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ANTARES PHARMA, INC.

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

05/10/2022 | 05:30pm EDT
Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") is designed to provide a reader of our financial statements
with a narrative from the perspective of management on our financial condition,
results of operations, liquidity and certain other factors that may affect our
future results. Our MD&A is presented in six sections.

•Forward-Looking Statements
•Company Overview
•Results of Operations
•Liquidity and Capital Resources
•Critical Accounting Policies and Use of Estimates
•Off-Balance Sheet Arrangements

Our MD&A, the purpose of which is to provide investors and others with
information that we believe to be necessary for understanding our financial
condition, changes in financial condition and results of operations, should be
read in conjunction with the condensed consolidated financial statements and
related condensed footnotes included in Item 1 of Part I of this Quarterly
Report on Form 10-Q. The terms "Antares," "we," "our," "us" or the "Company" in
this Quarterly Report on Form 10-Q, unless the context otherwise requires, refer
to Antares Pharma, Inc. and its wholly owned subsidiaries.

Forward-Looking Statements


This report contains "forward-looking statements" within the meaning of Section
27A of the Securities Act of 1933, as amended, Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") that are subject to risks
and uncertainties. Undue reliance should not be placed on those statements
because they are subject to numerous uncertainties and factors relating to our
operations and business environment, all of which are difficult to predict and
many of which are beyond our control. These statements can be identified by the
fact that they do not relate strictly to historical or current facts. Such
statements may include words such as "anticipate," "will," "estimate," "expect,"
"project," "intend," "should," "plan," "believe," "hope," "may," "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, our commercial operations 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 commercialization of XYOSTED® (testosterone enanthate) injection and the continued growth in prescriptions and revenues related thereto;


•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 manufacturing and commercialization of TLANDO®
in the U.S. under a licensing agreement with Lipocine Inc. ("Lipocine"), and
future sales and revenue from the same;

•our expectations regarding whether we will exercise the option for LPCN 1111
("TLANDO XR") and, if exercised, the future timing and success of the clinical
development program for TLANDO XR and future FDA approval, market acceptance and
revenue from the same;

•our expectations regarding future sales of OTREXUP® (methotrexate) injection to
Otter Pharmaceuticals, LLC (a wholly owned subsidiary of Assertio Holdings,
Inc., together with Assertio Holdings, Inc., as guarantor, individually and
collectively referred to as "Otter"), as well as the ability of Otter to pay
remaining installment payments of the purchase price;

•our expectations regarding the ability of our partner, Teva Pharmaceutical
Industries, Ltd. ("Teva"), to continue to commercialize Epinephrine Injection
USP, the generic equivalent version of EpiPen® ("generic epinephrine
injection"), and any future revenue related thereto;
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•our expectations regarding the ability of Covis Group S.a.r.l. ("CG"), who
acquired AMAG Pharmaceuticals, Inc. ("AMAG") (collectively CG and AMAG are
herein after referred to as "Covis") in November 2020, to continue to
commercialize Makena® (hydroxyprogesterone caproate injection) and our continued
future sales to Covis and royalty revenue from the same, in light of the U.S.
Food and Drug Administration's ("FDA") proposal to withdraw approval of Makena®,
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, and Teva's ability to distribute and sell Sumatriptan Injection
USP;

•our expectations regarding continued product development with Teva of the
teriparatide disposable pen injector, Teva's ability to obtain FDA approval and
AB-rating for the product, 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 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 and external research and development
projects, including but not limited to ATRS-1901 and ATRS-1903, 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;

•our expectations about our future revenues, 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;

•uncertainties as to the timing of the completion of the cash tender offer (the
"Offer") by Atlas Merger Sub, Inc., a Delaware corporation ("Atlas"), a wholly
owned subsidiary of Halozyme Therapeutics, Inc., a Delaware corporation
("Halozyme"), and the subsequent merger of Atlas with and into the Company, with
the Company surviving as a wholly owned subsidiary of Halozyme;

•risks related to the satisfaction or waiver of the conditions to closing the
proposed acquisition of the Company by Halozyme (including the failure to obtain
necessary regulatory clearance) in the anticipated timeframe or at all;

•uncertainties as to how many of the Company's stockholders will tender their
shares of the Company's common stock in the Offer and the possibility that the
acquisition does not close;

•the possibility that competing offers may be made;

•risks related to the timing (including possible delays) and receipt of clearance or expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), as amended, in connection with the transaction with Halozyme;

•disruption from the transaction with Halozyme making it more difficult to maintain business and operational relationships;

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•significant transaction costs;

•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
considering 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
quarterly 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 quarterly 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;

•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 commercial capabilities, our inability
to effectively market our services or obtain and maintain arrangements with our
customers, partners and manufacturers;

•our inability to attract and retain key personnel;

•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; and

•adverse economic and political conditions.


The performance of our business and our securities may be adversely affected by
these factors and by other factors common to other businesses or to the general
economy. Forward-looking statements speak only as of the date on which such
statements are made. Actual results could differ materially from those currently
anticipated as a result of a number of risk factors, including, but not limited
to, the risks and uncertainties discussed in Item 1A of Part II of our Annual
Report on Form 10-K for the year ended December 31, 2021 and Item 1A of Part II
of this Quarterly Report on Form 10-Q.

New risks and uncertainties emerge from time to time, and it is impossible for
us to predict these events or how they may affect us. Forward-looking statements
are qualified by some or all of these risk factors; therefore, you should
consider these forward-looking statements with caution and form your own
critical and independent conclusions about the likely effect of these risk
factors on our future performance. We undertake no obligation to update or
revise any forward-looking statements included in this quarterly report to
reflect events or circumstances after the date on which such statement is made,
except as required by law. In light of these risks and significant
uncertainties, you should not regard the forward-looking statements in this
annual report as a representation or warranty by us or any other person that we
will achieve our objectives and plans in any specified timeframe, if at all. You
should carefully review the disclosures and the risk factors described in Item
1A of Part II of our Annual Report on Form 10-K for the year ended December 31,
2021, Item 1A of Part II of this Quarterly Report on Form 10-Q and in other
documents we file from time to time with the Securities and Exchange Commission
("SEC"), including Current Reports on Form 8-K.
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Company Overview


Antares Pharma, Inc. is a specialty pharmaceutical company focused primarily on
the development and commercialization of pharmaceutical products and
technologies that address patient 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 partnership arrangements with several different
industry leading pharmaceutical companies.

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.

We market and sell NOCDURNA® (desmopressin acetate) indicated for the treatment
of nocturia due to nocturnal polyuria ("NP") in adults who awaken at least two
times per night to urinate in the U.S. under an exclusive license agreement
entered into in October 2020 with Ferring. We began detailing NOCDURNA® with a
soft launch in the fourth quarter of 2020 and executed a reintroduction of the
product in 2021 through a comprehensive re-launch strategy to increase awareness
and demand.

In October 2021, we entered into an exclusive license agreement (the "TLANDO®
License Agreement") with Lipocine for the product TLANDO® (testosterone
undecanoate) in the U.S., a twice-daily oral formulation of testosterone for
testosterone replacement therapy indicated for conditions associated with a
deficiency or absence of endogenous testosterone, or hypogonadism in adult
males. TLANDO® was granted FDA approval on March 28, 2022 with commercialization
anticipated in the second quarter of 2022. Under the terms of the TLANDO®
License Agreement, we paid Lipocine an upfront payment of $11.0 million.
Lipocine is eligible for additional milestone payments up to $10.0 million and
tiered royalty and commercial milestones based on net sales of TLANDO® in the
U.S. We are responsible for the manufacturing and commercialization of TLANDO®.

The TLANDO® License Agreement also granted us the option to license and develop
LPCN 1111 (TLANDO XR) in the U.S., a potential once daily oral testosterone
product containing testosterone tridecanoate in development for the treatment of
hypogonadism in adult males. If elected, upon exercise of the option, we will be
required to pay an additional $4.0 million in license fees in two installments
and will be responsible for additional development and commercial milestone
payments as well as tiered royalties on net sales of TLANDO XR in the U.S. In
addition, we will be responsible for completing the development program
including the conduct of a Phase 3 clinical trial and applying for regulatory
approval in the U.S. In April 2022, the TLANDO® License Agreement was amended
(the "TLANDO® First Amendment") and $0.5 million of the $4.0 million was paid to
Lipocine to extend the deadline in which we have to exercise the option to
license and develop TLANDO XR.

In December 2021, we sold certain assets used in the operation of the OTREXUP®
product under an asset purchase agreement with Otter for $44.0 million, subject
to finalization of changes in closing inventory to be transferred, with $18.0
million received at closing and an additional $26.0 million to be paid in
installments over a one-year period. Prior to the asset sale, we marketed and
sold OTREXUP® (methotrexate) injection, 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, as a proprietary product in the U.S. In
conjunction with the asset sale, we entered into a supply agreement with Otter
to manufacture the VIBEX® auto-injection system device at cost plus mark-up.
Otter is responsible for manufacturing, formulation and testing of methotrexate
and the corresponding prefilled syringe for assembly with the device
manufactured by us, along with the commercialization and distribution of
OTREXUP®.

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. 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.
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We are the exclusive supplier of the device, a variation of our
VIBEX® QuickShot® subcutaneous auto injector developed by us, for the 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. As the exclusive supplier,
we perform final assembly and packaging of the commercial product and receive
royalties on Covis' net sales of the product. In October 2020, following an FDA
advisory committee meeting, Covis received notice that the FDA is proposing to
withdraw approval of Makena® (hydroxyprogesterone caproate injection). Covis
formally requested a public hearing in response to the FDA's proposal to
withdraw its approval. In April 2022, the FDA granted Covis a virtual public
hearing to be scheduled in September or October 2022. Covis 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 developing with Teva a multi-dose pen for a generic form of Forteo®
(teriparatide rDNA origin injection) for the treatment of osteoporosis, and were
developing another multi-dose pen for a generic form of BYETTA® (exenatide
injection) for the treatment of type 2 diabetes. On February 25, 2022, Teva
notified us that it was terminating the exenatide program and related agreement
due to a lack of commercial viability. The termination is effective August 23,
2022. Teva continues to work through the U.S. regulatory process with the FDA
for teriparatide using the ANDA pathway. In 2020, Teva launched Teriparatide
Injection ("teriparatide"), the generic version of Eli Lilly's branded product
Forsteo® featuring the Antares multi-dose pen used platform in several countries
outside the U.S. We are 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. In 2021, we continued
to work on this development program, and we expect to continue development of
this product candidate.

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 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 we will
provide fully assembled and labelled product to Idorsia at cost plus mark-up.
Idorsia will then be responsible for global commercialization of the product,
pending FDA or foreign approval. We will be entitled to receive royalties on net
sales of the commercial product. In June 2021, Idorsia announced it initiated
its Phase 3 registration study to evaluate the efficacy and safety of
self-administered subcutaneous selatogrel. The study will enroll approximately
14,000 patients who are at high risk of recurrent AMI, at approximately 250
sites in approximately 30 countries.

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.

We have initiated development of a proprietary drug device combination product
for the urology oncology market, identified as ATRS-1901, and 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.

We have identified a program to develop a proprietary drug device combination
product for the endocrinology market, an adrenal crisis pen, identified as
ATRS-1902. The 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 a
liquid stable formulation of hydrocortisone. We conducted initial formulation
work and developed a working prototype of a new device to support this 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 July 2021, the FDA accepted our IND for ATRS-1902 enabling us to initiate our
Phase 1 clinical study. In January 2022, we announced the positive results from
the Phase 1 clinical study and were granted Fast Track designation by the FDA.
The positive results support the advancement of our ATRS-1902 development
program to a pivotal clinical study using our Vai™ novel proprietary rescue pen
platform to deliver a liquid stable formulation of hydrocortisone. We anticipate
starting this pivotal clinical study in the second quarter of 2022 and expect to
submit a 505(b)(2) NDA with the FDA by the end of 2022 pending the success of
the pivotal clinical study.
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We have initiated development of a proprietary drug device combination product
utilizing our rescue pen technology for a rare immunology disorder, identified
as ATRS-1903. Formulation development work has been conducted and we anticipate
progressing this towards initial clinical testing to evaluate PK and
tolerability in human subjects.

Merger Agreement


On April 12, 2022, we entered into an Agreement and Plan of Merger (the "Merger
Agreement") under which Halozyme and Atlas will acquire all of the outstanding
common stock of Antares Pharma, Inc. for $5.60 per share in cash (the "Offer
Price"), without interest and subject to any withholding of taxes required by
applicable legal requirements. Under the terms of the Merger Agreement, Halozyme
commenced an Offer to acquire all of the outstanding shares of Antares on April
26, 2022. The closing of the Offer will be subject to certain conditions,
including the tender of shares representing at least a majority of the total
number of Antares outstanding shares of common stock, the expiration or
termination of the HSR waiting period, and other customary closing conditions.
Following the successful completion of the Offer, Halozyme will acquire all
remaining shares not tendered in the tender offer through a second-step merger
at the same price. The acquisition is expected to close in the first half 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 U.S. On March 11,
2020, the World Health Organization declared the outbreak a Pandemic and on
March 13, 2020, the U.S. declared a national emergency with respect to the
outbreak. The Pandemic has impacted global economic activity and led 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 actively manage and help minimize the impact
of the ongoing Pandemic on our business. We have implemented safety measures and
protocols to protect the health and safety of our employees and comply with
governmental and public health guidelines while working to ensure the
sustainability of our business operations and continuity of product supply. We
continue to monitor the situation, including COVID-19 variants, and potential
effects on our business, suppliers, partners and workforce.

We have implemented a hybrid work environment with the ability to shift remote
as necessary to limit the number of individuals in our facilities to those
necessary for essential functions such as research, development, manufacturing
and supply. While our field-based team has resumed in-person interaction with
fewer restrictions, we believe we are also well-positioned with our virtual
capabilities to continue to engage healthcare professionals and patients through
the ongoing Pandemic and beyond. Although, we have not experienced significant
delays or disruption in our development programs or significant demand
reductions for our partnered products due to the Pandemic, we continue to
monitor the situation, including COVID-19 variants, for potential effects on our
or our partners' clinical trials or delays or disruptions in activities with the
FDA.

Although, we have taken measures to help minimize the potential impact of the
Pandemic on our business, given the fluidity of the Pandemic and other
macroeconomic factors, we are unable to estimate the impact the Pandemic has had
on our operations or cash flows as of the date of this filing. We also believe
there continues to be uncertainty around the timing and duration of any
potential future disruptions due to the COVID-19 variants and the magnitude of
any potential impact. As a result, we are unable to estimate the potential
impact on future operations or cash flows as of the date of this filing. For
more information on these risks see Item 1A of Part I of our Annual Report on
Form 10-K for the year ended December 31, 2021 as filed with the Securities and
Exchange Commission.

Results of Operations

The following is an analysis and discussion of our operations for the three
months ended March 31, 2022 as compared to the same period in 2021. Operating
results for the three months ended March 31, 2022 are not necessarily indicative
of the results that may be expected for the full year ending December 31, 2022.
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Revenue, Net


We generate revenue from proprietary and partnered product sales, license and
development activities and royalty arrangements. The following table provides
details about the components and drivers of our overall revenue growth:

                                             Three Months Ended
                                                 March 31,                             Increased / (Decreased)
(in thousands)                           2022                  2021                   $                      %

Proprietary product sales, net $ 17,276 $ 18,732

   $      (1,456)                  (7.8) %
Partnered product sales                   14,827               10,403                  4,424                   42.5  %
Total product revenue, net                32,103               29,135                  2,968                   10.2  %
Licensing and development revenue          4,191                4,984                   (793)                 (15.9) %
Royalties                                  5,263                7,964                 (2,701)                 (33.9) %
Total revenue, net                  $     41,557          $    42,083          $        (526)                  (1.2) %


Product Revenue, Net

Net revenue from product sales for the three months ended March 31, 2022
increased 10.2% over the same period in the prior year primarily driven by
higher shipments of sumatriptan, epinephrine and teriparatide auto injectors to
Teva and an increase in XYOSTED® proprietary product sales. The overall increase
was partially offset by a reduction in OTREXUP® proprietary sales due to the
sale of the OTREXUP® product line to Otter in December 2021.

Sales of our proprietary products XYOSTED® and NOCDURNA® (and OTREXUP® during
the three months ended March 31, 2021) are presented net of estimated product
returns and sales allowances. FDA approval was granted on March 28, 2022 to
commercialize TLANDO® with no sales transacted in the three months ended March
31, 2022 prior to timing of the approval. The decreases in proprietary product
sales of 7.8% for the three months ended March 31, 2022 was primarily
attributable to a reduction in OTREXUP® proprietary sales due to the sale of the
OTREXUP® product line to Otter in December 2021 which is now commercialized by
Otter, partially offset by continued growth in prescriptions and sales of
XYOSTED® and NOCDURNA®.

We also manufacture and sell devices, components and fully assembled and packaged product to our partners. Partnered product sales increased 42.5% for the three months ended March 31, 2022 primarily due to higher shipments of sumatriptan, epinephrine and teriparatide auto injectors to Teva.

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 decreased 15.9% for the three months ended March 31, 2022 primarily as a
result of fluctuations in timing of the various stages and phases of development
activities, along with a decline in development activities with Pfizer.

Royalties


Royalty revenue decreased 33.9% for the three months ended March 31, 2022,
principally driven by a reduction in royalties from Teva on its net sales of
generic EpiPens®, partially offset by higher royalties from Covis on its net
sales of Makena®.
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Cost of Revenue


The following table summarizes our cost of product sales and development
revenue:

                                                       Three Months Ended
                                                           March 31,                             Increased / (Decreased)
(in thousands)                                     2022                  2021                   $                      %
Cost of product sales                         $     15,648          $    12,498          $       3,150                   25.2  %
Cost of development revenue                          3,119                3,947                   (828)                 (21.0) %
Total cost of revenue                         $     18,767          $    16,445          $       2,322                   14.1  %


Fluctuations in cost of product sales is generally a function of the product
revenue mix. Proprietary products generally have a lower cost of sales as a
percentage of revenue than partnered product sales. Accordingly, as partner
sales increased and proprietary sales decreased in the comparative period, the
relative total cost of product sales for the three months ended March 31, 2022
increased.

Cost of development revenue decreased 21.0% for the three months ended March 31,
2022 primarily due to, and consistent with, the quarter over quarter decline in
development revenue from partnered development activities as shown in the
revenue table above.

Research and Development Expenses


Research and development ("R&D") expenses consist of external costs for clinical
studies and analysis activities, formulation development, engineering design
work and prototype development, FDA application fees, personnel costs and other
general operating expenses associated with our R&D activities.

                                                      Three Months Ended
                                                           March 31,                              Increased / (Decreased)
(in thousands)                                     2022                   2021                   $                      %
Research and development                    $      5,008             $     2,640          $       2,368                   89.7  %


R&D expenses increased 89.7% for the three months ended March 31, 2022 primarily
due to higher employee compensation expense, increased clinical development
activities for our ongoing internal development programs including, but not
limited to, ATRS-1901 and ATRS-1902, and higher fees for professional services.
Overall, R&D expense fluctuates based on phases of development and timing of
clinical studies, including internal and external development costs incurred.

Selling, General and Administrative Expenses


                                              Three Months Ended
                                                  March 31,                             Increased / (Decreased)
(in thousands)                            2022                  2021                   $                      %

Selling, general and administrative $ 20,602 $ 17,607

     $       2,995                   17.0  %


Selling, general and administrative expenses increased 17.0% for the three
months ended March 31, 2022 primarily driven by increased sales and marketing
activities for XYOSTED® and NOCDURNA® and higher employee compensation expense
due to the hiring of additional sales force and pre-launch costs in preparation
for the launch of TLANDO® in the second quarter of 2022, partially offset by the
elimination of sales and marketing costs related to the OTREXUP® product line
which was sold to Otter in December 2021. General and administrative expenses
also increased primarily due to higher employee compensation expense and legal
fees.
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Income Tax Expense (Benefit)

                                               Three Months Ended
                                                    March 31,                               Increased / (Decreased)
(in thousands)                            2022                      2021                   $                       %
Income tax expense (benefit)        $       (817)              $       590          $      (1,407)                 (238.5) %
Effective tax rate                          26.0   %                  13.5  %


An income tax benefit was recorded in the three months ended March 31, 2022 due
to the recognition of a $3.1 million loss before income taxes. The effective tax
rate for the three months ended March 31, 2022 is primarily driven by the
federal and state tax rates, along with discrete income tax items for
compensation expense in connection with stock option exercises and vesting of
performance stock units during the first quarter of 2022, which favorably
impacted the effective tax rate by 1.1%. Income tax expense recorded for the
three months ended March 31, 2021 was driven by the generation of income before
income taxes of $4.4 million. The effective income tax rate for the three months
ended March 31, 2021 reflects a net discrete income tax benefit related to
share-based compensation expense in connection with stock option exercises and
vesting of performance stock units during the first quarter of 2021, which
favorably impacted the effective tax rate by 12.5%.

Net Income (Loss) and Earnings (Loss) Per Common Share


                                             Three Months Ended
(in thousands, except per share                  March 31,                             Increased / (Decreased)
amounts)                                 2022                  2021                   $                       %
Net income (loss)                   $     (2,321)         $     3,793          $      (6,114)                 (161.2) %
Earnings (loss) per common share
Basic                               $      (0.01)         $      0.02          $       (0.03)                 (150.0) %
Dilutive                            $      (0.01)         $      0.02          $       (0.03)                 (150.0) %

Liquidity and Capital Resources


As of March 31, 2022, we had cash and cash equivalents of $61.7 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, including debt maturities, and support operations through at
least the next twelve months from the date of this report. We had an accumulated
deficit as of March 31, 2022 of $178.7 million.

If additional capital is needed to support our operations in the future, we may
need to raise additional funds through financing, such as drawing on our current
credit facility or issuance of additional debt. However, we may be unable to
obtain such financing, or obtain it on favorable terms, in which case we may be
required to curtail development of new products, limit expansion of operations
or accept financing terms that are not as attractive as we may desire.

Long-term Debt Financing


On November 1, 2021, we entered into a Credit Agreement (the "Credit Agreement")
with Wells Fargo Bank, National Association, as administrative agent for the
lenders, ("Administrative Agent") for credit facilities in an aggregate
principal amount of up to $40.0 million with a maturity date of November 1,
2024. The Credit Agreement consists of a $20.0 million term loan facility (the
"Term Loan Facility") and a $20.0 million revolving credit facility, $5.0
million of which is available for the issuance of letters of credit and $1.0
million of which is available for swingline loans (the "Revolving Credit
Facility"), (collectively the "Credit Facilities"), which are secured by
substantially all of our assets. The Term Loan Facility was funded upon
execution of the Credit Agreement with the proceeds used to repay our $20.0
million Term Loan with Hercules Capital, Inc. and to pay fees and expenses
incurred in connection with the early repayment.
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The Revolving Credit Facility remains available for future use and is expected
to be used for ongoing working capital requirements and other general corporate
purposes as needed. Payments under the Term Loan Facility are due in consecutive
quarterly installments on the last business day of each of March, June,
September and December, commencing on March 31, 2022. Interest accrues at either
the base rate or LIBOR plus the applicable margin, which varies based on our
consolidated total leverage ratio and will initially be 1.50% for base rate
loans and 2.50% for LIBOR loans. The transaction is expected to provide
approximately $1.2 million in annual interest expense savings based on an
interest rate of 2.59% (one-month LIBOR rate plus the applicable margin of
2.50%) as of November 1, 2021.

As of March 31, 2022 and December 31, 2021, we had $19.6 million and $20.0
million outstanding under our Term Loan Facility with a $0.4 million principal
payment made on March 31, 2022, and the Revolving Credit Facility remains
available for future use. The weighted average interest rate on the Term Loan
Facility outstanding balance during the three months ended March 31, 2022 was
approximately 2.65%.

Cash Flow Comparison

The following table summarizes our cash flows from total operations:


                                                       Three Months Ended
                                                           March 31,
(in thousands)                                         2022           2021
Total cash provided by (used in):
Operating activities                               $   (4,881)     $  1,978
Investing activities                                      666        

(1,184)

Financing activities                                       17         1,722
Effect of exchange rate changes on cash                     -            

(1)

Increase (decrease) in cash and cash equivalents (4,198) 2,515 Cash and cash equivalents, beginning of period 65,913 53,137 Cash and cash equivalents, end of period

           $   61,715      $ 55,652


Operating Activities


Operating cash inflows are generated primarily from net 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.

The change in the net cash from operating activities was primarily a result of
the decrease in our net income to a net loss, excluding non-cash activity, and
changes in operating assets and liabilities due to timing of cash receipts and
cash disbursements, principally driven by a reduction in accrued liabilities,
partially offset by an increase in accounts payable, slight decline in deferred
revenue and a reduction in contract assets.

Investing Activities


Net cash provided by investing activities for the three months ended March 31,
2022 consisted of proceeds from maturities of investment securities of $1.0
million, partially offset by purchases of investment securities of $0.2 million
and capital expenditures of $0.1 million. Net cash used in investing activities
for the three months ended March 31, 2021 was primarily for capital expenditures
related to our manufacturing facility.

Financing Activities


Net cash used in financing activities for the three months ended March 31, 2022
consisted of $0.5 million paid to taxing authorities in connection with
net-share settled share-based awards for which we withheld shares equivalent to
the value of the employee's tax obligation for the applicable income and other
employment taxes and $0.4 million in principal payments on our Term Loan, offset
by $0.9 million in proceeds received from exercises of stock options. Net cash
provided by financing activities for the three months ended March 31, 2021
included $3.3 million in proceeds from the exercise of stock options, partially
offset by $1.6 million paid to taxing authorities in connection with net-share
settled stock-based awards.
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Critical Accounting Estimates


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

There have been no material changes to the critical accounting estimates we believe to be most critical to understanding our results of operations and financial condition which are fully described in our Annual Report on Form 10-K for the year ended December 31, 2021.

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