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REVENUE FROM CONTRACTS WITH CUSTOMERS
 12 Months Ended
Dec. 31, 2022
REVENUE FROM CONTRACTS WITH CUSTOMERS  
Revenue from Contracts with Customers

3. REVENUE FROM CONTRACTS WITH CUSTOMERS

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The Company’s revenue to date is from sales of the Company’s products, which are primarily sold to wholesalers (“customers”), which in turn sell the product to pharmacies for the treatment of patients (“end users”).

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Revenue Recognition

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The Company recognizes revenue when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements with a customer, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

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The Company expenses incremental costs of obtaining a contract as and when incurred if the expected amortization period of the assets is one year or less.

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Performance Obligations

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The Company determined that performance obligations are satisfied, and revenue is recognized when a customer takes control of the Company’s product, which occurs at a point in time. This generally occurs upon delivery of the products to customers, at which point the Company recognizes revenue and records accounts receivable. Payment is typically received 30 to 90 days after satisfaction of the Company’s performance obligations.

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Transaction Price and Variable Consideration

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Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products or services to a customer (“transaction price”). The transaction price for product sales includes variable consideration related to sales deductions, including (1) rebates and incentives, including managed care rebates, government rebates, co-pay program incentives, and sales incentives and allowances; (2) product returns, including return estimates; and, (3) trade allowances and chargebacks, including fees for distribution service fees, prompt pay discounts, and chargebacks. The Company will estimate the amount of variable consideration that should be included in the transaction price under the expected value method for all sales deductions other than trade allowances, which are estimated under the most likely amount method. These provisions reflect the expected amount of consideration to which the Company is entitled based on the terms of the contract. In addition, the Company made a policy election to exclude from the measurement of the transaction price all taxes that are assessed by a governmental authority that are imposed on revenue-producing transactions.

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The Company bases its estimates of variable consideration, which could include estimates of future rebates, returns, and other adjustments, on historical data and other information. Estimates include: (i) timing of the rebates and returns incurred, (ii) pricing adjustments related to rebates and returns, and (iii) the quantity of product that will be rebated or returned in the future. Significant judgment is used in determining the appropriateness of these assumptions at each reporting period.

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Provisions for rebates and incentives are based on the estimated amount of rebates and incentives to be claimed on the related sales. As the Company’s rebates and incentives are based on products dispensed to patients, the Company is required to estimate the expected value of claims at the time of product delivery to wholesalers. Given that wholesalers sell the product to pharmacies, which in turn dispense the product to patients, claims can be submitted significantly after the related sales are recognized. The Company’s estimates of these claims are based on the historical experience of existing or similar programs, including current contractual and statutory requirements, specific known market events and trends, industry data, and estimated distribution channel inventory levels. Accruals and related reserves required for rebates and incentives are adjusted as new information becomes available, including actual claims. If actual results vary, the Company may need to adjust future estimates, which could have an effect on earnings in the period of the adjustment.

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Provisions for trade allowances and chargebacks are primarily based on customer-level contractual terms. Accruals and related reserves are adjusted as new information becomes available, which generally consists of actual trade allowances and chargebacks processed relating to sales recognized.

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Provisions for product returns, including returns for Xtampza, the Nucynta Products, Belbuca and Symproic, are based on product-level returns rates, including processed as well as unprocessed return claims, in addition to relevant market events and other factors. Estimates of the future product returns are made at the time of revenue recognition to determine the amount of consideration to which the Company expects to be entitled (that is, excluding the products expected to be returned). At the end of each reporting period, the Company analyzes trends in returns rates and updates its assessment of variable consideration for returns to represent faithfully the circumstances present at the end of the reporting period and the changes in circumstances during the reporting period. To the extent the Company receives amounts in excess of what it expects to be entitled to receive due to a product return, the Company does not recognize revenue when it transfers products to customers but instead recognizes those excess amounts received as a refund liability. The Company updates the measurement of the refund liability at the end of each reporting period for changes in expectations about the amount of refunds with the corresponding adjustments recognized as revenue (or reductions of revenue).

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The Company provides the right of return to its customers for an 18-month window beginning six months prior to expiration and up until twelve months after expiration. The Company’s customers short-pay an existing invoice upon notice of a product return claim. Adjustments to the preliminary short-paid claims are processed when the return claim is validated and finalized. The Company’s return policy requires that product is returned and that the return is claimed within the 18-month window.

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2021 Returns Adjustment

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Prior to the year ended December, 31, 2021, estimates of the refund liability for Xtampza product returns were based on a combination of a limited amount of historical actual returns processed to date, taking into consideration the expiration date of product upon delivery to customers, as well as forecasted customer buying and return patterns, channel inventory levels, and other specifically known market events and trends. Sales of Xtampza increased significantly starting in 2018; as a result, the majority of Xtampza sold to customers by the Company had not been eligible for return until the year ended December 31, 2021, or beyond. For the Nucynta Products, estimates of the refund liability for product returns were based on historical returns rates as these products have been commercially sold in the U.S. since 2009 for Nucynta IR and since 2011 for Nucynta ER. Because the Company began selling the Nucynta Products in 2018, most of the Nucynta Products sold to customers by the Company were not eligible for return until the year ended December 31, 2021, or beyond.

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During the year ended December 31, 2021, there were unprecedented and significant disruptions in the processing of product returns. Specifically, the Company’s customers, via the third-party returns processor that they and many pharmacies engage to process the majority of the Company’s product returns, failed to return products to the Company in the ordinary course. The value of actual returned product during the year ended December 31, 2021 represented less than 20% of the value of the product returns claimed during that period. Due to the failure of the customers and their vendor to return product timely in the ordinary course, the Company did not physically receive returned products corresponding to the substantial majority of the returns claimed and could not validate or finalize customer return claims, nor determine if the return was or would be eligible for refund upon the physical return. The lack of timely processing of requested product returns obscures information related to the validation of product returns and increases uncertainty related to the actual volume of product that will be physically returned and credited in accordance with the Company’s returns policy.

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During the fourth quarter of 2021, after significant and sustained efforts with customers to resolve the unprocessed return claims, the Company formally denied a significant portion of these claims under the Company’s return policy. The Company subsequently received payment for only a portion of the denied claims and vigorously pursued collections of the full amount of these short-pay receivables. As a result of discussions with customers related to unprocessed return claims and the uncertainty associated with the ultimate resolution, as well as the impact of unprocessed claims on estimates of future returns, the Company recorded an adjustment to reduce product revenue, net of $38,329, with offsetting reductions in accounts receivable or increases in the refund liability for future product returns.

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At the end of each reporting period, the Company updates the estimated transaction price (including updating its assessment of whether an estimate of variable consideration is constrained) to represent faithfully the circumstances present at the end of the reporting period and the changes in circumstances during the reporting period. Variable consideration, including the risk of customer concessions, is included in the transaction price only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty is subsequently resolved. In particular, resolution of the unprocessed return claims includes the risk of concession for those that are outside of the Company’s return policy.

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During the year ended December 31, 2022, the Company revised its estimate of variable consideration associated with unprocessed returns claims that arose in prior periods due to the receipt of payment and settlement, which resulted in an increase to product revenues, net of $4,684. During the year ended December 31, 2021, the Company’s adjustment was a $26,644 reduction in product revenues.

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Significant judgment is required to determine the variable consideration included in the transaction price as described above. Adjustments to the estimated variable consideration included in the transaction price occurs when new information indicates that the estimate should be revised. If the value of accepted and processed claims is different than the amount estimated and included in variable consideration, then adjustments would impact product revenues, net and earnings in the period such revisions become known. The amount of variable consideration ultimately received and included in the transaction price may materially differ from the Company’s estimates, resulting in additional adjustments recorded to increase or decrease product revenues, net.

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The following table summarizes activity in each of the Company’s product revenue provision and allowance categories for the years ended December 31, 2022, 2021, and 2020, respectively:

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​

​

​

​

​

​

​

​

​

​

​

    

​

​

​

    

Trade

​

​

Rebates and

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Product

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Allowances and

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Incentives (1)

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Returns (2)

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Chargebacks (3)

Balance at December 31, 2019

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$

129,901

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$

27,648

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$

14,020

Provision related to current period sales

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​

326,280

​

​

10,900

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​

75,554

Changes in estimate related to prior period sales

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​

(539)

​

​

—

​

​

(403)

Credits/payments made

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​

(322,867)

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​

(14,769)

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​

(70,116)

Balance at December 31, 2020

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$

132,775

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$

23,779

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$

19,055

Provision related to current period sales

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​

378,694

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​

27,229

​

​

84,470

Changes in estimate related to prior period sales

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​

1,121

​

​

8,763

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​

4

Credits/payments made

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​

(370,211)

​

​

(5,154)

​

​

(90,303)

Balance at December 31, 2021

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$

142,379

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$

54,617

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$

13,226

Acquired from BDSI

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​

38,074

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​

18,187

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​

7,575

Provision related to current period sales

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​

497,250

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​

38,250

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​

132,547

Changes in estimate related to prior period sales

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​

(619)

​

​

2,505

​

​

(592)

Credits/payments made

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​

(520,147)

​

​

(40,005)

​

​

(130,698)

Balance at December 31, 2022

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$

156,937

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$

73,554

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$

22,058

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(1)Provisions for rebates and incentives includes managed care rebates, government rebates and co-pay program incentives. Provisions for rebates and incentives are deducted from gross revenues at the time revenues are recognized and are included in accrued rebates, returns and discounts in the Company’s Consolidated Balance Sheets.
(2)Provisions for product returns are deducted from gross revenues at the time revenues are recognized and are included in accrued rebates, returns and discounts in the Company’s Consolidated Balance Sheets.
(3)Provisions for trade allowances and chargebacks include fees for distribution service fees, prompt pay discounts, and chargebacks. Trade allowances and chargebacks are deducted from gross revenue at the time revenues are recognized and are recorded as a reduction to accounts receivable in the Company’s Consolidated Balance Sheets.

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As of December 31, 2022, the Company did not have any transaction price allocated to remaining performance obligations and any costs to obtain contracts with customers, including pre-contract costs and set up costs, were immaterial.

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Disaggregation of Revenue

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The Company discloses disaggregated revenue from contracts with customers into categories that depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. As such, the Company disaggregates its product revenues, net from contracts with customers by product, as disclosed in the table below.

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Years Ended December 31,

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2022

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2021

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2020

Belbuca

$

126,461

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$

—

​

$

—

Xtampza ER

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138,804

    

​

103,708

    

​

127,984

Nucynta IR

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112,058

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​

102,222

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​

116,318

Nucynta ER

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72,418

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​

70,938

​

​

65,714

Symproic

​

12,267

​

​

—

​

​

—

Other

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1,925

​

​

—

​

​

—

Total product revenues, net

$

463,933

​

$

276,868

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$

310,016

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The Company began recognizing revenue from net product sales of Belbuca, Symproic, and Elyxyb following the Acquisition Date as defined in Note 4, Acquisitions.