Overview

We are a specialty pharmaceutical company that is developing and commercializing, either on our own or in partnerships with third parties, new applications of approved therapeutics to address important unmet medical needs using both proven and new drug delivery technologies. We have developed and are continuing to develop pharmaceutical products aimed principally in the areas of pain management and addiction. We were incorporated in the State of Indiana in 1997 and were reincorporated as a Delaware corporation in 2002.

Our approved products and certain of our product candidates utilize the novel, patent protected and proprietary BioErodible MucoAdhesive (or BEMA ^® ) drug delivery technology, a small, erodible polymer film for application to the buccal mucosa (the lining inside the cheek). Our first U.S. Food and Drug Administration (which we refer to as the FDA) approved product, ONSOLIS ^® (fentanyl buccal soluble film), as well as our approved product BUNAVAIL ^® (buprenorphine and naloxone buccal film) and our product candidate, BELBUCA™ (formerly referred to as BEMA ^® Buprenorphine), utilize our BEMA ^® technology.

We have worked with other delivery technologies in the past, and as part of our corporate growth strategy, we have licensed, and will continue to seek to acquire or license, additional drug delivery technologies or drugs utilizing the delivery or other technologies of other companies. Clonidine Topical Gel, which we licensed from Arcion Therapeutics (or Arcion) in 2013, and our 2015 agreement with Evonik Corporation (or Evonik) to develop a buprenorphine depot injection formulation, do not utilize the BEMA ^® technology and allowed us to diversify our portfolio while maintaining a focus in pain and addiction. As we gain access to such technologies, we seek to formulate these technologies with proven, FDA approved therapeutics and utilize our development and commercialization experience to, either by ourselves or through partnerships, navigate the resulting products through the regulatory review process and ultimately bring them to the marketplace.

Our current development strategy focuses primarily on our ability to utilize the FDA’s 505(b)(2) approval process to obtain more timely and efficient approval of new formulations of previously approved, active therapeutics incorporated into our drug delivery technology. Because the 505(b)(2) approval process is designed to address new formulations of previously approved drugs, we believe it has the potential to be more cost efficient and expeditious and have less regulatory approval risk than other FDA approval approaches.

An overview of our approved products and key products in development or awaiting approval is set out below:

BELBUCA ^™ (BEMA ^® Buprenorphine) for Chronic Pain

BELBUCA ^™ is a partial mu-opioid agonist and a potential treatment for the management of pain severe enough to require daily, around the clock, long-term opioid treatment for which alternative treatment options are inadequate. As described further below, our commercial partner for this product has filed a New Drug Application (or NDA) with the FDA for BELBUCA™ and we are awaiting the outcome of the FDA’s review.

In January 2012, we announced the signing of a worldwide licensing and development agreement for BELBUCA ^™ (which we refer to herein as the Endo Agreement) with Endo Pharmaceuticals, Inc. (or Endo) under which we granted to Endo the exclusive, worldwide rights to develop and commercialize BELBUCA™ for the treatment of chronic pain. The financial terms of our agreement with Endo include: (i) a $30 million upfront, non-refundable license fee, which we received in January 2012; (ii) $95 million in potential milestone payments based on achievement of pre-defined intellectual property, clinical development and regulatory events (some of which we have received); (iii) $55 million in potential sales threshold payments upon achievement of designated sales levels; and (iv) a tiered, mid- to upper-teen royalty on net sales of BELBUCA™ in the United States and a mid- to high-single digit royalty on net sales of BELBUCA ^™ outside the United States. Endo is one of the premier companies in the area of pain management and has demonstrated significant achievements in the pain space, particularly with the development, launch and commercialization of a portfolio of pain therapeutics including Opana ^® ER, Lidoderm ^® and Voltaren ^® Gel. We believe BELBUCA ^™ is an excellent fit with Endo’s pain portfolio and will, if approved, add a Schedule III opioid to their branded pain franchise. BELBUCA ^™ would complement Endo’s pain therapeutics portfolio providing the company with an opportunity to offer a “ladder” of pain products, aligned with pain severity and opioid scheduling. In particular, BELBUCA™ would potentially be aligned with the needs of pain specialists and primary care physicians who seek an alternative to Schedule II opioids for the treatment of moderate to severe chronic pain that is not adequately controlled with commonly prescribed first-line therapies (e.g., NSAIDs).

One of the key intellectual property milestones under our Endo Agreement was achieved in February 2012, when the U.S. Patent and Trademark Office (or USPTO) issued a Notice of Allowance regarding one of our patent applications (No. 13/184306) which, once the patent was granted in April 2012, extended the exclusivity of the BEMA ^® drug delivery technology for BELBUCA™ (as well as BUNAVAIL ^® , as discussed below) from 2020 to 2027. As a result, we received a milestone payment from Endo in the

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amount of $15 million in May 2012, and also related to the issuance of the patent, will receive an additional milestone payment of $20 million at the time of approval of a New Drug Application (or NDA) by the FDA for BELBUCA™ for the treatment of chronic pain. Such amounts are included in the aforementioned $95 million in potential milestone payments based on intellectual property and clinical development and regulatory events.

In May 2012, in close collaboration with Endo, we initiated two Phase 3 clinical studies – one in opioid naïve and one in opioid experienced populations. The Phase 3 clinical trials were enriched-enrollment, double-blind, randomized withdrawal studies to evaluate the efficacy and safety of BELBUCA™ in the treatment of chronic lower back pain in opioid naive and opioid experienced populations. Patients titrated to a well-tolerated, effective dose were randomized to either continue on that dose of BELBUCA™, or receive placebo (BEMA ^® film with no active drug), with treatment continuing for 12 weeks. The primary efficacy endpoint was the mean change in the daily average pain numerical rating scale (NRS-Pain) scores from baseline (just prior to randomization) to week twelve of the double-blind treatment period. Pain was self-reported daily on an 11-point numeric rating scale (daily NRS; 0=no pain, 10=worst possible pain).

Interim analyses were conducted as part of the Phase 3 protocol in both the opioid naïve and opioid experienced studies to allow for adjustments to the sample size in order to maintain appropriate study power to detect statistically significant differences between BELBUCA ^™ and placebo. The analyses were conducted by an independent biostatistician. We and Endo announced in September 2013 that, as a result of the interim analyses, no sample size adjustment would be necessary to the opioid naïve study and that additional patients would be added to the ongoing opioid experienced study. The outcomes of the interim analyses were significant because they utilized actual study data to confirm or adjust sample sizes, and importantly, maintain probability of a successful outcome.

On January 23, 2014, we announced with Endo positive top-line results from the Phase 3 efficacy study of BELBUCA™ in opioid-“naïve” subjects. The trial successfully met its primary efficacy endpoint in demonstrating that BELBUCA ^™ resulted in significantly (p<0.005) improved chronic pain relief compared to placebo. Additional secondary endpoints were supportive of the efficacy of BELBUCA™ compared to placebo. The most commonly reported adverse events in patients treated with BELBUCA™ compared to placebo were nausea (10% vs. 8%, respectively), vomiting (4% vs. 2%, respectively) and constipation (4% vs. 2%, respectively). The locking of the database for the opioid naïve study triggered a $10 million milestone payment from Endo per the terms of the license agreement, which we received in February 2014.

On July 7, 2014, we announced with Endo positive top-line results from the Phase 3 efficacy study of BELBUCA ^™ in opioid-“experienced” subjects. The trial successfully met its primary efficacy endpoint in demonstrating that BELBUCA ^™ resulted in significantly (p<0.0001) improved chronic pain relief compared to placebo. Additional secondary endpoints were supportive of the efficacy of BELBUCA™ compared to placebo. The most commonly reported adverse events in patients treated with BELBUCA™ compared to placebo were nausea (7.5% vs. 7.4%, respectively) and vomiting (5.5% vs. 2.3%, respectively). Locking of the database for the opioid experienced study triggered an additional $10 million milestone payment from Endo per the terms of the license agreement, which we received July 2014.

On December 23, 2014, we and Endo announced the NDA submission for BELBUCA™, which was accepted by FDA in February 2015. Acceptance of the filing of the NDA by FDA triggers an additional $10 million milestone payment from Endo, to be received within 60 days of acceptance. BELBUCA ^™ is subject to a ten month FDA review, which could result in an approval in the fourth quarter of 2015 and allow for product launch in early 2016.

BUNAVAIL ^® (buprenorphine and naloxone) buccal film

We believe that the widespread use of buprenorphine for the treatment of opioid dependence and the need for improved means of delivery to address existing administration challenges present an additional commercial opportunity. Therefore, we developed a BEMA ^® formulation of buprenorphine and naloxone specifically for the treatment of opioid dependence. The product combines a “high dose” of buprenorphine along with an abuse deterrent agent, naloxone. BUNAVAIL ^® provides us with an opportunity to compete in the growing opioid dependence market which, according to Symphony Health, approached $1.8 billion in sales in the U.S in 2014.

In September 2012, we announced the positive outcome of the pivotal pharmacokinetic study comparing BUNAVAIL ^® to Suboxone ^® sublingual tablets. The study was designed to compare the relative bioavailability of buprenorphine and naloxone between BUNAVAIL ^® and the reference product, Suboxone ^® tablets. The results demonstrated that the two key pharmacokinetic parameters, maximum drug plasma concentration (Cmax) and total drug exposure (AUC), for buprenorphine were comparable to Suboxone ^® sublingual tablet, and that the same parameters for naloxone were similar or less than Suboxone ^® tablet. This was followed by initiation of the safety study requested by FDA, assessing the safety and tolerability of BUNAVAIL ^® in patients converted from a stable dose of Suboxone ^® (buprenorphine/naloxone) sublingual tablets or films. A total of 249 patients were enrolled in the study, (191 patients completed) which completed in December 2012. Results of the study showed a very favorable safety and tolerability profile along with strong study subject retention and high dose form acceptability ratings. Data showed that over 91% of patients who switched from Suboxone ^® film or tablets considered the taste of BUNAVAIL ^® to be very pleasant, pleasant or neutral and over 82%

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rated the ease of use of BUNAVAIL ^® as very easy, easy or neutral. The study also showed a decrease in the incidence of constipation symptoms from 41% at baseline, before conversion of patients from Suboxone tablets or films to BUNAVAIL ^® , to 13% following 12 weeks of treatment with BUNAVAIL ^® .

On July 31, 2013, we submitted the NDA for BUNAVAIL ^® to the FDA for review, and on June 6, 2014, we announced the FDA approval of BUNAVAIL for the maintenance treatment of opioid dependence as part of a complete treatment plan to include counseling and psychosocial support.

Following thorough review and analysis of a variety of commercialization strategies, which included entertaining commercial partnerships, a decision was made to commercialize BUNAVAIL ^® utilizing both internal and external resources. In March 2014, we announced we had entered into an agreement with Quintiles to support the launch and commercialization of BUNAVAIL ^® . Under terms of the agreement, Quintiles provides a range of services to support the commercialization of BUNAVAIL ^® in the U.S., including recruiting and training a field sales force. Separately, we entered into an agreement with Ashfield Market Access to provide managed markets and trade support for BUNAVAIL ^® . Ashfield Market Access, which is led by industry veterans including those who led GlaxoSmithKline’s managed markets group for more than 20 years, took responsibility for executing a payer strategy aimed at maximizing patient access to BUNAVAIL ^®.

On November 3, 2014, we announced the availability of BUNAVAIL ^® in the U.S. where it is being supported by a 60-person field sales force and a full marketing effort targeting the nearly 5,000 physicians who are responsible for approximately 90% of prescriptions for buprenorphine products for the treatment of opioid dependence, according to Symphony Health.

ONSOLIS ^® (fentanyl buccal soluble film)

On July 16, 2009, we announced the U.S. approval of our first product, ONSOLIS ^® (fentanyl buccal soluble film). ONSOLIS ^® is indicated for the treatment of breakthrough pain (i.e., pain that “breaks through” the effects of other medications being used to control persistent pain) in opioid tolerant patients with cancer. In May 2010, regulatory approvals were granted for Canada, and in October 2010, approval was obtained in the European Union (which we refer to herein as E.U.) through the E.U.’s Decentralized Procedure, with Germany acting as the reference member state. ONSOLIS ^® is marketed in Europe under the trade-name BREAKYL™.

The FDA approval of ONSOLIS ^® , together with our satisfactory preparation of launch supplies of ONSOLIS ^® , triggered the payment to us by our commercial partner, Meda AB, a leading international specialty pharmaceutical company based in Sweden (which we refer to herein as Meda), of approval milestones aggregating $26.8 million. The first national approval of BREAKYL™ in the E.U. resulted in a milestone payment of $2.5 million from Meda. A second milestone payment of $2.5 million was subsequently realized at the time of first commercial sale in the E.U. in October 2012. We began receiving royalties from Meda on net sales of ONSOLIS ^® in the U.S. and Canada following launch and from BREAKYL™ following launch in the E.U. Our royalty revenue from this product remains below original projections due to certain regulatory conditions in the U.S., which are discussed below.

We granted commercialization and distribution rights for ONSOLIS ^® on a worldwide basis (except in South Korea and Taiwan) to Meda. Meda’s U.S. subsidiary, Meda Pharmaceuticals, based in Somerset, New Jersey, is a specialty pharmaceutical company that develops, markets and sells branded prescription therapeutics. Meda secured access to additional markets through acquisition of European businesses from Valeant Pharmaceuticals International, Inc., which we refer to herein as Valeant and a joint venture with Valeant covering Australia, Mexico and Canada.

In 2010, we secured commercialization rights for ONSOLIS ^® for the remaining worldwide territories through execution of licensing agreements with KUNWHA Pharmaceutical Co., Ltd. (or Kunwha), for South Korea and TTY Biopharm Co., Ltd. (or TTY) for Taiwan where the product will be marketed as PAINKYL™.

Although we have generated licensing-related and other revenue to date from the commercial sales of an approved product — ONSOLIS ^® /BREAKYL™ — such revenue has been minimal to date due to multiple factors, including a highly restrictive Risk Evaluation and Mitigation Strategy (REMS) imposed by the FDA and certain formulation issues described below. The lack of approved REMS programs for our direct competitors resulted in an un-level playing field, which created an unfavorable selling environment for ONSOLIS ^® into 2012. In the E.U., BREAKYL™ began to be launched on a country by country basis starting in the fourth quarter of 2012.

On December 29, 2011, the FDA approved a “class-wide” REMS program covering all transmucosal fentanyl products under a single risk management program. The program, which is referred to as the Transmucosal Immediate Release Fentanyl (TIRF) REMS Access Program, was designed to ensure informed risk-benefit decisions before initiating treatment with a transmucosal fentanyl product, and while patients are on treatment, to ensure appropriate use. The TIRF REMS program was implemented in March 2012. The approved program covers all marketed transmucosal fentanyl products under a single program which will enhance patient safety while limiting the potential administrative burden on prescribers and their patients. One common program also ended the disparity in prescribing requirements for ONSOLIS ^® compared to similar products and provided ONSOLIS ^® with the opportunity for retail and inpatient facility access.

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On March 12, 2012, we announced the postponement of the U.S. re-launch of ONSOLIS ^® following the initiation of the class-wide REMS until the product formulation could be modified to address two appearance-related issues. Such appearance-related issues involved the formation of microscopic crystals and a fading of the color in the mucoadhesive layer, raised by the FDA during an inspection of our North American manufacturing partner for ONSOLIS ^® , Aveva Drug Delivery Systems, Inc. (or Aveva). While the appearance issues do not affect the product’s underlying integrity, safety or performance, the FDA believes that the fading of the color in particular may potentially confuse patients, necessitating a modification of the product and its specification before it can be manufactured and distributed. The source of microcrystal formation and the potential for fading of ONSOLIS ^® was found to be specific to a buffer used in its formulation. We modified the formulation and as of the date of this report have 12 months of stability data on the reformulated product that shows no signs of microcrystal formation or color changes.

On January 27, 2015, we announced that we had entered into an assignment and revenue sharing agreement with Meda to return back to us the marketing authorizations for ONSOLIS ^® for the U.S. and the right to seek marketing authorizations for ONSOLIS ^® in Canada and Mexico. Once the NDA has been returned, we will have the right to work directly with the FDA and submit a prior approval supplement that responds to FDA questions and requests and will hopefully lead to the re-introduction of the product. FDA’s review of the application may take up to 6 months; therefore, it is possible to have a decision before the end of 2015.

Clonidine Topical Gel

In March 2013, we announced our entry into a worldwide Exclusive License Agreement (which we refer to as the Arcion Agreement) with privately held Arcion, under which we will develop and commercialize Clonidine Topical Gel (formerly ARC4558) for the treatment of painful diabetic neuropathy (or PDN) and potentially other indications. Under the terms of the agreement, we made an upfront payment of $2 million to Arcion in the form of unregistered shares of our common stock. Additional financial terms of the licensing agreement include a milestone payment to Arcion of $2.5 million in unregistered shares of our common stock upon acceptance by the FDA of a NDA for Clonidine Topical Gel and a cash payment to Arcion of between $17.5 and $35 million upon NDA approval, depending on certain regulatory and commercial considerations. In addition, the licensing agreement includes sales milestones and low single-digit royalties on net worldwide sales.

We believe that the PDN market is highly under-served by existing products and therefore there is a strong scientific rationale for developing a topical treatment for PDN that delivers analgesia in a way that avoids systemic side effects. Evidence has shown that clonidine stimulates an inhibitory receptor in the skin associated with pain fibers. Arcion has assessed its effectiveness in reducing pain in PDN in a double-blind, placebo-controlled, Phase 2 study where the primary study endpoint was the change in pain intensity over a 3 month treatment period in diabetic foot pain. A significant treatment difference was seen in the planned subset analysis of diabetic patients who had documented evidence of “functioning pain receptors” in the skin of the lower leg (p=0.01, n=63) thus, at a minimum, supporting the effectiveness of topical clonidine in diabetic patients with functioning pain receptors of the skin. In the overall population that included patients without “functioning nerve receptors”, there was a trend favoring topical Clonidine Topical Gel (p=0.07, n= 182), though the overall results did not reach statistical significance.

Oral medications that are approved for the treatment of PDN include anticonvulsants such as Lyrica (pregabalin), the antidepressant Cymbalta ^® (duloxetine) and the opioid Nucynta ^® ER (tapentadol ER), with sales for the treatment of neuropathic pain totaling over $3 billion in the U.S. according to Datamonitor. These treatments are modestly effective in relieving symptoms and their use can be limited by adverse effects and drug interactions.

We met with representatives of the FDA on November 21, 2013 to discuss the development program for Clonidine Topical Gel for the treatment of PDN. The FDA agreed with the proposed clinical program which included two placebo-controlled studies and one long term safety study in patients suffering from painful diabetic neuropathy, the number of treated subjects required for the safety assessment and the plan for data integration of previously performed and planned clinical studies. The discussion provided us with the input and clarity needed to move the program directly to Phase 3. It also appears that the FDA recognizes the need for new treatment options for PDN by confirming Fast Track designation for the program that could potentially lead to a priority review.

In early April 2014, we announced enrollment of the first patient in the Phase 3 clinical study of Clonidine Topical Gel for PDN, and in early August 2014, we announced that we completed a pre-specified interim analysis of the study. The interim analysis was performed on data from the first 50% of patients who completed the study. The purpose of the interim analysis was to allow for a sample size adjustment if necessary to maintain appropriate statistical power to detect a treatment effect between Clonidine Topical Gel and placebo. As a result of the interim analysis, a total of approximately 80 additional patients were to be added to the trial in an effort to maintain 90% percent power to detect a statistically significant difference between Clonidine Topical Gel and placebo. The analysis was conducted by an independent biostatistician.

If the initial placebo controlled study meets its primary endpoint, the results for which are anticipated to be available by the end of the first quarter of 2015, and we initiate the second placebo controlled study in early 2015, we could be in a position to submit an NDA in 2016.

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Buprenorphine Depot Injection

In 2014, we entered into an exclusive agreement with Evonik to develop and commercialize a proprietary, injectable microparticle formulation of buprenorphine potentially capable of providing 30 days of continuous therapy following a single subcutaneous injection. Microsphere-based, long acting, buprenorphine injectable depot has the ability to change the treatment paradigm in opioid dependence. Such a dosage form has the opportunity to improve therapy compliance through continuous delivery of drug for up to 30 days and addresses challenges regarding patient adherence to long-term buprenorphine treatment, which is critical to successfully manage opioid dependence and the potential for misuse and diversion.

While we plan to pursue an indication for the maintenance treatment of opioid dependence, we have also secured the rights and plans to develop a product for the treatment of chronic pain in patients requiring continuous opioid therapy. As part of the agreement, we will have the right to license the product(s) following the attainment of Phase 1 ready formulations. At that point, Evonik could receive downstream payments for milestones related to regulatory filings and subsequent NDA approvals as well as product royalties. Evonik has the exclusive rights to develop the formulation and manufacture the product(s).

We plan to submit an Investigational New Drug application (or IND) for this product candidate to FDA in the second half of 2015.

Additional Overview Information

From our inception through December 31, 2014, we have recorded accumulated losses totaling approximately $205.5 million. Our historical operating losses have resulted principally from our research and development activities, including clinical trial activities for our product candidates and general and administrative expenses. Ultimately, if we secure additional approvals from the FDA and other regulatory bodies throughout the world for our product candidates, our goal will be to augment our current sources of revenue and, as applicable, deferred revenue (principally licensing fees), with sales of such products or royalties from such sales, on which we may pay royalties or other fees to our licensors and/or third-party collaborators as applicable.

We intend to finance our research and development, commercialization and distribution efforts and our working capital needs primarily through:

We have based our estimates of development costs, market size estimates, peak annual sales projections and similar matters described below and elsewhere in this Report on our market research, third party reports and publicly available information which we consider reliable. However, readers are advised that the projected dates for filing and approval of our INDs or NDAs with the FDA or other regulatory authorities, our estimates of development costs, our projected sales and similar metrics regarding BUNAVAIL ^® , ONSOLIS ^® , BELBUCA™, Clonidine Topical Gel, Buprenorphine Depot Injection or any other product candidates discussed below and elsewhere in this Report are merely estimates and subject to many factors, many of which may be beyond our control, which will likely cause us to revise such estimates. Readers are also advised that our projected sales figures do not take into account the royalties and other payments we will need to make to our licensors and strategic partners. Our estimates are based upon our management’s reasonable judgments given the information available and their previous experiences, although such estimates may not prove to be accurate.

The BEMA ^® Drug Delivery Technology

Our BEMA ^® drug delivery technology consists of a small, bi-layered erodible polymer film for application to the buccal mucosa (the lining inside the cheek). BEMA ^® films have the capability to deliver a rapid, reliable dose of drug across the buccal mucosa for time-critical conditions such as “breakthrough” cancer pain or in situations where gastrointestinal absorption of an oral drug is not practical or reliable, or in facilitating the administration of drugs with poor oral bioavailability.

We believe that the BEMA ^® technology permits control of two critical factors allowing for better dose-to-dose reproducibility: (i) the contact area for mucosal drug delivery, and (ii) the time the drug is in contact with that area, known as residence time. In contrast to competing transmucosal delivery systems like lozenges, buccal tablets and matrix-based delivery systems placed under the tongue or sprayed in the oral cavity, BEMA ^® products are designed to:

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We currently own the BEMA ^® drug delivery technology. We previously licensed the BEMA ^® drug delivery technology on an exclusive basis from Atrix Laboratories (previously known as QLT USA, Inc., now known as TOLMAR Therapeutics, Inc., which we refer to herein as Tolmar).

Overview of “Specialty Pharmaceuticals” and the 505(b)(2) Regulatory Pathway

Our corporate focus is “specialty pharmaceuticals” with characteristics that provide substantial points of differentiation from existing products. Our product portfolio is based on the application of drug delivery technologies and/or new dosage forms/indications to existing drugs for the creation of novel products. We then seek proprietary protection and FDA approval, and subsequently commercialize these products ourselves or through partners. We believe that research and development efforts focused on novel dose forms of FDA approved drugs is less risky than attempting to discover new drugs, sometimes called new chemical entities (known as NCEs). Our corporate focus came to initial fruition with the FDA’s approval of ONSOLIS ^® (fentanyl buccal soluble film) in 2009 and was replicated in 2014 with the approval of BUNAVAIL ^® (buprenorphine/naloxone buccal film). It is our goal to replicate this success with our current product candidates, and to identify new product candidates suitable for this development strategy that would add significant commercial value to us.

An important part of our strategy is the utilization of FDA’s 505(b)(2) NDA process for approval. Under the 505(b)(2) process, we are able to seek FDA approval of a new dosage form, dosage regimen or new indication of an FDA approved drug . This regulation enables us to partially rely on the FDA’s previous findings of safety and effectiveness for the drug, including clinical and nonclinical testing, and thereby reduce, although not eliminate, the need to engage in these costly and time consuming activities. A typical development program for a 505(b)(2) submission will include:

This drug development and regulatory approval process is less extensive and lengthy than for a NCE and, as a result, we believe, is a more cost effective way to bring new product candidates to market.

We have and intend to continue to target drugs that have established markets and an opportunity to introduce a new form of delivery of that product in order to meet an unmet market need. As a result of employing well known drugs in novel technologies or new dosage forms/indications, we believe health care providers will be familiar with the drugs and accustomed to prescribing them. As with ONSOLIS ^® , BELBUCA™, BUNAVAIL ^® and Clonidine Topical Gel, our drug candidates have been through the regulatory process with safety and efficacy established for an indication, a formulation and a dose range. Consequently, our clinical trials need to demonstrate the safety and efficacy of our products in the chosen patient population.

Endo Licensing Agreement for BELBUCA™ (BEMA ^® Buprenorphine)

On January 6, 2012, we announced the signing of a world-wide licensing and development agreement for BELBUCA™ with Endo. Under terms of the agreement, Endo will be responsible for the manufacturing, distribution, marketing and sales of BELBUCA ^™ on a worldwide basis. Endo will commercialize BELBUCA™ outside the U.S. through its own efforts or through regional partnerships. In the U.S., both companies will collaborate on the planning and finalization of the Phase 3 clinical development program and regulatory strategy for BELBUCA™ for chronic pain. We will maintain responsibility for the conduct of planned clinical studies leading up to the submission of the NDA. Endo will have the responsibility of submitting the NDA and managing the interactions with the FDA.

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In aggregate, the agreement is worth up to $180 million to us if all milestones or thresholds are met, which includes an upfront non-refundable license fee of $30 million (received January 2012), as well as intellectual property, development, regulatory and commercial milestone and sales threshold payments. Additionally, we will receive a tiered mid to upper teen royalty on U.S. net sales of BELBUCA ^™ and a tiered mid to upper single-digit royalty on sales outside the U.S. One of the key intellectual property milestones under our Endo Agreement was achieved when, in April 2012, the USPTO granted US Patent No. 8,147,866 (issued from US Patent Application No. 13/184,306), which will extend the exclusivity of the BEMA ^® drug delivery technology for BELBUCA™ (as well as BUNAVAIL ^® discussed below) from 2020 to 2027. As a result (and included in the aforementioned $180 million if all milestones or thresholds are met), we received a milestone payment in the amount of $15 million in May 2012, and have become eligible for an additional milestone payment of $20 million which will be paid at the time of approval of a NDA by the FDA for BELBUCA™. Additionally, we achieved another milestone with the locking of the database for our Phase 3 opioid naive clinical study on January 17, 2014. For the achievement of this milestone, per the terms of the agreement, we were due a milestone payment in the amount of $10 million, which was received February 2014 (which is included in the aforementioned $180 million if all milestones or thresholds are met) within thirty (30) days of the database lock. On June 25, 2014, the database for the pivotal Phase 3 efficacy study of BELBUCA™ in opioid-experienced patients was locked. The locking of the database triggered a $10 million milestone payment from Endo, which was received July 2014. On December 23, 2014, we and Endo announced the submission of a NDA for BELBUCA ^™ to the FDA, which was accepted February 23, 2015, which triggers a $10 million milestone payment due from Endo to us.

Meda Licensing Agreements for ONSOLIS ^®

North American Agreement. On September 5, 2007, we entered into a definitive License and Development Agreement with Meda and our subsidiary Arius pursuant to which we and Arius agreed to grant to Meda an exclusive commercial license to market, sell, and, following regulatory approval, continue development of ONSOLIS ^® in the United States, Mexico and Canada (which we refer to as the Meda North American License).

Pursuant to such license agreement, we have received or will receive:

Also, pursuant to the Meda North American License, we have been granted certain rights to co-promote ONSOLIS ^® using our own sales force, with financial support by Meda for such efforts. In addition, Meda is subject to certain minimum sales representative calls and advertising and promotional expenditure requirements under the North American license agreement and has agreed to support all future costs of clinical development, such as additional indications for ONSOLIS ^® that do not involve studies in support of the NDA.

European Agreement. In 2006, we announced collaboration with Meda to develop and commercialize BEMA ^® Fentanyl (marketed as BREAKYL™ in Europe). Under terms of the agreement, we granted Meda rights to the European development and commercialization of BREAKYL™, in exchange for an upfront fee of $2.5 million and a $2.5 million milestone payment (received in 2008) for completion of Phase 3 clinical trials. We have also received a double digit royalty on net sales and additional milestone payments of $2.5 million upon approval and $2.5 million upon launch in the first country in the European territory (received in 2012). Meda has managed the regulatory submission in Europe that led to approval in October 2010. Meda will exclusively commercialize BREAKYL™ in Europe.

In 2009, we received a $3 million payment in exchange for amending the European agreement to provide Meda the worldwide rights to ONSOLIS ^® , with the exception of Korea and Taiwan. The sales royalties to be received by us will be the same for all territories as agreed to for Europe. In addition, various terms of the European agreements have been modified to reflect the rights and obligations of both us and Meda in recognition of the expansion of the scope of the European agreements.

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Assignment and Revenue Sharing Agreement . On January 23, 2015, we entered into an assignment and revenue sharing agreement with Meda (which we refer to as the Assignment Agreement), under which Meda will transfer back to us the marketing authorizations for ONSOLIS ^® for the United States and the right to seek marketing authorizations for ONSOLIS ^® in Canada and Mexico.

Under the Assignment Agreement, for a period of up to approximately one year, we shall have the right and shall use commercially reasonable efforts to work directly with the FDA to attempt to resolve certain previously disclosed issues relating to ONSOLIS ^® in the United States and seek, and attempt to negotiate a definitive license agreement with, one or more new commercial partners for ONSOLIS ^® in the United States, Canada and Mexico (each a Subject Country and collectively, the Subject Countries) (such an agreement, a Replacement License and such a partner, a Replacement Licensee).

Following the effective date of the Assignment Agreement, Meda’s rights and obligations related to the development and commercialization of ONSOLIS ^® in the Subject Countries shall be suspended. Prior to the entry by us into a Replacement License, we and Meda will negotiate in good faith a form of definitive termination agreement addressing in further detail the termination of the Meda North American License and its effects (which we refer to as the Termination Agreement). Pursuant to the Assignment Agreement, any Termination Agreement is required to include provisions requiring us to share with Meda various percentages of revenue received by the Company under any Replacement License for ONSOLIS ^® after, subject to certain limitations, first deducting from such revenue payments required to be made by us under that certain Clinical Development and License Agreement, dated July 14, 2005, as amended, between the us, our subsidiary, Arius Two, Inc., and CDC V, LLC.

In the event that we have not identified a Replacement Licensee and entered into a Replacement License by a certain agreed upon date, Meda will have the right, but not the obligation, to demand that the marketing authorizations, and the rights to pursue marketing authorizations, for ONSOLIS ^® in the Subject Countries revert back to Meda, with the full reinstatement of all of Meda’s rights and obligations under the Meda North American License. Notwithstanding the foregoing, Meda’s rights to terminate the Meda North American License remain unaffected by the Assignment Agreement. Subject to any such reversion of rights back to Meda or earlier termination, the Assignment Agreement shall terminate on the earlier of (i) the termination of the Meda North American License or (ii) on February 28, 2016 without Meda’s exercising its right to cause reactivation or our execution of a Replacement License with a Replacement Licensee.

Key Collaborative and Supply Relationships

We are and have been a party to collaborative agreements with corporate partners, contractors, universities and government agencies. Research collaboration may result in new inventions which are generally considered joint intellectual property unless invented solely by individuals we employ, or by third party transfer to us by contract. Our collaboration arrangements are intended to provide us with access to greater resources and scientific expertise in addition to our in-house capabilities. We also have supply arrangements with several of the key component producers of our delivery technology. Our collaborative and supply relationships include:

Our supply agreement with Aveva runs for a term of four years from the first commercial sale of ONSOLIS ^® (October 2009) and can be renewed for subsequent two year terms. Either we or Aveva can terminate the agreement on advanced written notice. On October 9, 2014, Aveva sent us written notice of their intent not to renew our supply agreement. Therefore, our supply agreement with Aveva will expire on October 15, 2015. We will seek alternative manufacturing arrangements for ONSOLIS ^® in the U.S. in the event we are able to secure a new commercial partner for the product.

On March 12, 2012, we announced the postponement of the U.S. re-launch of ONSOLIS ^® following the initiation of the class-wide REMS until the product formulation could be modified to address two appearance-related issues. Such appearance-related issues involved the formation of microscopic crystals and a fading of the color in the mucoadhesive layer, raised by the FDA during an inspection of our North American manufacturing partner for ONSOLIS ^® , Aveva. While the appearance issues do not affect the product’s underlying integrity, safety or performance, the FDA believes that the fading of the color in particular may potentially confuse patients, necessitating a modification of the product and its specification before it can be manufactured and distributed. The source of microcrystal formation and the potential for fading of ONSOLIS ^® was found to be specific to a buffer used in its formulation. We modified the formulation and as of the date of this report have 12 months of stability data on the reformulated product that shows no signs of microcrystal formation or color changes.

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On September 13, 2012, we executed a Manufacturing, Supply, and License Agreement, effective April 26, 2012, with LTS, under which LTS will manufacture and supply us our BREAKYL™ product for distribution outside of the U.S. and Canada. We are required to supply BREAKYL™ product to Meda, Kunwha, and TTY pursuant to our obligations under certain license and supply agreements under which Meda, Kunwha, and TTY develop and commercialize the BREAKYL™ product. In conjunction with the agreement, LTS has waived all royalties on products that they produce. This does not preclude royalties that we owe to LTS if we produce BREAKYL™ with another company.

We also have relationships with third party contract research organizations that assist us with the management of our clinical trials.

In pursuing potential commercial opportunities, we intend to seek and rely upon additional collaborative relationships with corporate partners. Such relationships may include initial funding, milestone payments, licensing payments, royalties, access to proprietary drugs or potential applications of our drug delivery technologies or other relationships. Our agreements with Endo and Meda are examples of these types of relationships, and we will continue to seek other similar arrangements.

Relationship with CDC IV, LLC

On July 14, 2005, we entered into a Clinical Development and License Agreement (which we refer to as the CDLA), with the predecessor of CDC IV, LLC (which we refer to herein as CDC), which provided funds to us for the development of ONSOLIS ^® . On February 16, 2006, we announced that, as a result of our achievement of certain milestones called for under the CDLA, CDC made its initial $2 million payment to us. On May 16, 2006, we issued CDC 2 million shares of our common stock in return for accelerating the funding of the $4.2 million balance of $7 million of aggregate commitment under the CDLA and for eliminating the then required $7 million milestone repayment to CDC upon the approval by the FDA of ONSOLIS ^® .

Under the CDLA, as amended, CDC is entitled to receive a low-double digit royalty based on net sales of ONSOLIS ^® . The CDLA includes minimum royalties of $375,000 per quarter beginning in the second full year following commercial launch. The minimum provision came into effect in 2011. The royalty term and minimum payments end upon the latter of expiration of the patent or generic entry into any particular country.

The term of the CDLA lasts until the CDLA is terminated. Either we or CDC may terminate the CDLA for uncured breach or upon bankruptcy-like events, in each case following written notice. CDC may terminate the CDLA, following applicable cure periods, if we: (i) default on indebtedness in excess of $1 million which was accelerated or for which payment has been demanded, or (ii) fail to satisfy a judgment greater than $500,000.

During 2006 and 2007, we were a party to disputes with CDC. On September 5, 2007, in connection with CDC’s consent to the Meda North American licensing transaction, we and CDC entered into a Dispute Resolution Agreement (or DRA) pursuant to which we and CDC agreed to waive and dismiss with prejudice all current disputes between us and CDC. As a condition to CDC’s entry into

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the DRA and its consent to the Meda North American licensing transaction, we and CDC entered into a Royalty Purchase and Amendment Agreement, dated September 5, 2007 (or the RPAA) pursuant to which: (i) we granted CDC a right of first refusal on our financings, which replaced a right of first negotiation on financings previously held by CDC (which we refer to as the ROFR) and (ii) we granted CDC a 1% royalty on sales of the next BEMA ^® product, which will be BUNAVAIL ^® , including an active pharmaceutical ingredient other than fentanyl, to receive FDA approval. The ROFR terminated in accordance with its terms as of February 28, 2014 because, as provided for in the RPAA, we maintained a volume weighted average stock price of $9.00 per share for ten (10) trading days during any twenty (20) consecutive trading day period.

In connection with the 1% royalty grant as previously mentioned: (i) CDC shall have the option to exchange its royalty rights to BUNAVAIL ^® in favor of royalty rights to a substitute BEMA ^® product, (ii) we shall have the right, no earlier than six (6) months prior to the initial commercial launch of BUNAVAIL ^® , to propose in writing and negotiate the key terms pursuant to which it would repurchase the royalty from CDC, (iii) CDC’s right to the royalty shall immediately terminate at any time if annual net sales of BUNAVAIL ^® equal less than $7.5 million in any calendar year following the third (3rd) anniversary of initial launch of the product and CDC receives $18,750 in three (3) consecutive quarters as payment for CDC’s 1% royalty during such calendar year and (iv) CDC shall have certain information rights with respect to BUNAVAIL ^® . The amount of royalties which we may be required to pay (including estimates of the minimum royalties) is not presently determinable because product sales estimates cannot be reasonably determined and the regulatory approvals of the product for sale is not possible to predict. As such, we expect to record such royalties, if any, as cost of sales.

On May 12, 2011, we entered into an Amendment to the CDLA with CDC and NB Athyrium LLC (or Athyrium). Under the terms of the CDLA Amendment, among other matters, the parties agreed to increase the royalty rate to be received by CDC/Athyrium retroactively to the initial launch date of ONSOLIS ^® and, accordingly, we recorded $0.3 million as additional cost of product royalties for the year ended December 31, 2011. In addition, certain terms of the CLDA were amended and restated to clarify that royalty payments by us under the CDLA will be calculated based on Meda’s sales of ONSOLIS ^® , whereas previous royalty payments by us to CDC were calculated based on sales of ONSOLIS ^® by us to Meda. The difference between these two calculations resulted in a $1.1 million overpayment by us which was recorded as a prepayment. As a result, we did not pay any of the quarterly royalty payments (including any 2011 payments) due to CDC/Athyrium until the December 31, 2011 royalty calculation, which we paid during the first quarter of 2012

Research and Development

The significant majority of our research and development relating to our BEMA ^® technology is conducted through third parties in collaboration with us.

Research and development expenses include salaries and benefits for personnel involved in our research and development activities and direct and third party development costs, which include costs relating to the formulation and manufacturing of our product candidates, costs relating to non-clinical studies, including toxicology studies, and clinical trials, and costs relating to compliance with regulatory requirements applicable to the development of our product candidates. For the years ended December 31, 2014, 2013 and 2012, we spent approximately $34.3 million, $53.3 million and $35.4 million, respectively, on research and development, and such expenses represented approximately 47%, 81% and 78%, respectively, of our total operating expenses for such fiscal years.

Endo is responsible for reimbursing us for certain research and development clinical trial expenses that exceed $45 million, as detailed in our License and Development Agreement that was executed on January 5, 2012. For the years ended December 31, 2014 and 2013, we have incurred $12.7 million and $2.8 million, respectively, in such research and development expenses that are reimbursable by Endo to us. These reimbursable expenses are the primary activity within the reimbursable revenue account in the accompanying consolidated statement of operations as of December 31, 2014 and 2013.

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The pharmaceutical industry and the therapeutic areas in which we compete are highly competitive and subject to rapid and substantial regulatory and technological changes. Developments by others may render our BEMA ^® technology, our marketed products and any proposed drug products and formulations under development noncompetitive or obsolete, or we may be unable to keep pace with technological developments or other market factors. Technological competition in the industry from pharmaceutical and biotechnology companies, universities, governmental entities and others diversifying into the field is intense and is expected to increase.

Below are some examples of companies seeking to develop potentially competitive technologies, though the examples are not all-inclusive. Many of these entities have significantly greater research and development capabilities than do we, as well as substantially more sales and marketing, manufacturing, financial and managerial resources. These entities represent significant competition for us. In addition, acquisitions of, or investments in, competing pharmaceutical or biotechnology companies by large corporations could increase such competitors’ research, financial, sales and marketing, manufacturing and other resources. Such potential competitive technologies may ultimately prove to be safer, more effective, or less costly than any product candidates that we are currently developing or may be able to develop. Additionally, our competitive position may be materially affected by our ability to develop or successfully commercialize our drugs and technologies before any such competitor. Other external factors may also impact the ability of our products to meet expectations or effectively compete, including pricing pressures, healthcare reform and other government interventions as well as limitations on access that may be placed upon us through managed care organizations or through competitive contracting with payers.

There have been a growing number of companies developing products utilizing various thin film drug delivery technologies. While numerous over-the-counter pharmaceutical products have been brought to market in thin film formulations, few containing prescription products have been introduced in the U.S. Among the products to receive FDA approval are ONSOLIS ^® and BUNAVAIL ^® (BDSI), Suboxone ^® film (Indivior) and Zuplenz ^® (Galena). Leading companies in the development and manufacture of thin film technologies include LTS, ARx LLC and MonoSol Rx LLC (or MonoSol). In addition, a number of companies are developing improved versions of existing products using oral dissolving, nasal spray, aerosol, sustained release injection and other drug delivery technologies. We believe that potential competitors are seeking to develop and commercialize technologies for buccal, sublingual or mucosal delivery of various therapeutics or groups of therapeutics. While our information concerning these competitors and their development strategy is limited, we believe our technology can be differentiated because the BEMA ^® technology provides for a rapid and consistent delivery, high drug bioavailability and convenient use based on how the BEMA ^® technology adheres to the buccal membrane and dissolves. Our clinical trials across a number of BEMA ^® products have demonstrated that the technology is an effective means of drug delivery that is well tolerated and offers convenience to patients.

ONSOLIS ^®

According to the National Cancer Institute, there are approximately 12.5 million people in the United States diagnosed with or living with cancer. Cancer patients often suffer from a variety of symptoms including pain as a result of their cancer or cancer treatment. Pain is a widely prevalent symptom in cancer patients, and an estimated 50% to 90% of those with cancer also suffer from what is referred to as breakthrough cancer pain or “BTCP”. Following rapid onset that peaks in three to five minutes, BTCP episodes

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can last several minutes to an hour, and usually occur several times per day. BTCP can be difficult to treat due to its severity, rapid onset and the often unpredictable nature. Physicians typically treat BTCP with a variety of short-acting opioid medications, including morphine and fentanyl. A number of formulations of fentanyl are available employing a variety of drug delivery technologies, all which provide rapid onset and relatively short duration of action to address the fast onset and short duration of BTCP.

For ONSOLIS ^® , in the breakthrough cancer pain area, the market has become increasingly crowded and more competitive in recent years. The principal competitor has traditionally been Teva Pharmaceutical Industries Ltd. (NASDAQ:TEVA), which completed its acquisition of Cephalon, Inc. in October 2011. Teva markets both lozenge (Actiq ^® ) and effervescent buccal tablet (Fentora ^® ) formulations of fentanyl. Over the last year, newer products entries, particularly Subsys ^® (fentanyl sublingual spray) from Insys) have gained significant market share. Additional competitors include Galena Biopharma which licensed from Orexo and subsequently relaunched the sublingual tablet formulation of fentanyl (Abstral ^® ) and DepoMed, which licensed a nasal spray formulation of fentanyl (Lazanda ^® ) from Archimedes. In addition, multiple generic formulations of Actiq ^® are currently available.

The transmucosal fentanyl class has faced significant challenges following safety issues stemming from inappropriate use of Fentora ^® and the subsequent “Dear Doctor” letter (Cephalon Press Release, September 2007). Furthermore, the FDA imposed a requirement that REMS be required for all transmucosal fentanyl products. The class-wide REMS requirement includes education, healthcare provider and patient registration, and other elements to assure safe use. The FDA has the authority to remove from the market products that do not abide by the mandated REMS. In order for ONSOLIS ^® to be approved and launched, a REMS program needed to be accepted by the FDA and put in place prior to launch. In October 2009, ONSOLIS ^® was launched in the U.S. with an accompanying restrictive REMS program.

Despite the requirement that all transmucosal fentanyl products have an approved REMS, the FDA did not reach agreement with Teva on a REMS program for Fentora ^® or Actiq ^® until July 21, 2011, nearly two years after the approval of ONSOLIS ^® . Teva announced initiation of their REMS program in mid-October 2011. The absence of a REMS program for competing fentanyl products resulted in an un-level competitive environment and a highly unfavorable selling environment for ONSOLIS ^® .

The FDA eventually abandoned individual REMS programs through the creation of a consortium consisting of all manufacturers of transmucosal fentanyl products. The goal of the group was to develop one single REMS program covering all products in the class. On December 29, 2011, the FDA approved a REMS program covering all transmucosal fentanyl products. The program, which is referred to as the Transmucosal Immediate Release Fentanyl (TIRF) REMS Access Program, was designed to ensure informed risk-benefit decisions before initiating treatment with a transmucosal fentanyl product, and while patients are on treatment, to ensure appropriate use. The approved program covers all marketed transmucosal fentanyl products under a single program which is meant to enhance patient safety while limiting the potential administrative burden on prescribers and their patients. One common program ended the disparity in prescribing requirements for ONSOLIS ^® compared to similar products.

In 2014, the overall market for transmucosal fentanyl products for breakthrough pain according to Symphony Health, totaled $437 million in the U.S. The first approved product for the management of breakthrough cancer pain was Actiq ^® (oral transmucosal fentanyl citrate) which, according to Symphony Health, generated $12 million in sales in 2014. Total sales for generic versions of Actiq ^® , available from multiple manufacturers including Covidien, Teva and Actavis, totaled $56 million over the same period. Fentora ^® utilizes an effervescent tablet which is administered buccally. Fentora ^® was approved and launched in late 2006 and according to Symphony Health, generated $118 million in sales in 2014.

In December 2008, ProStrakan announced receipt of marketing authorization from the German regulatory authorities for their fentanyl sublingual tablet (under the brand name Abstral ^® ; licensed from Orexo AB) which was subsequently launched in a number of countries. In January 2010, Abstral ^® was approved in the U.S. by the FDA, and Prostrakan launched Abstral ^® in the second quarter of 2011. In June 2012, Orexo announced that they would re-acquire the rights to Abstral ^® in the U.S. and subsequently licensed U.S. rights to Galena Biopharma. Galena relaunched Abstral ^® in 2014 and cumulative sales totaled $20 million at year end.

In the U.S., additional products have been approved by the FDA utilizing other delivery technologies to administer fentanyl. These products include intranasal Lazanda ^® , which was approved in June 2011, and a fentanyl sublingual spray formulation from Insys known as Subsys ^® , which received FDA approval in January 2012. Subsys ^® , which was launched in early 2012, was the first sublingual spray formulation of fentanyl, and the first product shown to relieve pain within five minutes. The rapid onset of action, coupled with aggressive promotion and a significant co-pay support program, has led to rapid growth. In 2014, Subsys ^® achieved a prescription market share in excess of 36%, or $217 million in sales.

Other potent pain products are also in development, including ARX-02 from AcelRx Pharmaceuticals, Inc. (NASDAQ:ACRX) which has a nano-tab drug/device delivery system containing sufentanil for the treatment of breakthrough pain. While we have limited information regarding this and potential other competitors and their development status and strategy, we believe that our technology may be differentiated because unlike these potential competitors, ONSOLIS ^® has a predefined residence time on the buccal membrane providing for consistent drug delivery from dose to dose. We believe that all of the competitive formulations of fentanyl will have

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intra-dose variability, meaning the patient may not get the same response each time the product is administered. In addition, it is our belief that the other competitive products may have tolerability issues and a higher level of potential abuse based on how they are delivered.

The chart below lists products or products in development that we believe may compete directly with ONSOLIS ^® .

In Europe, the total market for transmucosal fentanyl products continues to grow with the availability of new formulations, including ONSOLIS (marketed as BREAKYL in Europe by Meda). Multiple formulations of fentanyl have recently been approved and launched in Europe for the treatment of breakthrough cancer pain, including Abstral ^® , Effentora ^® , and Instanyl ^® (intranasal fentanyl spray).

BELBUCA ^™ ( BEMA ^® Buprenorphine) for chronic pain

Chronic pain is often defined as any pain lasting more than 12 weeks. Whereas acute pain is a normal sensation that alerts us to possible injury, chronic pain persists – often for months or even longer. Chronic pain may arise from an initial injury, such as back sprain, or there may be an ongoing cause, such as an illness. Sometimes there is no clear cause. According to the National Institutes of Health, approximately 100 million people in the U.S. are living with chronic pain.

BELBUCA ^™ is intended to meet the need for a new narcotic and would be used for chronic pain, including lower back, osteoarthritis and rheumatoid arthritis. Compared to currently marketed products and products under development, we believe that BELBUCA ^™ will be differentiated based on the following features:

The BEMA ^® delivery system may enable us to provide this opioid in a form suitable for ambulatory care and, because of the safety advantage associated with this opioid, we believe that BELBUCA™ could be an ideal next step product for patients with incomplete pain relief on non-narcotic analgesics.

The pain market is well established, with many pharmaceutical companies marketing innovative products as well as generic versions of older, non-patent protected products. In 2014, according to data from Symphony Health, the U.S. opioid market exceeded $10 billion in annual sales. Due to the ability of BELBUCA™ to potentially participate in the chronic pain market, we estimate that BELBUCA ^™ for chronic pain has the potential to exceed $500 million in annual peak sales. BELBUCA ^™ is currently under review by FDA for the management of pain severe enough to require daily, around-the-clock, long-term opioid treatment and for which alternative treatment options don’t exist. A number of products may be competitors to BELBUCA™. A potential focus will be to position BELBUCA™ as a step up from NSAIDs instead of, or prior to, the common practice of prescribing hydrocodone containing

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combinations or the more addictive Schedule II narcotics. Indications for such use include pain associated with lower back and severe arthritis conditions. Marketed competitors for these indications include Tramadol (Ultram ^® ER from PriCara and Ryzolt ^® from Purdue), hydrocodone containing combination and extended release (Zohydro ^® ) formulations, Butrans ^® (buprenorphine transdermal patch from Purdue) and the potent opioids such as OxyContin ^® from Purdue, Avinza ^® from Pfizer, Kadian ^® from Actavis and Nucynta ^® ER from DepoMed and others. Other competition includes multiple generic opioid formulations, new chemical entities in clinical development with different mechanisms of action and various combination formulations. We also believe that other companies may be exploring the use of buprenorphine in other delivery technologies, though we believe such products lag significantly behind BELBUCA™. This includes a sublingual spray formulation of buprenorphine from Insys which is being developed for the treatment of acute pain.

Additionally, “abuse deterrent” formulations of pain products are currently being marketed, in clinical development or under FDA review. These formulations, such as Embeda ^® and, Exalgo ^® , as well as new formulations of OxyContin ^® and Opana ^® ER use a variety of technologies to try and minimize abuse. New abuse deterrent formulations include Targiniq ^® ER (oxycodone/naloxone) and Hysingla™ ER (hydrocodone). Abuse deterrent products are likely to play an unclear but increasingly important role in prescribing, potentially even replacing the original product. An advantage of BELBUCA™ is that the compound, buprenorphine, may be inherently less likely to cause abuse and addiction given the lower propensity for the product to cause euphoria and is the current basis of its CIII classification.

The first buprenorphine formulation for the treatment of chronic pain was approved in 2010. Purdue Pharmaceuticals received FDA approval for Butrans ^® (buprenorphine transdermal system) in July. Butrans ^® is indicated for the management of moderate to severe chronic pain and delivers buprenorphine transdermally (through the skin) over a period of seven days. The approval of Butrans ^® signaled the interest and approvability of new formulations of buprenorphine. It is our view that the flexibility of dosing with a BEMA ^® formulation, wider range of doses and ease of use will make it a preferred formulation for a significant number of patients with chronic pain conditions. Butrans ^® was launched in early 2011. Sales of Butrans ^® in 2014 totaled over $192 million and continue to steadily grow. While limited information is available, other formulations of buprenorphine may also be in early stages of development for the treatment of pain.

In August 2014, the U.S. Drug Enforcement Administration (DEA) published in the Federal Register their final ruling moving hydrocodone combination products (such as Vicodin, Lortab, Norco, etc.) from Schedule III to the more-restrictive Schedule II, as recommended by the Assistant Secretary for Health of the U.S. Department of Health and Human Services (HHS) and as supported by the DEA’s own evaluation of relevant data. As a result of the ruling, hydrocodone containing products are now classified in the same category (Schedule II) as morphine and oxycodone. As a result of the change to Schedule II, access to these products will be more restricted. Among other changes, written prescriptions will be required and refills will not be permitted. The ruling also conveyed findings that hydrocodone combination products have a higher risk of abuse and addiction compared to Schedule III products. The ruling went into full effect in October 2014.

We recognized early the value of buprenorphine in the treatment of pain. Buprenorphine is one of the few remaining Schedule III opioids and has a lower risk of abuse and addiction compared to Schedule II opioids and thus will have fewer restrictions on dispensing. BELBUCA™ has the opportunity to provide a Schedule III option for the treatment of chronic pain and thus helping to replace the void left from the hydrocodone combination products. We believe the actions taken to restrict the use of hydrocodone combination products may markedly increase the utility and appeal of BELBUCA™ as it now addresses an important unmet medical need for Schedule III options.

In addition to direct competitors, there are other factors that impact the market for pain products in general. The significant pricing pressures and availability of generic products in the U.S. and other regions are likely to have increasing influence on the pharmaceutical market, including pain products. Additionally, opioids continue to garner increased scrutiny based on the growing problem of prescription drug abuse and addiction. It remains unclear what steps, if any beyond the reclassification of hydrocodone, the FDA or other government agencies may take to address the problem of opioid abuse and addiction. However, in July 2012 the FDA approved a class-wide REMS program for the extended release and long-acting opioids. The class-wide REMS program consists of a REMS-compliant educational program offered by an accredited provider of continuing medical education, patient counseling materials and a medication guide. BELBUCA™ is anticipated to fall within the existing class-wide REMS program.

BUNAVAIL ^®

In June 2014, BUNAVAIL ^® was approved by the FDA for the maintenance treatment of opioid dependence. BUNAVAIL ^® contains the partial opioid agonist buprenorphine, which binds to the same receptors as opiate drugs but has a higher affinity, slower onset and is both less addictive and less lethal in overdose. Naloxone, an opioid antagonist, is included as an abuse deterrent. When used as directed, the naloxone is swallowed and minimally absorbed; however, if misused (ie, dissolved and injected), the naloxone rapidly precipitates withdrawal symptoms.

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Maintenance treatment with buprenorphine reduces the typical cravings and withdrawal symptoms associated with coming off opioid prescription painkillers and heroin. This allows the individual suffering from an addiction to opioids –along with counseling and support – to work toward recovery. On average, treatment lasts a couple months, reflecting relatively high dropout rates, but a significant number of people remain on buprenorphine treatment chronically, with nearly one-quarter of patients still on therapy after nine months. BUNAVAIL ^® provides an alternative treatment utilizing the advanced BEMA drug delivery technology. BUNAVAIL ^® provides the highest bioavailability of any buprenorphine-containing product for opioid dependence, allowing for effective treatment with half the dose compared to Suboxone film. Additionally, BUNAVAIL ^® offers convenient and discrete buccal administration and avoids the need for patients to avoid talking and swallowing during administration. Data has also demonstrated an excellent tolerability profile with a 68% reduction in the incidence of constipation in a Phase 3 trial in patients converted from Suboxone ^® sublingual tablets or film to BUNAVAIL ^® at the end of 12 weeks.

The total market for buprenorphine containing products for opioid dependence approached $1.8 billion in 2014. The market has grown significantly as a result of the rapidly escalating problem of prescription opioid misuse and abuse, a recent resurgence of heroin use, the growing number of physicians treating opioid dependence, and the inclusion of addiction treatment as an essential benefit in the Affordable Care Act. We estimate that BUNAVAIL ^® for the maintenance treatment of opioid dependence has the potential to achieve from between $200 to $250 million in annual peak sales.

The products currently marketed for this indication include Suboxone ^® , a sublingual film formulation of buprenorphine and naloxone, a sublingual tablet, Zubsolv ^® , and generic formulations of both buprenorphine and buprenorphine/naloxone tablets. Suboxone ^® film, the market leader, achieved sales of nearly $1.2 billion in the U.S. in 2014. While maintaining its dominance as the market leader in the U.S., Suboxone ^® film experienced a decline in sales and share due to increased use of generics and the availability of newer formulation of buprenorphine/naloxone. In December 2014, Reckitt Benckiser Group PLC, the manufacturer of Suboxone ^® sublingual tablets and films, announced that they completed the spin-off of that company’s pharmaceutical business (including the Suboxone ^® brand) under the name Indivior PLC in order to allow the consumer goods group to focus on its consumer health and hygiene products. The Indivior business will focus on addiction treatment and closely related areas including opioid overdose, cocaine overdose and alcohol dependence. In September 2012, Reckitt Benckiser announced that it had notified the FDA that they would be voluntarily discontinuing the distribution of Suboxone ^® tablets in the U.S. and subsequently halted further shipments in March 2013. The decision made by Reckitt Benckiser was reportedly due to accumulating data demonstrating significantly lower rates of accidental pediatric exposure with Suboxone ^® films compared with their tablet formulation due to the child-resistant, unit-dose packaging of the film versus a multi-dose bottle for the tablets. Additionally, Reckitt Benckiser filed a Citizens Petition to request that the FDA require all manufacturers of buprenorphine-containing products for the treatment of opioid dependence to implement public health safeguards including child-resistant, unit-dose packaging to reduce the risk of pediatric exposure. FDA subsequently rejected the Citizens Petition in February 2013, which allowed for the approval of the first generic formulations of Suboxone ^® tablets.

The actions taken by Reckitt Benckiser as well as patient preference for a film formulation of Suboxone ^® resulted in significant conversion of the Suboxone ^® market to the branded film formulation. In 2013, the sublingual film formulation of Suboxone ^® accounted for over 95% of total Suboxone ^® prescription sales.

Generic buprenorphine/naloxone tablet formulations were launched in early 2013 by Actavis and Amneal Pharmaceuticals and were followed by additional entrants including a generic formulation from Teva. The remaining prescription volume for Suboxone ^® tablets was rapidly converted to generics; however, the impact of generic buprenorphine/naloxone tablets on Suboxone ^® film sales has been somewhat limited to date. In 2014, generic buprenorphine/naloxone tablets accounted for 18% of total buprenorphine/naloxone sales. It is anticipated that additional generics may enter the market, though the timing is unclear.

In terms of additional competition, Phase 3 trials were completed for Probuphine, a subcutaneous depot delivery system containing buprenorphine from Titan Pharmaceuticals (OTCBB:TTNP). Results of clinical studies demonstrated efficacy and safety, and Probuphine was submitted for FDA review in October 2012. Probuphine was anticipated to address the needs of the subset of patients undergoing treatment for opioid dependence who are unable to maintain compliance with alternative formulations or those who may be at high risk for diversion. In December 2012, Titan announced the signing of a license agreement with Braeburn Pharmaceuticals Sprl. The license grants Braeburn exclusive commercialization rights in the United States and Canada. In April 2013, the FDA issued a Complete Response Letter for Probuphine and requested additional data regarding its efficacy. An additional Phase 3 study assessing the efficacy and safety of Probuphine was initiated in April 2014. In November 2014, Titan announced completion of enrollment in their ongoing Phase 3 study of Probuphine and expects to complete the study by the middle of 2015, allowing for a resubmission of their NDA in late 2015. Given the need for surgical implantation and removal, Probuphine is not expected to be a significant competitive threat to BUNAVAIL ^® .

A sublingual tablet, referred to as Zubsolv ^® or OX219, was approved by FDA in July 2013 and subsequently launched in September 2013. Zubsolv ^® is a sublingual formulation of buprenorphine/naloxone using Orexo’s proprietary sublingual drug delivery technology. Orexo is a specialty pharmaceutical company with headquarters in Sweden. Orexo is developing treatments using their proprietary sublingual drug delivery technology, which includes the marketed product Abstral ^® that delivers fentanyl for the treatment of breakthrough cancer pain. In July 2013 Orexo announced the establishment of a commercial partnership with Publicis Healthcare Solutions. In May 2014, Orexo announced a new partnership with InVentiv Health for Zubsolv in the U.S.

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The sales efforts for Zubsolv ^® are supported by a contract sales organization (Inventive Health) and the product is being marketed predominantly based on its claims of improved taste and faster dissolve time compared to Suboxone ^® . Sales for Zubsolv ^® in 2014 totaled approximately $52 million in the U.S and a prescription market share of just over 3%.

While limited information is available, other formulations of buprenorphine may also be in early stages of development for the treatment of opioid dependence, including an oral capsule (NTC-510) from Nanotherapeutics, Inc. Three Phase 1 studies have been completed to date (two Phase 1a single dose pharmacokinetic studies and one Phase 1b, multidose pharmacokinetic study). It has been demonstrated that NTC-510 administered orally achieves appropriate serum buprenorphine concentrations for analgesia and could potentially be dosed once daily. Also in development is a sublingual spray formulation of buprenorphine/naloxone from Insys which completed a Phase 1 study and buprenorphine hemiadipate (RBP-6300) from Indivior, an oral abuse-deterrent formulation of buprenorphine using Capsugel drug delivery technology.

While we anticipate that the market for buprenorphine/naloxone products for the treatment of opioid dependence will get increasingly more competitive, we believe a BEMA ^® formulation of buprenorphine/naloxone has significant appeal given its buccal administration, enhanced delivery of buprenorphine, convenience, and lack of taste issues. We also believe that the increased number of companies promoting the use of buprenorphine containing-products for opioid dependence has the potential to create greater awareness and help to further expand what is already a significant and growing market.

Clonidine Topical Gel

In March 2013, we announced that we had entered into a worldwide licensing agreement with privately held Arcion, where we will develop and commercialize Clonidine Topical Gel (formerly ARC4558) for the treatment of PDN and potentially other indications. The PDN market is highly under-served by existing products and there is a strong scientific rationale for developing a topical treatment for PDN that delivers analgesia in a way that avoids systemic side effects.

Evidence has shown that clonidine stimulates an inhibitory receptor in the skin associated with pain fibers. Arcion has developed a patented topical gel formulation of clonidine and has assessed its effectiveness in reducing pain in PDN in a double-blind, placebo-controlled, Phase 2 study where the primary study endpoint was the change in pain intensity over a 3 month treatment period in diabetic foot pain. A significant treatment difference was seen in the planned subset analysis of diabetic patients who had documented evidence of “functioning pain receptors” in the skin of the lower leg (p=0.01, n=63) thus, at a minimum, supporting the effectiveness of topical clonidine in diabetic patients with functioning pain receptors of the skin. In the overall population that included patients without “functioning nerve receptors”, there was a trend favoring Clonidine Topical Gel (p=0.07, n= 182), though the overall results did not reach statistical significance.

Nearly 26 million people in the U.S. have diabetes according to the American Diabetes Association. A substantial number of these people have neuropathy as manifest by impaired sensation and pain in the extremities, most commonly the feet. Patients with PDN often experience debilitating pain symptoms that affect day-to-day functioning and quality of life. How diabetes causes a length-dependent neuropathy is unknown. In the prior double-blind, randomized, controlled trial approximately 50% of the patients with PDN demonstrated functional nociceptors in the skin in the painful region as revealed by a response to topical capsaicin. Clonidine is thought to relieve pain by decreasing the abnormal excitability of these functional nociceptors. Currently available oral treatments are modestly effective in relieving symptoms and are limited by systemic side effects and drug interactions. There are no topical products approved for the treatment of this painful condition.

Along with antidepressants, antiepileptic drugs (AEDs) are often used as a first-line therapy for PDN. The most commonly prescribed AEDs for PDN are gabapentin and pregabalin (Lyrica). The choice between them is mostly influenced by physicians’ preference for the more-favorable dosing attributes (less-frequent daily dosing, faster titration) of pregabalin in balance with price and accessibility. AEDs are commonly associated with side effects including somnolence, dizziness, and weight gain. If first-line AED or antidepressant monotherapy fails to provide acceptable pain relief, physicians initiate combination therapy. If AED/antidepressant combination therapy is not effective, physicians typically add a dual-acting opioid such as tramadol. For more-severe pain, physicians may add or switch to tapentadol ER (Nucynta ER), which is the first and only dual-acting opioid analgesic to gain approval for PDN in the U.S. If pain persists with the addition of tramadol or tapentadol, physicians often switch to a more potent opioid analgesic (e.g., oxycodone) while maintaining AED and/or antidepressant therapy. Although some experts acknowledge that strong opioids can be quite effective for PDN, they generally reserve this drug class for refractory cases and/or those with high pain intensity. For some PDN patients, particularly those experiencing highly localized pain, physicians may prescribe the lidocaine 5% patch (Lidoderm). Pain specialists generally consider that lidocaine is particularly beneficial for localized pain, and many physicians prefer it to oral agents because it does not cause systemic side effects and is easy to administer. In many cases, the patch is used in combination with an oral first-line AED and/or antidepressant therapy.

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Oral medications that are approved for the treatment of PDN include anticonvulsants such as Lyrica (pregabalin), the antidepressant Cymbalta ^® (duloxetine) and the opioid Nucynta ^® ER (tapentadol ER), with sales for the treatment of neuropathic pain totaling over $3 billion in the U.S. according to Datamonitor. These treatments are modestly effective in relieving symptoms and their use can be limited by adverse effects and drug interactions. Additional oral formulations in development include an extended release formulation of pregabalin from Pfizer.

Acorda Therapeutics is developing a concentrated (20%) topical liquid formulation of capsaicin (NP-1998 [formerly NGX-1998]) for the treatment of neuropathic pain. The product was formerly in development by NeurogesX, which licensed all U.S. rights as well as those of its 8% capsaicin patch (Qutenxa) to Accorda in July 2013. Acorda is planning to launch a Phase 3 clinical trial of NP-1998 in painful HIV (human immunodeficiency virus) peripheral neuropathy as the first potential indication for NP-1998. The company is also exploring the potential for additional indications, including painful diabetic neuropathy. In 2011, NeurogesX completed a Phase 2 trial in post herpetic neuralgia and results from the trial confirmed efficacy and safety. Teva and Xenon Pharmaceuticals are developing TV-45070 (formerly XEN402), a subtype selective ion channel inhibitor. TV-45070 has potentially broad application in nociceptive pain, including inflammatory pain, and neuropathic pain indications. TV-45070 is partnered with Teva in a milestone, royalty and co-promotion partnership. Using a topical (ointment) formulation of TV-45070, Teva has initiated a 300-patient Phase 2b clinical trial in osteoarthritis, or OA, of the knee, and data are expected in the third quarter of 2015. Teva is also developing topical TV-45070 in neuropathic pain indications, and is currently planning a Phase 2b clinical trial in patients with postherpetic neuralgia.

Buprenorphine Depot Injection

Despite the availability of effective treatments, including BUNAVAIL ^® buccal film, challenges remain regarding patient adherence to long-term buprenorphine treatment, which is critical to successfully manage opioid dependence. This has led to interest in alternative delivery systems for buprenorphine. One such opportunity is the development of an injectable, long-acting, depot formulation. Microsphere-based, long acting, buprenorphine injectable depot has the ability to change the treatment paradigm in opioid dependence and pain management. Such a dosage form provides improved therapy compliance through continuous delivery of drug for up to 30 days. In 2014, we entered into an exclusive agreement with Evonik to develop and commercialize a proprietary, injectable microparticle formulation of buprenorphine potentially capable of providing 30 days of continuous therapy following a single subcutaneous injection. While we plan to pursue an indication for the maintenance treatment of opioid dependence, we have also secured the rights and plans to develop a product for the treatment of chronic pain in patients requiring continuous opioid therapy. As part of the agreement, we will have the right to license the product(s) following the attainment of Phase 1 ready formulations. At that point, Evonik could receive downstream payments for milestones related to regulatory filings and subsequent NDA approvals as well as product royalties. Evonik has the exclusive rights to develop the formulation and manufacture the product(s).

Additional long-acting depot formulations of buprenorphine are also in develop including one from Indivior, RBP-6000, which uses Atrigel technology and is currently in Phase 2 development and a product licensed by Braeburn Pharmaceuticals in November 2014 utilizing a technology licensed from Camurus. The product referred to as CAM2038 from Camurus is being developed as both a 1-week and 1-month subcutaneous injection.

Licenses, Intellectual Property and Proprietary Information

Our intellectual property strategy is intended to maximize protection of our proprietary technologies and know-how and to further expand targeted opportunities by extension of our patents, trademarks, license agreements and trade secrets portfolio. In addition, an element of our strategic focus provides for varying specific royalty or other payment obligations by our commercial partners as our applicable intellectual property portfolio changes or business activity reaches certain thresholds.

However, patent positions of biotechnology and pharmaceutical organizations are considered to be uncertain and involve complex legal and technical issues. There is considerable uncertainty regarding the breadth of claims in patent cases which results in varied degrees of protection. While we believe that our intellectual property position is sound, it may be that our pending patent applications will not be granted or that our awarded claims may be too narrow to protect the products against competitors. It is also possible that our intellectual property positions will be challenged or that patents issued to others prior to our patent issuance may preclude us from commercializing our products. It is also possible that other parties could have or could obtain patent rights which may cover or block our products or otherwise dominate our patent position.

BEMA ^® Technology

The drug delivery technology space is congested, although we do not believe that our BEMA ^® products are in conflict with, dominated by, or infringing any external patents and we do not believe that we require licenses under external patents for our BEMA ^® based products in the United States, it is possible, however, that a court of law in the United States or elsewhere might determine

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otherwise. If a court were to determine that we were infringing other patents and that those patents were valid, we might be required to seek one or more licenses to commercialize our products or technologies. We may be unable to obtain such licenses from the patent holders. If we were unable to obtain a license, or if the terms of the license were onerous, there may be a material adverse effect upon our business plan to commercialize these products.

This potential exists in our present litigation with MonoSol. MonoSol claimed in a litigation initiated in late 2010 that our confidential and trade secret manufacturing process for ONSOLIS ^® infringes their patented manufacturing process for thin films. We do not believe that we have infringed these claims. Moreover, we believe that the original claims in MonoSol patents ‘588, ‘292 and ‘891 are invalid or overbroad, and, in connection with inter partes and ex parte reexamination proceedings we have brought before the USPTO, the USPTO has either rejected and cancelled all claims, amended the original claims to make them narrower, or issued narrower, new claims replacing the broader original claims for each of the ‘588, ‘292 and ‘891 patents respectively. We also believe that the manufacturing processes for our product candidates, including BEMA ^® Buprenorphine and BUNAVAIL ^® do not infringe MonoSol’s patents, at least because they do not meet the limitations of the original, amended or new claims of MonoSol’s patents. We maintain our manufacturing processes for our BEMA ^® products and product candidates as trade secrets. Based on our examination of these patents, we do not believe our manufacturing processes infringe MonoSol’s patents. On March 7, 2012, the court granted our motion to stay the case pending outcome of the reexamination proceedings in the USPTO. On July 3, 2012, the USPTO issued an ex parte reexamination certificate on the ‘891 patent, in which all original claims were amended to make them narrower. On August 26, 2012, the USPTO issued an ex parte reexamination certificate on the ‘292 patent, in which all the original broader claims were replaced with narrower, new claims. As for the ‘588 patent, at the conclusion of the reexamination proceedings (and its appeals process), on April 17, 2014, the Patent Trial and Appeal Board (or PTAB) of the USPTO issued a Decision on Appeal affirming the Examiner’s rejection (and confirming the invalidity) of all the claims of the ’588 Patent. MonoSol did not request a rehearing by the May 17, 2014 due date for making such a request and did not further appeal the Decision to the Federal Court of Appeals by the June 17, 2014 due date for making such an appeal. Subsequently, on August 5, 2014, the USPTO issued a Certificate of Reexamination cancelling the ‘588 Patent claims.

On March 1, 2011, we were granted a patent extending the exclusivity of the BEMA ^® drug delivery technology in Canada to 2027. The Canadian Patent No. 2,658,585 provides additional patent protection for ONSOLIS ^® and BELBUCA™. In April 2012, the USPTO granted US Patent No. 8,147,866 (issued from US Patent Application No. 13/184,306), which will extend the exclusivity of the BEMA ^® drug delivery technology for BELBUCA™ and BUNAVAIL ^® in the United States from 2020 to 2027. In April 2014, the USPTO granted US Patent No. 8,703,177 (issued from US Patent Application No. 13/590,094), which will extend the exclusivity of the BEMA ^® drug delivery technology for BUNAVAIL ^® in the United States to at least 2032.

We own various patents and patent applications relating to the BEMA ^® technology. US Patent No. 6,159,498 (expiration date October 2016), US Patent No. 7,579,019 (expiration date January 22, 2020), US Patent No. 8,147,866 (expiration date July 23, 2027), Canadian Patent No. 2,658,585 (expiration date July 2027) and EP 0 973 497 (expiration date October 2017) are of particular value to our business and technology platform relating to the BEMA ^® delivery technology. On February 16, 2010, we filed a complaint with the United States Federal District Court for the District of Columbia, requesting the USPTO be required to further extend the patent term for US 7,579,019 from 835 days to 1,191 days. In March 2011, we prevailed in this case, and the patent expiration date of US Patent No. 7,579,019 is now extended from January 31, 2019 to January 22, 2020.

On January 22, 2014, MonoSol filed a Petition for Inter Partes Review (or IPR) on US Patent No. 7,579,019 with the USPTO. In the Petition, MonoSol is requesting an inter partes review because it is asserting that the claims of US Patent No. 7,579,019 are alleged to be unpatentable over certain prior art references. The USPTO instituted the IPR on the ‘019 Patent. The IPR could invalidate or validate in whole or in part, this patent. Accordingly, we are defending our US Patent No. 7,579,019 vigorously in the IPR proceedings.

With respect to trademarks, “BDSI ^® ,” “BEMA ^® ” and “BUNAVAIL ^® ” are registered trademarks of BioDelivery Sciences International, Inc. ONSOLIS ^® and BREAKYL™ are trademarks owned by Meda Pharmaceuticals, Inc. PAINKYL™ is a trademark owned by TTY Biopharm.

Clonidine Gel Product

On March 26, 2013, we entered into the Arcion Agreement with Arcion pursuant to which Arcion agreed to grant to us an exclusive commercial world-wide license, with rights of sublicense, under certain patent and other intellectual property rights of Arcion to develop, manufacture, market, and sell gel products containing clonidine (or a derivative thereof), alone or in combination with other active ingredients, for topical administration for the treatment of painful diabetic neuropathy and other indications (the Clonidine Gel Products).

Per the Arcion Agreement, we have exclusive rights to various patents pertaining to the Clonidine Gel Products. US Patent No. 6,147,102 (expiration date October 26, 2019), US Patent No. 6,534,048 (expiration date October 26, 2019), US Patent No. 8,026,266 (expiration date September 30, 2029) and their corresponding patents in other countries ( e.g ., Australia, Canada, Germany, etc .) are of particular value to our business and technology platform relating to the Clonidine Gel Products.

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Although we do not believe that our Clonidine Gel Products are in conflict with, dominated by, or infringing any external patents and we do not believe that we require licenses under external patents for Clonidine Gel Products, it is possible, however, that a court of law in the United States or elsewhere might determine otherwise. If a court were to determine that we were infringing other patents and that those patents were valid, we might be required to seek one or more licenses to commercialize our products or technologies. We may be unable to obtain such licenses from the patent holders. If we were unable to obtain a license, or if the terms of the license were onerous, there may be a material adverse effect upon our business plan to commercialize these products.

Buprenorphine Depot Injection Product

On October 27, 2014, we entered into a definitive Development and Exclusive License Option Agreement (which we refer to as the Evonik Development Agreement) with Evonik pursuant to which Evonik agreed to grant two exclusive options to acquire exclusive worldwide licenses, with rights of sublicense, to certain patents and other intellectual property rights of Evonik to develop and commercialize certain injectable, extended release products containing buprenorphine (which we refer to as Buprenorphine Depot Injection Products). If such options are exercised, such licenses would be memorialized in a definitive license agreement.

Although we do not believe that any Buprenorphine Depot Injection Products would be in conflict with, dominated by, or infringing any external patents and we do not believe that we require licenses under external patents for Buprenorphine Depot Injection Products, it is possible, however, that a court of law in the United States or elsewhere might determine otherwise. If a court were to determine that we were infringing other patents and that those patents were valid, we might be required to seek one or more licenses to commercialize our products or technologies. We may be unable to obtain such licenses from the patent holders. If we were unable to obtain a license, or if the terms of the license were onerous, there may be a material adverse effect upon our business plan to commercialize these products.

Manufacturing

We rely on third-party manufacturers, packagers, and analytical testing laboratories to produce commercial product and developmental products for research, product development, and clinical supplies. We are currently party to the following manufacturing arrangements for different companies:

BUNAVAIL ^®

Effective July 30, 2014, we entered a Supply Agreement with ARx for manufacturing, and effective March 6, 2014, we entered a Supply Agreement with Sharp for packaging for BUNAVAIL ^® commercial supplies, respectively. Both companies underwent successful FDA preapproval inspections and will be subject to annual quality audits. Both our contracts are also supported by a quality assurance agreement requiring our counterparties to adhere to product quality standards and cGMP manufacturing and packaging requirements.

ONSOLIS ^®

Effective October 17, 2005, we entered into an agreement with Aveva pursuant to supply ONSOLIS ^® for clinical trials and commercial sale. Under the terms of this agreement, Aveva is the sole supplier of ONSOLIS ^® for the United States and Canada. The current agreement expires on October 15, 2015. On October 9, 2014, Aveva sent us written notice of their intent not to renew our supply agreement. Therefore, our supply agreement with Aveva will expire on October 15, 2015. We will seek alternative manufacturing arrangements for ONSOLIS ^® in the U.S. in the event we are able to secure a new commercial partner for the product.

On March 12, 2012, we announced the postponement of the U.S. re-launch of ONSOLIS ^® following the initiation of the class-wide REMS with two appearance issues raised by FDA during an inspection of Aveva’s manufacturing facility. Specifically, the FDA identified the formation of microscopic crystals and a fading of the color in the mucoadhesive layer during the 24-month shelf life of the product. ONSOLIS ^® has been subsequently reformulated with 12 months of available stability data on the reformulated product.

In February 2015, we re-acquired the rights to the ONSOLIS ^® NDA from Meda. With the resolution of the appearance issue and 12 months of stability on the reformulated product, we plan to submit a prior approval supplement for this formulation by the end of the first quarter of 2015 seeking its approval which expected by the end of the third quarter of 2015.

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BREAKYL™

Effective December 15, 2006, we entered into a process development agreement and a commercial Supply Agreement on April 26, 2012, both with LTS. Under the terms of this supply agreement, LTS is the exclusive manufacturer of BEMA ^® Fentanyl for all countries with exception of the United States and Canada. LTS continues to manufacture BREAKYL™ for MEDA since it was first launched in the E.U. in September 2012.

BELBUCA™ ( BEMA ^® Buprenorphine)

Effective January 5, 2012, we entered a license and development agreement with Endo for BELBUCA™. Over the past two years, the technical operations and supply activities have been gradually transitioned from BDSI to Endo. As a result of the licensing and developmental agreement, all of the commercial supply agreements will be negotiated by and the responsibility of Endo.

Clonidine Topical Gel

Effective October 22, 2014, we entered into a master service agreement with Ei LLC for formulation, analytical and manufacturing services, clinical supplies, packaging and product release for the Clonidine Topical Gel. We have also made similar arrangements with Frontage and Tapemark for bulk manufacture for initial clinical trial supplies and individual dose units packaging, respectively.

Buprenorphine Depot Injection

Effective October 27, 2014, we entered into an exclusive agreement with Evonik to develop and commercialize a proprietary long acting, sustained release, biodegradable microparticle buprenorphine formulation capable of providing 30 days of continuous therapy following a subcutaneous injection. Through the agreement, we also secured the license to Evonik-owned intellectual property related to products for the maintenance treatment of opioid dependence and for the treatment of chronic pain.

Sales and Marketing

Following, and assuming, completion of clinical development and regulatory approval for each candidate product, we will pursue one of several approaches (or a combination thereof) for marketing and selling our products. These include licensing the products to appropriate partners so that they can market and distribute the products for us, co-promotions where we would share in the sales promotion, or use of our own recently established contract sales organization. We have already utilized this strategy with regard to our approved product, ONSOLIS ^® / BREAKYL™ with our licensing agreements with Meda world-wide except Taiwan (TTY) and South Korea (Kunwha) and our worldwide license and development agreement with Endo for BELBUCA™ for chronic pain.

This strategy was further implemented in 2014 with the creation of our own exclusive contract sales force for the launch of BUNAVAIL ^® . This existing sales force now provides us with the means to sell BUNAVAIL ^® but also affords us the opportunity to consider selling other products in our own portfolio or those in-licensed. Using our own sales force provides us with significantly more control over commercialization efforts and makes us capable of selling our own products in specialty pharmaceutical markets while leaving with partners promotional responsibilities for the large primary care audiences.

For BUNAVAIL ^® , we completed our plans to self-commercialize the product in early 2014 and successfully launched our contract sales force in September.

ONSOLIS ^® /BREAKYL™

European Union

In September 2006, we secured an exclusive licensing and supply agreement with Meda for the commercialization rights for BEMA ^® Fentanyl in the E.U., which is being marketed in Europe under the trade name BREAKYL™. The agreement between Meda and us specifies that Meda is responsible for all post-approval clinical studies and label expansion trials. BREAKYL™ received marketing authorization from the European regulatory authorities in October 2010 and has been launched in over thirteen European countries including Germany, France and the U.K.

North America

In September 2007, we secured an exclusive licensing and supply agreement with Meda for the commercialization rights for ONSOLIS ^® , under which Meda was responsible for the sales, marketing and distribution of ONSOLIS ^® in the U.S., Canada and Mexico. The agreement specified that ONSOLIS ^® was to be detailed in the primary position for a specified duration among target prescribers

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ONSOLIS ^® was commercially launched in the United States in mid-October 2009 following approval by the FDA in July 2009. Under the Meda agreement, ONSOLIS ^® commercial efforts were supported by a therapeutic specialty sales force assembled by Meda to target oncologists and pain management specialists treating breakthrough cancer pain. A specialty sales force consisting of experienced and well trained sales representatives were put in place to promote ONSOLIS ^® to target healthcare providers.

ONSOLIS ^® was approved by the Canadian regulatory authorities in May 2010, and is the first product approved in Canada for the management of breakthrough cancer pain. Meda Valeant Pharma Canada Inc., a joint venture between Meda and Valeant Canada Limited is responsible for promotion of ONSOLIS ^® in Canada. ONSOLIS ^® was launched in Canada in the third quarter of 2011.

On March 12, 2012, we announced the postponement of the U.S. re-launch of ONSOLIS ^® following the initiation of the class-wide REMS until the product formulation could be modified to address two appearance-related issues. Such appearance-related issues involved the formation of microscopic crystals and a fading of the color in the mucoadhesive layer, raised by the FDA during an inspection of our North American manufacturing partner for ONSOLIS ^® , Aveva. While the appearance issues do not affect the product’s underlying integrity, safety or performance, the FDA believes that the fading of the color in particular may potentially confuse patients, necessitating a modification of the product and its specification before it can be manufactured and distributed. The source of microcrystal formation and the potential for fading of ONSOLIS ^® was found to be specific to a buffer used in its formulation. We modified the formulation and as of the date of this report have 12 months of stability data on the reformulated product that shows no signs of microcrystal formation or color changes.

On January 27, 2015, we announced that we had entered into the Assignment Agreement with Meda to return to us the marketing authorizations for ONSOLIS ^® for the U.S. and the right to seek marketing authorizations for ONSOLIS ^® in Canada and Mexico, back to us. Once the NDA has been returned, we will have the right to work directly with the FDA and submit a prior approval supplement that responds to FDA questions and requests and will hopefully lead to the re-introduction of the product. FDA’s review of the application may take up to six months; therefore, we could receive a decision before the end of 2015.

Additional Territories

On January 2, 2009, we entered into amendments to our agreements with Meda to grant Meda worldwide commercialization rights for ONSOLIS ^® /BREAKYL™ with the exception of Taiwan and South Korea. The sales royalties to be received by us will be the same for all territories as agreed to for Europe.

In 2010, licensing agreements were secured in Taiwan and South Korea providing the opportunity for commercialization in all territories globally. In May 2010, we announced a commercial partnership with Kunwha for the exclusive rights to develop and commercialize ONSOLIS ^® in the Republic of Korea. The agreement results in potential milestone payments of up to $1.275 million, which included the upfront payment of $0.3 million and royalties based on net sales. In October 2010, a commercial partnership with TTY was announced, providing commercialization rights for Taiwan. This agreement results in potential milestone payments of up to $1.3 million along with royalties based on sales and included an upfront payment of $0.3 million.

In November 2011, we announced that TTY had submitted a NDA for marketing authorization of BEMA ^® Fentanyl to the Taiwan Food and Drug Administration. This triggered a milestone payment to us of approximately $0.3 million, which was received November 2011. In July 2013, we announced the regulatory approval of BEMA ^® Fentanyl in Taiwan, where the product will be marketed under the brand name PAINKYL™. The approval in Taiwan resulted in a milestone payment of $0.3 million to us, which was received in the third quarter 2013.

We believe that utilizing commercial partners to market and sell ONSOLIS ^® /BREAKYL™ relieves us of the burden associated with a significant increase in expenditures or headcount otherwise associated with a commercial launch of a first product. Additionally, we believe our commercial partnerships for ONSOLIS ^® /BREAKYL™ allows internal efforts to be focused on the development of our pipeline of products.

BELBUCA ^{™ (} BEMA ^® Buprenorphine) for Chronic Pain

We announced the signing of a world-wide licensing and development agreement for BELBUCA™ with Endo in January 2012. Under terms of the agreement, Endo will be responsible for the manufacturing, distribution, marketing and sales of BELBUCA™ on a worldwide basis.

Endo is one of the premier companies in the area of pain management and has demonstrated significant success in the pain space particularly with the development, launch and commercialization of a portfolio of pain therapeutics including Opana ^® ER,

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Lidoderm ^® and Voltaren ^® Gel. Endo’s long experience in pain includes a strong sales and marketing capability, with sales representatives that are established in the offices of many high value healthcare practitioners who are high prescribers of opioids and other pain products.

We believe that BELBUCA™ is an excellent fit to Endo’s pain portfolio and will, if approved by the FDA, provide Endo with an additional pain product that can be aligned with other products in their portfolio based on factors such as pain severity and opioid scheduling. Endo will be responsible for all sales and marketing at the time of launch and will focus their promotional and educational efforts on high volume prescribers of opioids and other analgesics, which includes predominantly pain management specialists and primary care physicians. Endo will commercialize BELBUCA™ outside the U.S. through its own efforts or through regional partnerships. We believe that BELBUCA™ would potentially be aligned with the needs of pain specialists and primary care physicians who seek an alternative to Schedule II opioids for the treatment of moderate to severe chronic pain that is not adequately controlled with commonly prescribed first-line therapies (e.g. NSAIDs).

BUNAVAIL ^®

During 2013, we engaged in the process of assessing a variety of strategic options for the commercialization of BUNAVAIL ^® in the U.S. The options we explored included commercial partnerships, co-promotion arrangements, leading commercial efforts internally through the use of contract resources, or a combination of the aforementioned strategic options. Outside the U.S., we will likely pursue partnerships.

Following a thorough assessment of commercialization options for BUNAVAIL ^® , we identified BUNAVAIL ^® as an attractive product to build a commercial presence capable of supporting both BUNAVAIL ^® and our other future products. Additionally, the self-commercialization of BUNAVAIL ^® supports our longer term vision to become a fully integrated pharmaceutical company. The dynamics of the opioid dependence market made self-commercialization a feasible and attractive option. In total, approximately 90% of all prescriptions are written by approximately 5,000 physicians – which include primary care physicians, psychiatrists, addiction medicine specialists and pain specialists, with most concentrated in the eastern third of the U.S. and the west coast, allowing for coverage of a majority of the prescriber base with a modest sized sales force. Sales force sizing estimates suggest that a field sales force of approximately 60 could reach most of the identified target audience with the necessary frequency. Additionally, the relatively small prescriber base along with the limited number of competitors results in relatively modest marketing expenditures. And finally, the high awareness and physician acceptance of buprenorphine for the treatment of opioid dependence lessens the need for costly educational and promotional programs.

Plans to self-commercialize BUNAVAIL ^® were completed in early 2014. We chose to utilize internal resources to provide the strategic direction and oversight of specialized contractor resources. In March 2014, we entered into an agreement with Quintiles to support the launch of BUNAVAIL ^®. Under terms of the agreement, Quintiles provides a range of services to support the commercialization of BUNAVAIL ^® in the U.S., including recruiting and training a field sales force. Separately, we entered into an agreement with Ashfield Market Access to provide managed markets and trade support for BUNAVAIL ^® . Ashfield Market Access, which is led by industry veterans including those who led GlaxoSmithKline’s managed markets group for more than 20 years, took responsibility for executing a payer strategy aimed at maximizing patient access to BUNAVAIL ^® .

We began our efforts at the 2014 annual meeting of the American Society of Addiction Medicine (ASAM) with deployment of a contract Medical Science Liaison (MSL) team under the oversight of Medical Affairs. Following ASAM, the MSL team focused on introducing physicians to the BEMA ^® technology.

Under full oversight of BDSI, recruitment and hiring of our specialty addiction sales force was completed during the third quarter of 2014. A highly experienced sales force with significant experience in the areas of pain and addiction medicine was deployed. Approximately 60% of representatives hold ten or more years of pharmaceutical sales experience and nearly 90% with five or more years of experience. Three-quarters of the field force previously had prior experience in the areas of pain management or addiction medicine.

On November 3, 2014, we announced the availability of BUNAVAIL ^® in the U.S. where it is being supported by a 60-person field sales force and a full marketing effort targeting the nearly 5,000 physicians who are responsible for approximately ninety percent of prescriptions for buprenorphine products for the treatment of opioid dependence. The launch was also supported by a full marketing effort aimed at increasing product awareness including advertising and promotion, direct mail and email, a speakers programs and a number of initiatives, including a copay support program, to minimize access issues.

We recognize the competitive nature of the opioid dependence market and will continuously evaluate the size and structure of our sales force relative to our competitors. As appropriate for our business, we will consider the deployment of additional sales territories and representatives. While we recognize that we may not be able to support a sales force the size of an established competitor such as Indivior (formerly Reckitt Benckiser), we believe we can maintain a competitive share of voice through both personal and non-personal selling efforts. We also believe that BUNAVAIL ^® offers distinct and important benefits over other products in the opioid dependence market which will allow it to successfully compete in the long term.

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Government Regulation

The nonclinical and clinical development, manufacturing and marketing of any drug product, is subject to significant regulation by governmental authorities in the United States and other countries. Complying with these regulations involves considerable time, expense and uncertainty.

In the United States, drugs are subject to rigorous federal regulation and, to a lesser extent, state regulation. The Federal Food, Drug and Cosmetic Act, as amended, and the regulations promulgated thereunder, and other federal and state statutes and regulations govern, among other things, the testing, manufacture, safety, efficacy, labeling, storage, record keeping, approval, advertising and promotion of our drugs. Drug development and approval within this regulatory framework is difficult to predict, requires a number of years and involves the expenditure of substantial resources. Moreover, ongoing legislation by Congress and rule making by the FDA presents an ever-changing landscape where we could be required to undertake additional activities before any governmental approval to market our products is granted.

The steps required before a pharmaceutical product may be marketed in the United States include:

In addition to obtaining FDA approval for each product, each product-manufacturing establishment must be registered with, and approved by, the FDA. Manufacturing establishments are subject to biennial inspections by the FDA and must comply with the FDA’s Good Manufacturing Practices and with other federal and local regulations.

Nonclinical Trials

Nonclinical testing includes laboratory evaluations of the active drug substance and formulation, as well as tissue culture and animal studies to assess the safety and potential efficacy of the investigational product. Nonclinical tests must be conducted by laboratories that comply with FDA Good Laboratory Practices regulations. Nonclinical testing is inherently risky and the results can be unpredictable or difficult to interpret. The results of nonclinical testing are submitted to the FDA as part of an IND and are reviewed by the FDA prior to the commencement of clinical trials. Unless the FDA places a clinical hold on an IND, clinical studies may begin thirty (30) days after the IND is submitted.

We have relied and intend to continue to rely on third party contractors to perform nonclinical trials.

Clinical Trials

Clinical trials involve administration of the investigational product to healthy volunteers and/or to patients under the supervision of a qualified investigator. Clinical trials must be conducted in accordance with Good Clinical Practices following protocols acceptable to FDA that detail the objectives of the study, the parameters to be used to monitor safety and the efficacy and the planned evaluation of results. Each protocol must be submitted to the FDA prior to its conduct. Further, each clinical study must be conducted under the auspices of an independent institutional review board that protects the rights and welfare of the study subjects. The drug product used in clinical trials must be manufactured according to Good Manufacturing Practices.

Clinical trials are typically conducted in three sequential phases, but the phases may overlap and not all phases may be necessary when developing investigational products that will utilize the FDA’s 505(b)(2) approval process. Phase 1 studies are typically performed in normal healthy volunteers to assess the safety (adverse side effects), absorption, metabolism, bio-distribution, excretion, and food and drug interactions of the investigational drug product. Additional studies may be performed to assess abuse potential as well as limited measures of pharmacologic effect. Phase 2 is the proof of principle stage and involves studies in a limited number of patients in order to:

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When there is evidence that the product may be effective and has an acceptable safety profile in Phase 2 evaluations, Phase 3 trials are undertaken to establish the clinical efficacy and safety profile of the product within a larger population at geographically dispersed clinical study sites. Phase 3 frequently involves randomized controlled trials and, whenever possible, studies are conducted in a manner so that neither the patient nor the investigator knows what treatment is being administered. We, or the FDA, may suspend clinical trials at any time if it is believed that the individuals participating in such trials are being exposed to unacceptable health risks.

We have in the past and will continue to rely upon third party contractors to advise and assist us in the preparation of our INDs and the conduct of clinical trials that will be conducted under the INDs.

New Drug Application and FDA Approval Process

The results of the pharmaceutical and manufacturing development work, nonclinical studies and clinical studies are submitted to the FDA in the form of an NDA for approval to market and sell the product. The testing and approval process is likely to require substantial time and effort. In addition to the results of nonclinical and clinical testing, the NDA applicant must submit detailed information about chemistry, manufacturing and controls that will describe how the product is made, packaged, labeled, and tested through the manufacturing process. The manufacturing process continues to develop throughout the period of clinical trials such that at the time of the NDA, it has been demonstrated that there is control of the process and the product can be made consistently at commercial scale.

The NDA review process involves FDA investigation into the details of the manufacturing process, as well as the design and analysis of each of the nonclinical and clinical studies. This review includes inspection of the manufacturing facility, the data recording process for the clinical studies, the record keeping at a sample of clinical trial sites and a thorough review of the results for each nonclinical and clinical study. Through this review, the FDA reaches a decision about the risk-benefit profile of a product candidate. If the benefit outweighs the risk, the FDA begins negotiation with the company on the content of an acceptable package insert and an associated REMS plan if required.

The NDA review process is affected by a number of factors, including the severity of the disease, the availability of alternative treatments, and the risks and benefits demonstrated in clinical trials. Consequently, there is a risk that approval may not be granted on a timely basis, if at all. The FDA may deny approval of an NDA if applicable regulatory criteria are not satisfied. Moreover, if regulatory approval of a product is granted, such approval may entail limitations on the indicated uses for which it may be marketed, require additional testing or information, or require post-marketing testing (Phase 4) and surveillance to monitor the safety of a company’s product if it does not believe the NDA contains adequate evidence of its safety. Finally, product approvals may be withdrawn if compliance with regulatory standards is not maintained or health problems are identified that would alter the risk-benefit analysis for the product. Post-approval studies may be conducted to explore the use of the product for new indications or populations such as pediatrics.

Among the conditions for NDA approval is the requirement that any prospective manufacturer’s quality control and manufacturing procedures conform to Good Manufacturing Practices and the specifications approved in the NDA. In complying with standards set forth in these regulations, manufacturers must continue to expend time, money and effort in the area of quality control and quality assurance to ensure full technical compliance. Manufacturing establishments, both foreign and domestic, also are subject to inspections by or under the authority of the FDA and by other federal, state or local agencies. Additionally, in the event of non-compliance, the FDA may issue warning letters and/or seek criminal and civil penalties, enjoin manufacture, seize product or revoke approval.

Risk Evaluation and Mitigation Strategy

In March 2008, new legislation designated as the Food and Drug Administration Amendments Act of 2007 (the FDAAA) took effect. This legislation strengthened the FDA’s authority over drug safety and directs the FDA to develop systems aimed at managing the risk-benefit ratio of a drug, with a particular focus on post-approval safety. FDAAA authorized the FDA to require and enforce a Risk Evaluation and Mitigation Strategy, or REMS, if the FDA determines that it is necessary to ensure that the benefits of a drug outweigh the potential risks. The legislation also provides the FDA with increased authority to require REMS at any point in a drug product’s lifecycle based on new safety information.

A REMS is defined by the FDA as a strategy to manage a known or potential serious risk associated with a drug or biological product. The FDA’s assessment of whether to require a REMS as a condition for approval considers factors such as the size of the population likely to use the drug, the seriousness of the disease or condition that is to be treated by the drug, the expected benefit, and the seriousness of any known or potential adverse events that may be related to the drug. A REMS may be conveyed through the use of a number of tools including a Medication Guide for distribution when the drug is dispensed, a communication plan to physicians to convey potential risks, and elements to ensure safe use. These elements may include provisions that healthcare providers who prescribe the drug and pharmacists who dispense the drug have particular training, experience or special certifications; that the drug be

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dispensed only in certain healthcare settings; that the drug be dispensed to patients with evidence of safe-use conditions; and/or that patients must be enrolled in a registry. Under the FDAAA, the FDA has also been granted enforcement authority over violations of the REMS provisions. The FDA may impose civil monetary penalties, the drug or biological product can be deemed misbranded, and/or the FDA may obtain injunctive relief against further distribution of the product.

On December 29, 2011, the FDA approved a “class-wide” REMS program covering all transmucosal fentanyl products under a single risk management program. ONSOLIS ^® is subject to this REMS.

Additionally, FDA has implemented a class-wide REMS covering the extended release and long acting opioid class. The class-wide REMS program consists of a REMS-compliant educational program offered by an accredited provider of continuing medical education, patient counseling materials and a medication guide. BELBUCA™ is anticipated to fall within the existing class-wide REMS program. The cost and implementation of the extended release and long-acting opioid REMS is shared among multiple companies in the category.

There also continues to be a REMS in place for buprenorphine for the treatment of opioid dependence. BUNAVAIL ^® is included in this existing REMS that is far less cumbersome than the ONSOLIS ^® REMS and includes a medication guide and healthcare professional and patient education.

International Approval

Whether or not FDA approval has been obtained, approval of a product by regulatory authorities in foreign countries must be obtained prior to the commencement of commercial sales of the drug in such countries. The requirements governing the conduct of clinical trials and drug approvals vary widely from country to country, and the time required for approval may be longer or shorter than that required for FDA approval. Although there are some procedures for unified filings for certain European countries, in general, each country at this time has its own procedures and requirements.

Other Regulation

In addition to regulations enforced by the FDA, we are also subject to United States regulation under the Controlled Substances Act, the Occupational Safety and Health Act, the Environmental Protection Act, the Toxic Substances Control Act, the Resource Conservation and Recovery Act and other present and potential future federal, state, local or similar foreign regulations. Our research and development may involve the controlled use of hazardous materials, chemicals and radioactive compounds. Although we believe that our safety procedures for handling and disposing of such materials comply with the standards prescribed by state and federal regulations, the risk of accidental contamination or injury from these materials cannot be completely eliminated. In the event of any accident, we could be held liable for any damages that result and any such liability could exceed our resources.

Employees

As of March 12, 2015, we have 29 full-time employees. Thirteen are involved in our clinical development program and operations, eleven handle our administration, accounting and legal and five handle our internal sales and marketing. Advanced degrees and certifications of our staff include three Ph.Ds, two Pharm.Ds, one M.D., three CPAs, six MBAs, two MSs and one JD. None of our employees are covered by collective bargaining agreements. From time to time, we also employ independent contractors to support our engineering and administrative functions. We consider relations with all of our employees to be good. Each of our employees has entered into confidentiality, intellectual property assignment and non-competition agreements with us.

Available Information

Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (which we refer to herein as the Exchange Act), are filed with the SEC. Such reports and other information that we file with the SEC are available free of charge on our website at http://bdsi.investorroom.com/sec_filings when such reports are available on the SEC website. The public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Room 1580, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at http://www.sec.gov. The contents of these websites are not incorporated into this filing. Further, the foregoing references to the URLs for these websites are intended to be inactive textual references only.

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