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OFFON

ANTARES PHARMA, INC.

(ATRS)
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ANTARES PHARMA : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

08/05/2021 | 05:21pm EDT

Forward-Looking Statements


Certain statements in this report, including statements in the management's
discussion and analysis section set forth below, may be considered
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, that involve risks and uncertainties. Forward-looking statements can
be identified by the words "expect," "estimate," "plan", "project,"
"anticipate," "should," "intend," "may," "will," "believe," "continue" or other
words and terms of similar meaning in connection with any discussion of, among
other things, future operating or financial performance, strategic initiatives
and business strategies, regulatory or competitive environments, our
intellectual property and product development. In particular, these
forward-looking statements include, among others, statements about:

• our expectations about the ongoing COVID-19 pandemic (the "Pandemic") and

any potential disruption or impact to our operations, financial position

or cash flows;

• our expectations regarding the continued successful commercialization of

XYOSTED® (testosterone enanthate) injection and the continued growth in

prescriptions and revenues related thereto;

• our expectations regarding continued sales of OTREXUP® (methotrexate)

        injection;


    •   our expectations regarding the commercialization of NOCDURNA®
        (desmopressin acetate) in the U.S. under a licensing agreement with
        Ferring International Center S.A. and its affiliates, ("Ferring") and
        future sales and revenue from the same;

• our expectations regarding the ability of our partner, Teva, to continue

to successfully commercialize Epinephrine Injection USP, the generic

equivalent version of EpiPen® ("generic epinephrine injection"), and any

future revenue related thereto;

• our expectations regarding the ability of AMAG Pharmaceuticals, Inc.

("AMAG") to continue to commercialize Makena® (hydroxyprogesterone

caproate injection), and our continued future sales to AMAG and royalty

revenue from the same, in light of the U.S. Food and Drug Administration's

("FDA") proposal to withdraw approval of Makena® (hydroxyprogesterone

caproate injection), AMAG's request for a hearing to maintain its approval

of Makena® (hydroxyprogesterone caproate injection), and the timing and

outcome of any hearings and future regulatory actions by the FDA;

• our expectations regarding continued sales of Sumatriptan Injection USP to

our partner, Teva Pharmaceutical Industries, Ltd. ("Teva"), and Teva's

ability to successfully distribute and sell Sumatriptan Injection USP;

• our expectations regarding continued product development with Teva of the

        teriparatide and exenatide disposable pen injectors, Teva's ability to
        obtain FDA approval and AB-rating for each of those products, and if

approved, Teva's ability to successfully commercialize the teriparatide

disposable pen injector product outside the U.S.;

• our expectations about the development of a rescue pen for an undisclosed

        drug with our partner Pfizer, Inc. ("Pfizer") and potential future
        regulatory approval and future revenue from the same;


    •   our expectations about our development activities with Idorsia

Pharmaceuticals Ltd ("Idorsia") and the timing and results of the Phase 3

clinical trial of the drug device combination product for selatogrel, a

new chemical entity ("NCE") being developed for the treatment of a

suspected acute myocardial infarction ("AMI") in adult patients with a

        history of AMI, and the potential future FDA and global regulatory
        approval of the same;

• our expectations about the development of ATRS-1902 for adrenal crisis

        rescue, including the timing and results of clinical trials and our
        anticipated 505(b)(2) NDA filing with the FDA;

• our expectations about our other internal research and development

projects, including but not limited to ATRS-1901, the timing and results

of clinical trials, and our anticipated continued reliance on third

parties in conducting studies, trials and other research and development

activities;

• our expectations about the timing and outcome of pending or potential

        claims and litigation, including without limitation, the pending
        securities class action and derivative actions;


    •   our anticipated continued reliance on contract manufacturers to
        manufacture, assemble and package our products;

• our anticipated continued reliance on third parties to provide certain

services for our products including logistics, warehousing, distribution,

        invoicing, contract administration and chargeback processing;


  • our sales and marketing plans;


                                       18
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    •   expectation about our future revenues, including the 2021 revenue
        guidance, our cash flows and our ability to support our operations and
        maintain profitability;

• our estimates and expectations regarding the sufficiency of our cash

resources, anticipated capital requirements and our ability to obtain

additional financing, if needed;

• our expectations and estimates made in connection with current accounting

practices, including but not limited to, the carrying value of our

deferred tax assets and our ability to utilize net operating loss and

other credit carryforwards to offset future U.S. federal taxable income;

• the potential impact of new accounting pronouncements and tax legislation;

        and


    •   other statements regarding matters that are not historical facts or
        statements of current condition.


These forward-looking statements are based on assumptions that we have made in
light of our industry experience as well as our perceptions of historical
trends, current conditions, expected future developments and other factors we
believe are appropriate under the circumstances. As you read and consider this
report, you should understand that these statements are not guarantees of
performance results. Forward-looking statements involve known and unknown risks,
uncertainties and assumptions, and other factors that may cause our or our
industry's actual results, levels of activity, performance or achievements to be
materially different from the information expressed or implied by these
forward-looking statements. While we believe that we have a reasonable basis for
each forward-looking statement contained in this report, we caution you that
these statements are based on a combination of facts and factors currently known
by us and projections of the future about which we cannot be certain. Many
factors may affect our ability to achieve our objectives, including:

• potential business interruptions and/or any financial or operational

        impact as a result of the Pandemic;


    •   delays in product introduction or unsuccessful marketing and
        commercialization efforts by us or our partners;

• interruptions in supply or an inability to adequately manage third party

contract manufacturers to meet customer supply requirements;

• our inability to obtain or maintain adequate third-party payer coverage of

        marketed products;


    •   the timing and results of our or our partners' research projects or

clinical trials of product candidates in development including projects

with Teva, Pfizer and Idorsia;

• actions by the FDA or other regulatory agencies with respect to our

products or product candidates of our partners;

• our inability to generate or sustain continued growth in product sales and

royalties;

• the lack of market acceptance of our and our partners' products and future

        revenues from these products;


  • a decrease in business from our major customers and partners;

• our inability to compete successfully against new and existing competitors

or to leverage our research and development capabilities or our marketing

        capabilities;


    •   our inability to establish and maintain our sales and marketing

capability, our inability to effectively market our services or obtain and

maintain arrangements with our customers, partners and manufacturers;


  • changes or delays in the regulatory review and approval process;


  • our inability to effectively protect our intellectual property;

• costs associated with future litigation and the outcome of such litigation;


  • our inability to attract and retain key personnel; and


  • adverse economic and political conditions.


In addition, you should refer to the "Risk Factors" section in our other filings
with the Securities and Exchange Commission for a discussion of other factors
that may cause our actual results to differ materially from those described by
our forward-looking statements. As a result of these factors, we cannot assure
you that the forward-looking statements contained in this report will prove to
be accurate and, if our forward-looking statements prove to be inaccurate, the
inaccuracy may be material.

We encourage readers of this report to understand forward-looking statements to
be strategic objectives rather than absolute targets of future performance.
Forward-looking statements speak only as of the date they are made. We do not
intend to update

                                       19
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publicly any forward-looking statements to reflect circumstances or events that
occur after the date the forward-looking statements are made or to reflect the
occurrence of unanticipated events except as required by law. In light of the
significant uncertainties in these forward-looking statements, you should not
regard these statements as a representation or warranty by us or any other
person that we will achieve our objectives and plans in any specified time
frame, if at all.

The following discussion and analysis, the purpose of which is to provide
investors and others with information that we believe to be necessary for an
understanding of our financial condition, changes in financial condition and
results of operations, should be read in conjunction with the financial
statements, notes thereto and other information contained in this report.

Company Overview


Antares Pharma, Inc. ("Antares," "we," "our," "us" or the "Company") is a
specialty pharmaceutical company focused primarily on the development and
commercialization of pharmaceutical products and technologies that address unmet
needs in targeted therapeutic areas. We develop, manufacture and commercialize,
for ourselves or with partners, novel therapeutic products using our advanced
drug delivery systems that are designed to provide commercial or functional
advantages, such as improved safety and efficacy, convenience, improved
tolerability, and enhanced patient comfort and adherence. We also seek product
opportunities that complement and leverage our commercial platform. We have a
portfolio of proprietary and partnered commercial products and ongoing product
development programs in various stages of development. We have formed
significant strategic alliances and partnership arrangements with industry
leading pharmaceutical companies including Pfizer, Idorsia, Teva and AMAG.

We market and sell in the U.S., our proprietary product XYOSTED® (testosterone
enanthate) injection, indicated for testosterone replacement therapy in adult
males for conditions associated with a deficiency or absence of endogenous
testosterone. XYOSTED® is the only FDA approved subcutaneous testosterone
enanthate product for once-weekly, at-home self-administration. XYOSTED® was
approved by the FDA and launched for commercial sale in late 2018. In August
2020, we entered into an exclusive distribution agreement with Lunatus to
distribute and promote the sale of XYOSTED® in Saudi Arabia and the United Arab
Emirates. Lunatus is responsible for obtaining regulatory approval and, assuming
approval, for the promotion and commercialization of the product in the
territories.

We also market and sell our proprietary product OTREXUP® (methotrexate) injection, which is a subcutaneous methotrexate injection for once weekly self-administration with an easy-to-use, single dose, disposable auto injector, indicated for adults with severe active rheumatoid arthritis, children with active polyarticular juvenile idiopathic arthritis and adults with severe recalcitrant psoriasis.


In October 2020, we entered into an exclusive license agreement (the "License
Agreement") with Ferring for the marketed product NOCDURNA® (desmopressin
acetate) in the United States, which is indicated for the treatment of nocturia
due to nocturnal polyuria (NP) in adults who awaken at least two times per night
to urinate. Under the terms of the License Agreement, the Company paid Ferring
an upfront payment of $5.0 million upon execution and will pay an additional
$2.5 million at one year from execution. Ferring is eligible for tiered
royalties and additional commercial milestone payments potentially totaling up
to $17.5 million based on the Company's net sales of NOCDURNA® in the United
States. We began detailing NOCDURNA® with a soft launch in the fourth quarter of
2020 and are currently executing a reintroduction of the product through a
comprehensive re-launch strategy to increase awareness and demand.

In collaboration with Teva, we developed a version of our VIBEX® auto injector
for use in a generic epinephrine auto injector product that was approved by the
FDA in August 2018 and launched in late fourth quarter of 2018. Teva's
Epinephrine Injection USP is indicated for emergency treatment of severe
allergic reactions including those that are life threatening (anaphylaxis) in
adults and certain pediatric patients and was approved as a generic drug product
with an AB rating, meaning that it is therapeutically equivalent to the branded
products EpiPen® and EpiPen Jr® and therefore, subject to state law,
substitutable at the pharmacy. We are the exclusive supplier of the device and
Teva is responsible for commercialization and distribution of the finished
product, for which we also receive royalties on Teva's net sales.

Through our commercialization partner Teva, we sell Sumatriptan Injection USP
indicated in the U.S. for the acute treatment of migraine and cluster headache
in adults.

Under an exclusive license and development agreement with AMAG, we developed,
manufacture and supply a variation of our VIBEX® QuickShot® subcutaneous auto
injector for use with AMAG's progestin hormone drug Makena® (hydroxyprogesterone
caproate injection), indicated to help reduce the risk of preterm birth in women
pregnant with one baby and who spontaneously delivered one preterm baby in the
past. The Makena® (hydroxyprogesterone caproate injection) subcutaneous auto
injector was approved by the FDA and commercialized in February 2018. We are the
exclusive supplier of the devices and the final assembled and packaged
commercial product and receive royalties on AMAG's net sales of the product. In
October 2019, AMAG announced that

                                       20

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the FDA'sBone, Reproductive and Urologic Drugs Advisory Committee met to better
understand and interpret the PROLONG (Progestin's Role in Optimizing Neonatal
Gestation) confirmatory clinical trial for Makena® (hydroxyprogesterone
caproate) injection. Nine advisory committee members voted to recommend that the
FDA pursue withdrawal of approval for Makena® and seven committee members voted
to leave the product on the market under accelerated approval and require a new
confirmatory trial. In October 2020, AMAG received notice that the FDA is
proposing to withdraw approval of Makena® (hydroxyprogesterone caproate
injection). AMAG has formally requested a public hearing in response to the
FDA's proposal to withdraw its approval and has stated that it remains committed
to working with the FDA to maintain patient access to Makena® as a treatment
option to reduce pre-term birth.

We are also collaborating with Teva on a multi-dose pen for a generic form of
Forteo® (teriparatide [rDNA origin] injection) for the treatment of
osteoporosis, and another multi-dose pen for a generic form of BYETTA®
(exenatide injection) for the treatment of type 2 diabetes. Teva continues to
work through the U.S. regulatory process with the FDA for exenatide and
teriparatide using the ANDA pathway. Teva recently launched Teriparatide
Injection ("teriparatide"), the generic version of Eli Lilly's branded product
Forsteo® featuring the Antares multi-dose pen platform in several countries
outside the United States. Antares is responsible for the manufacturing and
supply of the multi-dose pen utilized in Teva's generic teriparatide product
under an exclusive development, license and supply agreement with Teva, the
scope of which is worldwide.

In August 2018, we entered into a development agreement with Pfizer to develop a
combination drug device rescue pen. This rescue pen will utilize the Antares
QuickShot® auto injector and an undisclosed Pfizer drug. We are developing the
product and Pfizer will be responsible for obtaining FDA approval of the
combination product. We entered into a separate commercial supply agreement with
Pfizer pursuant to which we will provide fully packaged commercial ready
finished product to Pfizer and Pfizer will then be responsible for
commercializing the product in the U.S., pending FDA approval, for which the
Company will receive royalties on net sales.

In November 2019, we entered into a global agreement with Idorsia to develop a
novel, drug-device product containing selatogrel. The new chemical entity
selatogrel is being developed for the treatment of a suspected acute myocardial
infarction (AMI) in adult patients with a history of AMI. Idorsia will pay for
the development of the combination product and will be responsible for applying
for and obtaining global regulatory approvals for the product. The parties
intend to enter into a separate commercial license and supply agreement pursuant
to which Antares will provide fully assembled and labelled product to Idorsia at
cost plus margin. Idorsia will then be responsible for global commercialization
of the product, pending FDA or foreign approval. Antares will be entitled to
receive royalties on net sales of the commercial product.

In June 2021, Idorsia announced it is initiating its Phase 3 registration study
to evaluate the efficacy and safety of self-administered subcutaneous
selatogrel, Idorsia's P2Y12 receptor antagonist, in suspected AMI utilizing
Antares' Quickshot® auto-injector. The study is an international, multi-center,
double-blind, randomized, placebo-controlled, parallel-group, Phase 3 study to
assess the clinical efficacy and safety of 16 mg selatogrel when
self-administered (on top of standard-of-care) upon occurrence of symptoms
suggestive of an acute myocardial infarction. The primary efficacy endpoint is
the occurrence of death from any cause, or non-fatal AMI after any study
treatment self-administration. The study will enroll approximately 14,000
patients who are at high risk of recurrent AMI, at approximately 250 sites in
approximately 30 countries. A Special Protocol Assessment has been agreed with
the FDA for Idorsia's selatogrel, which indicates the FDA is in agreement with
the adequacy and acceptability of specific critical elements of overall protocol
design (e.g., entry criteria, dose selection, endpoints and planned analyses)
for a study intended to support a future marketing application. In December
2020, the FDA designated Idorsia's investigation of selatogrel for the treatment
of a suspected AMI in adult patients with a history of AMI as a "fast-track"
development program. This designation is intended to promote communication and
collaboration between the FDA and pharmaceutical companies for drugs that treat
serious conditions and fill an unmet medical need.

We are also committed to advancing our internal research and development
programs and continue to invest in the development of our proprietary product
pipeline. Our research and development efforts are focused primarily on
leveraging our existing product and technology platforms by broadening their
applications for use in other drug device combination products, as well as
exploring new pharmaceutical products, technologies and drug delivery methods.

In 2019, we initiated development of a proprietary drug device combination
product for the urology oncology market, identified as ATRS-1901. We have
conducted formulation development work and non-clinical studies to help advance
this program. In 2020, we received a response from the FDA regarding our pre-IND
(Investigational New Drug) submission and believe we have determined our
clinical and regulatory pathway forward. We expect to file an IND for this
program with the FDA in the second half of 2021.

In 2019, we identified a program to develop a proprietary drug device
combination product for the endocrinology market, identified as ATRS-1902. We
conducted initial formulation work and developed a working prototype of a new
device to support this

                                       21
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program. We received a response from the FDA regarding our pre-IND submission and believe we have determined the regulatory and clinical path forward.


In June 2021, we submitted an IND application with the FDA for the initiation of
a Phase 1 clinical study of ATRS-1902 for adrenal crisis rescue. The IND
application for ATRS-1902, and its corresponding development program, supports a
proposed indication for the treatment of acute adrenal insufficiency, known as
adrenal crisis, in adults and adolescents, using a novel proprietary
auto-injector platform to deliver hydrocortisone. The IND application includes
the protocol for an initial clinical study to compare the pharmacokinetic
profile of our novel formulation of hydrocortisone versus Solu-Cortef®, which is
an anti-inflammatory glucocorticoid and is the current standard of care for the
management of acute adrenal crises.

In July 20201, the FDA accepted our IND for ATRS-1902 enabling us to initiate
our Phase 1 clinical study. After this study is completed, we expect a second
study will then be conducted utilizing our proprietary auto-injector technology
which has been developed for high reliability and ease-of-use in emergency
situations by the patient or caregiver. We believe these two studies will be the
basis of our anticipated 505(b)(2) NDA filing with the FDA towards the end of
2022.

COVID-19

In December 2019, a novel strain of coronavirus (COVID-19) emerged in China, and
has since spread worldwide, including every state in the United States. On March
11, 2020, the World Health Organization declared the outbreak a Pandemic and on
March 13, 2020, the United States declared a national emergency with respect to
the outbreak. The Pandemic has impacted global economic activity and lead to
disruptions in supply chain, labor shortages, business closures, travel
restrictions and other health, safety and social distancing requirements.

We have taken several measures to help minimize the impact of the Pandemic on
our business and have implemented safety measures and protocols to protect the
health and safety of our employees and comply with governmental and public
health regulations while working to ensure the sustainability of our business
operations and continuity of product supply. We continue to monitor the
situation and potential effects on our business, suppliers, partners and
workforce.

Most of our employees, including our corporate and administrative functions,
have returned to work onsite at our facilities. Our sales force has resumed
in-person office visits in most areas and continue to reach healthcare providers
virtually in other territories based on the varying restrictions, protocols and
phased re-openings. The restrictions and closures during the Pandemic have, to
some extent, limited or reduced patient access to physicians for non-essential
services. These limitations have had, and may continue to have, an impact on the
rate of new prescriptions for our proprietary products. Our partners may also
experience a decrease or fluctuation in demand for our partnered products due to
the Pandemic or the related restrictions. Although we have not experienced any
significant delays or disruption in our development programs due to the
Pandemic, a worsening or sustained outbreak could also impact our or our
partners' clinical trials or lead to delays or disruptions in activities with
the FDA.

While we have taken measures to help minimize the potential impact of the
Pandemic and various government orders, and believe any potential or
significant disruption, when and if experienced, could be temporary, there is
continued uncertainty around the timing and duration of the potential
disruption, and the magnitude of any potential impact. As a result, we are
unable to estimate the potential impact on our operations or cash flows as of
the date of this filing. For more information on these risks, see "Part II -
Item 1A. Risk Factors - We face uncertainty and risks related to the outbreak of
the novel coronavirus disease, COVID-19, which could significantly disrupt our
operations and may materially and adversely impact our business and financial
conditions" in our most recent annual report on Form 10-K as filed with the
Securities and Exchange Commission.

Results of Operations


We reported net income of $4.4 million and $8.2 million for the three and six
months ended June 30, 2021 as compared to net income of $2.2 million and a net
loss of $0.2 million for the three and six months ended June 30, 2020,
respectively. Our earnings per share were $0.03 and $0.05 for the three and six
months ended June 30, 2021 as compared to $0.01 and $0.0 per share for the three
and six months ended June 30, 2020, respectively. Operating results for the
three and six months ended June 30, 2021 are not necessarily indicative of the
results that may be expected for the full year ending December 31, 2021. The
following is an analysis and discussion of our operations for the three and six
months ended June 30, 2021 as compared to the same periods in 2020.

                                       22

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Revenues


We generate revenue from proprietary and partnered product sales, license and
development activities and royalty arrangements. Total revenue for the three
months ended June 30, 2021 and 2020 was $45.0 million and $32.4 million,
respectively, representing an increase in total revenue of 39% on a comparative
basis. Total revenue for the six months ended June 30, 2021 and 2020 was $87.1
and $65.5 million, respectively, representing an increase of 33%. The following
table provides details about the components and drivers of our overall revenue
growth (in thousands):



                                      Three Months Ended          Six Months Ended
                                           June 30,                   June 30,
                                       2021          2020         2021         2020
Proprietary product sales           $   18,953$ 14,846$ 37,685$ 27,412
Partnered product sales                  8,951        9,819       19,354       24,350
Total product revenue                   27,904       24,665       57,039       51,762

Licensing and development revenue 7,167 2,687 12,151

    4,442
Royalties                                9,907        5,032       17,871        9,259
Total revenue                       $   44,978$ 32,384$ 87,061$ 65,463




Product Revenue

Revenue from product sales was $27.9 million and $24.7 million for the three
months ended June 30, 2021 and 2020, respectively, an increase of 13% on a
period over period basis. The increase was driven primarily by increased sales
of our proprietary product XYOSTED® offset by a decrease in shipments of
epinephrine auto injectors to Teva and sales of other partnered products, as
discussed below. For the six months ended June 30, 2021 and 2020, revenue from
product sales was $57.0 million and $51.8 million, respectively, an increase of
10% on a period over period basis. The increase for the comparative six-month
period was primarily attributable to an increase in XYOSTED® sales and sales of
epinephrine auto injectors to Teva, offset by a reduction in sales of Makena®
subcutaneous auto-injectors to AMAG.

Sales of our proprietary products XYOSTED®, OTREXUP® and NOCDURNA®, which are
presented net of estimated product returns and sales allowances, generated
revenue of $19.0 million and $14.8 million for the three months ended June 30,
2021 and 2020, respectively, representing a 28% increase on a comparative basis.
For the six months ended June 30, 2021 and 2020, proprietary product sales were
$37.7 million and $27.4 million, respectively, representing a 37% increase. The
increases in proprietary product sales for the three and six months ended
June 30, 2021 as compared to the three and six months ended June 30, 2020 was
principally attributable to continued growth in prescriptions and sales of
XYOSTED®, and to new sales of NOCDURNA®, which we in-licensed and began
detailing in the fourth quarter of 2020.

We also manufacture and sell devices, components and fully assembled and
packaged product to our partners. Partnered product sales were $9.0 million and
$9.8 million for the three months ended June 30, 2021 and 2020, respectively,
representing a decrease of 9% on a comparative basis. For the six months ended
June 30, 2021 and 2020, partnered product revenue was $19.4 million and $24.4
million, respectively. The net decreases in partnered product sales for the
three and six months ended June 30, 2021 as compared to the same periods in 2020
is primarily attributable to a decrease in sales sumatriptan to Teva and a
decrease in production and sales of Makena® product for AMAG.

Licensing and development revenue


Licensing and development revenues include license fees received from partners
for the right to use our intellectual property and amounts earned in joint
development arrangements with partners under which we perform joint development
activities or develop new products on their behalf. Licensing and development
revenue was $7.2 million and $2.7 million for the three months ended June 30,
2021 and 2020, respectively, and $12.2 million and $4.4 million for the six
months ended June 30, 2021 and 2020, respectively. The increase in licensing and
development revenue recognized for the three and six months ended June 30, 2021
as compared to the same periods in 2020 was primarily a result of incremental
development and maintenance activities with Teva related to the epinephrine auto
injector production line and continuing development activities under the other
ongoing partnered development projects.

Royalties


Royalty revenue was $9.9 million and $5.0 million for the three months ended
June 30, 2021 and 2020, respectively and $17.9 million and $9.3 million for the
six months ended June 30, 2021 and 2020, respectively. The net increase in
royalty revenue was principally a result of an increase in royalties from Teva
on its net sales of generic EpiPens®.

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Cost of Revenues


The following table summarizes our cost of product sales and development revenue
(in thousands):



                                               Three Months Ended June 30,             Six months ended June 30,
                                                2021                 2020              2021                2020
Cost of product sales                      $       11,630$       10,927$      24,128$      24,941
Cost of development revenue                         4,810                1,550             8,757               2,583
Total cost of revenue                      $       16,440$       12,477$      32,885$      27,524




The increase and decrease in our cost of product sales for the three and six
months ended June 30, 2021 as compared to 2020, respectively, is a function of
the product revenue mix in the respective periods. Proprietary products
generally have a lower cost of sales as a percentage of revenue than partnered
product sales.


The increase in our cost of development revenue is attributable to, and consistent with, the significant growth in development revenue from partnered development activities for the three and six months ended June 30, 2021 as compared to the three and six months ended June 30, 2020, as shown in the revenue table above.

Research and Development Expenses


Research and development expenses consist of external costs for clinical studies
and analysis activities, design work and prototype development, FDA application
fees, personnel costs and other general operating expenses associated with our
research and development activities. Research and development expenses were $4.0
million and $2.4 million for the three months ended June 30, 2021 and 2020,
respectively, and $6.7 million and $5.4 million for the six months ended June
30, 2021 and 2020, respectively. Research and development costs were
attributable to our ongoing internal development programs including, but not
limited to, ATRS-1901 and ATRS-1902, and fluctuate based on the respective
phases of development and timing of clinical studies and external development
costs incurred. As discussed above, we submitted an IND application with the FDA
in June 2021 for the initiation of a Phase 1 clinical study of ATRS-1902 for
adrenal crisis rescue.

Selling, General and Administrative Expenses


Selling, general and administrative expenses were $17.7 million and $14.4
million for the three months ended June 30, 2021 and 2020, respectively, and
totaled $35.3 million and $30.9 million for the six months ended June 30, 2021
and 2020, respectively. The increases in selling, general and administrative
expenses for the three and six months ended June 30, 2021 compared to 2020 was
primarily due to an increase in sales and marketing costs, which were down in
2020 due to the Pandemic as the various restrictions and limitations imposed
during the Pandemic lead to decreased spending that has now returned to
pre-Pandemic levels. The increase is also attributable to sales and marketing
costs associated with our new proprietary product NOCDURNA®, which we
in-licensed and began detailing in the fourth quarter of 2020. We also
experienced an increase in general and administrative expenses, primarily
employee compensation, professional services and facility costs, to support the
continued growth of the business.

Income Taxes


We recorded income tax expense of $1.1 million and $1.7 million for the three
and six months ended June 30, 2021, respectively, or 20.8% and 17.4% of earnings
before income taxes. Income tax expense was $0 in 2020, or 0% of our net income
(loss) before taxes, as a result of our full valuation allowance on our deferred
taxes that was released in the fourth quarter of 2020. The effective income tax
rate for the three and six months ended June 30, 2021 reflected a net discrete
income tax benefit related to share-based compensation expense in connection
with stock option exercises and vesting of performance and restricted stock
units, which favorably impacted the effective tax rate by 5.3% for the quarter
and 8.6% year to date.

Liquidity and Capital Resources


At June 30, 2021, we had cash and cash equivalents of $45.1 million. Our
principal liquidity needs are to fund our product manufacturing costs, research
and development activities, sales and marketing and other general operating
expenses, as well as capital expenditures and debt service. We believe that the
combination of our current cash and cash equivalents, projected product sales,
development revenue and royalties will provide us with sufficient funds to meet
our obligations and support operations through at least the next twelve months
from the date of this report.

                                       24
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Long-term Debt Financing


The Company is party to a loan and security agreement, as amended, with Hercules
Capital, Inc. (the "Term Loan"). The amortizing Term Loan is secured by
substantially all of the Company's assets, excluding intellectual property and
accrues interest at a prime-based variable rate with a maximum of 9.5%, which
was 8.5% at June 30, 2021. On June 30, 2021, we made a $15.0 million prepayment
of principal due under the Term Loan along with a 1.0% prepayment fee. The
outstanding principal balance under the Term Loan was $25.0 million and $40.0
million as of June 30, 2021 and December 31, 2020, respectively.

The Term Loan, as amended, provided for payments of interest-only until August
1, 2021 with a maturity date of July 1, 2022, both of which could be extended
contingent upon satisfaction of a certain loan extension milestones and upon
formal request of such extension. In July 2021, we requested, and the lender
granted, the extension of the interest-only period to August 1, 2022 and
maturity date to July 1, 2024 in accordance with the loan and security
agreement, as amended.

The Company is required to pay an end of term fee equal to 4.25% of the first
$25.0 million and 3.95% of all other borrowings under the loan, payable upon the
earlier of July 1, 2022 or full repayment of the loan.

Net Cash Flows from Operating Activities


Operating cash inflows are generated primarily from product sales, license and
development fees and royalties. Operating cash outflows consist principally of
expenditures for manufacturing costs, personnel costs, general and
administrative expenses, research and development activities, and sales and
marketing costs. Fluctuations in cash from operating activities are primarily a
result of the timing of cash receipts and disbursements. Net cash provided by
operating activities was $8.4 million for the six months ended June 30, 2021 as
compared $9.3 million for the six months ended June 30, 2020. The change in the
net cash from operating activities was primarily a result of our net
income(loss) for the period and the changes in operating assets and liabilities
due to timing of cash receipts and cash disbursements, principally driven by our
growth in sales and accounts receivable in 2021.

Net Cash Flows from Investing Activities


Net cash used in investing activities was $2.5 million for the six months ended
June 30, 2021 and was primarily for capital expenditures for our manufacturing
facility. Net cash provided by investing activities for the six months ended
June 30, 2020 was $12.1 million and was comprised of $14.5 million in cash
receipts from maturities of short-term investments offset by capital
expenditures of $2.4 million.

Net Cash Flows from Financing Activities


The net cash flow used in financing activities was $14.0 million for the six
months ended June 30, 2021, and consisted of $3.9 million in proceeds received
from exercises of stock options offset by a $15.0 million prepayment of
principal on our Term Loan and $2.8 million paid to taxing authorities in
connection with net-share settled stock-based awards for which we withheld
shares equivalent to the value of the employees' tax obligation for the
applicable income and other employment taxes. Net cash used in financing
activities for the six months ended June 30, 2020 was $1.0 million, which
included $0.4 million in proceeds from the exercise of stock options offset by
$1.4 million paid to taxing authorities in connection with net-share settled
stock-based awards.

Critical Accounting Policies and Use of Estimates


The preceding discussion and analysis of our results of operations and financial
condition is based upon our consolidated financial statements, which have been
prepared in accordance with GAAP. The preparation of these consolidated
financial statements requires us to make judgments and estimates that affect the
reported amounts of assets, liabilities, revenues and expenses. We base our
estimates on historical experience and on various other factors that we believe
are reasonable under the circumstances. Actual results could differ from our
estimates, and significant variances could materially impact our financial
condition and results of operations.

The accounting policies we believe to be most critical to understanding our
results of operations and financial condition related to revenue recognition and
valuation of deferred tax assets, which are fully described in our Annual Report
on Form 10-K for the year ended December 31, 2020.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, including any arrangements with any structured finance, special purpose or variable interest entities.

                                       25

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