Patent or other intellectual property right owned or otherwise controlled by it is infringed by the Exploitation of a Product in the applicable Field in the Territory, the Party first made aware of such a claim shall promptly provide the other Party written notice of such claim along with the related facts in reasonable detail. NexMed shall have the first right, but not the obligation, to control the defense of any such claim with respect to a Licensed Product and Allergan shall have the first right, but not the obligation, to control the defense of any such claim with respect to an Optioned Product. If the Party with the first right to control the defense of a claim fails to assume control of the defense of such claim within ninety (90) days after receiving notice thereof from, or giving notice thereof to, the other Party pursuant to the first sentence of this Section 9.4.1, then the other Party shall have the right, but not the obligation, to defend against such claim. Notwithstanding the foregoing, the Party controlling such defense (the “ Controlling Party ”) shall not be entitled to assert a claim or counterclaim against such Third Party based on the Patents or other intellectual property rights for which it is not the Enforcing Party without the prior written consent of the Enforcing Party, such consent not to be unreasonably conditioned, withheld or delayed. The Non-Controlling Party shall cooperate with the Controlling Party, at the Controlling Party’s reasonable request, cost and expense, in any such defense and shall have the right, at its own expense, to be represented separately by counsel of its own choice in any such proceeding.

9.4.2 Settlement of Third Party Claims. The Controlling Party with respect to a particular claim pursuant to Section 9.4.1 also shall have the right to control settlement of such claim; provided, that (a) no settlement shall be entered into without the prior consent of the Non-Controlling Party if such settlement would adversely affect or diminish the rights and benefits of the Non-Controlling Party under this Agreement, or impose any new obligations or adversely affect any obligations of the Non-Controlling Party under this

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Agreement and (b) the Controlling Party shall not be entitled to settle any such claim by granting a license or covenant not to sue under or with respect to the Patents or other intellectual property rights for which it is not the Enforcing Party without the prior written consent of the Enforcing Party, such consent not to be unreasonably conditioned, withheld or delayed.

9.4.3 Allocation of Costs. All costs and expenses relating to any defense, settlement and judgments in actions commenced pursuant to this Section 9.4 shall be borne by the Enforcing Party.

9.5 Invalidity or Unenforceability Defenses or Actions .

9.5.1 Third Party Defense or Counterclaim.

(a) If a Third Party asserts, as a defense or as a counterclaim in any infringement action under Section 9.3 or claim or counterclaim asserted under Section 9.4, or in a declaratory judgment action or similar action or claim filed by such Third Party, that any Allergan Patent, NexMed Patent or Joint Patent is invalid or unenforceable, then the Party pursuing such infringement action, or the Party first obtaining knowledge of such declaratory judgment action, as the case may be, shall promptly give written notice to the other Party.

(b) The Enforcing Party shall have the first right, but not the obligation, through counsel of its choosing, at its sole cost and expense, to defend against such action or claim. If the Enforcing Party fails to accept control of the defense of such a claim within ninety (90) days after receiving notice thereof from, or giving notice thereof to, the Non-Enforcing Party pursuant to Section 9.5.1(a), the Non-Enforcing Party shall have the right, through counsel of its choosing, at its sole cost and expense, to defend against such action or claim.

9.5.2 Assistance. Each Party shall assist and cooperate with the other Party as such other Party may reasonably request from time to time, at its sole cost and expense, in connection with its activities set forth in Section 9.5.1, including by providing access to relevant documents and other evidence and making its employees available at reasonable business hours; provided, that neither Party shall be required to disclose legally privileged information unless and until procedures reasonably acceptable to such Party are in place to protect such privilege. In connection with any such defense or claim or counterclaim, the Enforcing Party shall consider in good faith any comments from the Non-Enforcing Party and shall keep the Non-Enforcing Party reasonably informed of any steps taken, and shall provide copies of all documents filed, in connection with such defense, claim or counterclaim. In connection with the activities set forth in Section 9.5.1, each Party shall consult with the other as to the strategy for the defense of the applicable Patents.

9.6 Product Trademark .

9.6.1 Notice. Without limiting Section 9.4.1, each Party shall provide the other Party prompt written notice of any actual or threatened infringement of the Product Trademark in the Territory and of any actual or threatened claim that the use of the Product

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Trademark in the Territory violates the rights of any Third Party, in each case, of which such Party becomes aware.

9.6.2 Maintenance and Prosecution of Product Trademark. Subject to Section 2.5, Section 6.4.3 and Section 13.2.1, NexMed shall own all right, title, and interest to the Product Trademark in the Territory, and shall be responsible for the registration, prosecution, and maintenance thereof. All costs and expenses of registering, prosecuting, and maintaining the Product Trademarks shall be borne solely by NexMed.

9.6.3 Enforcement of Product Trademarks. The Enforcing Party shall have the right and responsibility for taking such action as the Enforcing Party, after consultation with the Non-Enforcing Party, deems necessary against a Third Party based on any alleged, threatened, or actual infringement, dilution, misappropriation, or other violation of, or unfair trade practices or any other like offense relating to, the Product Trademark by a Third Party in the Territory. The Enforcing Party shall bear the costs and expenses relating to any enforcement action commenced pursuant to this Section 9.6.3 and any settlements and judgments with respect thereto, and shall retain any damages or other amounts collected in connection therewith. In the event that the Enforcing Party fails to assume responsibility for such enforcement, the Non-Enforcing Party shall have the right and responsibility for such action, in which case the Non-Enforcing Party shall bear all costs and expenses and shall retain any damages or other amounts collected in connection therewith.

9.6.4 Third Party Claims. The Enforcing Party shall have the right and responsibility for defending against any alleged, threatened, or actual claim by a Third Party that the use or registration of the Product Trademark in the Territory infringes, dilutes, misappropriates, or otherwise violates any Trademark or other right of such Third Party or constitutes unfair trade practices or any other like offense, or any other claims as may be brought by a Third Party against a Party in connection with the use of the Product Trademark with respect to a Product in the Territory. The Enforcing Party shall bear the costs and expenses relating to any defense commenced pursuant to this Section 9.6.4 and any settlements and judgments with respect thereto, and shall retain any damages or other amounts collected in connection therewith.

9.6.5 Cooperation. Each Party shall, and shall cause its Affiliates and its and their respective Sublicensees to, cooperate fully with the other Party with respect to any enforcement action or defense commenced pursuant to this Section 9.6; provided, that the Enforcing Party shall bear the costs and expenses incurred by the Non-Enforcing Party in connection with such cooperation.

ARTICLE 10
CONFIDENTIALITY AND NON-DISCLOSURE

10.1 Confidential Information . “ Confidential Information ” means any information provided by one Party (the “ Disclosing Party ”) to the other Party (the “ Receiving Part y”) (a) under or in connection with the Existing License Agreement and (b) under or in connection with this Agreement, including any information relating to the Compound or any

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Product (including the Regulatory Documentation and Regulatory Approvals and any information or data contained therein), any Exploitation of a Product in the Territory or the scientific, regulatory or business affairs or other activities of the Disclosing Party; provided, however, that, notwithstanding Article 3 of the Existing License Agreement, any information relating to the Compound or any Product or the Exploitation thereof (collectively, “ Product Information ”) shall, irrespective of the Party that actually disclosed such Product Information, be deemed Confidential Information of both Parties unless and until Allergan exercises its Option pursuant to Section 6.3.2 with respect to a Product, whereupon such Product Information with respect to such Product shall be deemed the sole and exclusive Confidential Information of Allergan and Allergan shall be the Disclosing Party and NexMed the Receiving Party with respect thereto. Notwithstanding the foregoing, Confidential Information shall not include any information that:

10.1.1 is or hereafter becomes part of the public domain by public use, publication, general knowledge or the like through no wrongful act, fault or negligence on the part of the Receiving Party in breach of this Agreement;

10.1.2 except with respect to Product Information (which shall not be subject to this Section 10.1.2), can be demonstrated by documentation or other competent proof to have been in the Receiving Party’s possession prior to disclosure by the Disclosing Party without any obligation of confidentiality with respect to such information;

10.1.3 is subsequently received by the Receiving Party from a Third Party who is not bound by any obligation of confidentiality with respect to such information; or

10.1.4 except with respect to Product Information (which shall not be subject to this Section 10.1.4), can be demonstrated by documentation or other competent evidence to have been independently developed by or for the Receiving Party without use of the Disclosing Party’s Confidential Information.

Specific aspects or details of Confidential Information shall not be deemed to be within the public domain or in the possession of the Receiving Party merely because the Confidential Information is embraced by more general information in the public domain or in the possession of the Receiving Party. Further, any combination of Confidential Information shall not be considered in the public domain or in the possession of the Receiving Party merely because individual elements of such Confidential Information are in the public domain or in the possession of the Receiving Party unless the combination and its principles are in the public domain or in the possession of the Receiving Party.

10.2 Confidentiality Obligations . At all times during the Term and for a period of ten (10) years following termination or expiration of this Agreement, each Party shall, and shall cause its Affiliates, and its and their respective officers, directors, employees and agents to, keep completely confidential and not publish or otherwise disclose and not use, directly or indirectly, for any purpose, any Confidential Information furnished or otherwise made known to it, directly or indirectly, by the other Party, except to the extent such disclosure or use is

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expressly permitted by the terms of this Agreement or such use is necessary for the performance of its obligations, or the exercise of its rights, under this Agreement.

10.3 Permitted Disclosures . Each Receiving Party may disclose Confidential Information disclosed to it by the Disclosing Party to the extent that such disclosure by the Receiving Party is:

(a) made in response to a valid order of a court of competent jurisdiction or other supra-national, federal, national, regional, state, provincial and local governmental or regulatory body of competent jurisdiction (including any Regulatory Authorities) or, if in the reasonable opinion of the Receiving Party’s legal counsel, such disclosure is otherwise required by Applicable Law, including by reason of filing with securities regulators; provided, however, that the Receiving Party shall first have given notice to the Disclosing Party and given the Disclosing Party a reasonable opportunity to quash such order or to obtain a protective order or confidential treatment order requiring that the Confidential Information and documents that are the subject of such order or are required by Applicable Law to be disclosed, as applicable, be held in confidence by such court or agency or, if disclosed, be used only for the purposes for which the order was issued or the disclosure was required by Applicable Law, as applicable; and provided, further, that the Confidential Information disclosed in response to such court or governmental order shall be limited to that information that is legally required to be disclosed in response to such court or governmental order or by such Applicable Law;

(b) made by the Receiving Party to a Regulatory Authority as required in connection with any filing, application or request for Regulatory Approval; provided, that reasonable measures shall be taken to obtain confidential treatment of such information;

(c) made by the Receiving Party as necessary to file or prosecute Patent applications pursuant to Section 9.2.1 or Section 9.2.2, as applicable, prosecute or defend litigation or otherwise establish rights or enforce obligations under this Agreement; provided, that reasonable measures shall be taken to obtain confidential treatment of such information; or

(d) made by the Receiving Party to actual or prospective acquirers or merger candidates (and to its and their respective Affiliates or representatives); provided, that each such Third Party signs an agreement that contains obligations that are substantially similar to the Receiving Party’s obligations hereunder (except that the obligations under such agreement may terminate five (5) years after disclosure of the relevant information).

10.4 Registration, Filing and Disclosure of the Agreement .

10.4.1 The terms of this Agreement are confidential and shall not be disclosed by either Party except pursuant to this Section 10.4.

10.4.2 To the extent a Party determines in good faith that it is required by Applicable Law to publicly file, or otherwise disclose the terms of, this Agreement to or with a

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governmental entity, including public filings pursuant to securities laws or the rules of a stock exchange on which the securities of the disclosing Party are listed (or to which an application for listing has been submitted), such disclosing Party shall provide the proposed redacted form of this Agreement to the other Party with a reasonable amount of time prior to filing or disclosure (and in any event at least ten (10) Business Days before filing or disclosure) for the other Party to review and comment upon such redacted form. The Party making such filing, registration, notification or disclosure shall incorporate the reviewing Party’s reasonable comments regarding such redacted form and shall use commercially reasonable efforts to seek confidential treatment for the redacted terms, to the extent such confidential treatment is applicable and reasonably available consistent with Applicable Law. Each Party shall be responsible for its own legal and other external costs and expenses in connection with any such filing, registration or notification.

10.4.3 Each Party may disclose to existing or potential (a) acquirers, (b) partners or (c) financial investors that are not a biotechnology or pharmaceutical company or a subsidiary thereof, in each case ((a), (b), or (c)), pursuant to obligations of confidentiality and non-use no less stringent than those set forth in this ARTICLE 10, an agreed redacted version of this Agreement that the Parties shall, at either Party’s request, jointly prepare and use good faith efforts to agree to promptly after the Effective Date; provided, that if either Party seeks to disclose terms of this Agreement prior to the Parties’ agreeing on a redacted version of this Agreement in a manner not permitted by this Section 10.4.3, the Party seeking to disclose this Agreement must obtain the other Party’s prior written consent before disclosing this Agreement.

10.5 Use of Name . Except as expressly provided in this Agreement, neither Party shall mention or otherwise use the name, insignia, symbol, Trademark of the other Party (or any abbreviation or adaptation thereof) in any publication, press release, marketing and promotional material or other form of publicity without the prior written approval of such other Party in each instance, such approval not be unreasonably conditioned, withheld or delayed. The restrictions imposed by this Section 10.5 shall not prohibit either Party from making any disclosure (a) identifying the other Party as a counterparty to this Agreement to its investors, (b) that is required by Applicable Law or the requirements of a national securities exchange or another similar regulatory body (provided, that any such disclosure shall be governed by this ARTICLE 10) or (c) with respect to which written consent has previously been obtained. Further, the restrictions imposed on each Party under this Section 10.5 are not intended, and shall not be construed, to prohibit a Party from identifying the other Party in its internal business communications, provided, that any Confidential Information in such communications remains subject to this ARTICLE 10.

10.6 Press Releases . Neither Party shall issue any press release or other similar public communication relating to this Agreement, its subject matter or the transactions covered by it, or the activities of the Parties under or in connection with this Agreement, without the prior written approval of the other Party, except (a) for communications required by Applicable Law as reasonably advised by the issuing Party’s counsel (provided, that the other Party is given a reasonable opportunity to review and comment on any such press release or public communication in advance thereof to the extent legally permitted and the issuing Party shall act in good faith to incorporate any comments provided by the other Party on such press

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release or public communication), (b) for information that has been previously disclosed publicly or (c) as otherwise set forth in this Agreement.

10.7 Publications. Each Party recognizes that the publication of papers regarding results of and other Technology regarding activities under this Agreement, including oral presentations and abstracts, may be beneficial to both Parties; provided, that such publications are subject to reasonable controls to protect Confidential Information. Accordingly, each Party shall have the right to review and approve any paper proposed for publication by the other Party, including any oral presentation or abstract, that contains Clinical Data or pertains to results of Clinical Studies or includes other Technology generated under this Agreement or that includes Confidential Information of the other Party. Before any such paper is submitted for publication or an oral presentation is made, the publishing or presenting Party shall deliver a complete copy of the paper or materials for oral presentation to the other Party at least thirty (30) days prior to submitting the paper to a publisher or making the presentation. The other Party shall review any such paper and give its comments to the publishing or presenting Party within fifteen (15) days after the delivery of such paper to the other Party. With respect to oral presentation materials and abstracts, the other Party shall make reasonable efforts to expedite review of such materials and abstracts, and shall return such items as soon as practicable to the publishing or presenting Party with appropriate comments, if any, but in no event later than fifteen (15) days after the date of delivery to the other Party. Failure to respond within such fifteen (15) days shall be deemed approval to publish or present. Notwithstanding the foregoing, the publishing or presenting Party shall comply with the other Party’s written request to (a) delete references to such other Party’s Confidential Information in any such paper or presentation or (b) withhold publication of any such paper or any presentation of same for an additional sixty (60) days in order to permit the Parties to obtain patent protection if either Party deems it necessary. Any publication shall include recognition of the contributions of the other Party according to standard practice for assigning scientific credit, either through authorship or acknowledgement, as may be appropriate. Each Party shall use commercially reasonable efforts to cause investigators and institutions participating in Clinical Studies for the Products with which it contracts to agree to terms substantially similar to those set forth in this Section 10.7, which efforts shall satisfy such Party’s obligations under this Section 10.7 with respect to such investigators and institutions.

10.8 Return or Destruction of Confidential Information . After the earlier of the expiration of the Term and the termination of this Agreement, at the written request of the Disclosing Party, the Receiving Party shall, at the Disclosing Party’s discretion, promptly destroy or return to the Disclosing Party all documentary, electronic or other tangible embodiments of the Disclosing Party’s Confidential Information to which the Receiving Party does not retain rights hereunder and any and all copies thereof, and destroy those portions of any documents that incorporate or are derived from the Disclosing Party’s Confidential Information to which the Receiving Party does not retain rights hereunder, and provide a written certification of such destruction, except that the Receiving Party may retain (a) copies thereof to the extent that the Receiving Party requires such Confidential Information for the purpose of performing any obligations or exercising any rights under this Agreement that may survive such expiration or termination and (b) one (1) copy for archival purposes. Notwithstanding the foregoing, the

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Receiving Party also shall be permitted to retain such additional copies of or any computer records or files containing the Disclosing Party’s Confidential Information that have been created solely by the Receiving Party’s automatic archiving and back-up procedures, to the extent created and retained in a manner consistent with the Receiving Party’s standard archiving and back-up procedures, but not for any other use or purpose.

10.9 Privileged Communications . In furtherance of this Agreement, it is expected that the Parties may, from time to time, disclose to one another privileged communications with counsel, including opinions, memoranda, letters and other written, electronic and verbal communications. Such disclosures are made with the understanding that they shall remain confidential in accordance with this ARTICLE 10, that they will not be deemed to waive any applicable attorney-client or attorney work product or other privilege and that they are made in connection with the shared community of legal interests existing between Allergan and NexMed, including the community of legal interests in avoiding infringement of any valid, enforceable patents of Third Parties and maintaining the validity of any Allergan Patent, NexMed Patent or Joint Patent. In the event of any litigation (or potential litigation) with a Third Party that is related to this Agreement, the Parties shall, upon either Party’s request, enter into a reasonable and customary joint defense agreement. In any event, each Party shall consult in a timely manner with the other Party before engaging in any conduct (e.g., producing information or documents) in connection with litigation or other proceedings that would reasonably be expected to implicate privileges maintained by the other Party.

ARTICLE 11
REPRESENTATIONS AND WARRANTIES

11.1 Mutual Representations and Warranties . Each Party hereby represents and warrants to the other Party as of the Effective Date as follows:

11.1.1 It is a corporation or limited liability corporation, as applicable, duly organized, validly existing, and in good standing under the laws of the jurisdiction of its organization, and has all requisite power and authority, corporate or otherwise, to execute, deliver, and perform this Agreement.

11.1.2 The execution and delivery of this Agreement and the performance by it of the transactions contemplated hereby have been duly authorized by all necessary corporate action, and do not violate: (a) such Party’s charter documents, bylaws, or other organizational documents; (b) in any material respect, any agreement, instrument, or contractual obligation to which such Party is bound; (c) any requirement of any Applicable Law; or (d) any order, writ, judgment, injunction, decree, determination, or award of any court or governmental entity presently in effect applicable to such Party.

11.1.3 This Agreement is a legal, valid, and binding obligation of such Party enforceable against it in accordance with its terms and conditions, subject to the effects of bankruptcy, insolvency, or other laws of general application affecting the enforcement of creditor rights, judicial principles affecting the availability of specific performance, and general principles of equity (whether enforceability is considered a proceeding at law or equity).

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11.2 Representations, Warranties and Covenants of NexMed .

11.2.1 Neither NexMed nor any of its Affiliates has been debarred or is subject to debarment and neither NexMed nor any of its Affiliates will use in any capacity, in connection with the activities to be performed under this Agreement, any Person who has been debarred pursuant to Section 306 of the FFDCA or who is the subject of a conviction described in such section. NexMed shall inform Allergan in writing immediately if it or any Person who is performing activities hereunder is debarred or is the subject of a conviction described in Section 306 or if any action, suit, claim, investigation or legal or administrative proceeding is pending or, to the best of NexMed’s knowledge, is threatened, relating to the debarment or conviction of NexMed or any Person performing activities hereunder.

11.2.2 During the Term, without the prior written consent of Allergan (in Allergan’s sole discretion), NexMed shall not, and shall cause its Affiliates not to:

(a) manufacture, market, promote, sell or otherwise commercialize a product containing the Compound in the Field (“ Competing Product ”) in the Territory;

(b) grant or transfer any right or license to, or enter into any collaboration with, any Third Party by contract or otherwise, to manufacture, market, promote, sell or otherwise commercialize a Competing Product in the Territory, in each case ((a) and (b)), other than a Product or an Authorized Generic Version in the Territory as permitted hereunder;

(c) assign, transfer, license, convey or otherwise encumber its right, title or interest in or to any Patent, Technology or Regulatory Documentation (including by granting any covenant not to sue with respect thereto) that would be a NexMed Patent or constitute NexMed Know-How or the Regulatory Documentation to be assigned by NexMed to Allergan pursuant to Section 6.4.3 but for such assignment, transfer, license, conveyance or encumbrance; or

(d) enter into any agreement, written or oral, that would conflict with or otherwise diminish Allergan’s Option rights under this Agreement.

11.2.3 NexMed covenants that it shall not, and shall cause its Affiliates not to, Challenge any Allergan Patents that cover any Product, including any Patents listed in the “Approved Drug Products with Therapeutic Equivalence Evaluations” published by the FDA for any Product. Further, NexMed covenants that it shall not, and shall cause its Affiliates not to, file a certification under the Hatch-Waxman Act certifying that a proposed generic version of any Product does not infringe on Patents listed in the Orange Book for any Product or that any such Patents are invalid or unenforceable.

11.2.4 NexMed, its Affiliates and each of its and their successors and assigns covenants and agrees, from and after the date of this Agreement, not to challenge by way of any judicial or administrative action in any forum, the scope, validity, or legality of any

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exclusive regulatory period granted by the FDA or any other Regulatory Authority with respect to any Product.

11.3 Representations, Warranties and Covenants of Allergan.

11.3.1 Subject to the terms and conditions of this Agreement, if Allergan exercises its Option pursuant to Section 6.3.2 with respect to the Products, Allergan shall not, and shall cause its Affiliates not to:

(a) manufacture, market, promote, sell or otherwise commercialize a Competing Product in the Territory; or

(b) grant or transfer any right or license to, or enter into any collaboration with, any Third Party by contract or otherwise, to manufacture, market, promote, sell or otherwise commercialize a Competing Product in the Territory, other than an Optioned Product or an Authorized Generic Version in the Territory as permitted hereunder.

11.3.2 Allergan covenants that it shall not, and shall cause its Affiliates not to, Challenge any Patent Controlled by NexMed that covers any Licensed Product, including any Patents listed in the “Approved Drug Products with Therapeutic Equivalence Evaluations” published by the FDA for such Licensed Product. Further, Allergan covenants that it shall not, and shall cause its Affiliates not to, file a certification under the Hatch-Waxman Act certifying that a proposed generic version of any Licensed Product does not infringe on Patents listed in the Orange Book for any Licensed Product or that any such Patents are invalid or unenforceable.

11.3.3 Allergan, its Affiliates and each of its and their successors and assigns covenants and agrees, from and after the date of this Agreement, not to challenge by way of any judicial or administrative action in any forum, the scope, validity, or legality of any exclusive regulatory period granted by the FDA or any other Regulatory Authority with respect to any Licensed Product.

11.4 DISCLAIMER OF WARRANTY. EXCEPT FOR THE EXPRESS WARRANTIES SET FORTH IN SECTION 11.1 AND SECTION 11.2, NEITHER PARTY MAKES ANY REPRESENTATIONS OR GRANTS ANY WARRANTY, EXPRESS OR IMPLIED, EITHER IN FACT OR BY OPERATION OF LAW, BY STATUTE OR OTHERWISE, AND EACH PARTY SPECIFICALLY DISCLAIMS ANY OTHER WARRANTIES, WHETHER WRITTEN OR ORAL, OR EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY OF QUALITY, MERCHANTABILITY OR FITNESS FOR A PARTICULAR USE OR PURPOSE OR ANY WARRANTY AS TO THE VALIDITY OF ANY PATENTS OR THE NON-INFRINGEMENT OF ANY INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES.

ARTICLE 12
INDEMNITY

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12.1 Indemnification of Allergan . NexMed shall indemnify Allergan, its Affiliates and its and their respective directors, officers, employees and agents (collectively, “ Allergan Indemnitees ”), and defend and save each of them harmless, from and against any and all losses, damages, liabilities, costs and expenses (including reasonable attorneys’ fees, costs and expenses) (collectively, “ Losses ”) in connection with any and all suits, investigations, claims or demands of Third Parties (collectively, “ Third Party Claims ”) arising from or occurring as a result of: (a) the breach by NexMed of any term of this Agreement; (b) the gross negligence or willful misconduct on the part of any NexMed Indemnitee in the performance of its obligations under this Agreement; (c) death, personal injury, or other property damage arising out of or resulting from the manufacture or labeling (including failure to warn claims) of the Compound or Licensed Product; (d) the Exploitation of the Compound or any Licensed Product by or on behalf of NexMed or any of its Affiliates or (sub)licensees (other than Allergan or its Affiliates or (sub)licensees), including any Development activities performed by NexMed, whether before, on or after the date on which Allergan exercises its Option pursuant to Section 6.3.2; or (e) the Exploitation of the Compound or any Product by or on behalf of NexMed or any of its Affiliates or (sub)licensees outside the Territory; except (i) in each case, ((a) through (e)), with respect to any Third Party Claim for which NexMed has an obligation to any Allergan Indemnitee pursuant to this Section 12.1 or under the Supply Agreement (or the Supply Term Sheet, if applicable), if any, and Allergan has an obligation to any NexMed Indemnitee pursuant to Section 12.2 or under the Supply Agreement (or the Supply Term Sheet, if applicable), if any, each Party shall indemnify each of the Allergan Indemnitees or the NexMed Indemnitees, as applicable, for its Losses to the extent of its responsibility, relative to the other Party; and (ii) with respect to clause (d), to the extent such Losses arise or result from the prosecution, enforcement, or defense of any Patents or Trademarks, or any claims or assertions that the Licensed Product or the Exploitation thereof as contemplated in this Agreement infringes, dilutes, misappropriates, or otherwise violates any intellectual property right of a Third Party, which such Losses are governed by ARTICLE 9.

12.2 Indemnification of NexMed . Allergan shall indemnify NexMed, its Affiliates and its and their respective directors, officers, employees and agents (collectively, “ NexMed Indemnitees ”), and defend and save each of them harmless, from and against any and all Losses in connection with any and all Third Party Claims arising from or occurring as a result of: (a) the breach by Allergan of this Agreement; (b) the gross negligence or willful misconduct on the part of any Allergan Indemnitee in the performance of its obligations under this Agreement; (c) if, and only if, and from and after, Allergan exercises its Option pursuant to Section 6.3.2, death, personal injury, or other property damage arising out of or resulting from the manufacture or labeling (including failure to warn claims) of any Optioned Product by or on behalf of Allergan (but not with respect to the performance (or non-performance) of NexMed under this Agreement or any acts or omissions of NexMed or its Affiliates or (sub)licensees outside the Territory); or (d) the Exploitation of any Optioned Product by or on behalf of Allergan (but not with respect to the performance (or non-performance) of NexMed under this Agreement or any acts or omissions of NexMed or its Affiliates or (sub)licensees outside the Territory); except (i) in each case, ((a) through (d)), with respect to any Third Party Claim for which Allergan has an obligation to any NexMed Indemnitee pursuant to this Section 12.2 or under the Supply Term Sheet (or the Supply Agreement, if applicable), if any, and NexMed has

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an obligation to any Allergan Indemnitee pursuant to Section 12.1 or under the Supply Term Sheet (or the Supply Agreement, if applicable), if any, each Party shall indemnify each of the Allergan Indemnitees or the NexMed Indemnitees, as applicable, for its Losses to the extent of its responsibility, relative to the other Party; and (ii) with respect to clause (d), to the extent such Losses arise or result from the prosecution, enforcement, or defense of any Patents or Trademarks, or any claims or assertions that the Optioned Product or the Exploitation thereof as contemplated in this Agreement infringes, dilutes, misappropriates, or otherwise violates any intellectual property right of a Third Party, which such Losses are governed by ARTICLE 9.

12.3 Notice of Claim . All indemnification claims in respect of an Allergan Indemnitee or a NexMed Indemnitee shall be made solely by Allergan or NexMed, as applicable (each of Allergan or NexMed in such capacity, the “ Indemnified Party ”). The Indemnified Party shall give the Indemnifying Party prompt written notice (an “ Indemnification Claim Notice ”) of any Losses or discovery of fact upon which such Indemnified Party intends to base a request for indemnification under Section 12.1 or Section 12.2, but in no event shall the Indemnifying Party be liable for any Losses that result from any delay in providing such notice. Each Indemnification Claim Notice must contain a description of the claim and the nature and amount of such Loss (to the extent that the nature and amount of such Loss is known at such time). The Indemnified Party shall furnish promptly to the Indemnifying Party copies of all papers and official documents received in respect of any Losses and Third Party Claims.

12.4 Control of Defense .

12.4.1 Control of Defense. At its option, the Indemnifying Party may assume the defense of any Third Party Claim by giving written notice to the Indemnified Party within thirty (30) days after the Indemnifying Party’s receipt of an Indemnification Claim Notice. The assumption of the defense of a Third Party Claim by the Indemnifying Party shall not be construed as an acknowledgment that the Indemnifying Party is liable to indemnify any Allergan Indemnitee or NexMed Indemnitee, as applicable, in respect of such Third Party Claim, nor shall it constitute a waiver by the Indemnifying Party of any defenses it may assert against an Allergan Indemnitee’s or a NexMed Indemnitee’s, as applicable, claim for indemnification. Upon assuming the defense of a Third Party Claim, the Indemnifying Party may appoint as lead counsel in the defense of such Third Party Claim any legal counsel selected by the Indemnifying Party. In the event the Indemnifying Party assumes the defense of a Third Party Claim, the Indemnified Party shall immediately deliver to the Indemnifying Party all original notices and documents (including court papers) received by any Allergan Indemnitee or NexMed Indemnitee, as applicable, in connection with such Third Party Claim. If the Indemnifying Party assumes the defense of a Third Party Claim, except as provided in Section 12.4.2, the Indemnifying Party shall not be liable to the Indemnified Party for any legal costs and expenses subsequently incurred by such Indemnified Party or any Allergan Indemnitee or NexMed Indemnitee, as applicable, in connection with the analysis, defense or settlement of such Third Party Claim. In the event that it is ultimately determined that the Indemnifying Party is not obligated to indemnify, defend or hold harmless an Allergan Indemnitee or NexMed Indemnitee, as applicable, from and against a Third Party Claim, the Indemnified Party shall reimburse the Indemnifying Party for any and all reasonable costs and expenses (including attorneys’ fees,

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costs and expenses of suit) incurred by the Indemnifying Party in its defense of such Third Party Claim.

12.4.2 Right to Participate in Defense. Without limiting Section 12.4.1, any Indemnified Party shall be entitled to participate in, but not control, the defense of a Third Party Claim and to employ counsel of its choice for such purpose; provided, that such employment shall be at the Indemnified Party’s own cost and expense unless (a) the employment thereof has been specifically authorized by the Indemnifying Party in writing, (b) the Indemnifying Party has failed to assume the defense and employ counsel in accordance with Section 12.4.1 (in which case the Indemnified Party shall control the defense) or (c) the interests of the Indemnified Party and any Allergan Indemnitee or NexMed Indemnitee, as applicable, on the one hand, and the Indemnifying Party, on the other hand, with respect to such Third Party Claim are sufficiently adverse to prohibit the representation by the same counsel of all such Persons under Applicable Law, ethical rules or equitable principles (in which case the Indemnified Party shall control its defense).

12.4.3 Settlement. With respect to any Third Party Claims relating solely to the payment of money damages in connection with a Third Party Claim that shall not result in any Allergan Indemnitee or NexMed Indemnitee, as applicable, becoming subject to injunctive or other relief or otherwise adversely affecting the business of any Allergan Indemnitee or NexMed Indemnitee, as applicable, in any manner and as to which the Indemnifying Party shall have acknowledged in writing the obligation to indemnify such Allergan Indemnitee or NexMed Indemnitee, as applicable, hereunder, the Indemnifying Party shall have the sole right to consent to the entry of any judgment, enter into any settlement or otherwise dispose of such Third Party Claim, on such terms as the Indemnifying Party, in its sole discretion, shall deem appropriate. With respect to all other Third Party Claims, where the Indemnifying Party has assumed the defense of the Third Party Claim in accordance with Section 12.4.1, the Indemnifying Party shall have authority to consent to the entry of any judgment, enter into any settlement or otherwise dispose of such Third Party Claim, provided, that it obtains the prior written consent of the Indemnified Party (such consent not to be unreasonably conditioned, withheld or delayed). The Indemnifying Party shall not be liable for any settlement or other disposition of a Third Party Claim by an Allergan Indemnitee or a NexMed Indemnitee that is reached without the prior written consent of the Indemnifying Party. Regardless of whether the Indemnifying Party chooses to defend or prosecute any Third Party Claim, the Indemnified Party shall not, and the Indemnified Party shall ensure that each Allergan Indemnitee or NexMed Indemnitee, as applicable, does not, admit any liability with respect to or settle, compromise or discharge, any Third Party Claim without the prior written consent of the Indemnifying Party, such consent not to be unreasonably conditioned, withheld or delayed.

12.4.4 Cooperation. Regardless of whether the Indemnifying Party chooses to defend or prosecute any Third Party Claim, the Indemnified Party shall, and shall cause each Allergan Indemnitee or NexMed Indemnitee, as applicable, to, cooperate in the defense or prosecution thereof and shall furnish such records, information and testimony, provide such witnesses and attend such conferences, discovery proceedings, hearings, trials and appeals as may be reasonably requested in connection therewith. Such cooperation shall include access

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during normal business hours afforded to the Indemnifying Party to, and reasonable retention by the Indemnified Party and any Allergan Indemnitee or NexMed Indemnitee, as applicable, of, records and information that are reasonably relevant to such Third Party Claim, and making all Allergan Indemnitees or NexMed Indemnitees, as applicable, and other employees and agents available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder; provided, that neither Party shall be required to disclose legally privileged information unless and until procedures reasonably acceptable to such Party are in place to protect such privilege, and the Indemnifying Party shall reimburse the Indemnified Party for all its reasonable costs and expenses in connection therewith.

12.4.5 Expenses. Except as provided above, the costs and expenses, including fees and disbursements of counsel, incurred by the Indemnified Party in connection with any Third Party Claim shall be reimbursed on a Calendar Quarter basis by the Indemnifying Party, without prejudice to the Indemnifying Party’s right to contest any Allergan Indemnitee’s or NexMed Indemnitee’s, as applicable, right to indemnification and subject to refund in the event the Indemnifying Party is ultimately held not to be obligated to indemnify an Allergan Indemnitee or NexMed Indemnitee, as applicable.

12.5 Limitation on Damages and Liability . EXCEPT (a) IN CIRCUMSTANCES OF GROSS NEGLIGENCE OR WILLFUL MISCONDUCT BY A PARTY, ANY OF ITS AFFILIATES OR ANY OF ITS OR THEIR RESPECTIVE SUBLICENSEES OR (b) WITH RESPECT TO THIRD PARTY CLAIMS UNDER SECTION 12.1 OR SECTION 12.2, NEITHER PARTY NOR ANY OF THEIR RESPECTIVE AFFILIATES SHALL BE LIABLE FOR SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES, OR FOR LOST PROFITS, WHETHER IN CONTRACT, WARRANTY, NEGLIGENCE, TORT, STRICT LIABILITY OR OTHERWISE, ARISING OUT OF (x) THE DEVELOPMENT, MANUFACTURE, USE OR SALE OF ANY LICENSED PRODUCT OR OPTIONED PRODUCT UNDER THIS AGREEMENT, (y) THE USE OF OR REFERENCE TO THE ALLERGAN PATENTS, ALLERGAN KNOW-HOW, NEXMED PATENTS, NEXMED KNOW-HOW, JOINT PATENTS, JOINT KNOW-HOW, OR REGULATORY DOCUMENTATION OF EITHER PARTY OR (z) ANY BREACH OF OR FAILURE TO PERFORM ANY OF THE PROVISIONS OF THIS AGREEMENT.

12.6 Insurance . Each Party shall have and maintain such types and amounts of liability insurance (or self-insurance) to cover liabilities related to its activities under this Agreement as is normal and customary in the pharmaceutical industry generally for Persons similarly situated, and shall upon request provide to the other Party evidence of its insurance coverage. Such policies shall remain in effect throughout the Term and for a period of three (3) years thereafter.

ARTICLE 13
TERM AND TERMINATION

13.1 Term . The term of this Agreement shall commence on the Effective Date and shall, unless earlier terminated in accordance with this ARTICLE 13, continue until the expiration of the Royalty Term for the last Product (such period, the “ Term ”). Following

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expiration of the Royalty Term with respect to a Product, the grants in Section 2.1 (with respect to a Licensed Product) or Section 6.4.2 (with respect to an Optioned Product), as applicable, shall become non-exclusive, fully-paid, royalty-free, perpetual and irrevocable.

13.2 Termination of this Agreement for Material Breach . If either Party materially breaches any of its material obligations under this Agreement (such Party, the “ Breaching Party ”), in addition to any other right and remedy the other Party (the “ Complaining Party ”) may have, the Complaining Party may terminate this Agreement, in its entirety upon sixty (60) days’ prior written notice (the “ Termination Notice Period ”) to the Breaching Party, specifying the material breach and its claim of right to terminate; provided, that the termination shall not become effective at the end of the Termination Notice Period if the Breaching Party cures the material breach complained of during the Termination Notice Period, except in the case of a payment breach, as to which the Breaching Party shall have only a ten (10)-day cure period.

13.2.1 Effect of Termination by Allergan for Material Breach or Patent Challenge.

(a) Without limiting any other legal or equitable remedies that Allergan may have, if NexMed is the Breaching Party with respect to the applicable Licensed Product(s) and Allergan terminates this Agreement in accordance with Section 13.2 or if Allergan terminates this Agreement in accordance with Section 13.5, then in addition to any other remedies available to it at law and equity, any licenses granted by Allergan to NexMed under the Existing License Agreement and under Section 2.1 of this Agreement shall immediately terminate.

(b) In the event that Allergan terminates this Agreement under this Section 13.2 or Section 13.5, Allergan shall be permitted to Exploit the Refrigerated Product and the Room Temperature Product in the Field in the Territory; provided, that (i) if the Refrigerated Product has been approved by the FDA in the Territory prior to the effective date of termination, Allergan shall pay to NexMed a royalty of [***] percent ([***]%) on Net Sales of the Refrigerated Product in the Territory, (ii) if the Room Temperature Product has been approved by the FDA in the Territory prior to the effective date of termination, Allergan shall pay to NexMed a royalty of [***] percent ([***]%) on Net Sales of the Room Temperature Product in the Territory, and (iii) if the Room Temperature Product has not been approved by the FDA in the Territory prior to the effective date of termination, but is thereafter approved by the FDA in the Territory and such approved Room Temperature Product incorporated any Technology of NexMed that is claimed by any NexMed Patent, Allergan shall pay to NexMed a royalty of [***] percent ([***]%) on Net Sales of such Room Temperature Product in the Territory. For clarity, if Allergan terminates this Agreement under this Section 13.2 or Section 13.5, Allergan shall have no obligation to pay royalties or make other payments hereunder with respect to the Refrigerated Product or the Room Temperature Product other than as set forth in the preceding clauses (i), (ii), and (iii).

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(c) In the event that Allergan terminates this Agreement under this Section 13.2 or Section 13.5 prior to the date for which an NDA for the first Licensed Product is Filed, the [***] Milestone obligation shall terminate.

(d) For clarity, in the event that Allergan terminates this Agreement under this Section 13.2 or Section 13.5, Allergan shall be permitted to Exploit OTC Products in the Field in the Territory; provided that Allergan shall pay to NexMed a royalty on Net Sales of OTC Products at the same rate, if any, payable with respect to (i) for any OTC Product that requires refrigeration or freezing by the consumer, the Refrigerated Product and (ii) with respect to any OTC Product that does not require refrigeration or freezing by the consumer, the Room Temperature Product.

(e) In the event that Allergan terminates this Agreement under this Section 13.2 or Section 13.5, NexMed hereby grants Allergan and its Affiliates, effective as of the effective date of termination, an exclusive license with the right to grant sublicenses (through multiple tiers), under the NexMed Know-How, the NexMed Patents and NexMed’s interest in the Joint Know-How and Joint Patents, in each case, that exists as of the effective date of termination, to Exploit each Product in the applicable Field in the Territory; and to the extent requested in writing by Allergan, NexMed shall promptly:

(1)

where permitted by Applicable Law, assign to Allergan all of its right, title, and interest in and to, and transfer possession to Allergan of, (i) the Product Trademark (including any variations or derivatives thereof) and all other Trademarks, including any trade dress rights, that are used or held for use, or that are intended for use, with any of the Products, together with all federal, state and common law rights therein and thereto, all registrations and applications thereof, and all goodwill associated with any of the foregoing in the Territory, and (ii) all existing Regulatory Documentation with respect to the Products in the Territory;


(2)	notify the applicable Regulatory Authorities and take any other action reasonably necessary to effect the transfer set forth in clause (1) above;

(3)

and hereby does, effective as of the effective date of termination, grant Allergan a non-exclusive right of reference with respect to such Regulatory Documentation then owned or Controlled by NexMed then in its name that is not assigned to Allergan pursuant to clause (1) above that is necessary or reasonably useful for Allergan or any of its Affiliates to Exploit any Product in the applicable Field in the Territory, as such Regulatory Documentation exists as of the effective date of such termination of this Agreement

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and NexMed shall continue to maintain such Regulatory Documentation unless and until Allergan notifies NexMed that such maintenance is no longer required;

(4)

unless expressly prohibited by any Regulatory Authority, transfer control to Allergan of all Clinical Studies of each Licensed Product being conducted for the Territory as of the effective date of termination and continue to conduct such Clinical Studies, at Allergan’s reasonable cost and expense, for up to six (6) months to enable such transfer to be completed without interruption of any such Clinical Study;

(5)

assign (or cause its Affiliates to assign) to Allergan all NexMed Product Agreements, unless, with respect to any such NexMed Product Agreement, such NexMed Product Agreement expressly prohibits such assignment, in which case NexMed shall cooperate with Allergan in all reasonable respects to secure the consent of the applicable Third Party to such assignment or to bifurcate such agreement, and if any such consent cannot be obtained with respect to the NexMed Product Agreement or such agreement cannot be bifurcated, NexMed shall obtain for Allergan substantially all of the practical benefit and burden under such NexMed Product Agreement for the Territory, including by (i) entering into appropriate and reasonable alternative arrangements on terms mutually agreeable to Allergan and NexMed and (ii) subject to the consent and control of Allergan, enforcing, at Allergan’s cost and expense and for the account of Allergan, any and all rights of NexMed against the other party thereto arising out of the breach or cancellation thereof by such other party or otherwise;


(6)	provide Allergan with copies of all reports and data generated or obtained by NexMed or any of its Affiliates that relate to any Licensed Product for the Territory that have not previously been provided to Allergan;


(7)	without limiting NexMed’s supply obligations under Section 7.2 (or the Supply Agreement, if applicable), supply to Allergan such quantities of the Compound and each Product as Allergan indicates in written forecasts and orders therefor from time to time until the later of (i) such time as Allergan has established an alternate, validated

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source of supply for the Compound and each Product, and Allergan is receiving supply from such alternative source and (ii) the [***] ([***]) anniversary of the effective date of termination of this Agreement. The cost and expense to Allergan for such supply shall be at NexMed’s actual direct cost and expense to Manufacture such Compound and each such Product plus [***] percent ([***]%) of such cost and expense;


(8)	if NexMed has used any Trademark (other than the NexMed or an Affiliate’s corporate name) in connection with the Exploitation of any Product in the Field in the Territory, NexMed shall assign such Trademark to Allergan; and

(9)

without limiting Allergan’s rights under other provisions of this ARTICLE 13, in the event of any termination pursuant to this ARTICLE 13, NexMed shall, at the request, cost, and expense of Allergan, provide Allergan with such assistance as is reasonably necessary to effectuate a smooth and orderly transition of any Development, Manufacture and commercialization activities to Allergan or its designee so as to minimize any disruption of such activities. Further, upon Allergan’s request, NexMed shall provide such technical assistance, at no cost to Allergan, as may reasonably be requested by Allergan, including with respect to the transfer of all Manufacturing technology that is or had been used by or on behalf of NexMed and its Affiliates in connection with the Manufacture of the Compound or any Product.

(f) As between the Parties, Allergan shall have all rights, title and interest in the Territory to use, seek to register, register, protect, defend, maintain and enforce in the Territory any Trademarks (other than the corporate name or logo of NexMed or any of its Affiliates or its or their respective (sub)licensees) that correspond to any Trademarks, including any trade dress rights and any variations and derivatives thereof, that are owned by NexMed outside the Territory and that are used or held for use or that are intended for use with any of the Products outside the Territory; provided, that this Section 13.2.1(f) shall not apply to any Trademarks that have been granted by NexMed to a Third Party licensee outside the Territory.

(g) In the event that Allergan terminates this agreement under this Section 13.2 or Section 13.5, Allergan’s obligations under Section 11.3.1 with respect to a Competing Product shall immediately terminate.

13.2.2 Effect of Termination by NexMed for Material Breach .

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(a) Without limiting any other legal or equitable remedies that NexMed may have, if Allergan is the Breaching Party with respect to the applicable Product(s) and NexMed terminates this Agreement in accordance with Section 13.2 (and NexMed is not otherwise in breach of this Agreement), then in addition to any other remedies available to it at law and equity, any licenses granted by NexMed to Allergan under this Agreement shall immediately terminate. In the event that NexMed terminates this agreement in accordance with Section 13.2.2 but elects to continue to Develop and/or commercialize one or more Licensed Products, NexMed shall be permitted to do so, provided that NexMed pays to Allergan a royalty of [***] percent ([***]%) on Net Sales of such Product in the Territory.

(b) In the event that NexMed terminates this Agreement under Section 13.2 subsequent to Allergan’s exercise of the Option, then to the extent requested in writing by NexMed, Allergan shall promptly:


(1)	where permitted by Applicable Law, assign to NexMed all of its right, title, and interest in and to, and transfer possession to NexMed of, all existing Regulatory Documentation with respect to the Products in the Territory;


(2)	notify the applicable Regulatory Authorities and take any other action reasonably necessary to effect the transfer set forth in clause (1) above;

(3)

and hereby does, effective as of the effective date of termination, grant NexMed a non-exclusive right of reference with respect to such Regulatory Documentation then owned or Controlled by Allergan then in its name that is not assigned to NexMed pursuant to clause (1) above that is necessary or reasonably useful for NexMed or any of its Affiliates to Exploit any Product in the applicable Field in the Territory, as such Regulatory Documentation exists as of the effective date of such termination of this Agreement;


(4)	unless expressly prohibited by any Regulatory Authority, transfer control to NexMed of all Clinical Studies of each Licensed Product being conducted as of the effective date of termination and continue to conduct such Clinical Studies, at NexMed’s reasonable cost and expense, for up to six (6) months to enable such transfer to be completed without interruption of any such Clinical Study;


(5)	assign (or cause its Affiliates to assign) to NexMed all Allergan Product Agreements, unless, with respect to any such Allergan Product Agreement, such Allergan Product Agreement expressly prohibits such assignment, in which

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case Allergan shall cooperate with NexMed in all reasonable respects to secure the consent of the applicable Third Party to such assignment or to bifurcate such agreement, and if any such consent cannot be obtained with respect to the Allergan Product Agreement or such agreement cannot be bifurcated, Allergan shall obtain for NexMed substantially all of the practical benefit and burden under such Allergan Product Agreement for the Territory, including by (i) entering into appropriate and reasonable alternative arrangements on terms mutually agreeable to NexMed and Allergan and (ii) subject to the consent and control of NexMed, enforcing, at NexMed’s cost and expense and for the account of NexMed, any and all rights of Allergan against the other party thereto arising out of the breach or cancellation thereof by such other party or otherwise;


(6)	provide NexMed with copies of all reports and data generated or obtained by Allergan or any of its Affiliates that relate to any Licensed Product that have not previously been provided to NexMed; and

(7)

supply to NexMed such quantities of the Compound and each Product as NexMed indicates in written forecasts and orders therefor from time to time until the later of (i) such time as NexMed has established an alternate, validated source of supply for the Compound and each Product, and NexMed is receiving supply from such alternative source and (ii) the [***] ([***]) anniversary of the effective date of termination of this Agreement. The cost and expense to NexMed for such supply shall be at Allergan’s actual direct cost and expense to Manufacture such Compound and each such Product plus [***] percent ([***]%) of such cost and expense.

13.3 Termination of this Agreement for Cessation of Development or Failure to Obtain Approval . In the event that NexMed and its Affiliates (a) ceases Development of both the Refrigerated Product and the Room Temperature Product or (b) fails to obtain FDA approval for any Licensed Product on or prior to January 1, 2021, then Allergan shall have the right, in either case ((a) or (b)), to terminate this Agreement in its entirety under this Section 13.3, including the rights of any Sublicensees, upon written notice to NexMed; provided that, if on or prior to January 1, 2021, NexMed has reasonably demonstrated to Allergan that NexMed is using Commercially Reasonable Efforts to obtain FDA approval for any Licensed Product and is expected to do so within one hundred eighty (180) days, then NexMed shall have

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until July 1, 2021 (or such other date as the Parties may agree) to obtain FDA approval for such Licensed Product.

13.4 Termination Upon Insolvency . Either Party may terminate this Agreement if, at any time, the other Party (a) files in any court or agency pursuant to any statute or regulation of any state, country or jurisdiction, a petition in bankruptcy or insolvency or for reorganization or for an arrangement or for the appointment of a receiver or trustee of such other Party or of its assets, (b) proposes a written agreement of composition or extension of its debts, (c) is served with an involuntary petition against it, filed in any insolvency proceeding that is not dismissed within sixty (60) days after the filing thereof, (d) proposes or is a party to any dissolution or liquidation, or (e) makes an assignment for the benefit of its creditors.

13.5 Termination of this Agreement for Patent Challenge . If NexMed or any of its Affiliates (a) Challenges any Allergan Patents that cover any Product, including any Patents listed in the “Approved Drug Products with Therapeutic Equivalence Evaluations” published by the FDA for a Product or (b) files a certification under the Hatch-Waxman Act certifying that a proposed generic version of any Product does not infringe on Patents listed in the Orange Book for any Product or that any such Patents are invalid or unenforceable, in either case ((a) or (b)), Allergan may terminate this Agreement in its entirety upon written notice to NexMed.

13.6 Rights in Bankruptcy . All rights and licenses granted under or pursuant to this Agreement by a Party are, and shall otherwise be deemed to be, for purposes of Section 365(n) of the U.S. Bankruptcy Code, licenses of right to “intellectual property” as defined under Section 101 of the U.S. Bankruptcy Code. The Parties agree that a Party, as a licensee of such rights under this Agreement, shall retain and may fully exercise all of its rights and elections under the U.S. Bankruptcy Code. The Parties further agree that, in the event of the commencement of a bankruptcy proceeding by or against either Party under the U.S. Bankruptcy Code, the Party that is not a party to such proceeding shall be entitled to a complete duplicate of (or complete access to, as appropriate) any such intellectual property and all embodiments of such intellectual property, which, if not already in the non-subject Party’s possession, shall be promptly delivered to it (a) upon any such commencement of a bankruptcy proceeding upon the non-subject Party’s written request therefor, unless the Party subject to such proceeding elects to continue to perform all of its obligations under this Agreement or (b) if not delivered under (a) above, following the rejection of this Agreement by or on behalf of the Party subject to such proceeding upon written request therefor by the non-subject Party.

13.7 Accrued Rights; Surviving Obligations .

13.7.1 Accrued Rights. Termination or expiration of this Agreement for any reason shall be without prejudice to any rights that shall have accrued to the benefit of a Party prior to such termination or expiration. Such termination or expiration shall not relieve a Party from obligations that are expressly indicated to survive the termination or expiration of this Agreement.

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13.7.2 Survival. Without limiting the foregoing, ARTICLES 10 (other than Section 10.7), 12, and 14 and Sections 2.2.1, 2.2.2, 2.10.4 (for Authorized Generic Versions of any Product sold during the Term), 4.1.3, 5.4 (for Product sold during the Term), 8.4, 8.5, 8.6, 8.7, 8.8, 8.9, 8.10, 9.1, 11.4, 13.2.1, 13.2.2, and this Section 13.7 shall survive the termination or expiration of this Agreement for any reason.

ARTICLE 14
MISCELLANEOUS

14.1 Force Majeure . Neither Party shall be held liable or responsible to the other Party or be deemed to have defaulted under or breached this Agreement for failure or delay in fulfilling or performing any term of this Agreement (other than an obligation to make payments) when such failure or delay is caused by or results from events beyond the reasonable control of the non-performing Party, including fires, floods, earthquakes, embargoes, shortages, epidemics, quarantines, war, acts of war (whether war be declared or not), terrorist acts, insurrections, riots, civil commotion, strikes, lockouts or other labor disturbances (whether involving the workforce of the non-performing Party or of any other Person), acts of God or acts, omissions or delays in acting by any governmental authority (each, a “ Force Majeure Event ”). The non-performing Party shall notify the other Party of a Force Majeure Event within ten (10) days after the occurrence of such Force Majeure Event by giving written notice to the other Party stating the nature of such Force Majeure Event, its anticipated duration, and any action being taken to avoid or minimize its effect. The suspension of performance shall be of no greater scope and no longer duration than is necessary and the non-performing Party shall use commercially reasonable efforts to remedy its inability to perform. In the event that such suspension of performance lasts for more than ninety (90) days and in the absence of such Force Majeure Event such suspension of performance would be a material breach of this Agreement, such other Party shall have the right to terminate this Agreement pursuant to Section 13.2.

14.2 Assignment . Without the prior written consent of the other Party, not to be unreasonably conditioned, withheld or delayed, neither Party shall sell, transfer, assign, delegate, pledge or otherwise dispose of, whether voluntarily, involuntarily, by operation of law or otherwise, this Agreement or any of its rights or duties hereunder; provided, that (a) either Party may, without such consent, assign this Agreement and its rights and obligations hereunder to an Affiliate (but only for so long as such Person is and remains an Affiliate of such Party, it being agreed that such Party shall cause such assignment to terminate prior to such time, if any, as such Person ceases to be an Affiliate of such Party), (b) either Party may, without such consent, assign this Agreement and its rights and obligations hereunder to its successor entity or acquirer in the event of a merger, consolidation or change of control of such Party (or its ultimate parent, if applicable) or in connection with the purchase of all or substantially all of the assets of such Party’s business to which this Agreement relates (provided, that if such assigning Party is also the Commercializing Party, then the non-assigning Party’s consent shall be required for such assignment (such consent not to be unreasonably conditioned, withheld or delayed) unless the assignee (i) has the same or greater financial resources, commercial capabilities, and, solely with respect to NexMed as the assigning Party, development capabilities as the assigning Party and (ii) would reasonably be expected to perform the obligations of the assigning Party under this

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Agreement in accordance with at least the same degree of skill, quality, and care used by the assigning Party), (c) either Party may, without such consent, monetize the value of its royalty stream, Milestone Payments and other payments under this Agreement by assigning to a Third Party the right to receive royalties, Milestone Payments and other payments and the right to receive royalty reports from the other Party (and for clarity, no other rights may be granted under this clause (c)), provided that such assigning Party gives sixty (60) days’ prior written notice to the non-assigning Party, and (d) Allergan may, without such consent, assign this Agreement and its rights and obligations hereunder to the purchaser of the Allergan Patents or Allergan Know-How or its right to the Compound or any Product. With respect to an assignment to an Affiliate, such assigning Party shall remain responsible for the performance by such Affiliate of the rights and obligations hereunder. Any attempted assignment or delegation in violation of this Section 14.2 shall be void and of no effect. All validly assigned and delegated rights and obligations of the Parties hereunder shall be binding upon and inure to the benefit of and be enforceable by and against the successors and permitted assigns of Allergan or NexMed, as the case may be. In the event either Party seeks and obtains the other Party’s consent to assign or delegate its rights or obligations to another Party, the assignee or transferee shall assume all obligations of its assignor or transferor under this Agreement.

14.3 Severability . If any provision of this Agreement is held to be illegal, invalid, or unenforceable under any present or future law, and if the rights or obligations of either Party under this Agreement will not be materially and adversely affected thereby, (a) such provision shall be fully severable, (b) this Agreement shall be construed and enforced as if such illegal, invalid, or unenforceable provision had never comprised a part hereof, (c) the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid, or unenforceable provision or by its severance herefrom, and (d) in lieu of such illegal, invalid, or unenforceable provision, there shall be added automatically as a part of this Agreement a legal, valid, and enforceable provision as similar in terms to such illegal, invalid, or unenforceable provision as may be possible and reasonably acceptable to the Parties. To the fullest extent permitted by Applicable Law, each Party hereby waives any provision of law that would render any provision hereof illegal, invalid, or unenforceable in any respect.

14.4 Governing Law and Service.

14.4.1 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of New York, excluding any conflicts or choice of law rule or principle that might otherwise refer construction or interpretation of this Agreement to the substantive law of another jurisdiction.

14.4.2 Service. Each Party further agrees that service of any process, summons, notice or document by registered mail to its address set forth in Section 14.6.2 shall be effective service of process for any action, suit or proceeding brought against it under this Agreement in any such court.

14.5 Dispute Resolution; Arbitration.

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14.5.1 Dispute Resolution. Except as provided in Section 8.9, in the event of a dispute arising out of or relating to this Agreement, either Party shall provide written notice of the dispute to the other, in which event the dispute shall be referred to the Executive Officers of each Party for attempted resolution by good faith negotiations within thirty (30) days after such notice is received. Any resolution mutually agreed to by the Executive Officers in writing shall be binding on the Parties. If the Executive Officers are unable to resolve any dispute within the allotted thirty (30) days, or a Party reasonably believes such matter will not be so resolved, either Party may seek to resolve the dispute through arbitration in accordance with Section 14.5.2.

14.5.2 Arbitration.

(a) Disputes. Except as provided in Section 8.9, any dispute arising between the Parties out of or relating to this Agreement, or concerning the interpretation, effect, termination, validity, performance or breach of this Agreement that is not resolved under Section 14.5.1 within the required thirty (30)-day time period, shall be resolved by final and binding arbitration before a panel of three (3) experts with relevant industry experience (the “ Arbitrators ”). Each of NexMed and Allergan shall promptly select one Arbitrator each, which selections shall in no event be made later than thirty (30) days after the notice of initiation of arbitration. The third Arbitrator shall be chosen promptly by mutual agreement of the Arbitrator chosen by NexMed and the Arbitrator chosen by Allergan, but in no event later than thirty (30) days after the date that the last of such Arbitrators was appointed. The Arbitrators shall determine what discovery will be permitted, consistent with the goal of reasonably controlling the cost, expense, and time that the Parties must expend for discovery; provided, that the Arbitrators shall permit such discovery as he or she deems necessary to permit an equitable resolution of the dispute. The arbitration shall be administered by the American Arbitration Association (or its successor entity) in accordance with the then current Commercial Rules of the American Arbitration Association including the Procedures for Large, Complex Commercial Disputes (including the Optional Rules for Emergency Measures of Protection), except as modified in this Agreement. The arbitration shall be held in New York, New York, and the Parties shall use reasonable efforts to expedite the arbitration if requested by either Party. The Arbitrators shall be instructed by the Parties to complete the arbitration within one hundred twenty (120) days after selection of the final Arbitrator.

(b) Arbitrators’ Award. The Arbitrators shall, within fifteen (15) days after the conclusion of the arbitration hearing, issue a written award and statement of decision describing the essential findings and conclusions on which the award is based, including the calculation of any damages awarded. The decision or award rendered by the Arbitrators shall be final and non-appealable, and judgment may be entered upon it in accordance with Applicable Law in any other court of competent jurisdiction, and shall be governed by the terms and conditions hereof, including the limitation on damages set forth in Section 12.5. The Arbitrators shall not be authorized to reform, modify or materially change this Agreement or any other agreements contemplated hereunder.

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(c) Costs. Each Party shall bear its own counsel fees, costs, expenses, and disbursements arising out of the arbitration described in this Section 14.5.2 and the fees, costs, and expenses of the Arbitrator it selected, and shall pay an equal share of the fees, costs, and expenses of the Arbitrator selected by the Arbitrators selected by NexMed or Allergan, as applicable, and all other general fees related to the arbitration; provided, that the Arbitrators shall be authorized to determine whether a Party is the prevailing Party, and if so, to award to that prevailing Party reimbursement for its reasonable counsel fees, costs, expenses, and disbursements (including expert witness fees, costs and expenses, photocopy charges, or travel expenses), or the fees, costs, and expenses of the Arbitrators.

(d) Compliance with this Agreement. Unless the Parties otherwise agree in writing, during the period of time that any arbitration proceeding is pending under this Agreement, the Parties shall continue to comply with all those terms and provisions of this Agreement that are not the subject of the pending arbitration proceeding.

(e) Injunctive or Other Equity Relief. Nothing contained in this Agreement shall deny any Party the right to seek injunctive or other equitable relief from a court of competent jurisdiction in the context of a bona fide emergency or prospective irreparable harm, and such an action may be filed and maintained notwithstanding any ongoing arbitration proceeding.

(f) Confidentiality of Proceedings. All arbitration proceedings and decisions of the Arbitrator under this Section 14.5 shall be deemed Confidential Information of both Parties under ARTICLE 10.

14.6 Notices .

14.6.1 Notice Requirements. Any notice, request, demand, waiver, consent, approval or other communication permitted or required under this Agreement shall be in writing, shall refer specifically to this Agreement and shall be deemed given only if delivered by hand or sent by facsimile transmission (with transmission confirmed) or by internationally recognized overnight delivery service that maintains records of delivery, addressed to the Parties at their respective addresses specified in Section 14.6.2 or to such other address as the Party to whom notice is to be given may have provided to the other Party in accordance with this Section 14.6. Such notice shall be deemed to have been given as of the date delivered by hand or transmitted by facsimile (with transmission confirmed) or on the third Business Day (at the place of delivery) after deposit with an internationally recognized overnight delivery service. Any notice delivered by facsimile shall be confirmed by a hard copy delivered as soon as practicable thereafter. This Section 14.6 is not intended to govern the day-to-day business communications necessary between the Parties in performing their obligations under the terms of this Agreement.

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14.6.2 Address for Notice.

If to NexMed, to:

NexMed (U.S.A.), Inc.

11975 El Camino Real, Suite 300

San Diego, CA 92130 USA

Attention: Chief Executive Officer

Facsimile: (858) 866-0482

with a copy to (which shall not constitute notice):

Latham & Watkins, LLP

12670 High Bluff Drive

San Diego, CA 92130 USA

Attention: Steven Chinowsky

Facsimile: (858) 523-5450

If to Allergan, to:

Warner Chilcott Company, LLC

Morris Corporate Center III

400 Interpace Parkway

Parsippany, NJ 07054

Attention: General Counsel

Facsimile: (862) 261-7923

with a copy to (which shall not constitute notice):

Covington & Burling LLP

One CityCenter

850 Tenth Street, NW

Washington, DC 20001-4956

Attention: John A. Hurvitz

Facsimile: (202) 778-5319

14.7 Entire Agreement; Amendments . This Agreement, together with the Schedules attached hereto, sets forth and constitutes the entire agreement and understanding between the Parties with respect to the subject matter hereof and all prior agreements, understandings, promises and representations, whether written or oral, with respect thereto are superseded hereby, except that the Existing License Agreement and the Existing APA shall continue in full force and effect and in the event of conflict between the Existing License Agreement or the Existing APA, on the one hand, and this Agreement, on the other hand, the terms of this Agreement shall govern. Each Party confirms that it is not relying on any representations or warranties of the other Party except as specifically set forth herein. No

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amendment, modification, release or discharge shall be binding upon the Parties unless in writing and duly executed by authorized representatives of both Parties.

14.8 Equitable Relief . The Parties acknowledge and agree that the restrictions set forth in ARTICLE 10 are reasonable and necessary to protect the legitimate interests of the other Party and that such other Party would not have entered into this Agreement in the absence of such restrictions, and that any breach or threatened breach of any provision of ARTICLE 10 may result in irreparable injury to such other Party for which there will be no adequate remedy at law. In the event of a breach or threatened breach of any provision of ARTICLE 10, the non-breaching Party shall be authorized and entitled to obtain from any court of competent jurisdiction injunctive relief, whether preliminary or permanent, specific performance and an equitable accounting of all earnings, profits and other benefits arising from such breach, which rights shall be cumulative and in addition to any other rights or remedies to which such non-breaching Party may be entitled in law or equity. Both Parties agree to waive any requirement that the other Party (a) post a bond or other security as a condition for obtaining any such relief and (b) show irreparable harm, balancing of harms, consideration of the public interest or inadequacy of monetary damages as a remedy. Nothing in this Section 14.8 is intended, or should be construed, to limit either Party’s right to equitable relief or any other remedy for a breach of any other provision of this Agreement.

14.9 Waiver and Non-Exclusion of Remedies . Any term or condition of this Agreement may be waived at any time by the Party that is entitled to the benefit thereof, but no such waiver shall be effective unless set forth in a written instrument duly executed by or on behalf of the Party waiving such term or condition. The waiver by either Party of any right hereunder or of the failure to perform or of a breach by the other Party shall not be deemed a waiver of any other right hereunder or of any other breach or failure by the other Party whether of a similar nature or otherwise.

14.10 No Benefit to Third Parties . The representations, warranties, covenants and agreements set forth in this Agreement are for the sole benefit of the Parties and their successors and permitted assigns, and they shall not be construed as conferring any rights on any other Persons.

14.11 Further Assurance . Each Party shall duly execute and deliver, or cause to be duly executed and delivered, such further instruments and do and cause to be done such further acts and things, including the filing of such assignments, agreements, documents and instruments, as may be necessary or as the other Party may reasonably request in connection with this Agreement or to carry out more effectively the provisions and purposes hereof, or to better assure and confirm unto such other Party its rights and remedies under this Agreement.

14.12 Relationship of the Parties . It is expressly agreed that Allergan, on the one hand, and NexMed, on the other hand, shall be independent contractors and that the relationship between the two Parties shall not constitute a partnership, joint venture or agency. Neither Allergan, on the one hand, nor NexMed, on the other hand, shall have the authority to make any statements, representations or commitments of any kind, or to take any action, which shall be binding on the other, without the prior written consent of the other Party to do so, such

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consent not to be unreasonably conditioned, withheld or delayed. All persons employed by a Party shall be employees of such Party and not of the other Party and all costs, expenses, and obligations incurred by reason of any such employment shall be for the account, cost, and expense of such Party.

14.13 Counterparts . This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement may be executed by facsimile or other electronic signatures and such signatures shall be deemed to bind each Party as if they were original signatures.

14.14 References . Unless otherwise specified, (a) references in this Agreement to any ARTICLE, Section or Schedule means references to such ARTICLE, Section or Schedule of this Agreement, (b) references in any section to any clause are references to such clause of such section and (c) references to any agreement, instrument or other document in this Agreement refer to such agreement, instrument or other document as originally executed or, if subsequently varied, replaced or supplemented from time to time, as so varied, replaced or supplemented and in effect at the relevant time of reference thereto.

14.15 Construction . Except where the context otherwise requires, wherever used, the singular shall include the plural, the plural the singular, the use of any gender shall be applicable to all genders and the word “or” is used in the inclusive sense (and/or). The captions of this Agreement are for convenience of reference only and in no way define, describe, extend or limit the scope or intent of this Agreement or the intent of any provision contained in this Agreement. The term “including” as used herein means including, without limiting the generality of any description preceding such term. The language of this Agreement shall be deemed to be the language mutually chosen by the Parties and no rule of strict construction shall be applied against either Party.

[ SIGNATURE PAGE FOLLOWS ]

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THIS AGREEMENT IS EXECUTED by the authorized representatives of the Parties as of the date first written above.

WARNER CHILCOTT COMPANY, LLC

By: /s/ Sigurd Kirk

Name: Sigurd Kirk

Title: Executive Vice President, Corporate Development

NEXMED (U.S.A.), INC.

By: /s/ Richard W. Pascoe

Name: Richard W. Pascoe

Title: Chief Executive Officer & Secretary

SIGNATURE PAGE TO LICENSE AGREEMENT

[***] Confidential Information, indicated by [***], has been omitted by this filing and filed separately with the Securities and Exchange Commission.

Schedule 1.7

Allergan Corporate Names

Schedule 1.7

[***] Confidential Information, indicated by [***], has been omitted by this filing and filed separately with the Securities and Exchange Commission.

Schedule 1.11

Allergan Patents

[***]

Schedule 1.11 - Page 1

[***] Confidential Information, indicated by [***], has been omitted by this filing and filed separately with the Securities and Exchange Commission.

Schedule 1.28

Compound

Schedule 1.28

[***] Confidential Information, indicated by [***], has been omitted by this filing and filed separately with the Securities and Exchange Commission.

Schedule 1.121

Supply Term Sheet



Parties	Warner Chilcott Company, LLC (successor-in-interest to Warner Chilcott Company, Inc.), a limited liability company organized under the laws of Puerto Rico (“ Allergan ”) and NexMed (U.S.A.), Inc., a corporation organized under the laws of Nevada (“ NexMed ”). Allergan and NexMed are sometimes referred to herein individually as a “ Party ” and collectively as the “ Parties .”
Supply Agreement	As soon as reasonably practicable after the effective date of the License Agreement and Amendment, by and between Allergan and NexMed (the “ License Agreement ”), the Parties shall enter into a supply agreement (the “ Supply Agreement ”) reflecting the terms and conditions set forth in these supply terms (the “ Supply Terms ”) and such additional terms as are agreed by the Parties in good faith, which, for clarity, shall supplement and shall not materially expand, limit or change the Supply Terms. Capitalized terms used but not defined in the Supply Terms have the meaning set forth in the License Agreement.
Supplied Product	“ Supplied Product ” means (a) each Authorized Generic Version of each Licensed Product, (b) each Optioned Product and (c) each Authorized Generic Version of each Optioned Product. The specifications for each Supplied Product (the “ Specifications ”) shall be the specifications for such Supplied Product set forth in the regulatory filings with the FDA for such Supplied Product.
Forecasting	During the Supply Term (as defined below) with respect to each Supplied Product, on or before the 25th day of each month, Allergan shall provide NexMed with a written non-binding 12-month rolling forecast (each, a “ Rolling Forecast ”) of the volume of such Supplied Product that Allergan anticipates will be required to be produced and delivered to Allergan during each of the next 12 months. The Parties shall discuss any concerns that NexMed has regarding its ability to meet any such Rolling Forecast and use good faith efforts to resolve any differences.
Purchase Orders	During the Supply Term with respect to each Supplied Product, on or before the 25th day of each month, Allergan will provide NexMed with a firm written Purchase Order (as defined below) for such Supplied Product to be processed and packaged and delivered no earlier than 90 days after delivery of such Purchase Order. The Parties shall agree upon a delivery date for the quantity of Supplied Product set forth in each Purchase Order within 10 days after Allergan submits such Purchase Order. “ Purchase Order ” means a written purchase order that sets forth, with respect to the period covered thereby, (a) the quantities of a specific Supplied Product to be processed and packaged by NexMed and delivered to Allergan and (b) the desired delivery dates therefor.
Pricing	The cost for the processing and packaging of each quantity of Supplied Product (the “ Purchase Price ”) shall be equal to [***] ; provided, that in no event shall the Conversion Costs (as defined below) with respect to a Supplied Product increase during any Calendar Year by more than the lesser of the Producer Price Index (“ PPI ”) or the Consumer Price Index (“ CPI ”) for such Calendar Year. “ Conversion Costs ” means direct labor costs and overhead.

Schedule 1.121 - Page 1

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Delivery	NexMed shall deliver the quantity of Supplied Product set forth in each Purchase Order EXW (as defined in Incoterms 2010) as specified in writing by Allergan from the Facility (as defined below) to such Allergan locations as requested by Allergan within (plus or minus) 7 days of the delivery date for such Supplied Product agreed to by the Parties after submission of such Purchase Order with respect thereto. “ Facility ” means the manufacturing facility mutually agreed by the Parties.
Taxes	Allergan shall be responsible for the payment of any sales and use taxes on the Supplied Product delivered by NexMed to Allergan.
Quality	Promptly after execution of the Supply Agreement, NexMed and Allergan shall enter into a customary quality agreement (“ Quality Agreement ”) regarding quality control with respect to NexMed’s manufacture of the Product, which shall provide, among other things, that NexMed shall manufacture and supply Supplied Product in accordance with applicable law. Allergan and its agents shall have the right once per Calendar Year (or more frequently with cause) during reasonable business hours, upon reasonable prior notice to NexMed, to inspect those portions of the Facility related to the manufacture of Supplied Product including inspection of materials used to manufacture Supplied Product, holding facilities for such materials, equipment used in manufacturing Supplied Product, the laboratories used to test Supplied Product and all records relating to the manufacture of Supplied Product. Notwithstanding the foregoing, if any such inspection reveals that NexMed is or was not in material compliance with the terms of the Supply Agreement or the Quality Agreement, Allergan shall have the right to conduct such additional inspections as may be reasonably required by Allergan to determine whether NexMed has appropriately remedied such non-compliance.
Technology Transfer	At any time, at Allergan’s request and expense, NexMed shall transfer all of the technology necessary or useful to manufacture any Supplied Product to Allergan or a third party designated by Allergan, which technology transfer shall include a non-exclusive, royalty-free, sub-licensable, worldwide license to all of NexMed’s intellectual property necessary or useful to manufacture such Supplied Product.
Regulatory	If Allergan is required to submit to the Regulatory Authorities any information concerning the processing and packaging and marketing of a Supplied Product, NexMed will provide Allergan copies of such documentation, data and other information with respect to the processing and packaging and the Facility as shall be necessary for such submission to the Regulatory Authorities.
Product Warranty	NexMed represents and warrants to Allergan that at the time each Supplied Product is delivered to Allergan, such Supplied Product (a) will meet the Specifications therefor, (b) will have been processed and packaged, stored, tested and labeled in accordance with the applicable specifications and applicable law, (c) will not be adulterated or misbranded within the meaning of the Federal Food, Drug, and Cosmetic Act or labeled, packaged, treated, processed, sold or advertised in a manner that is false, misleading or deceptive or is likely to create an erroneous impression, and (d) will pass to Allergan free and clear of any security interest, lien or other encumbrance.

Schedule 1.121 - Page 2

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Supply Term	“ Supply Term ” means, (a) with respect to each Supplied Product that is an Authorized Generic Version of a Licensed Product, the period beginning upon Allergan notifying NexMed that Allergan plans to AG Launch such Authorized Generic Version and continuing for so long as Allergan is a distributor of such Authorized Generic Version and (b) with respect to each Supplied Product that is an Optioned Product or an Authorized Generic Version of an Optioned Product, the period beginning when Allergan exercises its Option with respect to such Supplied Product pursuant to the License Agreement and continuing for [***] months thereafter or such longer period as Allergan may reasonably require pursuant to Section 7.1 of the License Agreement, unless, in either case ((a) or (b)), terminated by a Party in accordance with the Supply Agreement.
Termination	In addition to customary termination rights (including upon mutual agreement of the Parties, for material breach, bankruptcy or force majeure), Allergan shall have the right to terminate the Supply Agreement on a Supplied Product-by-Supplied Product basis (a) without cause with respect to a Supplied Product upon 18 months’ written notice to NexMed of its intention to terminate or (b) upon 30 days’ written notice to NexMed if any Regulatory Authority takes any action, or raises any objection, that prevents Allergan from importing, exporting, purchasing or selling such Supplied Product.
Indemnification	NexMed shall indemnify Allergan against any third party claims resulting from: (a) NexMed’s breach of the Supply Agreement or the Quality Agreement; (b) the gross negligence or willful misconduct on the part of NexMed in the performance of its obligations under the Supply Agreement; or (c) any claims by a third party that NexMed’s manufacturing of the Product infringes its intellectual property rights. Allergan shall indemnify NexMed against any third party claims resulting from: (a) Allergan’s breach of the Supply Agreement or the Quality Agreement; or (b) the gross negligence or willful misconduct on the part of Allergan in the performance of its obligations under the Supply Agreement.
Governing Law and Jurisdiction	The Supply Agreement shall be governed by and construed in accordance with the laws of New York, excluding any conflicts or choice of law rule or principle that might otherwise refer construction or interpretation of the Supply Agreement to the substantive law of another jurisdiction.
Arbitration	Except as otherwise provided by the Supply Agreement, all disputes arising out of or relating to the existence, negotiation, validity, formation, interpretation, breach, performance or application of the Supply Agreement shall be settled by binding arbitration to be held in New York.

Schedule 1.121 - Page 3

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Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

I, Richard W. Pascoe, certify that:


1.	I have reviewed this Quarterly Report on Form 10-Q of Apricus Biosciences, Inc.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 5, 2015

/S/ RICHARD W. PASCOE

Richard W. Pascoe

Chief Executive Officer

Exhibit 31.2

CERTIFICATION OF PRINCIPAL ACCOUNTING OFFICER

I, Catherine Bovenizer, certify that:


1.	I have reviewed this Quarterly Report on Form 10-Q of Apricus Biosciences, Inc.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 5, 2015

/S/ CATHERINE BOVENIZER

Catherine Bovenizer

Chief Accounting Officer

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Richard W. Pascoe, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Apricus Biosciences, Inc. on Form 10-Q for the quarter ended September 30, 2015 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of Apricus Biosciences, Inc.



Date: November 5, 2015	By:	/S/ RICHARD W. PASCOE
	Name:	Richard W. Pascoe
	Title:	Chief Executive Officer

Exhibit 32.2

CERTIFICATION OF CHIEF ACCOUNTING OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Catherine Bovenizer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Apricus Biosciences, Inc. on Form 10-Q for the quarter ended September 30, 2015 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of Apricus Biosciences, Inc.



Date: November 5, 2015	By:	/S/ CATHERINE BOVENIZER
	Name:	Catherine Bovenizer
	Title:	Chief Accounting Officer