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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

___________________________________________

FORM 10-K

___________________________________________

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

For the fiscal year ended December 31, ~~2019~~2020

¨☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


			For the transition period from to

Commission File Number: 000-19756

___________________________________________

PDL BioPharma, Inc.

(Exact name of registrant as specified in its charter)

___________________________________________


Delaware			94-3023969
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

~~932~~59 ~~Southwood~~Damonte ~~Boulevard~~Ranch Parkway, Suite B-375

~~Incline Village~~Reno, Nevada ~~89451~~89521

(Address of principal executive offices)

Registrant’s telephone number, including area code

(775) 832-8500

932 Southwood Boulevard

Incline Village, Nevada 89451

(Former Address)

___________________________________________

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

Title of Class	Trading Symbol	Name of Exchange on which Registered
Common Stock, par value $0.01 per share	PDLI	The Nasdaq Stock Market LLC


Title of Class	Trading Symbol	Name of Exchange on which Registered
None	N/A	N/A

Securities registered pursuant to Section 12(g) of the Act: None

___________________________________________

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý No ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No ý

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ý No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer ¨

~~Accelerated filer ý~~

Accelerated filer ¨

Non-accelerated filer ¨

Smaller reporting company ¨

Non-accelerated filer ý

Smaller reporting company ☒

Emerging growth company ¨

Emerging growth company ☐

If an emerging growth company, indicated by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ¨

Indicate by check mark whether the registrant has filed a report and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ¨

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

The aggregate market value of shares of common stock held by non-affiliates of the registrant, based on the closing sale price of a share of common stock on June 2830, ~~2019~~2020 (the last business day of the registrant’s most recently completed second fiscal quarter), as reported on the Nasdaq Global Select Market, was $~~354~~291,~~547~~544,~~520~~988.

As of ~~February 28~~January 6, ~~2020~~2021, the registrant had outstanding ~~123~~114,~~591~~515,~~824~~806 shares of common stock.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s proxy statement to be delivered to stockholders with respect to the registrant’s 2020 Annual Meeting of Stockholders to be filed by the registrant with the U.S. Securities and Exchange Commission are incorporated by reference into Part III of this Annual Report on Form 10-K. The registrant intends to file its proxy statement within 120 days after its fiscal year end.

PDL BIOPHARMA, INC.

~~2019~~2020 Form 10-K Annual Report

Table of Contents

PART I
Item 1	~~Business~~	4	Business	4
Item 1A	~~Risk Factors~~	25	Risk Factors	11
Item 1B	~~Unresolved Staff Comments~~	52	Unresolved Staff Comments	16
Item 2	~~Properties~~	52	Properties	16
Item 3	~~Legal Proceedings~~	53	Legal Proceedings	16
Item 4	~~Mine Safety Disclosures~~	53	Mine Safety Disclosures	16
PART II
Item 5	~~Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities~~	54	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	17
Item 6	~~Selected Consolidated Financial Data~~	57	Selected Consolidated Financial Data	18
Item 7	~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~	59	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 7A	~~Quantitative and Qualitative Disclosures about Market Risk~~	75	Quantitative and Qualitative Disclosures about Market Risk	36
Item 8	~~Financial Statements and Supplementary Data~~	77	Financial Statements and Supplementary Data	37
Item 9	~~Changes in and Disagreements with Accountants on Accounting and Financial Disclosure~~	~~143~~	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	108
Item 9A	~~Controls and Procedures~~	~~143~~	Controls and Procedures	108
Item 9B	~~Other Information~~	~~143~~	Other Information	108
PART III
Item 10	~~Directors, Executive Officers and Corporate Governance~~	~~144~~	Directors, Executive Officers and Corporate Governance	109
Item 11	~~Executive Compensation~~	~~144~~	Executive Compensation	112
Item 12	~~Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters~~	~~144~~	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	130
Item 13	~~Certain Relationships and Related Transactions, and Director Independence~~	~~144~~	Certain Relationships and Related Transactions, and Director Independence	130
Item 14	~~Principal Accountant Fees and Services~~	~~144~~	Principal Accountant Fees and Services	131
PART IV
Item 15	~~Exhibits and Financial Statement Schedules~~	~~144~~	Exhibits and Financial Statement Schedules	133
Item 16	~~Form 10-K Summary~~	~~144~~	Form 10-K Summary	133
SIGNATURES		~~150~~		140

PART I

Forward-looking Statements

This ~~Annual~~Form ~~Report~~10-K contains “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 ~~(the “Exchange Act”)~~. All statements other than statements of historical facts are “forward-looking statements” for purposes of these provisions, including any projections of earnings, revenues or other financial items, any statements of the plans and objectives of management for future operations, including any statements concerning the timing, implementation or success of our monetization strategy/plan of complete liquidation, any statements regarding future economic conditions or performance, and any statement of assumptions underlying any of the foregoing. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. In some cases, forward-looking statements can be identified by the use of terminology such as “may,” “will,” “intends,” “plans,” “believes,” “targets,” “anticipates,” “expects,” “estimates,” “predicts,” “potential,” “continue” or “opportunity,” or the negative thereof or other comparable terminology. The forward-looking statements in this ~~Annual~~Form ~~Report~~10-K are only predictions. Although we believe that the expectations presented in the forward-looking statements contained herein are reasonable at the time of filing, there can be no assurance that such expectations or any of the forward-looking statements will prove to be correct. These forward-looking statements, including with regards to our ~~future~~plan ~~financial condition and results~~ of ~~operations~~dissolution, are subject to inherent risks and uncertainties, including but not limited to the risk factors set forth below, and for the reasons described elsewhere in this ~~Annual~~Form ~~Report~~10-K. All forward-looking statements and reasons why results may differ included in this ~~Annual~~Form ~~Report~~10-K are made as of the date hereof. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

We own or have rights to certain trademarks, trade names, copyrights and other intellectual property used in our business, including PDL BioPharma, Inc. and the PDL logo, each of which is considered a registered trademark. All other company names, product names, trade names and trademarks included in this ~~Annual~~Form ~~Report~~10-K are trademarks, registered trademarks or trade names of their respective owners.

ITEM 1. BUSINESS

Overview

In this report all references to “PDL,” “we,” “us,” “our” or the “Company” mean collectively PDL BioPharma, Inc. and its subsidiaries, except where it is made clear that the term means only PDL BioPharma, Inc.

Throughout our history, our mission has been to improve the lives of patients by aiding in the successful development of innovative therapeutics and healthcare technologies. PDL BioPharma was founded in 1986 as Protein Design Labs, Inc. when it pioneered the humanization of monoclonal antibodies, enabling the discovery of a new generation of targeted treatments that have had a profound impact on patients living with different cancers as well as a variety of other debilitating diseases. In 2006, we changed our name to PDL BioPharma, Inc.

~~In September 2019~~Historically, we ~~engaged~~generated ~~financial and legal advisors and initiated~~ a ~~review~~substantial portion of our ~~strategy.~~revenues Inthrough ~~December~~the ~~2019,~~license weagreements ~~disclosed~~related ~~that we planned~~ to ~~halt~~patents covering the ~~execution~~humanization of ~~our growth strategy~~antibodies, ~~cease~~which ~~making~~we ~~additional~~refer ~~strategic transactions and investments and instead pursue a formal process~~ to ~~unlock~~as the ~~value~~Queen ofet ~~our~~al. ~~portfolio~~patents. byIn ~~monetizing~~2012, ~~our assets~~ and ~~ultimately~~in ~~distributing~~anticipation ~~net~~of ~~proceeds~~declining torevenues ~~stockholders.~~from ~~Over~~ the ~~subsequent~~Queen ~~months,~~et ~~our~~al. ~~board~~patents, ofwe ~~directors~~began ~~and~~providing ~~management~~alternative ~~analyzed,~~sources ~~together~~of ~~with~~capital ~~outside~~through ~~financial~~royalty monetizations and ~~legal~~debt ~~advisors~~facilities, ~~how to best capture value pursuant to our monetization strategy~~ and, ~~best~~in ~~return~~2016, ~~the~~we ~~significant~~began ~~intrinsic~~acquiring ~~value of the high~~commercial-~~quality~~stage ~~assets~~products inand ~~our~~launching ~~portfolio~~specialized tocompanies ~~our~~dedicated ~~stockholders. In February 2020, our board of directors determined~~ to ~~seek stockholder approval to dissolve~~ the ~~company~~commercialization ~~pursuant to a plan~~ of ~~complete~~these ~~liquidation~~products, ~~under~~first ~~Delaware~~with ~~law at~~ our ~~next~~acquisition ~~annual meeting~~ of ~~the~~branded ~~stockholders.~~prescription Inpharmaceutical ~~the~~drugs ~~event that the board of directors concludes that the whole company sale process is unlikely to maximize the value that can be returned to the stockholders~~ from ~~our~~Novartis ~~monetization process~~AG, ~~the~~Novartis ~~company~~Pharma ~~would,~~AG ifand ~~approved~~Speedel byHolding ~~the~~AG ~~stockholders~~(collectively, ~~file~~“Novartis”) ~~a Certificate of Dissolution~~ in ~~Delaware~~2016 and, ~~proceed to wind-down and dissolve the company~~ in ~~accordance~~2017, with ~~Delaware~~the ~~law.~~acquisition ~~Pursuant~~of ~~to our monetization strategy~~LENSAR, weInc. ~~are exploring a variety of potential transactions~~(“LENSAR”), ~~including~~ a ~~whole~~medical ~~company~~device ~~sale,~~ophthalmology ~~divestiture~~equipment ofmanufacturing ~~assets, spin-offs of operating entities, merger opportunities or a combination thereof~~company. In ~~addition~~2019, we ~~have~~entered ~~analyzed,~~into ~~and~~a ~~continue~~securities topurchase ~~analyze,~~agreement ~~the~~with ~~optimal~~Evofem ~~mechanisms for returning value to stockholders in a tax-efficient manner~~Biosciences, ~~including~~Inc. ~~via share repurchases~~(“Evofem”), ~~cash~~pursuant ~~dividends~~to ~~and~~which ~~other~~we ~~distributions~~invested ~~of assets~~$60.0 Wemillion ~~have not set a definitive timeline and intend to pursue monetization~~ in a ~~disciplined~~private ~~and~~placement ~~cost-effective~~of ~~manner seeking to maximize returns to stockholders~~securities. WeThese ~~recognize,~~investments ~~however,~~provided ~~that~~funding ~~accelerating~~for ~~the~~Evofem’s ~~timeline,~~pre-commercial ~~while~~activities ~~continuing~~for ~~to seek to optimize asset value~~Phexxi®, ~~could~~its ~~increase returns to stockholders due to reduced general and administrative expenses as well as potentially provide faster returns to stockholders. While~~non-hormonal, ~~as noted above, we cannot provide a definitive timeline for the monetization and wind~~on-~~down~~demand ~~process,~~prescription wecontraceptive ~~are~~gel ~~targeting the end of 2020~~ for ~~completing the monetization of our key assets~~women.

InOur conjunction with our intent to seek stockholder approval for complete dissolution of the company, a proxy statement will be presented to the stockholders that identifies in detail the rationale for the board of director’s decision to seek stockholder approval for dissolution and further presents the risk factors associated with such dissolution. We will continue to be receptive to offers to purchase the entire company throughout the monetization process, with all or less than all of our current assets, should such an offer be made. However, if we conclude that a whole company sale is unlikely or that the value from a whole company sale will not maximize the returns we can provide to our stockholders, we expect that the proposed wind-down will ultimately conclude with dissolution in accordance with Delaware law. Segments

ToBased ~~assist~~on usthe innature ~~our monetization strategy, we have retained Bank~~ of ~~America~~our ~~Securities~~investments toentered ~~advise~~into usbetween in2012 athrough ~~process~~2019 for a sale of the Company. We have also retained SVB Leerink to advise us generally regarding the monetization strategy. In the event that we conclude that a whole company sale will not maximize value, and ~~that~~further adiscussed ~~sale of the assets of the Company~~below, ~~separately~~our oroperations inwere ~~combination,~~structured ~~will provide more significant stockholder value, we have retained Torreya Partners to advise us~~ in ~~our~~four ~~monetization~~segments ofdesignated ~~our~~as ~~Noden~~Medical ~~asset and shares of Evofem Biosciences~~Devices, ~~Inc.~~Strategic ~~(“Evofem”)~~Positions, ~~SVB~~Income ~~Leerink~~Generating ~~to advise us in our monetization of LENSAR~~Assets, ~~Inc. (“LENSAR”),~~ and ~~Bank of America Securities to advise us in a sale of our royalty assets~~Pharmaceutical.

Historically, we generated a substantial portion of our revenues through the license agreements related to patents covering the humanization of antibodies, which we refer to as the Queen et al. patents. In 2012, and in anticipation of declining revenues from the Queen et al. patents, we began providing alternative sources of capital through royalty monetizations and debt facilities, and, in 2016, we began acquiring commercial-stage products and launching specialized companies dedicated to the commercialization of these products. Prior to 2016, we had a history of paying quarterly dividends to stockholders. The dividend payments were first reduced and then eliminated in 2016 due to the declining revenues from the Queen et al. patents and a change in strategy. Beginning in March 2017, we began repurchasing shares of our common stock in lieu of paying cash dividends.3

~~Based~~Our onMedical ~~the~~Devices ~~nature~~segment consisted of ~~our~~revenue ~~investments~~from ~~entered~~the ~~into~~sale ~~between~~and ~~2012~~lease ~~through~~of ~~2016~~the ~~and~~LENSAR® ~~further~~Laser ~~discussed below~~System, ~~our~~which ~~operations~~included ~~were~~equipment, ~~structured~~Patient inInterface ~~three~~Devices ~~segments~~(“PIDs”), ~~designated~~procedure aslicenses, ~~Medical~~training, ~~Devices~~installation, ~~Pharmaceutical~~warranty and ~~Income~~maintenance ~~Generating Assets~~agreements.

Our Strategic Positions segment consisted of an investment in Evofem (NASDAQ: EVFM). Our investment included shares of common stock and warrants to purchase additional shares of common stock.

Our Pharmaceutical segment consisted of revenue derived from branded prescription medicine products sold under the name Tekturna® and Tekturna HCT® in the United States, Rasilez® and Rasilez HCT® in the rest of the world and revenue generated from the sale of an authorized generic form of Tekturna in the United States (collectively, the “Noden Products”).

Our Income Generating Assets segment consisted of revenue derived from (i) notes and other long-term receivables, (ii) royalty rights and hybrid notes/royalty receivables, (iii) equity investments and (iv) royalties from issued patents in the United States and elsewhere covering the humanization of antibodies, which we refer to as the Queen et al. patents.

Financial information about our segments, including our revenues and net loss for the eight months ended August 31, 2020 and the years ended December 31, 2019 and 2018, and select long-lived assets as of December 31, 2020 and 2019, is included in our Consolidated Financial Statements and accompanying notes in this Form 10-K.

Liquidation and Dissolution Plan

In September 2019, we engaged financial and legal advisors and initiated a review of our strategy. This review was completed in December 2019. At such time, we disclosed that we planned to halt the execution of our growth strategy, cease making additional strategic transactions and investments and instead pursue a formal process to unlock the value of our portfolio by monetizing our assets and ultimately distributing net proceeds to stockholders (the “monetization strategy”). We further announced in December 2019 that we would explore a variety of potential transactions in connection with the monetization strategy, including a whole Company sale, divestiture of our assets, spin-offs of operating entities, merger opportunities or a combination thereof. Over the subsequent months, our board of directors (the “Board”) and management analyzed, together with our outside financial and legal advisors, how to best capture value pursuant to our monetization strategy and best return the significant intrinsic value of the assets in our portfolio to the stockholders.

In February 2020, the Board approved a plan of complete liquidation (the “Plan of Liquidation”) of our assets and passed a resolution to seek stockholder approval to dissolve our Company. At our Annual Meeting of Stockholders in August 2020, the proposal to liquidate and dissolve our Company pursuant to a plan of dissolution was approved by our stockholders. On November 5, 2020, our Board approved filing a certificate of dissolution with the Secretary of State of Delaware in January 2021 and proceeding to complete the dissolution process for our Company in accordance with the Delaware General Corporate Law. The filing of the certificate of dissolution occurred on January 4, 2021 and we closed our stock transfer books as of such date (the “Final Record Date”). After such time, we are not recording any further transfers of our common stock, except pursuant to the provisions of a deceased stockholder’s will, intestate succession, or by operation of law and we will not issue any new stock certificates, other than replacement certificates. In addition, we will not be issuing any shares of our common stock for the outstanding stock options. As a result of the closing of our transfer books, it is anticipated that distributions, if any, made in connection with the dissolution will be made pro rata to the stockholders of record as of the Final Record Date. In accordance with our dissolution plan, we completed the voluntary delisting process from the Nasdaq Stock Market exchange so that suspension of trading occurred before the market opened on December 31, 2020 and official delisting of our stock occurred on January 7, 2021. On January 8, 2021, we filed a Form 15 notifying the SEC of deregistration of our common stock under Section 12(g) of the Exchange Act and suspension of our duty to file reports under Sections 13 and 15(d) of the Exchange Act. We do not anticipate participating in Over-The-Counter (“OTC”) trading related to our stock or economic interests in our stock.

Pursuant to our monetization strategy, we explored a variety of potential transactions, including a whole Company sale, divestiture of assets, spin-offs of operating entities, merger opportunities or a combination thereof. In addition, we analyzed, and continue to analyze, optimal mechanisms for returning value to stockholders in a tax-efficient manner, including share repurchases, cash dividends and other distributions of assets. Despite the challenges of the 2019 novel coronavirus (“COVID-19”), we made significant progress in our monetization strategy during 2020, including monetizing most of our key assets and resolving a longstanding legal issue as follows:

•In May 2020, pursuant to our Plan of Liquidation we made a liquidation distribution of all of our common stock in Evofem to PDL stockholders of record as of the close of business on May 15, 2020 (the “Evofem Record Date”).

•In ~~early~~August ~~2019~~2020, ~~and~~we asentered into a ~~further~~settlement ~~evolution~~agreement of(the ~~our~~“Settlement ~~strategy,~~Agreement”) wewith ~~began~~related toentities ~~enter~~of ~~into~~Defined ~~strategic~~Diagnostics, ~~transactions~~LLC ~~involving~~(f/k/a ~~innovative~~Wellstat ~~late~~Diagnostics, ~~clinical-stage~~LLC) or(“Wellstat ~~early~~Diagnostics” ~~commercial-stage~~and, ~~therapeutics~~together with ~~attractive~~such ~~revenue~~related ~~growth~~entities, ~~potential~~the ~~with~~“Wellstat ~~the~~Parties”) ~~intention~~resolving topreviously ~~provide~~reported alitigation ~~significant~~relating ~~return~~to ~~for~~loans ~~our~~made ~~stockholders.~~to Wellstat Diagnostics by us

~~Consistent~~•In ~~with~~August ~~this strategy~~2020, ~~on April 10, 2019,~~ we ~~entered~~sold ~~into~~three aroyalty ~~securities~~interests ~~purchase~~related ~~agreement with Evofem, pursuant~~ to ~~which~~third weparty ~~invested~~sales ~~$60.0 million in a private placement~~ of ~~securities. The transaction was structured in two tranches. The first tranche comprised $30.0 million~~Kybella®, ~~which was funded on April 11~~Zalviso®, ~~2019.~~and WeCoflex® ~~had the right~~ to ~~invest~~SWK ~~an additional $30.0 million in a second tranche~~Funding, ~~which~~LLC ~~we did on June 10~~(“SWK”), 2019, alongside two existing Evofem stockholders, who each invested an additional $10.0 million. These investments were expected to provide funding for Evofem's pre-commercial activities for Amphora®, its investigational, non-hormonal, on-demand prescription contraceptive gel for women. We believe this investment provided us the ability to take a ~~significant~~wholly ~~position~~owned insubsidiary ~~a promising company at a critical stage~~ of ~~development~~SWK ~~where~~Holdings ~~we could provide meaningful contributions through our capital and expertise.~~ Corporation

As•In aSeptember ~~result~~2020, ofwe ~~this~~completed ~~investment~~the inpreviously ~~Evofem~~announced wesale ~~established~~of aour ~~fourth~~interest ~~segment,~~in ~~“Strategic~~Noden ~~Positions.”~~DAC and Noden USA

~~Our~~•In ~~Medical~~October ~~Devices~~2020, ~~segment~~pursuant ~~consists~~to our Plan of ~~revenue~~Liquidation ~~from~~we completed the ~~sale~~previously ~~and~~announced ~~lease~~spin-off of ~~the~~ LENSAR®, ~~Laser~~our ~~System~~majority-owned medical device company, ~~which~~whereby ~~may~~we ~~include~~made ~~equipment,~~a ~~Patient~~liquidation ~~Interface~~distribution ~~Devices~~of ~~(“PIDs”),~~all ~~procedure~~of ~~licenses,~~our ~~training,~~shares ~~installation~~of LENSAR common stock to our stockholders as of September 22, ~~warranty~~2020 ~~and~~(the ~~maintenance~~“LENSAR ~~agreements.~~Record Date”)

~~Our~~•In ~~Strategic~~December ~~Positions~~2020, ~~segment~~we ~~consists~~entered ofinto ana ~~investment~~Capital inProvision ~~Evofem~~Agreement ~~(NASDAQ:~~with ~~EVFM).~~Epps ~~Our~~Investments ~~investment~~LLC ~~includes~~(“Epps”) ~~shares~~regarding ofour ~~common~~previously ~~stock~~announced ~~and~~Settlement ~~warrants~~Agreement towith ~~purchase~~the ~~additional~~Wellstat ~~shares~~Parties ofwhereby ~~common~~we ~~stock.~~sold ~~Evofem~~all isremaining aamounts ~~pre-commercial~~owed ~~company~~to ~~and,~~us asunder ~~such,~~the isSettlement ~~not~~Agreement ~~yet~~for ~~engaged~~consideration ~~in revenue-generating activities.~~received

~~Our~~The ~~Pharmaceutical~~Settlement ~~segment~~Agreement ~~consists~~with ofthe ~~revenue~~Wellstat ~~derived~~Parties ~~from~~provided ~~branded~~for ~~prescription~~the ~~medicine~~payment ~~products~~of ~~sold~~$7.5 ~~under~~million upon the ~~name~~signing ~~Tekturna®~~of the Settlement Agreement, which has been received, and ~~Tekturna~~either ~~HCT®~~(1) in$5.0 ~~the~~million ~~United~~by ~~States~~February 10, ~~Rasilez®~~2021 and ~~Rasilez~~$55.0 ~~HCT®~~million inby July 26, 2021; or (2) $67.5 million by July 26, 2021. Under the ~~rest~~terms of the ~~world~~Settlement ~~and~~Agreement, ~~revenue~~failure ~~generated~~by ~~from~~ the ~~sale~~Wellstat ofParties anto make payment in full by July 26, 2021, authorized ~~generic~~us ~~form~~to ofrecord ~~Tekturna~~judgment inagainst the ~~United~~Wellstat ~~States~~Parties ~~(collectively,~~for an amount of $92.5 million or such lesser amount as may be owed under the ~~“Noden~~Settlement ~~Products”)~~Agreement.

~~Our~~Pursuant ~~Income~~to ~~Generating~~the ~~Assets~~Capital ~~segment~~Provision ~~consists~~Agreement ofwith ~~revenue~~Epps ~~derived~~we ~~from~~received ~~(i)~~$51.4 ~~notes~~million ~~and~~on ~~other~~December ~~long-term receivables~~31, ~~(ii)~~2020 ~~royalty~~in ~~rights~~exchange ~~and~~for ~~hybrid~~100% ~~notes/royalty~~of ~~receivables,~~the ~~(iii)~~payments ~~equity~~or ~~investments~~other ~~and~~property ~~(iv)~~or ~~royalties~~value ~~from~~received ~~issued~~by ~~patents~~PDL inon ~~the~~or ~~United~~after ~~States and elsewhere covering~~ the ~~humanization~~date of ~~antibodies,~~the ~~which~~Capital weProvision ~~refer~~Agreement pursuant to as the ~~Queen~~Settlement ~~et al~~Agreement. ~~patents.~~

~~Financial~~The ~~information~~proceeds ~~about~~from ~~our~~the ~~segments,~~sale ~~including~~of ~~our~~the ~~revenues~~three ~~and~~royalty ~~net~~interests ~~(loss)~~to ~~income~~SWK ~~for~~totaled ~~the~~$4.35 ~~years ended December 31~~million, ~~2019,~~90% ~~2018~~of ~~and~~which ~~2017,~~was ~~and~~received ~~select~~at ~~long-lived~~the ~~assets~~closing as of ~~December 31,~~the ~~2019~~transaction. ~~and~~The ~~2018,~~remaining 10% is ~~included~~currently held in ~~our~~escrow ~~Consolidated~~against ~~Financial~~certain ~~Statements~~potential contingencies and ~~accompanying~~is ~~notes~~to inbe ~~Item~~released 8on the one-year anniversary of the closing, subject to the satisfaction of any such potential contingencies.

On July 30, 2020, we signed a definitive agreement for the sale of our interest in Noden DAC and Noden USA to CAT Capital Bidco Limited (“Stanley Capital”). In accordance with the terms of the agreement, we expect to receive consideration of up to $52.8 million. Stanley Capital made an initial cash payment to us of $12.2 million on the September 9, 2020 closing date. We are also entitled to recover $0.5 million related to value-added tax (“VAT”) for inventory purchases from Novartis. The agreement provides for an additional $33.0 million to be paid to us in twelve equal quarterly installments from January 2021 to October 2023, of which the first installment payment has been received. An additional $3.9 million will be paid in four equal quarterly installments from January 2023 to October 2023. The agreement also provides for the potential for additional contingent payments to us. We are entitled to receive $2.5 million upon Stanley Capital or any of its affiliates entering into a binding agreement for a specified transaction within one year of the closing date. We are also entitled to 50% of a license fee from a third party distributor within 10 days of receipt by Noden. Upon closing, we recorded a gain of $0.2 million. In connection with the closing of the transaction, the guaranty agreement between Novartis and us which guaranteed certain payments owed to Novartis by Noden was terminated.

We intend to pursue monetization of our remaining assets in a disciplined and cost-effective manner to maximize returns to stockholders. At the same time, we recognize that accelerating the timeline to complete our monetization process, while continuing to optimize asset value, could increase returns to stockholders due to reduced general and administrative expenses as well as provide for faster returns to stockholders. While we are cognizant that an accelerated timeline may provide greater and faster returns to our stockholders, we also recognize that the duration and extent of the public health issues related to the COVID-19 pandemic make it possible that the timing of the sale of all or substantially all of our remaining assets may require additional time to execute or for us to pursue alternatives to the sale of these assets. For example, if a suitable offer to purchase the remaining royalty assets is not received prior to completing the dissolution process, they could be placed in a liquidating trust. The available proceeds from either the ongoing collection of royalty income or from the sale of the royalty assets would ultimately be distributed to our stockholders. We will continue to assess the market for our remaining assets to determine the appropriate time to sell them or to opt for alternative paths to return their value to our stockholders.

Following is a discussion of our current and historical segments.

Medical Devices

LENSAR

LENSAR is a commercial-stage medical device company focused on ~~delivering~~designing, ~~next~~developing ~~generation~~and ~~femtosecond~~marketing ~~cataract~~an advanced femtosecond laser ~~technology~~system ~~used~~for inthe ~~refractive~~treatment ~~cataract~~of ~~surgical~~cataracts ~~procedures~~and the management of pre-existing or surgically induced corneal astigmatism. LENSAR’s femtosecond laser uses proprietary advanced imaging and laser technology to customize planning and treatments, allowing faster visual recovery and improved outcomes, as compared to conventional cataract surgery, a more manual procedure combined with ultrasound, referred to as phacoemulsification. LENSAR has developed the LENSAR® Laser System, which is the only femtosecond cataract laser built specifically for refractive cataract surgery. At spin-off, LENSAR had over 95 granted patents in the United States and the rest of the world and over 55 pending patent applications in the United States and the rest of the world.

~~Cataract~~As ~~surgery~~noted isabove, ~~the~~on ~~highest~~October ~~volume~~1, ~~surgical~~2020 ~~procedure~~all ~~performed~~outstanding ~~worldwide~~shares ~~with~~of 30LENSAR ~~million~~common ~~surgeries~~stock ~~projected~~held inby ~~2020,~~us ~~the~~were ~~majority~~distributed to our holders of ~~which~~common ~~use~~stock ~~conventional~~as ~~phacoemulsification~~of ~~techniques.~~the LENSAR isRecord ~~currently~~Date. ~~focusing~~On ~~its~~October ~~research~~1, ~~and~~each ~~development~~of ~~efforts~~our onstockholders anreceived ~~advanced~~0.075879 ~~integrated~~shares ~~workstation~~of ~~combining~~LENSAR ancommon ~~enhanced~~stock ~~LENSAR®~~for ~~Laser~~every ~~System~~one ~~and~~share aof ~~phacoemulsification~~our ~~device~~common instock aheld ~~single,~~by ~~compact~~such ~~workstation~~holders, ~~designed~~based toon ~~fit~~the ~~directly~~number inof outstanding shares on the ~~surgical~~LENSAR ~~theater~~Record Date. LENSAR’s ~~recent~~continues ~~acquisitions~~to own and operate its femtosecond laser system business following completion of ~~certain~~the ~~intellectual~~distribution. ~~property~~As ~~uniquely~~of ~~position~~October 1, 2020 LENSAR tobecame ~~develop~~an aindependent, ~~system~~publicly ~~that~~traded ~~can~~company ~~perform~~listed ~~all~~on ~~cataract~~the ~~surgeries~~Nasdaq inStock aMarket ~~single~~under ~~platform~~the symbol “LNSR”.

The LENSAR® Laser System offers cataract surgeons automation and customization for their astigmatism treatment planning and other essential steps of the refractive cataract surgery procedure with the highest levels of precision, accuracy, and efficiency. These features assist surgeons in managing their astigmatism treatment plans for optimal overall visual outcomes.

The LENSAR® Laser System has been cleared by the U.S. Food and Drug Administration (“FDA”) for anterior capsulotomy, lens fragmentation, corneal and arcuate incisions. The LENSAR Laser with Augmented Reality™ provides an accurate 3-D model of the relevant anatomical features of each patient’s anterior segment, allowing precise laser delivery and enhanced surgical

confidence in performing accurate corneal incisions, precise size, shape and location of free-floating capsulotomies, and efficient lens fragmentation for all grades of cataracts. The LENSAR® Laser System - fs 3D (LLS-fs 3D) with Streamline™ includes the integration with multiple pre-operative diagnostic devices, utilizing automated Iris Registration with automatic cyclorotation adjustment. IntelliAxis-C™ (corneal) and IntelliAxis-L™ (lens capsule) markers provide the surgeon tools for simple and precise alignment without errors associated with manually transposing the preoperative data, and marking the eye for incisions and implantation of Toric IOLs as well as treatment planning tools for precision guided laser treatments. The corneal incision-only mode, expanded remote diagnostics capabilities, additional pre-programmable preferences, thoughtful ergonomics, and up to 20 seconds faster laser treatment times with Streamline allow for seamless integration and maximum surgical efficiency with patient comfort.

Intellectual Property

LENSAR has over 85 granted patents in the United States and rest of the world and over 60 pending patent applications in the United States and rest of the world. LENSAR acquired a number of patents in 2019 to support the development and eventual commercialization of its second generation laser system which will combine a femtosecond cataract laser system with a phacoemulsification system in a single machine.

Manufacturing

Through our LENSAR subsidiary, we currently manufacture our LENSAR® Laser System at a facility in Orlando, Florida.

LENSAR purchases both custom and off-the-shelf components from a small number of suppliers and subjects them to stringent quality specifications and processes. Some of the components necessary for the assembly of the LENSAR® Laser System are currently provided by sole-sourced suppliers (the only recognized supply source available to us) or single-sourced suppliers (the only approved supply source for us among other sources). LENSAR purchases the majority of its components and major assemblies through purchase orders with limited long-term supply agreements and generally does not maintain large volumes of finished goods.

LENSAR has entered into various supply agreements for the manufacture and supply of certain components. The supply agreements commit LENSAR to a minimum purchase obligation of approximately $10.4 million over the next twenty-four months of which $9.6 million is due in the next 12 months. LENSAR expects to meet these requirements.

Sales and Distribution

LENSAR markets and sells the LENSAR® Laser System to ophthalmic ambulatory surgical centers, specialty ophthalmic hospitals and multi-specialty hospitals in the United States through a direct sales force. Outside of the United States, LENSAR typically sells the LENSAR® Laser System through distributors. A distributor in Asia and a distributor in Europe represent 25% and 11%, respectively, of the net sales in our Medical Devices segment for the year ended December 31, 2019.

Competition

The LENSAR® Laser System is a femtosecond cataract laser for refractive cataract surgery. We estimate that the market penetration of femtosecond cataract laser surgery is approximately 10.7% of total procedures in the United States and approximately 2.8% of the total cataract surgeries performed globally. Femtosecond cataract laser procedures are forecast to grow approximately 5.0% annually through 2024.

Employees

As of December 31, 2019, we had 75 full-time employees at LENSAR, who manage its business and operations.

Strategic Positions

Evofem

We invested $60.0 million in Evofem in the second quarter of 2019, representing approximately a 2827% ownership interest in the company as of ~~December~~March 31, ~~2019~~2020. The transaction was structured in two tranches. The first tranche comprised $30.0 million, which was funded on April 11, 2019. We invested an additional $30.0 million in a second tranche on June 10, 2019, alongside two existing Evofem ~~shareholders~~stockholders, who each invested an additional $10.0 million. ~~These~~On ~~investments~~May ~~were~~21, ~~expected~~2020 we distributed all of our 13,333,334 shares of common stock of Evofem to ~~provide~~our stockholders of record on the Evofem Record Date, which represented approximately 26.7% of the outstanding shares of Evofem common stock as of the close of business on May 15, 2020. As of December 31, 2020, we continued to hold the warrants to purchase up to 3,333,334 shares of Evofem common stock.

6Evofem is a commercial-stage biopharmaceutical company committed to developing and commercializing innovative products to address unmet needs in women’s sexual and reproductive health. Evofem is leveraging its proprietary Multipurpose Vaginal pH Regulator (MVP-R™) platform for its first commercial product Phexxi® (L-lactic acid, citric acid and potassium bitartrate) for hormone-free birth control. On May 22, 2020 Phexxi® was approved by the U.S. Food and Drug Administration for the prevention of pregnancy in women who choose to use on demand methods for their contraceptive needs. On September 8, 2020, Phexxi® was commercially launched in the United States.

~~funding~~As ~~for~~of ~~Evofem's~~June ~~pre-commercial activities for Amphora®~~30, ~~its investigational~~2020, ~~non-hormonal, on-demand prescription contraceptive gel for women. We believe this investment provided us~~ the ~~ability~~Strategic toPositions ~~take~~segment awas ~~significant~~classified ~~position~~as indiscontinued ~~a promising company at a critical stage of development where we could provide meaningful contributions through our capital and expertise~~operations.

Evofem is a clinical-stage biopharmaceutical company committed to developing and commercializing innovative products to address unmet needs in women's sexual and reproductive health. Evofem is leveraging its proprietary Multipurpose Vaginal pH Regulator (MVP-R™) platform to develop Amphora (L-lactic acid, citric acid and potassium bitartrate) for hormone-free birth control. In 2015, Evofem submitted a new New Drug Application (“NDA”) for prevention of pregnancy to the FDA. In April 2016, the FDA issued a Complete Response Letter (“CRL”) with respect to the Amphora NDA, citing certain clinical deficiencies. In the fourth quarter of 2019, Evofem resubmitted the Amphora NDA, which included results from a subsequent Phase 3 trial. In December 2019, the FDA acknowledged receipt of the NDA and assigned a six-month review period and a Prescription Drug User Fee Act (“PDUFA”) goal date of May 25, 2020.

Amphora is also being studied for the prevention of chlamydia and gonorrhea. In December 2019, Evofem announced positive top-line results from AMPREVENCE, a Phase 2b clinical trial evaluating the efficacy and safety of Amphora for the prevention of urogenital chlamydia and gonorrhea in women. Further analysis is ongoing and final results are subject to change based on a comprehensive review by the company and the FDA.

Pharmaceutical

Noden

On July 1, 2016, our subsidiary, Noden ~~Pharma~~ DAC, entered into an asset purchase agreement (“Noden Purchase Agreement”) whereby it purchased from Novartis ~~Pharma AG (“Novartis”)~~ the exclusive worldwide rights to manufacture, market, and sell the Noden Products and certain related assets and assumed certain related liabilities (the “Noden Transaction”). Noden ~~Pharma~~ DAC and Noden ~~Pharma~~ USA, ~~Inc.,~~ together, and including their respective subsidiaries ~~represent~~represented deployed capital of $191.2 million.

Tekturna (or Rasilez outside of the United States) contains aliskiren, a direct renin inhibitor, for the treatment of hypertension. While indicated as a first line treatment, it is more commonly used as a third line treatment in those patients who are intolerant of angiotensin-receptor blockers (“ARBs”) or angiotensin converting enzyme inhibitors (“ACEIs”). Studies indicate that approximately 12% of hypertension patients are ARB/ACEI intolerant. Tekturna and Rasilez are not indicated for use with ARBs and ACEIs in patients with diabetes or renal impairment and are contraindicated for use by pregnant women. In March 2019, we launched an authorized generic (“AG”) form of Tekturna, aliskiren hemifumarate 150 mg and 300 mg tablets in the United States with the same drug formulation as Tekturna. The AG is distributed by Prasco, LLC d/b/a Prasco Laboratories.

Tekturna HCT is a combination of aliskiren and hydrochlorothiazide, a diuretic, for the treatment of hypertension in patients not adequately controlled by monotherapy and as an initial therapy in patients likely to need multiple drugs to achieve their blood pressure goals. It is not indicated for use with ACEIs and ARBs in patient with diabetes or renal impairment, or for use in patients with known anuria or hypersensitivity to sulfonamide derived drugs and is contraindicated for use by pregnant women.

~~The~~On ~~Noden~~September ~~Purchase~~9, ~~Agreement provides for various transition periods for development and commercialization activities relating to the Noden Products. Initially~~2020, ~~Novartis~~we ~~distributed~~sold ~~the~~100% ~~Noden Products on behalf~~ of ~~Noden~~our ~~worldwide~~interests ~~and~~in ~~Noden~~our ~~received~~wholly aowned ~~profit~~subsidiaries ~~transfer on such sales. Generally, the profit transfer to~~ Noden ~~was~~DAC ~~defined as gross revenues less product cost~~ and ~~a low single digit percentage fee to Novartis. The profit transfer terminated upon the transfer of the marketing authorization from Novartis to~~ Noden inUSA each country. In the United States, the duration of the profit transfer ran from July 1, 2016 through October 4, 2016. Outside the United States, the profit transfer ended in the first quarter of 2018. Prior to ~~the~~Stanley transfer of the marketing authorization, revenue was presented on a “net” basis; after the transfer of the marketing authorization, revenue is presented on a “gross” basis, meaning product costs are reported separately and there is no fee to NovartisCapital. Except for the sales outside of the United States preceding the final profit transfer that occurred in the first quarter of 2018, revenues of the Noden Products for the periods herein are presented on a gross basis.

~~Intellectual~~As ~~Property~~of March 31, 2020, the Pharmaceutical segment was classified as discontinued operations.

The Noden Products are protected by multiple patents worldwide, which specifically cover the composition of matter, the pharmaceutical formulations and methods of production. In the United States, the FDA Orange Book for Tekturna lists U.S. Patent No. 8,617,595 (the “’595 Patent”), which covers certain compositions comprising aliskiren, together with other formulation components, and will expire on February 19, 2026.

The FDA Orange Book for Tekturna HCT lists U.S. patent Nos. 8,618,172, which expires on July 13, 2028 and 9,023,893, which expires March 3, 2022, which patents cover certain compositions comprising aliskiren and hydrochlorothiazide, together with other formulation components. In Europe, European patent No. 678 503B (the “’503B Patent”) expired in 2015. However,

numerous Supplementary Protection Certificates (“SPCs”) have been granted which are based on the ‘503B Patent and which provide for extended protection. These SPCs generally expire in April of 2020. European Patent Publication Number 2 305 232, which covers certain pharmaceutical compositions comprising aliskiren and HCT, will expire in December 2021.

On June 12, 2017, our subsidiary Noden Pharma DAC (“Noden DAC”) filed a complaint against Anchen Pharmaceuticals, Inc. (“Anchen”) and Par Pharmaceutical (“Par”) for infringement of the ‘595 Patent based on Anchen’s submission of an Abbreviated New Drug Application (“ANDA”) seeking authorization from the FDA to market a generic version of aliskiren hemifumarate tablets, 150 mg and 300 mg, in the United States. Noden DAC’s suit triggered a 30-month stay of FDA approval of that application under the Hatch Waxman Act. Par filed a counterclaim seeking a declaratory judgment with respect to their proposed generic version of aliskiren hemifumarate hydrochlorothiazide tablets (150 mg eq. base/12.5 mg HCT, 150 mg eq. base/25 mg HCT, 300 mg eq. base/12.5 mg HCT, and 300 mg eq. base/25 mg HCT), described in a separate ANDA submitted by Par to the FDA, of noninfringement of U.S. Patent No. 8,618,172 (the “’172 Patent”), also owned by Noden DAC. This case was filed in the United States District Court for the District of Delaware. In March 2018, each of the parties to the proceeding filed a joint stipulation of dismissal of the defendants’ counterclaim seeking a declaratory judgment of non-infringement of the ‘172 Patent. In the stipulation, Anchen and Par agreed that they will not seek, or otherwise join or assist in, any post-grant review, including inter partes review, of the ‘172 Patent or U.S. Patent No. 9,023,893 (the “’893 Patent”). The defendants further stipulated that they will not seek marketing approval of Par’s ANDA or submit any other ANDA seeking approval to market aliskiren hemifumarate hydrochlorothiazide prior to the expiration of the ‘172 Patent in July of 2028. Both the ‘172 Patent and the ‘893 Patent are listed in the Orange Book for Tekturna HCT.

On June 8, 2018, Noden and Anchen entered into a settlement agreement (the “Settlement Agreement”). Under the Settlement Agreement, the parties agreed to file a stipulation of dismissal with the court to facilitate dismissal of the litigation in its entirety, with prejudice. In the Settlement Agreement, Noden granted Anchen a non-exclusive, royalty free, fully paid up and non-transferable license to manufacture and commercialize in the United States a generic version of aliskiren which is described in Anchen’s ANDA, and Anchen agreed not to commercialize its generic version of aliskiren prior to March 1, 2019. The license grant excludes certain formulations covered by the ‘595 Patent which closely relate to the commercial formulation of Tekturna marketed by Noden. The Settlement Agreement includes a release by each party for liabilities associated with the litigation and an acknowledgment from Anchen that the ‘595 Patent claims are valid and enforceable.

As a result of the Settlement Agreement and the imminent launch of a generic version of aliskiren by Par Pharmaceuticals in the United States, management evaluated the ongoing value of the Noden DAC asset group and concluded that the Noden DAC acquired product rights and customer relationship long-lived assets, with a carrying amount of $192.5 million, were no longer recoverable and wrote them down to their estimated fair value of $40.1 million, resulting in an impairment charge of $152.3 million in the second quarter of 2018.

On March 4, 2019, we announced the U.S commercial launch of an authorized generic form of Tekturna, aliskiren hemifumarate 150 mg and 300 mg tablets with the same drug formulation as Tekturna. The authorized generic launch was carried out by Prasco, LLC d/b/a Prasco Laboratories. On March 22, 2019, the FDA approved Anchen’s generic form of aliskiren.

As of December 31, 2019, given our monetization strategy and updated forecasts for Noden, we revised our estimates of future cash flows and as a result of this analysis, determined that the sum of undiscounted cash flows was not greater than the carrying value of the assets. As a result, we concluded that the Noden DAC acquired product rights and customer relationship long-lived assets, with a carrying amount of $32.6 million, were no longer recoverable and wrote them down to their estimated fair value of $10.1 million, resulting in an impairment charge of $22.5 million.

Manufacturing

Noden DAC and Novartis entered into a supply agreement pursuant to which Novartis will manufacture and supply to Noden DAC a bulk tableted form of the Noden Products, and for the supply of active pharmaceutical ingredient (“API”). In May 2019, Noden DAC and Novartis entered into an amended supply agreement pursuant to which Novartis will supply to Noden DAC a bulk tableted form of the Noden Products through 2020 and API through June 2021. For additional details regarding the amended supply agreement, see Note 15, Commitments and Contingencies, to the Consolidated Financial Statements included in Item 8. Under the terms of the amended supply agreement, Noden DAC is committed to purchase certain quantities of bulk product and API that would amount to approximately $61.7 million through June 2021, of which $39.8 million is committed over the next twelve months, which are guaranteed by us. To date, Novartis has met our manufacturing requirements and we expect that it is capable of providing sufficient quantities of the Noden Products to meet anticipated demands. We have contracted with an additional third-party located outside of the United States for the manufacture of Noden Products once the agreement with Novartis expires.

Sales and Distribution

In anticipation of the commercialization of Par’s generic version of aliskiren and in order to optimize profitability, in the third quarter of 2018, Noden discontinued its direct sales force and transitioned to a non-personal promotion strategy. All investments in non-personal promotion were in turn discontinued shortly after the launch of the authorized generic form of Tekturna by Prasco Laboratories.

We entered into an arrangement with a third-party logistics provider to distribute the Noden Products within the United States on our behalf. The Noden Products are sold directly to wholesalers from a distribution center owned by the third-party logistics provider.

As of December 31, 2019, the Noden Products were distributed in 13 countries outside of the United States. During 2018, we ceased distribution of the Noden Products in several European countries where they were not profitable or had extremely low gross margins.

Prasco, LLC, PHOENIX Pharma-Einkauf GmbH, and the pharmaceutical industry’s largest U.S. wholesale distributors, Amerisource Bergen Corporation, McKesson Corporation and Cardinal Health, Inc., accounted for 23%, 15%, 8%, 8% and 7%, respectively, of our total net pharmaceutical product sales for the year ended December 31, 2019, and 0%, 11%, 15%, 17% and 13%, respectively, of our total net pharmaceutical product sales for the year ended December 31, 2018.

Competition

The pharmaceutical industry is characterized by rapid innovation and intense competition which is applicable to the therapeutic area our Noden Products are approved. The Noden Products are direct renin inhibitors approved for the treatment of hypertension. They compete against a number of classes of treatments including changes in diet, exercise, thiazide diuretics, ACEIs, ARBs, calcium channel blockers, cardioselective beta blockers, alpha blockers, direct vasodilators and centrally acting agents. With the exception of diet and exercise, there are numerous drugs within each of the classes enumerated above, most of which have generic versions that are less expensive than Tekturna and Tekturna HCT. Physicians may also treat hypertension patients by combining one or more of the enumerated classes of treatments. Diet, thiazide diuretics, ACEIs, ARBs and calcium channel blockers are most commonly used as first line treatments for hypertension and dominate the market, in part, because of the availability of low cost generics in each category. Renin inhibitors, such as Tekturna and Tekturna HCT which are the only approved direct renin inhibitors, and beta blockers are used thereafter followed by direct vasodilators, central acting agents and alpha blockers. Tekturna and Tekturna HCT are generally perceived as alternatives for patients who do not respond to, or are intolerant of, the first line therapies. In 2019, we launched an authorized generic form of Tekturna, aliskiren hemifumarate 150 mg and 300 mg tablets with the same drug formulation as Tekturna. There is currently one other generic form of aliskiren hemifumarate available on the market in the United States.

Employees

As of December 31, 2019, we had 14 full-time employees at Noden, who manage its business and operations.

Income Generating Assets

WeThe ~~have pursued~~ income generating assets ~~when~~included ~~such~~in ~~assets~~continuing ~~can~~operations ~~be acquired on terms that we believe allow us to increase return to our stockholders. The income generating assets typically~~ consist of (i) notes and other long-term receivables, (ii) ~~royalty rights and hybrid notes/royalty receivables, (iii)~~ equity investments and (iviii) royalties from the Queen et. al patents. ~~While we currently maintain a portfolio of income generating assets, our intention is to no longer pursue these transactions while we focus on our monetization strategy.~~

Investment	Investment Type	Segment	Deployed Capital 3(in millions)
Assertio Therapeutics, Inc. (“Assertio”) 1	Royalty	Income Generating Assets	$	260.5
The Regents of the University of Michigan (“U-M”)	Royalty	Income Generating Assets	$	65.6
AcelRx Pharmaceuticals, Inc. (“AcelRx”)	Royalty	Income Generating Assets	$	65.0
Viscogliosi Brothers, LLC (“VB”)	Royalty	Income Generating Assets	$	15.5
KYBELLA®	Royalty	Income Generating Assets	$	9.5
CareView Communications, Inc. (“CareView”)	Debt	Income Generating Assets	$	20.0
Wellstat Diagnostics, LLC (“Wellstat Diagnostics”) 2	Royalty/debt hybrid	Income Generating Assets	$	44.0

_______________

1 Formerly Depomed, Inc.

2 Also known as Defined Diagnostic, LLC. The Wellstat Diagnostics investment also includes our note receivable with Hyperion Catalysis International, Inc. (“Hyperion”).

3 Excludes transaction costs.

Notes and Other Long-Term Receivables

We have entered into credit agreements with borrowers across the healthcare industry, under which we made available cash loans to be used by the borrower. Obligations under these credit agreements are typically secured by a pledge of substantially all the assets of the borrower and any of its subsidiaries. As of December 31, ~~2019~~2020, we had ~~two~~one ~~notes~~note receivable ~~transactions~~transaction outstanding, CareView ~~and Wellstat Diagnostics~~, which ~~are~~is summarized below:

CareView

Technology

CareView is a provider of products and on-demand application services for the healthcare industry by specializing in bedside video monitoring, archiving and patient care documentation systems and patient entertainment services.

Deal Summary

In June 2015, we entered into a credit agreement with CareView, whereby we made available to CareView up to $40.0 million in loans comprised of two tranches of $20.0 million each, subject to CareView’s attainment of specified milestones and under which we have a security interest in substantially all of CareView’s assets. In October 2015, we and CareView entered into an amendment of the credit agreement to modify certain definitions related to the first and second tranche milestones and we funded the first tranche of $20.0 million, net of fees, based on CareView’s attainment of the first milestone, as amended. The second $20.0 million tranche was not funded due to CareView’s failure to meet the funding milestone and we have no further funding obligation at this time. The outstanding borrowing under the credit agreement initially bore interest at the rate of 13.5% per annum payable quarterly in arrears. Principal repayment was to commence on the ninth quarterly interest payment date and continue in equal installments until final maturity of the loan in October 2020.

In February 2018, we entered into a modification agreement with CareView (the “February 2018 Modification Agreement”) whereby we agreed, effective as of December 28, 2017, to modify the credit agreement before remedies could otherwise have become available to us under the credit agreement in relation to certain obligations of CareView that would potentially not be met, including the requirement to make principal payments. Under the February 2018 Modification Agreement, we agreed that (i) a lower liquidity covenant would be applicable and (ii) principal repayment would be delayed for a period of up to December 31, 2018. In exchange for agreeing to these modifications, among other things, the exercise price of our warrants to purchase 4.4 million shares of common stock of CareView was reduced and, subject to the occurrence of certain events, CareView agreed to grant us additional equity interests. In each of September 2018, December 2018, May 2019, September 2019 and December 2019, we entered into amendments to the February 2018 Modification Agreement with CareView whereby we agreed to deferrals of principal repayments and interest payments. In the May 2019 amendment we also increased the interest rate to 15.5% and removed the liquidity covenant under the credit agreement. In January 2020 we agreed to a further amendment of the February 2018 Modification Agreement that deferred principal repayment and interest payments until April 30, 2020, which was conditioned upon CareView raising additional financing from third parties. Pursuant to further amendments to the February 2018 Modification Agreement, the Company has agreed to defer principal and interest payments until May 31, 2021.

107

Agreement that deferred principal repayment and interest payments until April 30, 2020, which was conditioned upon CareView raising additional financing from third parties.

Wellstat Diagnostics

Technology

Wellstat Diagnostics is a private company formerly dedicated to the development, manufacture, sale and distribution of small point of care diagnostic systems.

Deal Summary

In March 2012, we executed a $7.5 million two-year senior secured note receivable with the holders of the equity interests in Wellstat Diagnostics. In August 2012, we and Wellstat Diagnostics amended the note receivable, providing a senior secured note receivable of $10.0 million, bearing interest at 12% per annum, to replace the original $7.5 million note receivable. This $10.0 million note receivable was repaid on November 2, 2012, using the proceeds of the $40.0 million credit facility we entered into on the same date.

In November 2012, we entered into a $40.0 million credit agreement with Wellstat Diagnostics pursuant to which we were to accrue quarterly interest payments at the rate of 5% per annum. In January 2013, Wellstat Diagnostics defaulted on the credit agreement, and as a result both parties agreed to enter into a forbearance agreement whereby we agreed to provide additional funding. In August 2013, we entered into an amended and restated credit agreement with terms substantially the same as those of the original credit agreement. However, pursuant to the amended and restated credit agreement the principal amount was reset to approximately $44.1 million.

We, Wellstat Diagnostics, and Samuel J. Wohlstadter, Nadine H. Wohlstadter, Duck Farm, Inc., Hebron Valley Farms, Inc., HVF, Inc., Hyperion Catalysis EU Limited, Hyperion, NHW, LLC, Wellstat AVT Investment, LLC, Wellstat Biocatalysis, LLC, Wellstat Biologics Corporation, Wellstat Diagnostics, Wellstat Immunotherapeutics, LLC, Wellstat Management Company, LLC, Wellstat Ophthalmics Corporation, Wellstat Therapeutics Corporation, Wellstat Therapeutics EU Limited, Wellstat Vaccines, LLC and SJW Properties, Inc., the guarantors of Wellstat Diagnostics’ obligations to us (collectively, the “Wellstat Diagnostics Guarantors”) were involved in a series of legal actions. A further discussion of the Wellstat litigation is included in Note 25, Legal Proceedings, to the Consolidated Financial Statements included in Item 8.

The Wellstat Diagnostics investment also includes our note receivable with Hyperion. A further discussion is included in Note 7, Notes and Other Lon-term Receivables.

Royalty Rights - At Fair Value

We have entered into various royalty purchase agreements with counterparties, whereby the counterparty conveys to us the right to receive royalties that are typically payable on sales revenue generated by the sale, distribution or other use of the counterparties’ products.

We record the royalty rights at fair value using discounted cash flows related to the expected future cash flows to be received. We use significant judgment in determining our valuation inputs, including estimates as to the probability and timing of future sales of the licensed product. A third-party expert is generally engaged to assist us with the development of our estimate of the expected future cash flows. The estimated fair value of the asset is subject to variation should those cash flows vary significantly from our estimates. At each reporting period, an evaluation is performed to assess those estimates, discount rates utilized and general market conditions affecting fair market value.

At December 31, 2019, we had a total of five royalty rights transactions outstanding, which are summarized below in chronological order:

Assertio

Deal Summary

In October 2013, we entered into a Royalty Purchase and Sale Agreement (the “Assertio Royalty Agreement”) with Assertio, whereby we acquired the rights to receive royalties and milestones payable on sales of five Type 2 diabetes products licensed by Assertio in exchange for a $240.5 million cash payment.

In August 2018, we entered into an amendment to the Assertio Royalty Agreement pursuant to which we purchased Assertio’s remaining interests in royalty and milestone payments payable on sales of Type 2 diabetes products licensed by Assertio for $20.0 million.

The Assertio Royalty Agreement terminates on the third anniversary following the date upon which the later of the following occurs: (a) October 25, 2021, or (b) at such time as no royalty payments remain payable under any license agreement and each of the license agreements has expired by its terms.

Technology

The rights acquired include Assertio’s royalty and milestone payments accruing from and after October 1, 2013: (a) from Santarus, Inc., which was subsequently acquired by Salix Pharmaceuticals, Inc., which itself was acquired by Valeant Pharmaceuticals International, Inc. (“Valeant”), which, in July 2018 changed its name to Bausch Health Companies Inc. (“Bausch Health”) with respect to sales of Glumetza® (metformin HCL extended-release tablets) in the United States; (b) from Merck & Co., Inc. with respect to sales of Janumet XR® (sitagliptin and metformin HCL extended-release); (c) from Janssen Pharmaceuticals N.V. with respect to potential future development milestones and sales of its approved fixed-dose combination of Invokana® (canagliflozin, a sodium glucose cotransporter 2 (SGLT2) inhibitor) and extended-release metformin tablets, marketed as Invokamet XR®; (d) from Boehringer Ingelheim GmbH (“Boehringer Ingelheim”) and Eli Lilly and Company (“Eli Lilly”) with respect to potential future development milestones and sales of the investigational fixed-dose combinations of drugs and extended-release metformin subject to Assertio’s license agreement with Boehringer Ingelheim including its approved products, Jentadueto XR® and Synjardy XR®; and (e) from Bausch Health for sales of extended-release metformin tablets in Korea and Canada, respectively.

On May 31, 2016, Boehringer Ingelheim and Eli Lilly announced that the FDA approved Jentadueto XR (a fixed dose combination of Linagliptin, a dipeptidyl peptidase-4 inhibitor and extended-release metformin tablets) for the treatment of type 2 diabetes in adults, which will be marketed by both companies. This approval triggered the payment of a milestone to us of $6.0 million. On September 21, 2016, Janssen Pharmaceuticals announced that the FDA approved Invokamet XR for the treatment of type 2 diabetes in adults. This approval triggered the payment of a milestone to us of $5.0 million. On December 13, 2016, Boehringer Ingelheim and Eli Lilly announced that the FDA approved Synjardy® XR (a fixed dose combination of Empagliflozin, a SGLT2 inhibitor, and extended-release metformin tablets) for the treatment of type 2 diabetes in adults, which will be marketed by both companies. This approval triggered the payment of a milestone to us of $6.0 million. In 2017, we started to receive royalties on the net sales of these three newly approved products.

In February 2013, a generic equivalent to Glumetza was approved by the FDA and in August 2016, two additional generic equivalents to Glumetza were approved by the FDA. In February 2016, Lupin Pharmaceuticals, Inc., in August 2017, Teva Pharmaceutical Industries Ltd., and in July 2018, Sun Pharmaceutical, Inc. each announced a launch of a generic equivalent approved product. Multiple generic versions of extended release metformin hydrochloride are currently approved by the FDA.

In May 2017, we received notification that a subsidiary of Valeant had launched an authorized generic equivalent product in February 2017, and we received royalties on such authorized generic equivalent product under the same terms as the branded Glumetza product, retroactive to February 2017. We continue to monitor whether the generic competition further affects sales of Glumetza and thus royalties on such sales paid to us, and the impact of the launched authorized generic equivalent.

Viscogliosi Brothers

Deal Summary

In June 2014, we entered into a Royalty Purchase and Sale Agreement (the “VB Royalty Agreement”) with VB, whereby VB conveyed to us the right to receive royalties on net sales of a spinal implant that has received pre-market approval from the FDA held by VB and commercialized by Paradigm Spine, LLC (“Paradigm Spine”), in exchange for a $15.5 million cash payment, less fees. Paradigm Spine was acquired in March 2019 by RTI Surgical Holdings, Inc.

The royalty rights acquired include royalties accruing from and after April 1, 2014. Under the terms of the VB Royalty Agreement, we receive all royalty payments due to VB pursuant to certain technology transfer agreements between VB and Paradigm Spine until we have received payments equal to 2.3 times the cash payment it made to VB, after which all rights to receive royalties will be returned to VB. VB’s ability to repurchase the royalty right for a specified amount expired on June 26, 2018.

Technology

The coflex® Interlaminar technology is an Interlaminar Stabilization® device indicated for use in one or two level lumbar stenosis from L1-L5 in skeletally mature patients with at least moderate impairment in function.

University of Michigan

Deal Summary

In November 2014, we acquired a portion of all royalty payments of the Regents of the University of Michigan’s (“U-M”) worldwide royalty interest in Cerdelga® (eliglustat) for $65.6 million pursuant to the Royalty Purchase and Sale Agreement with U-M (the “U-M Royalty Agreement”). Under the terms of the U-M Royalty Agreement, we receive 75% of all royalty payments due under U-M’s license agreement with Genzyme Corporation, a Sanofi company (“Genzyme”), until expiration of the licensed patents, excluding any patent term extension.

Technology

Cerdelga, an oral therapy for adult patients with Gaucher disease type 1, was developed by Genzyme. Cerdelga was approved in the United States in August 2014, in the European Union (“EU”) in January 2015 and in Japan in March 2015. In addition, marketing applications for Cerdelga are under review by other regulatory authorities. While marketing applications have been approved in the United States, the EU and Japan, national pricing and reimbursement decisions are delayed in some countries.

AcelRx

Deal Summary

In September 2015, we entered into a royalty interest assignment agreement (the “AcelRx Royalty Agreement”) with ARPI LLC, a wholly-owned subsidiary of AcelRx Pharmaceuticals, Inc., whereby we acquired the rights to receive a portion of the royalties and certain milestone payments on sales of Zalviso® (sufentanil sublingual tablet system) in the EU, Switzerland and Australia by AcelRx’s commercial partner, Grünenthal, in exchange for a $65.0 million cash payment. Under the terms of the AcelRx Royalty Agreement, we receive 75% of all royalty payments and 80% of the first four commercial milestone payments, due under AcelRx’s license agreement with Grüenthal until the earlier to occur of (i) receipt by us of payments equal to three times the cash payments made to AcelRx and (ii) the expiration of the licensed patents. Zalviso received marketing approval by the European Commission in September 2015. Grünenthal launched Zalviso in the second quarter of 2016 and we started to receive royalties in the third quarter of 2016.

Due to the slower than expected adoption of the product since its initial launch relative to our estimates and the increased variance noted between our forecast model and actual results in the three months ended June 30, 2019, we utilized a third-party expert in the second quarter of 2019 to reassess the market and expectations for the Zalviso product. Key findings from the third-party study included: the post-surgical PCA (Patient-Controlled Analgesia) market being smaller than previously forecasted; the higher price of the product relative to alternative therapies, the product not being used as

a replacement for systemic opioids and the design of the delivery device, which is pre-filled for up to three days of treatment, which limited its use in procedures with anticipated shorter recovery times. Based on this analysis and the impact to the projected sales-based royalties and milestones, we wrote down the fair value of the royalty asset by $60.0 million in the second quarter of 2019.

Technology

Zalviso is a combination drug and device product which, using a patient controlled dispenser, delivers a sub-lingual formulation of sufentanil, an opioid with a high therapeutic index.

KYBELLA

Deal Summary

In July 2016, we entered into a royalty purchase and sales agreement with an individual, whereby we acquired that individual’s rights to receive certain royalties on sales of KYBELLA® by Allergan plc in exchange for a $9.5 million cash payment and up to $1.0 million in future milestone payments based upon product sales targets. We started to receive royalty payments during the third quarter of 2016.

Technology

KYBELLA is an FDA approved injectable treatment for adults with moderate-to-severe fat below the chin, known as submental fat. KYBELLA contains deoxycholic acid which destroys fat cells and allows for a safer and less invasive alternative to surgical procedures.

Royalties from Queen et al. patents

We have been issued patents in the United States and elsewhere, covering the humanization of antibodies, which we refer to as our Queen et al. patents. Our Queen et al. patents, for which final patent expiry was in December 2014, covered, among other things, humanized antibodies, methods for humanizing antibodies, polynucleotide encoding in humanized antibodies and methods of producing humanized antibodies.

We previously entered into licensing agreements under our Queen et al. patents with numerous entities that are independently developing or have developed humanized antibodies. Under our licensing agreements, we are entitled to receive a flat-rate royalty based upon our licensees’ net sales of covered antibodies, although the royalties under these agreements have substantially ended.

Solanezumab is a Lilly-licensed humanized monoclonal antibody being tested in a study of older individuals who may be at risk of memory loss and cognitive decline due to Alzheimer’s disease. Lilly has characterized the study as an assessment of whether an anti-amyloid investigational drug in older individuals who do not yet show symptoms of Alzheimer's disease cognitive impairment or dementia can slow memory loss and cognitive decline. The study will also test whether solanezumab treatment can delay the progression of Alzheimer’s disease related brain injury on imaging and other biomarkers. If solanezumab is approved and commercialized pursuant to this clinical trial or another, we would be entitled to receive a royalty based on a "know-how" license for technology provided in the design of this antibody. The 2% royalty on net sales is payable for 12.5 years after the product's first commercial sale. The above described study is currently in Phase 3 testing with ~~results~~an estimated study completion date expected in ~~July~~January of ~~2022~~2023.

For the years ended December 31, 2019, 2018 and 2017, royalties from Queen et al. patents accounted for less than 1%, 2%, and 11% of our total revenues, respectively.

Competition

The underlying products associated with our income generating assets compete with existing products and are vulnerable to new branded or generic entrants in the marketplace.

~~Governmental~~Human ~~Regulation~~Capital

~~The~~As ~~research~~of December 31, ~~and~~2020, ~~development~~we had 11 full-time employees managing our intellectual property, ~~manufacturing~~operations and ~~marketing~~other ofcorporate ~~pharmaceutical~~activities, ~~and~~as ~~medical~~well ~~device~~as ~~products~~performing ~~are~~certain ~~subject~~essential tofunctions ~~regulation~~of bya ~~numerous~~public ~~governmental~~company. ~~authorities~~All of our employees were based in the United States. None of our employees are covered by a collective bargaining agreement, and ~~other~~we ~~countries~~consider our relationship with our employees to be good. WeAs a result of the dissolution process, our human capital resources objectives include, retaining, and incentivizing our ~~borrowers~~management team and ~~royalty-agreement~~other ~~counterparties,~~employees ~~depending~~as onwe ~~specific~~continue ~~activities~~our ~~performed~~monetization strategy. For example, ~~are~~the ~~subject~~Compensation toCommittee ~~these~~of ~~regulations~~the Board adopted a Wind Down Retention Plan in which our executive officers and other employees were eligible to participate. InUnder the ~~United~~Wind ~~States~~Down Retention Plan, participants have been eligible to earn a retention benefit in consideration for their continued employment with us as we continue our monetization strategy and dissolution process.

pharmaceuticals and medical devices are subject to regulation by both federal and various state authorities, including the FDA. The Federal Food, Drug and Cosmetic Act (“FFDCA”) governs the testing, manufacture, safety, efficacy, labeling, storage, record keeping, approval, advertising and promotion of pharmaceutical and medical device products, and with respect to biologics, compliance with the Public Health Service Act is also required. There are also comparable laws and regulations that apply at the state level and in other countries as well. For both currently marketed and products in development, failure to comply with applicable regulatory requirements can, among other things, result in delays, the suspension of regulatory approvals, as well as possible civil and criminal sanctions.

The process required by the FDA before a drug may be marketed in the United States generally involves the following:

• completion of preclinical laboratory tests, animal studies and formulation studies in compliance with the FDA’s good laboratory practice, or GLP, regulations;

• submission to the FDA of an investigational new drug application, or IND, which must become effective before human clinical trials may begin;

• approval by an independent institutional review board, or IRB, at each clinical site before each trial may be initiated;

• performance of adequate and well-controlled human clinical trials in accordance with good clinical practice, or GCP, requirements to establish the safety and efficacy of the proposed drug product for each indication;

• submission to the FDA of a new drug application, or NDA;

• satisfactory completion of an FDA advisory committee review, if applicable;

• satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the product is produced to assess compliance with current good manufacturing practice (“cGMP”), requirements and to assure that the facilities, methods and controls are adequate to preserve the drug’s identity, strength, quality and purity; and

• FDA review and approval of the NDA.

Preclinical Studies

Preclinical studies include laboratory evaluation of product chemistry, toxicity and formulation, as well as animal studies to assess potential safety and efficacy. An IND sponsor must submit the results of the preclinical tests, together with manufacturing information, analytical data and any available clinical data or literature, among other things, to the FDA as part of an IND. Some preclinical testing may continue even after the IND is submitted. An IND automatically becomes effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions related to one or more proposed clinical trials and places the clinical trial on a clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. As a result, submission of an IND may not result in the FDA allowing clinical trials to commence.

Clinical Trials

Clinical trials involve the administration of the investigational new drug to human subjects under the supervision of qualified investigators in accordance with GCP requirements, which include the requirement that all research subjects provide their informed consent in writing for their participation in any clinical trial. Clinical trials are conducted under protocols detailing, among other things, the objectives of the trial, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated. A protocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND. In addition, an IRB at each institution participating in the clinical trial must review and approve the plan for any clinical trial before it commences at that institution. Information about certain clinical trials must be submitted within specific timeframes to the National Institutes of Health, or NIH, for public dissemination on their www.clinicaltrials.gov website.

Human clinical trials are typically conducted in three sequential phases, which may overlap or be combined:

• Phase 1: The drug is initially introduced into healthy human subjects or patients with the target disease or condition and tested for safety, dosage tolerance, absorption, metabolism, distribution, excretion and, if possible, to gain an early indication of its effectiveness.

• Phase 2: The drug is administered to a limited patient population to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance and optimal dosage.

• Phase 3: The drug is administered to an expanded patient population, generally at geographically dispersed clinical trial sites, in well-controlled clinical trials to generate enough data to statistically evaluate the efficacy and safety of the product for approval, to establish the overall risk-benefit profile of the product, and to provide adequate information for the labeling of the product.

Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA and more frequently if serious adverse events occur. Phase 1, Phase 2 and Phase 3 clinical trials may not be completed successfully within any specified period, or at all. Furthermore, the FDA or the sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the research subjects are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious harm to patients.

Marketing Approval

Assuming successful completion of the required clinical testing, the results of the preclinical and clinical studies, together with detailed information relating to the product’s chemistry, manufacture, controls and proposed labeling, among other things, are submitted to the FDA as part of an NDA requesting approval to market the product for one or more indications. In most cases, the submission of an NDA is subject to a substantial application user fee. Under the Prescription Drug User Fee Act, or PDUFA, guidelines that are currently in effect, the FDA has a goal of ten months from the date of “filing” of a standard NDA for a new molecular entity to review and act on the submission. This review typically takes twelve months from the date the NDA is submitted to the FDA because the FDA has 60 days to make a “filing” decision.

In addition, under the Pediatric Research Equity Act of 2003, or PREA, as amended and reauthorized, certain NDAs or supplements to an NDA must contain data that are adequate to assess the safety and effectiveness of the drug for the claimed indications in all relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. The FDA may, on its own initiative or at the request of the applicant, grant deferrals for submission of some or all pediatric data until after approval of the product for use in adults, or full or partial waivers from the pediatric data requirements. The FDA also may require submission of a risk evaluation and mitigation strategy, or REMS, plan to ensure that the benefits of the drug outweigh its risks. The REMS plan could include medication guides, physician communication plans, assessment plans, and/or elements to assure safe use, such as restricted distribution methods, patient registries, or other risk minimization tools.

The FDA conducts a preliminary review of all NDAs within the first 60 days after submission, before accepting them for filing, to determine whether they are sufficiently complete to permit substantive review. The FDA may request additional information rather than accept an NDA for filing. In this event, the application must be resubmitted with the additional information. The resubmitted application is also subject to review before the FDA accepts it for filing. Once the submission is accepted for filing, the FDA begins an in-depth substantive review. The FDA reviews an NDA to determine, among other things, whether the drug is safe and effective and whether the facility in which it is manufactured, processed, packaged or held meets standards designed to assure the product’s continued safety, quality and purity.

The FDA may refer an application for a novel drug to an advisory committee. An advisory committee is a panel of independent experts, including clinicians and other scientific experts, that reviews, evaluates and provides a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions.

Before approving an NDA, the FDA typically will inspect the facility or facilities where the product is manufactured. The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, before approving an NDA, the FDA may inspect one or more clinical trial sites to assure compliance with GCP requirements. After evaluating the NDA and all related information, including the advisory committee recommendation, if any, and inspection reports regarding the manufacturing facilities and clinical trial sites, the FDA may issue an approval letter, or, in some cases, a complete response letter. A complete response letter generally contains a statement of specific conditions that must be met in order to secure final approval of the NDA and may require additional clinical or preclinical testing in order for FDA to reconsider the application. Even with submission of this additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval. If and when those conditions have been met to the FDA’s satisfaction, the FDA will typically issue an approval letter. An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications.

Even if the FDA approves a product, it may limit the approved indications for use of the product, require that contraindications, warnings or precautions be included in the product labeling, require that post-approval studies, including Phase 4 clinical trials, be conducted to further assess a drug’s safety after approval, require testing and surveillance programs to monitor the product after commercialization, or impose other conditions, including distribution and use restrictions or other risk management mechanisms under a REMS, which can materially affect the potential market and profitability of the product. The FDA may prevent or limit

further marketing of a product based on the results of post-marketing studies or surveillance programs. After approval, some types of changes to the approved product, such as adding new indications, manufacturing changes, and additional labeling claims, are subject to further testing requirements and FDA review and approval. Moreover, after approval of an NDA, a company may decide to launch an “authorized generic” version of the drug, which is an approved brand name drug that is marketed without the brand name on its label. Other than the fact that it does not have the brand name on its label, it is the exact same drug product as the branded product. While a separate NDA is not required for marketing an authorized generic, the FDA requires that the NDA holder notify the FDA if it markets an authorized generic. The NDA holder may market both the authorized generic and the brand-name product at the same time.

Special FDA Expedited Review and Approval Programs

The FDA has various programs, including, but not limited to, fast track designation, accelerated approval, priority review, and breakthrough therapy designation, which are intended to expedite or simplify the process for the development and FDA review of drugs that are intended for the treatment of serious or life-threatening diseases or conditions and demonstrate the potential to address unmet medical needs. The purpose of these programs is to provide important new drugs to patients earlier than under standard FDA review procedures.

To be eligible for a fast track designation, the FDA must determine, based on the request of a sponsor, that a product is intended to treat a serious or life-threatening disease or condition and demonstrates the potential to address an unmet medical need. The FDA will determine that a product will fill an unmet medical need if it will provide a therapy where none exists or provide a therapy that may be potentially superior to existing therapy based on efficacy or safety factors. The FDA may review sections of the NDA for a fast track product on a rolling basis before the complete application is submitted, if the sponsor provides a schedule for the submission of the sections of the NDA, the FDA agrees to accept sections of the NDA and determines that the schedule is acceptable, and the sponsor pays any required user fees upon submission of the first section of the NDA. The FDA may give a priority review designation to drugs that offer major advances in treatment, or provide a treatment where no adequate therapy exists. A priority review means that the goal for the FDA to review an application is six months, rather than the standard review of ten months under current PDUFA guidelines. Under the new PDUFA agreement, these six and ten-month review periods are measured from the “filing” date rather than the receipt date for NDAs for new molecular entities, which typically adds 60 days to the timeline for review and decision from the date of submission. Most products that are eligible for fast track designation are also likely to be considered appropriate to receive a priority review.

In addition, products studied for their safety and effectiveness in treating serious or life-threatening illnesses and that provide meaningful therapeutic benefit over existing treatments may be eligible for accelerated approval and may be approved on the basis of adequate and well-controlled clinical trials establishing that the drug product has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity or prevalence of the condition and the availability or lack of alternative treatments. As a condition of approval, the FDA may require a sponsor of a drug receiving accelerated approval to perform post-marketing studies to verify and describe the predicted effect on irreversible morbidity or mortality or other clinical endpoint, and the drug may be subject to accelerated withdrawal procedures.

Moreover, under the provisions of the Food and Drug Administration Safety and Innovation Act, or FDASIA, passed in July 2012, a sponsor can request designation of a product candidate as a “breakthrough therapy.” A breakthrough therapy is defined as a drug that is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. Drugs designated as breakthrough therapies are also eligible for accelerated approval. The FDA must take certain actions, such as holding timely meetings and providing advice, intended to expedite the development and review of an application for approval of a breakthrough therapy.

Even if a product qualifies for one or more of these programs, the FDA may later decide that the product no longer meets the conditions for qualification or decide that the time period for FDA review or approval will not be shortened.

Post-Approval Regulation

Drugs manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to recordkeeping, periodic reporting, product sampling and distribution, advertising and promotion and reporting of adverse experiences with the product. After approval, most changes to the approved

product, such as adding new indications or other labeling claims, are subject to prior FDA review and approval. There also are continuing, annual user fee requirements.

The FDA may impose a number of post-approval requirements as a condition of approval of an NDA. For example, the FDA may require post-marketing testing, including Phase 4 clinical trials and surveillance to further assess and monitor the product’s safety and effectiveness after commercialization.

In addition, drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and state agencies, and are subject to periodic unannounced inspections by the FDA and these state agencies for compliance with cGMP. Changes to the manufacturing process are strictly regulated and often require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP requirements and impose reporting and documentation requirements upon the sponsor and any third-party manufacturers that the sponsor may decide to use. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain cGMP compliance.

Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in mandatory revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical trials to assess new safety risks; or imposition of distribution or other restrictions under a Risk Evaluation and Mitigation Strategies (“REMS”) program. Other potential consequences include, among other things:

• restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls;

• fines, warning letters or holds on post-approval clinical trials;

• refusal of the FDA to approve pending NDAs or supplements to approved NDAs, or suspension or revocation of product approvals;

• product seizure or detention, or refusal to permit the import or export of products; or

• injunctions or the imposition of civil or criminal penalties.

The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market. Drugs may be promoted only for the approved indications and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability.

Medical Devices Regulation in the United States

Under the FFDCA, medical devices are classified into one of three classes—Class I, Class II or Class III—depending on the degree of risk associated with each medical device and the extent of control needed to ensure safety and effectiveness. Class I devices are those for which safety and effectiveness can be assured by adherence to the FDA’s general controls for medical devices, which include compliance with the applicable portions of the FDA’s Quality System Regulation, or QSR, facility registration and product listing, reporting of adverse medical events, and appropriate, truthful and non-misleading labeling, advertising, and promotional materials. Some Class I devices also require premarket clearance by the FDA through the 510(k) premarket notification process described below. Class II devices are subject to the FDA’s general controls, and any other special controls as deemed necessary by the FDA to ensure the safety and effectiveness of the device. Premarket review and clearance by the FDA for Class II devices is accomplished through the 510(k) premarket notification procedure, unless exempt. A Class III product is a product which has a new intended use or uses advanced technology that is not substantially equivalent to that of a legally marketed device. The safety and effectiveness of Class III devices cannot be assured solely by the General Controls and the other requirements described above. These devices almost always require formal clinical studies to demonstrate safety and effectiveness. Our current medical device products are classified as Class II medical devices.

When a 510(k) is required, the manufacturer must submit to the FDA a premarket notification submission demonstrating that the device is “substantially equivalent” to either: a device that was legally marketed prior to May 28, 1976, the date upon which the Medical Device Amendments of 1976 were enacted, and for which the FDA has not yet called for the submission of pre-market approval applications (“PMAs”), or is a device that has been reclassified from Class III to either Class II or I.

If the FDA agrees that the device is substantially equivalent to a predicate device, it will grant clearance to commercially market the device in the U.S. The FDA’s 510(k) clearance process usually takes from three to twelve months from the date the application

is submitted and filed with the FDA, but may take significantly longer and clearance is never assured. Although many 510(k) pre-market notifications are cleared without clinical data, in some cases, the FDA requires significant clinical data to support substantial equivalence. In reviewing a pre-market notification, the FDA may request additional information, including clinical data, which may significantly prolong the review process. If the FDA determines that the device, or its intended use, is not “substantially equivalent,” the FDA may deny the request for clearance. After a device receives 510(k) clearance, any subsequent modification of the device that could significantly affect its safety or effectiveness, or that would constitute a major change in its intended use, will require a new 510(k) clearance or could require pre-market approval. The FDA requires each manufacturer to make this determination initially, but the FDA may review any such decision and may disagree with a manufacturer’s determination. If the FDA disagrees with a manufacturer’s determination, the FDA may require the manufacturer to cease marketing and/or recall the modified device until 510(k) clearance or pre-market approval is obtained. We have modified aspects of some of our devices since receiving regulatory clearance and we have made the determination that new 510(k) clearances or pre-market approvals were not required.

In addition, over the last several years, the FDA has proposed reforms to its 510(k) clearance process, and such proposals could include increased requirements for clinical data and a longer review period, or could make it more difficult for manufacturers to utilize the 510(k) clearance process for their products. For example, in November 2018, FDA officials announced forthcoming steps that the FDA intends to take to modernize the premarket notification pathway under Section 510(k) of the FFDCA. Among other things, the FDA announced that it planned to develop proposals to drive manufacturers utilizing the 510(k) pathway toward the use of newer predicates. These proposals included plans to potentially sunset certain older devices that were used as predicates under the 510(k) clearance pathway, and to potentially publish a list of devices that have been cleared on the basis of demonstrated substantial equivalence to predicate devices that are more than 10 years old. In May 2019, the FDA solicited public feedback on these proposals. These proposals have not yet been finalized or adopted, and the FDA may work with Congress to implement such proposals through legislation.

More recently, in September 2019, the FDA finalized guidance describing an optional “safety and performance based” premarket review pathway for manufacturers of “certain, well-understood device types” to demonstrate substantial equivalence under the 510(k) clearance pathway by showing that such device meets objective safety and performance criteria established by the FDA, thereby obviating the need for manufacturers to compare the safety and performance of their medical devices to specific predicate devices in the clearance process. The FDA intends to develop and maintain a list of device types appropriate for the “safety and performance based” pathway and will continue to develop product-specific guidance documents that identify the performance criteria for each such device type, as well as the testing methods recommended in the guidance documents, where feasible.

Although unlikely for the types of medical devices marketed by us, the FDA may classify the device, or the particular use of the device, into Class III, and the device sponsor must then fulfill more rigorous PMA requirements. A PMA application, which is intended to demonstrate that a device is safe and effective, must be supported by extensive data, including extensive technical and manufacturing data and data from preclinical studies and human clinical trials. After a PMA application is submitted and filed, the FDA begins an in-depth review of the submitted information, which typically takes between one and three years, but may take significantly longer. During this review period, the FDA may request additional information or clarification of information already provided. Also, during the review period, an advisory panel of experts from outside the FDA will usually be convened to review and evaluate the application and provide recommendations to the FDA as to the approvability of the device. In addition, the FDA will conduct a pre-approval inspection of the manufacturing facility to ensure compliance with the QSR, which impose elaborate design development, testing, control, documentation and other quality assurance procedures in the design and manufacturing process. The FDA may approve a PMA application with post-approval conditions intended to ensure the safety and effectiveness of the device including, among other things, restrictions on labeling, promotion, sale and distribution and collection of long-term follow-up data from patients in the clinical study that supported approval. Failure to comply with the conditions of approval can result in materially adverse enforcement action, including the loss or withdrawal of the approval. New PMA applications or PMA supplements are required for significant modifications to the manufacturing process, labeling of the product and design of a device that is approved through the PMA process. PMA supplements often require submission of the same type of information as an original PMA, except that the supplement is limited to information needed to support any changes from the device covered by the original PMA, and may not require as extensive clinical data or the convening of an advisory panel.

A clinical trial is typically required to support a PMA application and is sometimes required for a 510(k) pre-market notification. Clinical trials generally require submission of an application for an Investigational Device Exemption, or IDE, to the FDA. The IDE application must be supported by appropriate data, such as animal and laboratory testing results, showing that it is safe to test the device in humans and that the investigational protocol is scientifically sound. The IDE application must be approved in advance by the FDA for a specified number of patients, unless the product is deemed a non-significant risk device and eligible for more abbreviated IDE requirements. Clinical trials for a significant risk device may begin once the IDE application is approved by the FDA as well as the appropriate institutional review boards at the clinical trial sites, and the informed consent of the patients

participating in the clinical trial is obtained. After a trial begins, the FDA may place it on hold or terminate it if, among other reasons, it concludes that the clinical subjects are exposed to an unacceptable health risk. Any trials we conduct must be conducted in accordance with FDA regulations as well as other federal regulations and state laws concerning human subject protection and privacy.

In addition, after a device is placed on the market, numerous FDA and other regulatory requirements continue to apply. These include establishment registration and device listing with the FDA; compliance with medical device reporting regulations, which require that manufacturers report to the FDA if their device may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if it were to recur; and compliance with corrections and removal reporting regulations, which require that manufacturers report to the FDA field corrections and product recalls or removals if undertaken to reduce a risk to health posed by the device or to remedy a violation of the FFDCA that may present a risk to health. The FDA and the Federal Trade Commission also regulate the advertising and promotion of our products to ensure that the claims we make are consistent with our regulatory clearances, that there is scientific data to substantiate the claims and that our advertising is neither false nor misleading. In general, we may not promote or advertise our products for uses not within the scope of our intended use statement in our clearances or make unsupported safety and effectiveness claims. Many regulatory jurisdictions outside of the United States have similar regulations to which we are subject.

Foreign Regulation of Drugs and Medical Devices

In order for us to market our products in countries outside the United States, we must obtain regulatory approvals and comply with extensive product and quality system regulations in other countries. These regulations, including the requirements for approvals or clearance and the time required for regulatory review, vary from country to country. Some countries have regulatory review processes which are substantially longer than U.S. processes. Failure to obtain regulatory authorizations or approvals in a timely manner and to meet all local requirements including language and specific safety standards in any foreign country in which we plan to market our products could prevent us from marketing products in such countries or subject us to sanctions and fines.

Commercialization of medical devices in Europe is regulated by the EU. The EU presently requires that all medical products bear the Conformité Européenne (“CE”) mark, for compliance with the Medical Device Directive (93/42/EEC) as amended. The CE mark is an international symbol of adherence to certain essential principles of safety and performance mandated in applicable European medical device directives, which once affixed, enables a product to be sold in member countries of the EU and those affiliated countries which accept the CE mark. The CE mark is also recognized in many countries outside of the EU, such as Australia, and can assist in the clearance process. In order to affix the CE mark on products, a recognized European Notified Body must certify a manufacturer’s quality system and design dossier for compliance with international and European requirements. To maintain authorization to apply the CE mark, we are subject to annual surveillance audits and periodic re-certification audits. In September 2013, the European Commission adopted a recommendation indicating that all Notified Bodies, including Presafe, an accredited certification body, should carry out unannounced audits, at least once every third year, of the manufacturers whose medical devices they have certified. These unannounced audits can also extend to the manufacturer’s critical suppliers or sub-contractors (those that supply a critical input or perform a critical function for the manufacturer).

Federal, State and Foreign Fraud and Abuse and Physician Payment Transparency Laws

We are also subject to federal and state healthcare laws and regulations pertaining to fraud and abuse, physician payment transparency, privacy, and security laws and regulations. These laws include, without limitation: foreign, federal, and state anti-kickback and false claims laws, as well as transparency laws regarding payments or other items of value provided to healthcare providers. The federal Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving any remuneration (including any kickback, bribe or rebate), directly or indirectly, overtly or covertly, in cash or in kind to induce or in return for purchasing, leasing, ordering or arranging for or recommending the purchase, lease or order of any good, facility, item or service reimbursable, in whole or in part, under Medicare, Medicaid or other federal healthcare programs. The term “remuneration” has been broadly interpreted to include anything of value, including stock, stock options and the compensation derived through ownership interests.

Recognizing that the federal Anti-Kickback Statute is broad and may prohibit many innocuous or beneficial arrangements within the healthcare industry, the Department of Health and Human Services issued regulations in July 1991, which the Department has referred to as “safe harbors.” These safe harbor regulations set forth certain provisions which, if met in form and substance, will assure pharmaceutical, biotechnology and medical device manufacturers, healthcare providers and other parties that they will not be prosecuted under the federal Anti-Kickback Statute. Additional safe harbor provisions providing similar protections have been published intermittently since 1991. Although there are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution, the exceptions and safe harbors are drawn narrowly. Practices that involve

remuneration that may be alleged to be intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exception or safe harbor. Failure to meet all of the requirements of a particular applicable statutory exception or regulatory safe harbor does not make the conduct per se illegal under the federal Anti-Kickback Statute. Instead, the legality of the arrangement will be evaluated on a case-by-case basis based on a cumulative review of all its facts and circumstances. Several courts have interpreted the statute’s intent requirement to mean that if any one purpose of an arrangement involving remuneration is to induce referrals of federal healthcare covered business, the federal Anti-Kickback Statute has been violated. In addition, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. Moreover, a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal civil False Claims Act (described below).

Violations of the federal Anti-Kickback Statute may result in civil monetary penalties, plus up to three times the remuneration involved. Civil penalties for such conduct can further be assessed under the federal False Claims Act. Violations can also result in criminal penalties, including criminal fines and imprisonment. Similarly, violations can result in exclusion from participation in government healthcare programs, including Medicare and Medicaid. Liability under the federal Anti-Kickback Statute may also arise because of the intentions or actions of the parties with whom we do business. Conduct and business arrangements that do not fully satisfy one of these safe harbor provisions may result in increased scrutiny by government enforcement authorities. The majority of states also have anti-kickback laws which establish similar prohibitions and, in some cases may apply more broadly to items or services covered by any third-party payor, including commercial insurers and self-pay patients.

The federal civil False Claims Act prohibits, among other things, any person or entity from knowingly presenting, or causing to be presented, a false or fraudulent claim for payment or approval to the federal government or knowingly making, using or causing to be made or used a false record or statement material to a false or fraudulent claim to the federal government. A claim includes “any request or demand” for money or property presented to the U.S. government. The federal civil False Claims Act also applies to false submissions that cause the government to be paid less than the amount to which it is entitled, such as a rebate. Intent to deceive is not required to establish liability under the civil federal civil False Claims Act.

In addition, private parties may initiate “qui tam” whistleblower lawsuits against any person or entity under the federal civil False Claims Act in the name of the government and share in the proceeds of the lawsuit. Penalties for federal civil False Claim Act violations include fines for each false claim, plus up to three times the amount of damages sustained by the federal government and, most critically, may provide the basis for exclusion from the federally funded healthcare program. On May 20, 2009, the Fraud Enforcement Recovery Act of 2009, or FERA, was enacted, which modifies and clarifies certain provisions of the federal civil False Claims Act. In part, the FERA amends the federal civil False Claims Act such that penalties may now apply to any person, including an organization that does not contract directly with the government, who knowingly makes, uses or causes to be made or used, a false record or statement material to a false or fraudulent claim paid in part by the federal government. The government may further prosecute conduct constituting a false claim under the federal criminal False Claims Act. The criminal False Claims Act prohibits the making or presenting of a claim to the government knowing such claim to be false, fictitious or fraudulent and, unlike the federal civil False Claims Act, requires proof of intent to submit a false claim. When an entity is determined to have violated the federal civil False Claims Act, the government may impose civil fines and penalties, plus treble damages, and exclude the entity from participation in Medicare, Medicaid and other federal healthcare programs.

The federal Civil Monetary Penalty Act of 1981 imposes penalties against any person or entity that, among other things, is determined to have presented or caused to be presented a claim to a federal healthcare program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent, or offering or transferring remuneration to a federal healthcare beneficiary that a person knows or should know is likely to influence the beneficiary’s decision to order or receive items or services reimbursable by the government from a particular provider or supplier.

The Health Insurance Portability and Accountability Act of 1996, or HIPAA, also created additional federal criminal statutes that prohibit among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors; knowingly and willfully embezzling or stealing from a healthcare benefit program; willfully obstructing a criminal investigation of a healthcare offense; and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.

Many foreign countries have similar laws relating to healthcare fraud and abuse. Foreign laws and regulations may vary greatly from country to country. For example, the advertising and promotion of our products is subject to EU Directives concerning misleading and comparative advertising and unfair commercial practices, as well as other EEA Member State legislation governing the advertising and promotion of medical devices. These laws may limit or restrict the advertising and promotion of our

products to the general public and may impose limitations on our promotional activities with healthcare professionals. Also, many U.S. states have similar fraud and abuse statutes or regulations that may be broader in scope and may apply regardless of payor, in addition to items and services reimbursed under Medicaid and other state programs.

Additionally, there has been a recent trend of increased foreign, federal, and state regulation of payments and transfers of value provided to healthcare professionals or entities. The federal Physician Payments Sunshine Act imposes annual reporting requirements on certain drug, biologics, medical supplies and device manufacturers for which payment is available under Medicare, Medicaid or Children’s Health Insurance Program for payments and other transfers of value provided by them, directly or indirectly, to physicians (including physician family members) and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members. A manufacturer’s failure to submit timely, accurately and completely the required information for all payments, transfers of value or ownership or investment interest may result in civil monetary penalties. Manufacturers must submit reports by the 90th day of each calendar year. Certain foreign countries and U.S. states also mandate implementation of commercial compliance programs, impose restrictions on device manufacturer marketing practices and require tracking and reporting of gifts, compensation and other remuneration to healthcare professionals and entities.

Coverage and reimbursement

In the United States and markets in other countries, patients who are prescribed treatments for their conditions and providers performing the prescribed services generally rely on third-party payors to reimburse all or part of the associated healthcare costs. Patients are unlikely to use our products or the products for which we receive royalty revenue unless coverage is provided, and reimbursement is adequate to cover a significant portion of the cost. Sales of any products therefore depend, in part, on the availability of coverage and adequate reimbursement from third-party payors. Third-party payors include government authorities, managed care plans, private health insurers and other organizations.

The process for determining whether a third-party payor will provide coverage for a pharmaceutical or device product typically is separate from the process for setting the price of such product or for establishing the reimbursement rate that the payor will pay for the product once coverage is approved. Third-party payors may limit coverage to specific products on an approved list, also known as a formulary, which might not include all of the FDA-approved products for a particular indication. A decision by a third-party payor not to cover our products could reduce physician utilization of our products and have a material adverse effect on our sales, results of operations and financial condition. Moreover, a third-party payor’s decision to provide coverage for a pharmaceutical or device product does not imply that an adequate reimbursement rate will be approved. Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development. Additionally, coverage and reimbursement for products can differ significantly from payor to payor. One third-party payor’s decision to cover a particular medical product or service does not ensure that other payors will also provide coverage for the medical product or service, or will provide coverage at an adequate reimbursement rate.

For our medical device business, the reimbursement to the facility from third-party payors is intended to cover the overall cost of treatment, including the cost of our devices used during the procedure as well as the overhead cost associated with the facility where the procedure is performed. We do not directly bill any third-party payors; instead, we receive payment from the hospital or other facility that uses our devices. Failure by physicians, hospitals, and other users of our devices to obtain sufficient coverage and reimbursement from healthcare payors for procedures in which our devices are used, or adverse changes in government and private third-party payors’ policies could have a material adverse effect on our business, financial condition, results of operations and future growth prospects.

In addition, there are periodic changes to reimbursement. Third-party payors regularly update reimbursement amounts and also from time to time revise the methodologies used to determine reimbursement amounts. This includes annual updates to payments to physicians, hospitals and other facilities for procedures during which our devices are used. Because the cost of our devices generally is recovered by the healthcare provider as part of the payment for performing a procedure and not separately reimbursed, these updates could directly impact the demand for our devices. An example of such payment updates is the Medicare program’s updates to hospital and physician payments, which are done on an annual basis using a prescribed statutory formula. In the past, with respect to reimbursement for physician services under the Medicare Physician Fee Schedule, when the application of the formula resulted in lower payment, Congress has passed interim legislation to prevent the reductions.

The containment of healthcare costs is a priority of federal, state and foreign governments, and the prices of pharmaceutical or device products have been a focus in this effort. Third-party payors are increasingly challenging the prices charged for medical products and services, examining the medical necessity and reviewing the cost-effectiveness of pharmaceutical products, medical devices and medical services, in addition to questioning safety and efficacy. If these third-party payors do not consider our

products to be cost-effective compared to other available therapies, they may not cover our products or, if they do, the level of payment may not be sufficient to allow us to sell our products at a profit.

Healthcare Reform

The United States and some foreign jurisdictions are considering or have enacted a number of legislative and regulatory proposals to change the healthcare system in ways that could affect our ability to sell our products profitably. Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality or expanding access. Current and future legislative proposals to further reform healthcare or reduce healthcare costs may limit coverage of or lower reimbursement for the procedures associated with the use of our products. The cost containment measures that payors and providers are instituting, and the effect of any healthcare reform initiative implemented in the future could impact our revenue from the sale of our products.

The implementation of the Affordable Care Act, (the “ACA”), in the United States, for example, has changed healthcare financing and delivery by both governmental and private insurers substantially, and affected medical device manufacturers significantly. The ACA imposed, among other things, a 2.3% federal excise tax, with limited exceptions, on any entity that manufactures or imports Class I, II and III medical devices offered for sale in the United States that began on January 1, 2013. Through a series of legislative amendments, the tax was suspended for 2016 through 2019. The device excise tax was repealed on December 20, 2019. The ACA also provided incentives to programs that increase the federal government’s comparative effectiveness research, and implemented payment system reforms including a national pilot program on payment bundling to encourage hospitals, physicians and other providers to improve the coordination, quality and efficiency of certain healthcare services through bundled payment models. Additionally, the ACA has expanded eligibility criteria for Medicaid programs and created a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research. We do not yet know the full impact that the ACA will have on our business.

There have been judicial and Congressional challenges to certain aspects of the ACA, and we expect additional challenges and amendments in the future. Moreover, the Trump Administration and the U.S. Congress may take further action regarding the ACA, including, but not limited to, repeal or replacement.

Moreover, other legislative changes have been proposed and adopted since the ACA was enacted. For example, the Budget Control Act of 2011, among other things, included reductions to Medicare payments to providers of 2% per fiscal year, which went into effect on April 1, 2013 and, due to subsequent legislative amendments to the statute, will remain in effect through 2025 unless additional Congressional action is taken. Additionally, the American Taxpayer Relief Act of 2012, among other things, reduced Medicare payments to several providers, including hospitals, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.

We expect additional state and federal healthcare reform measures to be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our products or additional pricing pressure.

In addition, changes in existing regulations could have a material adverse effect on us or our licensees, borrowers or royalty-agreement counterparties. For a discussion of the risks associated with government regulations, see Item 1A, “Risk Factors.”

Manufacturing

Our manufacturing processes are required to comply with the FDA’s cGMP requirements, which for medical devices, are contained in its QSR and associated regulations and guidance. The QSR covers, among other things, the methods used in, and the facilities and controls used for, the design, manufacture, packaging, labeling, storage, installation, and servicing of all medical devices intended for human use. The QSR also requires maintenance of extensive records which demonstrate compliance with FDA regulation, the manufacturer’s own procedures, specifications, and testing as well as distribution and post-market experience. Compliance with the QSR is necessary to receive FDA clearance or approval to market new products and is necessary for a manufacturer to be able to continue to market cleared or approved product offerings in the United States. A company’s facilities, records, and manufacturing processes are subject to periodic scheduled or unscheduled inspections by the FDA, which may issue reports known as Forms FDA 483 or Notices of Inspectional Observations which list instances where the FDA inspector believes the manufacturer has failed to comply with applicable regulations and/or procedures. If the observations are sufficiently serious or the manufacturer fails to respond appropriately, the FDA may issue Warning Letters, or Untitled Letters, which are notices of potential enforcement actions against the manufacturer. If a Warning Letter or Untitled Letter is not addressed to the satisfaction of the FDA, or if the FDA becomes aware of any other serious issue with a manufacturer’s products

or facilities, it could result in fines, injunctions, civil penalties, delays, suspension or withdrawal of clearances, seizures or recalls of products, operating restrictions, total shutdown of production facilities, prohibition on export or import and criminal prosecution. Such actions may have further indirect consequences for the manufacturer outside of the United States, and may adversely affect the reputation of the manufacturer and the product. In the United States, routine FDA inspections usually occur every two years, and may occur more often for cause.

To a greater or lesser extent, most other countries require some form of quality system and regulatory compliance, which may include periodic inspections, inspections by third-party auditors, and specialized documentation. Failure to meet all the requirements of these countries could jeopardize our ability to import, market, support, and receive reimbursement for the use of our products in these countries. In addition to the above, we may seek to conduct clinical studies or trials in the United States or other countries on products that have not yet been cleared or approved for a particular indication. Products manufactured outside the United States by or for us are subject to U.S. Customs and FDA inspection upon entry into the United States. We must demonstrate compliance of such products to U.S. regulations and carefully document the eventual distribution or re-exportation of such products. Failure to comply with all applicable regulations could prevent us from having access to products or components critical to the manufacture of finished products and lead to shortages and delays.

Employees

As of December 31, 2019, we had 20 full-time employees managing our intellectual property, acquisitions, operations and other corporate activities, including providing management oversight, accounting, legal and tax support and administrative assistance to our subsidiaries, as well as performing certain essential functions of a public company. In addition, we had 89 full-time employees at our operating subsidiaries, Noden and LENSAR, who manage the subsidiaries’ businesses and operations. Geographically, 96 employees were based in the United States and 13 employees were located internationally. None of our employees are covered by a collective bargaining agreement, and we consider our relationship with our employees to be good.

About PDL

We were incorporated under the laws of the state of Delaware in 1986 under the name Protein Design Labs, Inc. In 2006, we changed our name to PDL BioPharma, Inc. Our business previously included a biotechnology operation that was focused on the discovery and development of novel antibodies. We spun-off the operation to our stockholders as Facet Biotech Corporation (“Facet”) in December 2008. Our principal executive offices are located at ~~932~~10585 ~~Southwood~~Double R Boulevard, ~~Incline Village~~Reno, Nevada, ~~89451~~89521, (775) 832-8500, and our website address is www.pdl.com. The information in or accessible through our website is not incorporated into, and is not considered part of, this filing.

Available Information

We file electronically with the ~~U.S. Securities and Exchange Commission (the “~~SEC”) our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that website is www.sec.gov.

We make available free of charge on or through our website at www.pdl.com our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and proxy statements, as well as amendments to these reports and statements, as soon as practicable after we have electronically filed such material with, or furnished them to, the SEC. You may also obtain copies of these filings free of charge by calling us at (775) 832-8500. Also, our Audit Committee Charter, Compensation Committee Charter, Nominating and Governance Committee Charter, Litigation Committee Charter, Corporate Governance Guidelines and Code of Business Conduct, as well as amendments thereto, are also available free of charge on our website or by calling the number listed above. The information in or accessible through the SEC and our website is not incorporated into, and is not considered part of, this filing.

We operate our business as four segments as defined by U.S. generally accepted accounting principles. Our financial results for the years ended December 31, 2019 and 2018 are discussed in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this annual report. For management’s discussion covering the fiscal year ended December 31, 2017, please refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Form 10-K for the fiscal year ended December 31, 2018. Our financial results for the years ended December 31, 2019, 2018 and 2017 are discussed in “Item 8~~. Financial Statements and Supplementary Data” of this Annual Report.~~

24also obtain copies of these filings free of charge by calling us at (775) 832-8500. The information in or accessible through the SEC and our website is not incorporated into, and is not considered part of, this filing.

On January 8, 2021, we filed a Form 15 notifying the SEC of deregistration of our common stock under Section 12(g) of the Exchange Act and suspension of our duty to file reports under Sections 13 and 15(d) of the Exchange Act.

ITEM 1A. RISK FACTORS

~~You~~RISK should carefully consider and evaluate all of the information included and incorporated by reference in this Annual Report, including the risk factors listed below. Any of these risks, as well as other risks and uncertainties, could materially and adversely affect our business, results of operations and financial condition, which in turn could materially and adversely affect the trading price of shares of our common stock. Additional risks not currently known or currently material to us may also harm our business.FACTORS

WeSet ~~are~~forth ~~exploring~~below and ~~evaluating~~elsewhere ~~potential~~in ~~transactions~~this ~~pursuant~~Annual toReport ~~our~~on ~~monetization~~Form ~~strategy~~10-K and ~~plan~~in ofother ~~complete~~documents ~~liquidation~~we file with the Securities and ~~there~~Exchange ~~can~~Commission be(SEC) noare ~~assurance~~descriptions of the risks and uncertainties that wecould ~~will~~cause beour ~~successful~~actual inresults ~~identifying~~to ordiffer ~~completing~~materially ~~any~~from ~~potential~~the ~~transaction~~results orcontemplated ~~otherwise~~by ~~providing~~forward ~~value~~looking tostatements ~~our~~contained ~~stockholders~~in orthis ~~successfully~~Annual ~~implementing~~Report on Form 10-K. You should carefully consider and evaluate all of the ~~strategy~~information included in this report, ~~that~~including ~~any~~the ~~such~~risk ~~potential~~factors ~~transactions~~set ~~will~~forth. ~~yield~~The ~~significant~~following ~~value~~is ~~for~~not ~~stockholders~~an orexhaustive ~~that~~discussion of all of the ~~process~~risks ~~will~~facing our company. Additional risks not ~~have~~presently anknown ~~adverse~~to ~~impact~~us onor that we currently deem immaterial may impair our ~~business~~wind-down.

InRisks ~~September 2019,~~Related ~~in an effort~~ to ~~enhance~~Our stockholder value, we commenced a review of strategic alternatives, including a possible sale or liquidation of our company. In December 2019, we announced that we had completed the strategic review process that we had initiated in September 2019 and that, as a result, we had decided to halt the execution of its growth strategy, cease additional strategic investments and pursue a formal process that is intended to unlock value by monetizing the Company’s assets and returning any available net proceeds to stockholders. We further announced in December 2019 that we would explore a variety of potential transactions in connection with such monetization strategy, including a sale of our company, divestiture of our assets or businesses, a spin-off transaction, a merger or a combination thereof. In February of 2020, the board of directors approved, consistent with our monetization strategy, a plan of complete liquidation and passed a resolution to seek stockholder approval to dissolve the Company under Delaware law at its next annual stockholder meeting. However, there can be no assurance that the exploration of one or more potential monetization transactions will result in the identification or consummation of any transaction, the period of time it will take to effect the strategy, or that we will be successful in implementing the strategy.Dissolution

~~The~~There ~~success~~can ofbe ~~our~~no ~~strategy~~assurances ~~will~~as ~~depend on our ability~~ to identify and complete one or more transactions that will capture value for our assets, and on numerous other factors, many of which are beyond our control. Such factors include market conditions, industry trends, the ~~interest~~amount of third parties in our business and assets and the availability of financing to potential buyers. Our stock price or the value of net proceeds we are able to generate from the monetization process may be adversely affected if the process is delayeddistributions, ~~does not result in one or more successful transactions or~~ if ~~we are not able to execute the strategy. Even if one or more transactions are completed~~any, ~~there can be no assurance that they will have a positive effect on stockholder value. Our board of directors may determine~~ to ~~modify, amend or terminate the strategy at any time. If our board of directors were to so determine, there could~~ be amade ~~material adverse effect on our business, financial condition and results of operations, and we would need~~ to ~~continue to operate~~ our ~~business and seek to grow it and create stockholder value~~stockholders.

InWe ~~addition,~~filed ~~our~~for ~~financial~~dissolution ~~results~~in ~~and~~January ~~operations may be adversely affected by our monetization strategy and by the uncertainty regarding its outcome. Management and our board~~ of ~~directors~~2021 ~~have been~~ and ~~will~~intend ~~continue~~ to ~~focus~~use onthe ~~our~~dissolution ~~monetization~~process ~~strategy~~under asDelaware ~~well~~law asto onliquidate ~~the continued operations of~~ our ~~business~~remaining ~~until~~assets, ~~such~~settle ~~time~~claims and, if ~~any~~available, ~~that~~make ~~the~~liquidating ~~monetization~~distributions ~~strategy~~of ~~has~~cash ~~been successfully executed~~ or ~~abandoned.~~other ~~Additionally,~~property ~~we have directed capital resources~~ to ~~the~~our ~~strategy~~stockholders. ~~that~~However, ~~otherwise could have been used in~~ our ~~business~~dissolution ~~operations,~~ and ~~we expect to continue to do so until~~ the ~~process~~liquidation isof ~~completed~~our orremaining aassets ~~determination is made that we~~ will nobe ~~longer~~subject ~~pursue the strategy. We expect~~ to ~~incur substantial expenses associated with identifying and evaluating potential transactions~~uncertainties, ~~including those related to employee retention payments, equity compensation, severance pay, directors~~ and ~~officers~~it ~~insurance,~~is ~~taxes,~~possible ~~and~~that ~~legal,~~there ~~accounting~~will ~~and financial advisory fees. The process of exploring potential transactions is expected to~~ be ~~time~~no ~~consuming~~additional ~~and~~liquidating ~~disruptive~~distribution tomade ~~our current business operations and, if we are unable~~ to ~~effectively manage the process,~~ our ~~business, financial condition and results of operations would be adversely affected~~stockholders.

~~Furthermore~~We intend to rely on the “safe harbor” procedures under Sections 280 and 281(a) of the Delaware General Corporation Law (the DGCL) to, ~~speculation~~among ~~regarding~~other ~~any~~things, ~~developments~~obtain ~~related~~an order from the Delaware Court of Chancery (the Court Order) establishing the amount and form of security for pending claims for which the Company is a party, contingent or unmatured contract claims for which the holder declined the Company’s offer of a security, and unknown claims that, based on facts known to the ~~review~~Company, are likely to arise or become known within five years from the filing of ~~strategic~~the ~~alternatives~~Certificate of Dissolution (or such longer period of time, not to exceed ten years, as the Delaware Court of Chancery may determine), and ~~perceived~~pay ~~uncertainties~~or ~~related~~make reasonable provision for our uncontested known claims and expenses and establish reserves for other claims as required by the Court Order and the DGCL. We expect to distribute all of our remaining assets in excess of the ~~implementation~~amount to be used by us to pay claims and fund the reserves required by the Court Order and pay our operating expenses through the completion of the ~~monetization~~dissolution ~~strategy~~and ~~could~~winding-down ~~cause~~process to our ~~stock~~stockholders. ~~price~~The Court Order will reflect the Delaware Court of Chancery’s own determination as to ~~fluctuate~~the ~~significantly~~amount and form of security reasonably likely to be sufficient to provide compensation for all known, contingent and potential future claims against us. There can be no assurances that the Delaware Court of Chancery will not require us to withhold additional amounts in excess of the amounts that we believe are sufficient to satisfy our potential claims and liabilities. Accordingly, stockholders may not receive any distributions of our remaining assets, if any, for a substantial period of time.

WeIn ~~cannot~~addition, ~~assure~~there ~~you~~are ~~that~~numerous wefactors ~~will~~that becould ~~able~~impact tothe ~~successfully~~amount ~~implement~~of ~~our~~the ~~monetization~~reserves ~~strategy~~to orbe ~~that~~determined ~~any~~by ~~transaction~~the weCourt ~~may~~Order, ~~enter~~and ~~into~~consequently ~~pursuant to~~ the ~~strategy~~amount ~~would~~of ~~yield~~cash ~~significant~~initially ~~value~~available for ~~our stockholders. We also cannot assure you that any potential transaction or other strategic alternative~~distribution, if ~~identified~~any, ~~evaluated and consummated, will provide greater value~~ to our stockholders ~~than~~following ~~that~~the ~~reflected~~filing inof the ~~current~~Certificate ~~stock~~of ~~price.~~Dissolution, including without limitation:

~~Our~~•whether ~~efforts~~any toclaim ~~enhance~~is ~~stockholder~~resolved ~~value~~or ~~through~~barred ~~our~~pursuant ~~monetization~~to ~~strategy~~Section ~~may~~280 ~~not~~of bethe ~~successful.~~DGCL;

We•unanticipated ~~cannot~~costs ~~assure~~relating ~~you that our efforts~~ to ~~enhance~~the ~~stockholder~~defense, ~~value~~satisfaction ~~through~~or ~~the~~settlement ~~conduct~~ of ~~our~~existing ~~monetization~~or ~~strategy~~future ~~will~~lawsuits ~~succeed.~~or ~~There~~other ~~will~~claims bethreatened ~~risks~~against ~~associated with any potential divestiture transaction, including whether we will attract potential acquirers for~~ us;

25•whether unforeseen claims are asserted against us, in which case we would have to defend or resolve such claims and/or be required to establish additional reserves to provide for such claims;

•the ~~Company,~~amount ~~its~~of ~~assets~~time ~~or its businesses, and whether offers made by such potential acquirors, if any, will be at valuations that we deem reasonable. Moreover, we are not able to predict how long~~ it will take us to ~~implement~~liquidate ~~our~~all ~~monetization strategy. The timing and terms~~ of ~~any transaction will depend on a variety of factors, many of which are beyond~~ our ~~control.~~remaining Anon-cash ~~delay in~~assets, orand ~~failure~~the toamount ~~complete,~~of any ~~such~~costs ~~transaction could have a material effect on our stock price~~ and ~~the~~expenses ~~amount~~that ofmay ~~any~~be ~~potential~~incurred ~~distributions~~in toconnection ~~our~~therewith; ~~stockholders.~~

~~If we were to pursue a plan of dissolution, there can be no assurance as to~~ •the amount, ~~if any,~~ of cash orcollected ~~other~~from ~~property~~amounts ~~that~~due ~~could~~from beprevious ~~distributed~~asset tosales, ~~our~~such ~~stockholders~~as orour ~~the~~sale ~~timing~~ of ~~any~~Noden ~~such~~to ~~future~~Stanley ~~distribution.~~Capital;

~~Assuming successful implementation of our monetization strategy and plan of complete liquidation, and an inability to sell~~ •the ~~Company~~time ~~as a whole, together with all or less than all of its assets, we expect~~ to ~~pursue~~complete a plan of dissolution as the most effective mechanism for wind-down of the Company and resolution of outstanding claims. If such a plan of dissolution were to be approved by our stockholders, once implemented through the filing of a Certificate of Dissolution and in accordance with Delaware law, known liabilities would be paid or provided for, reserves would be established for contingent known and unknown liabilities and any ~~remaining~~tax ~~assets~~audits ~~would be monetized with net proceeds ultimately distributed to stockholders. The period~~ for ~~claimants~~tax ~~to file claims against the Company following the filing of a Certificate of Dissolution is set at three~~ years byimpacted Delaware statute. However, to the extent the Company is subject to pending litigation, the Company would potentially continue its existence through the claims resolution process beyond the three-year period, with attendant expenses, until such litigation is resolved. After the filing of a Certificate of Dissolution, it is possible that remaining assets not sold during the pre-dissolution period would be monetized and net proceeds ultimately distributed, subject to the claims resolution process. We expect that we would have limited or no new revenue generation sources or activities and that we would not engage in further business activities following the adoption of a dissolution plan and the filing of a Certificate of Dissolution except for winding up our business, selling or disposing of any of our remaining saleable assets, satisfying and providing for our liabilities and claims, and distributing net proceeds to stockholders. The amount and timing of any distributions to stockholders would be determined by our board of directors (or the trustee of a liquidating trust if our assets and liabilities are transferred to a liquidating trust pursuant to a plan of liquidation and dissolution), in its sole discretion, and would depend, in part, on our ability to settle or otherwise resolve and provide for all of our remaining liabilities and contingencies and convert any remaining assets into cash. In addition, after the filing of a Certificate of Dissolution, the Company expects to follow a process which will involve appearances before the Delaware courts to obtain the court’s confirmation that stockholder distributions are in compliance with Delaware law, including whether the Company has set aside sufficient funds as a reserve for claims, and these proceedings may delay or limit such post-dissolution distributions. If we pursue liquidation and dissolution, uncertainties as to the amount of our liabilities and the disposition value, if any, of our remaining assets make it impractical to predict the net value which might ultimately be distributable to our stockholders. No assurance can be given that available cash and any amounts ~~received~~claimed onunder ~~any sale of assets will be adequate to provide for our obligations, liabilities, expenses and claims and to make cash distributions to stockholders. We also cannot assure you that~~ the ~~value~~CARES ~~of any distribution in liquidation would equal the price or prices at which our common stock has recently traded or may trade in the future.~~Act;

We•the ~~cannot~~value, ~~predict~~if ~~the timing~~any, ~~amount~~we orare ~~mechanics~~able ofto ~~any~~obtain ~~potential~~for ~~distributions~~our toremaining non-cash assets in our ~~stockholders.~~monetization process;

~~Many~~•whether ~~unknown~~our ~~variables~~royalty ~~will~~assets, ~~affect~~for the ~~amount,~~next ~~timing~~couple ~~and mechanics~~ of ~~any potential distributions to stockholders. Factors that could have a material effect on the amount of any potential future distributions include~~years, ~~but~~and ~~are~~afterwards ~~not~~if ~~limited~~retained ~~to, decreases~~ in ~~the purchase price that third parties are willing to pay for our assets,~~ a ~~failure~~liquidation ~~to sell our assets~~trust, ~~the~~continue ~~amount of assets and corporate wind-down related operating and other expenses, the Company’s tax treatment, any required reserves~~ to ~~address~~perform potential liabilities, including retained and contingent liabilities (including, but not limited to those arising from any sales of the Company’s assets), and/or other unforeseen events. These and other factors, such as ~~the~~expected; ~~procedures established under Delaware law for the dissolution of a corporation, could also delay the timing of any potential distributions.~~and

A•whether ~~delay~~any of the expenses incurred in the ~~sales~~winding-down process, including expenses of ~~our~~required ~~assets~~personnel isand ~~likely~~other operating expenses (including legal, accounting and other professional fees) necessary to ~~decrease~~dissolve and liquidate the ~~funds~~Company, ~~available~~are ~~for~~more ~~distribution~~or toless ~~stockholders~~than our estimates.

~~Potential liabilities and expenses from operations (including~~Further, ~~but~~the ~~not~~amount ~~limited~~of toany ~~operating~~distributable ~~costs~~proceeds ~~such as salaries, directors’ fees, directors’~~ and ~~officers’~~our ~~insurance,~~ability ~~federal and state income taxes, payroll and local taxes, legal, investment banking, consulting and accounting fees and miscellaneous office expenses) will continue~~ to bemake ~~incurred~~distributions ~~by us as we seek~~ to ~~sell~~ our ~~assets~~stockholders ~~and~~depend ~~wind-down~~on our ~~operations.~~ability Into ~~the~~execute ~~event~~our ~~that~~monetization ~~any~~strategy ~~sales~~for of our ~~assets~~remaining ~~are~~non-cash ~~delayed~~assets, wewhich ~~may~~is ~~incur~~subject ~~additional~~to ~~liabilities~~significant risks and ~~expenses from operations~~uncertainties, ~~that~~as ~~will~~further ~~reduce~~discussed ~~the~~in ~~net~~other ~~funds~~risk ~~ultimately~~factors ~~available for distribution to our stockholders~~herein.

2610

~~Focus~~In onaddition, ~~our~~as ~~monetization~~we ~~strategy~~wind ~~could~~down, ~~materially~~we will continue to incur costs to manage the remaining business, such as salaries and ~~adversely~~other ~~affect~~employee ~~our~~compensation, ~~existing~~rental ~~operating~~payments, ~~businesses~~insurance, and taxes, contractual obligations to current and former employees (e.g., true-up payments to holders of stock options that vested prior to the filing for dissolution) and other legal, accounting, financial advisory and consultant fees, which will reduce any amounts available for distribution to our stockholders.

~~Until such time, if any, as we are able to successfully implement our monetization strategy, we are subject to operational risks related to our existing business.~~ As a result of ~~our~~these ~~monetization strategy, our management’s focus~~ and ~~attention~~other ~~on such efforts may be diverted~~factors, ~~which~~we ~~could~~cannot ~~cause~~assure ~~disruption~~you ofas ~~our ongoing business or inconsistencies in standards and controls that could negatively affect our ability~~ to ~~maintain~~any ~~third-party~~amounts ~~relationships. Moreover, we do not anticipate raising additional capital, which could result in a shortfall in our cash resources that would limit our ability~~ to ~~operate our business profitably, and could otherwise have a material adverse effect on our business, results of operations, financial condition and prospects. Management will~~ be ~~required~~distributed to ~~devote sufficient attention to both the monetization strategy and continued development of~~ our ~~businesses~~stockholders ~~until~~in ~~the strategy is fully executed~~dissolution.

~~Our~~Liquidating ~~revenues~~distributions ~~from~~to ~~our~~stockholders ~~Pharmaceutical~~could ~~segment~~be ~~consist~~substantially ~~entirely~~reduced ~~of sales of the Noden Products,~~ and/or ~~our~~delayed ~~revenues~~due ~~from~~to ~~our~~uncertainty ~~Medical~~regarding ~~Devices segment consist entirely of sales and leasing of~~ the ~~LENSAR~~resolution ~~Laser System. The success~~ of ~~Noden~~potential istax ~~dependent upon the success of the prescription pharmaceutical products sold under the brand names Tekturna~~claims, ~~Tekturna~~litigation ~~HCT,~~matters ~~Rasilez~~ and ~~Rasilez~~other ~~HCT,~~unresolved ~~and~~contingent ~~there~~liabilities ~~can be no assurance that in the future we will be able to continue to successfully attain and maintain significant market acceptance~~ of ~~our products among physicians, patients, third-party payors and others in~~ the ~~health care community~~Company. ~~Failure to do so could adversely affect the value we receive from any sale of such products or businesses as part of our monetization strategy.~~

~~Also,~~Whether weany ~~have~~remaining ~~experienced~~assets ~~generic~~of ~~product~~the ~~competition~~Company ~~for~~can ~~our~~be ~~products,~~used ~~which~~to ~~may~~make ~~increase~~liquidating indistributions ~~the~~to ~~future~~stockholders ~~and~~would ~~reduce~~depend ~~our~~on ~~market~~whether ~~share.~~claims Infor ~~March~~which ~~2019,~~we ~~under~~have anset ~~agreement~~aside ~~with~~reserves ~~Prasco~~are ~~Laboratories,~~resolved ~~and~~or insatisfied ~~anticipation~~at ofamounts ~~the~~less ~~launch~~than ofsuch ~~third~~reserves ~~party~~and ~~generic~~whether ~~aliskiren~~a ~~products~~need byhas ~~Par~~arisen ~~Pharmaceuticals~~to establish additional reserves. For example, we ~~launched~~are insubject to tax audits by the ~~United~~California ~~States~~Franchise anTax ~~authorized~~Board ~~generic~~that ~~form~~have yet to be resolved, and the timing for resolution of ~~Tekturna~~such audits is uncertain. ~~There~~We cannot assure stockholders that our liabilities can be noresolved ~~assurance~~for ~~that~~less than the amounts we ~~will~~have bereserved, ~~able~~that tounknown ~~maintain~~liabilities ~~meaningful~~that ~~revenues~~have ~~from~~not ~~sales~~been ofaccounted ~~this~~for ~~authorized~~will ~~generic~~not ~~product,~~arise ~~and~~or ~~there~~the ~~can~~timing bewith norespect ~~assurance~~to ~~that~~resolution weof ~~will~~any besuch ~~able~~liabilities or claims. As a result, we may continue to ~~maintain~~hold ~~market~~back ~~acceptance~~funds ofand ~~this~~delay ~~authorized~~additional ~~generic~~liquidating ~~product~~distributions to stockholders.

InWe ~~addition,~~cannot ~~our~~predict acquisition of LENSAR resulted in establishing our Medical Devices segment. There can be no assurance that we will be able to continue to successfully develop this segment on a commercial scale. Any failures or perceived difficulties in developing these assets on a commercial sale in the ~~future~~timing ~~could~~of ~~have an adverse impact on our business, and could limit~~ the ~~value~~distributions ~~we may realize with respect~~ to ~~LENSAR~~stockholders.

~~Our~~Under ~~strategic investment in~~ the ~~common~~DGCL, ~~stock~~before ofa ~~Evofem~~dissolved iscorporation ~~our~~may ~~sole~~make ~~asset~~any indistribution ~~our~~to ~~Strategic~~its ~~Positions~~stockholders, ~~segment.~~it ~~The~~must ~~value~~pay ofor ~~our~~make ~~Evofem~~reasonable ~~common~~provision ~~stock~~to ispay ~~dependent~~all ~~upon the success~~ of ~~the~~its ~~product~~claims ~~candidates under development by Evofem. Evofem is a pre-commercial company~~ and, ~~as such~~obligations, isincluding ~~not~~all ~~yet engaged in revenue-generating activities. As a minority stockholder of Evofem~~contingent, weconditional ~~have~~or nounmatured ~~control~~contractual orclaims ~~oversight~~known ~~over~~to the ~~management~~corporation. ofThe ~~the~~precise ~~Evofem~~amount ~~business,~~ and ~~the~~timing ~~value~~ of ~~our~~any ~~Evofem~~distributions ~~common~~to ~~stock~~our stockholders will depend on ~~the Evofem management team’s ability to develop, raise capital~~ and ~~successfully~~could ~~market and sell Amphora, the failure of which would have a material adverse effect on our investment and the value thereof. There can~~ be nodelayed ~~assurance~~or asdiminished todue ~~the value we are able~~ to ~~achieve~~many ~~regarding~~factors, ~~monetization~~including ofwithout ~~our investment in Evofem.~~limitation:

We•whether ~~are~~a ~~substantially~~claim ~~dependent~~is onresolved ~~our~~for ~~key~~more ~~employees~~than ~~to facilitate~~ the ~~consummation~~amount of ~~our~~reserve ~~monetization~~established ~~strategy~~for ~~and~~such toclaim ~~continue~~pursuant to ~~operate our business until~~ the ~~strategy~~Court ~~is fully executed, and it may be difficult to retain such employees.~~Order;

In•whether ~~December 2019,~~ we ~~implemented~~are aunable ~~strategic process~~ to ~~monetize~~resolve ~~our~~claims ~~existing~~with ~~assets~~creditors and return net proceeds to our stockholders. In order to successfully operate our business prior to finalization of our monetization process, we must retain certain of our key personnel. Certain of our employees have a significant amount of know-how and experience in our company, and the loss of one or ~~more~~other ofthird ~~them could have a material and adverse effect on our operations or ability to implement our monetization strategy. In an effort to retain key personnel for our monetization strategy~~parties, we implemented a wind-down retention plan that provides certain benefits to employees in consideration for their continued employment with the company. Despite our efforts to retain these employees, one or ~~more~~if ~~may~~such ~~terminate~~resolutions ~~their~~take ~~employment~~longer ~~with~~than us on short notice. The loss of the services of any of these employees could potentially harm our ability to implement our monetization strategy and evaluate and pursue strategic transactions, continue to operate our business during the execution of the strategy and fulfill our reporting obligations as a public company. If we are unsuccessful in retaining qualified personnel, our ability to execute our monetization strategy may be adversely affected.expected;

~~Distributions~~•whether toa ~~our~~creditor ~~stockholders~~or ~~may~~other bethird ~~treated~~party asseeks aan ~~dividend~~injunction toagainst the ~~extent~~making of ~~our~~additional ~~current~~distributions ~~and~~to ~~accumulated~~stockholders ~~earnings~~on ~~and~~the ~~profits,~~basis ~~rather~~that ~~than~~the aamounts ~~distribution~~to inbe ~~exchange~~distributed ~~for~~are needed to satisfy our ~~stock.~~liabilities or other obligations to the extent not previously reserved for;

27•whether due to new facts and developments, new claims, as the Board reasonably determines, require additional funds to be reserved for their satisfaction; and

~~Generally,~~•whether ~~a distribution by us to our stockholders would constitute dividends for U.S. federal income tax purposes to~~ the ~~extent~~expenses ofwe ~~our~~incur ~~current and accumulated earnings and profits, as determined under U.S. federal income tax principles. However, distributions by us to our stockholders~~ in ~~“complete liquidation” would be treated as payment in exchange for our stock. The term “complete liquidation” is not defined in~~ the ~~Internal~~winding-down Revenue Code. While we expect our monetization strategy to be implemented in a manner so as to cause distributions to our stockholders to qualify as one or more distributions in “complete liquidation” for federal income tax purposesprocess, ~~there~~including ~~can~~expenses beof nopersonnel ~~assurance~~required ~~that~~and ~~efforts~~other toexpenses do(including ~~so will be successful or that the Internal Revenue Service will not take a contrary position. To the extent that any distributions do not qualify as distributions in “complete liquidation”~~legal, ~~they~~accounting ~~will~~and beother ~~treated~~professional ~~for~~fees) ~~U.S.~~necessary ~~federal income tax purposes as dividends~~ to ~~our~~dissolve ~~stockholders~~and toliquidate the ~~extent~~Company ofare ~~our~~more ~~current~~than ~~and accumulated earnings and profits~~anticipated.

~~Our~~As ~~results~~a result of ~~operations~~these and~~/or~~ ~~our~~other ~~monetization~~factors, ~~strategy~~it ~~could~~might betake ~~materially~~significant ~~negatively~~time ~~affected~~to byresolve ~~market~~these ~~fluctuations~~matters, ~~business~~and oras ~~economic~~a ~~disruptions~~result orwe ~~public~~are ~~health~~unable ~~risks~~to predict the timing of distributions, if any, made to our stockholders.

Our ~~results~~dissolution ofpursuant operations and/or our monetization strategy could be materially negatively affected by economic conditions generally, both in the United States and elsewhere around the world. Concerns over inflation, energy costs, geopolitical issues, public health emergencies, the availability and cost of credit, and the U.S. financial markets have in the past contributed to, ~~and may continue in~~ the ~~future~~Plan ~~to contribute to, increased volatility and diminished expectations for the economy and the markets. For example, in December 2019, a novel strain~~ of ~~coronavirus~~Dissolution ~~surfaced in Wuhan, China. The coronavirus has impacted the global economy, including limiting business activities in China and South Korea, and~~ may ~~impact~~be ~~our~~disrupted ~~operations including, among other things, sales to international customers (including those in China~~ and ~~South~~adversely ~~Korea) and the potential interruption of LENSAR’s supply chain. Further, entities in which we have invested, including Evofem, may be negatively~~ impacted by the ~~coronavirus,~~effects ~~which could decrease the value~~ of ~~our~~natural ~~investment~~disasters, ~~and~~political ~~impact our ability to liquidate our investment on favorable terms~~crises, ~~or at all. The extent to which~~ public health ~~issues or pandemics~~crises, ~~including the coronavirus, will impact our results of operations~~ and ~~the~~other results of operations of the entities in which we have invested will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others. In addition, domestic and international equity and debt markets have experienced and may continue to experience heightened volatility and turmoil based on domestic and international economic conditions and concerns. In the event these economic conditions and concerns continue or worsen and the markets continue to remain volatile, our results of operations could be adversely affected by those factors in many ways and our stock price or the value of our assets may decline. In addition, we maintain significant amounts of cash and cash equivalents at one or more financial institutions that are not federally insured. If economic instability continues, we cannot provide assurance that we will not experience losses on these investments. The occurrence of any of the foregoing events ~~could~~outside ~~have a material adverse effect on our business, results~~ of ~~operations and/or~~ our ~~ability to return value to our stockholders, including through our monetization strategy~~control.

~~Our~~Natural ~~ability~~disasters, tosuch ~~successfully~~as ~~complete~~adverse ~~our~~weather, ~~monetization~~fires, ~~strategy~~earthquakes, ~~could~~power beshortages ~~materially~~and ~~negatively~~outages, ~~affected~~political bycrises, such as terrorism, war, political instability, or other conflict, criminal activities, public health ~~risks~~crises, such as the ~~recent~~COVID-19 ~~outbreak~~pandemic and other disease epidemics and pandemics, and other disruptions or events outside of our control could negatively affect our operations and our ability to monetize our remaining assets or realize the ~~coronavirus~~estimated value of our net assets in liquidation. Any of these events may cause a delay in our ability to make distributions in dissolution, and may materially impact the amount of cash or value of other non-cash assets available to distribute to our stockholders, if any.

WeOur ~~are~~stockholders ~~exploring and evaluating potential transactions in furtherance of our monetization strategy, the success of which~~ may be ~~impacted~~liable ~~by the growing spread of the coronavirus globally. In order~~ to ~~successfully monetize~~ our ~~assets,~~creditors wefor ~~must~~part ~~identify and complete one~~ or ~~more~~all ~~transactions with third parties. The business and assets and the availability~~ of ~~potential buyers of our company or certain of our assets may be significantly impacted by public health issues or pandemics, including~~ the ~~coronavirus.~~amount ~~The~~received ~~uncertain~~from ~~severity~~us ~~and impact of the coronavirus could result~~ in ~~reduced demand for~~ our ~~assets~~liquidating bydistributions ~~third~~if ~~parties~~reserves ~~globally~~are ~~as well as potentially affect our own ability to operate~~inadequate.

~~Even~~In ifdissolution we ~~are~~may ~~able~~establish toa ~~identify~~contingency ~~potential~~reserve ~~transactions~~designed into ~~furtherance~~satisfy ofany ~~our~~additional ~~monetization~~claims ~~strategy,~~and ~~such~~obligations ~~buyers~~that may bearise. ~~operationally~~Any ~~constrained~~contingency orreserve ~~unable~~may tonot ~~locate~~be ~~financing~~adequate onto ~~attractive~~cover ~~terms or at~~ all, ~~which~~of ~~risk~~our ~~may~~claims beand ~~heightened~~obligations. ~~due~~Under to the ~~uncertainty~~DGCL, ofif ~~the~~we ~~coronavirus~~fail ~~and~~to ~~its~~create ~~impact. We~~an ~~are~~adequate ~~subject~~contingency toreserve ~~increased~~for ~~risk~~payment ~~that~~of ~~the~~our ~~growing~~expenses, ~~spread~~claims ofand ~~the~~obligations, ~~coronavirus~~each ~~will~~stockholder ~~affect~~could ~~the~~be ~~geographies,~~held ~~both~~liable infor ~~the~~payment ~~near~~to ~~term~~our ~~and~~creditors infor ~~the~~claims ~~future,~~brought ofduring ~~any~~this ~~third~~three-year ~~parties~~period after we ~~identify~~filed asthe ~~possible~~Certificate ~~counterparties~~of toDissolution ~~any~~with ~~monetization~~the ~~transaction.~~Secretary Ifof ~~financing~~State, isup ~~unavailable~~ to ~~potential~~the ~~buyers~~lesser of ~~our~~(i) ~~company~~such orstockholder’s ~~assets,~~pro orrata ifshare ~~potential~~of ~~buyers~~amounts ~~are~~owed ~~unwilling~~ to ~~engage~~creditors in ~~various~~excess ~~transactions~~of ~~due~~the tocontingency ~~the~~reserve ~~uncertainty~~and in(ii) the ~~market,~~amounts ~~our~~previously ~~ability~~received toby ~~complete~~ such ~~acquisition~~stockholder ~~would~~in bedissolution ~~significantly~~from ~~impaired.~~us and from any liquidating

Any negative impact on such third parties due to any of the foregoing events could cause costly delays and have a material adverse effect on our ability to return value to our stockholders, including our ability to realize full value from a sale or other disposition of our assets as part of our monetization strategy. In addition, if members of our management team were to be affected by COVID-19, this could significantly delay or impair our ability to execute our monetization strategy.11

~~Our~~trust ~~ability~~or trusts. Accordingly, in such event, a stockholder could be required to ~~realize~~return ~~value~~part ~~from~~or ~~our~~all ~~investments~~of the distributions previously made to such stockholder in ~~Evofem~~dissolution, and ~~LENSAR~~a ~~may~~stockholder ~~depend~~could onreceive ~~whether~~nothing ~~they~~from ~~can~~us ~~successfully~~under ~~develop~~the Plan of Dissolution. Moreover, ~~gain~~if ~~approval~~a ~~for~~stockholder ~~and~~has ~~commercialize~~paid ~~products.~~taxes ~~Failure~~on amounts previously received, a repayment of ~~Evofem~~all or a portion of such amounts received could result in a situation in which such repayment does not result in a commensurate refund of such taxes paid. As a result, while we intend to ~~successfully~~use ~~develop~~the protections of DGCL Sections 280 and 281(a), ~~gain~~including ~~approval~~having ora ~~commercialize~~court ~~Amphora~~order approve distributions, it is important for ~~prevention~~us ofto ~~pregnancy~~retain ~~would~~sufficient ~~likely~~funds ~~cause~~through ~~its~~our ~~business~~dissolution to pay the expenses and liabilities actually owed to our creditors because if we fail to do so, ~~which~~each ~~would~~stockholder ~~diminish~~could be held liable for the repayment to creditors out of the amounts previously distributed to such stockholder from us or from any liquidating trust or trusts, up to the full amount actually received by such stockholder in our dissolution.

28The directors and officers of the Company will continue to receive benefits from the Company during the dissolution.

~~eliminate~~During the ~~value~~dissolution, ofwe ~~our~~will ~~investment~~continue into ~~Evofem.~~indemnify ~~Failure~~each of ~~LENSAR~~our tocurrent ~~successfully~~and ~~continue~~former ~~its~~directors ~~development~~ and ~~commercialization~~officers ofto athe ~~next~~extent ~~generation~~permitted ~~cataract~~under ~~laser~~the ~~surgery~~DGCL ~~system~~and ~~could~~the ~~negatively~~Company’s ~~affect~~certificate ~~our~~of ~~ability~~incorporation, tobylaws ~~realize~~and ~~full~~agreements ~~value~~as ~~from~~in aeffect ~~sale~~at orthe ~~other~~time ~~disposition~~ of the ~~business~~filing ~~as part~~ of ~~our~~the ~~asset~~Certificate ~~monetization~~of ~~strategy~~Dissolution.

~~The~~Further ~~value~~stockholder ofapproval ~~our~~will ~~investment~~not be required in ~~Evofem~~connection ~~and~~with ~~LENSAR~~the ~~may~~implementation beof ~~dependent~~our onPlan ~~their~~of ~~ability~~Dissolution, toincluding ~~successfully~~for ~~develop~~the ~~their~~sale ~~respective~~or ~~products~~disposition of any of our remaining assets.

~~Evofem~~Our ~~resubmitted~~Plan ~~an NDA for Amphora for the prevention~~ of ~~pregnancy~~Dissolution inprovides ~~2019; however, there is no assurance~~ that ~~the~~we ~~FDA~~may ~~will~~sell ~~approve~~our ~~Amphora~~remaining ~~for~~assets ~~this~~after indication or for any other indication. Evofem has not received regulatory approval for any product. Even though Evofem was able to successfully complete its clinical trial for Amphora for prevention of pregnancydissolution, itas ~~may~~necessary ~~be unable~~ to ~~obtain~~affect ~~regulatory~~our ~~approval~~Plan ~~for Amphora for prevention~~ of ~~pregnancy~~Dissolution. ~~The~~Under ~~state~~our ofPlan ~~development~~ of ~~Amphora~~Dissolution, ~~including the FDA review and approval process, at the time~~ we ~~determine optimal to dispose of our investment position in Evofem~~ will ~~have~~not aseek ~~significant impact in the potential value realized~~ and isare ~~entirely~~not ~~out~~required ~~of our control. The commercial success of Amphora will also depend in significant measure upon Evofem’s ability~~ to ~~obtain~~seek ~~marketing~~additional ~~approval~~stockholder ~~from~~authorization ~~the FDA or other regulatory authorities including an indication and labeling~~ of ~~sufficient~~any ~~scope~~future toasset ~~be commercially meaningful~~sale. ~~Failure~~As toa ~~achieve~~result, ~~marketing approval from~~ the ~~FDA~~Board ~~or other regulatory authorities of a commercially meaningful indication and labeling~~ may ~~substantially~~authorize ~~limit~~actions ~~Evofem’s ability to market and promote Amphora and our ability to monetize or otherwise dispose of our investment~~ in ~~Evofem.~~implementing ~~In addition, to obtain marketing approval of Amphora on schedule, manufacturing facilities operated by third parties with which Evofem has contracted for~~ the ~~purpose~~Plan of ~~the supply of Amphora will need to pass a regulatory inspection. Failure of the FDA to approve manufacture of Amphora at such third party facilities may delay approval~~Dissolution, ~~and~~including ~~consequently affect~~ the ~~value~~terms ~~of our investment in Evofem. Evofem will also likely incur significant costs associated with launching~~ and ~~Amphora,~~prices ~~including~~for the ~~development~~sale ofor adisposition ~~successful commercial team and strategy. The failure~~ of ~~Evofem to successfully develop, gain marketing approval and commercialize Amphora would have a material adverse impact on~~ our ~~investment~~remaining ~~in Evofem and could limit any upside~~assets, orwith ~~result~~which ~~in a loss, on~~ our ~~investment, or limit our ability to generate significant value for~~ stockholders inmay ~~connection~~not ~~with the potential disposition of our investment in furtherance of our monetization strategy~~agree.

~~LENSAR~~Our iscommon ~~developing~~stock ~~and~~ceased ~~intends~~ to commercialize a next generation cataract laser surgery system. The value we are able to obtain from our investment in LENSAR may depend on the value investors and/or potential acquirors perceive in the next generation system, which may not be intraded ~~condition~~at ~~for approval or commercialization prior to our monetization of LENSAR. The development process for new devices in~~ the ~~eye~~time ~~care industry and more general healthcare industry can sometimes be expensive, prolonged and entail considerable uncertainty. Because~~ of the complexities and uncertainties associated with ophthalmic research and development in particular, and healthcare related research and development in general, products LENSAR is currently developing, or that may be developed in the future, are subject to the risk that LENSAR may not complete the development process or obtain the regulatory approvals required to market such products successfully. These complexities and risks could significantly reduce the value we are able to achieve during the monetization process from our ~~investment in LENSAR~~dissolution.

We ~~may~~closed beour ~~unable~~stock totransfer ~~monetize~~books of our ~~investment~~common instock ~~Evofem~~after ~~due~~our todissolution became effective at approximately 4:00 p.m., Eastern time on January 4, 2021 (the ~~illiquidity~~“Final ofRecord ~~our~~Date”). ~~shares~~Therefore, ~~and~~shares of our ~~position~~common instock ~~Evofem~~are ~~may~~no belonger ~~subject~~freely totransferable. ~~dilution~~As ~~and~~a ~~fluctuations~~result inof ~~value,~~the ~~each~~closing of ~~which~~the ~~could~~stock ~~have~~transfer abooks, ~~material~~all ~~and~~liquidating ~~adverse~~distributions ~~impact~~from ona ~~our~~liquidating ~~financial~~trust, ~~condition~~if any, ~~results~~or offrom ~~operations~~us ~~and/or~~after ~~ability~~the Final Record Date will be made pro rata to ~~monetize~~the orstockholders ~~otherwise~~of ~~dispose~~record as of ~~our~~the ~~position~~Final Record Date.

AsWe have not and do not intend to record any assignments or transfers of ~~December 31~~our common stock after the Final Record Date, ~~2019~~other than as required by will, weintestate ~~held~~succession ~~approximately~~or ~~28%~~operation of law. We have been informed that after the Final Record Date some shares of our common stock have been traded under contractual obligations between the seller and purchaser of ~~Evofem.~~the ~~Our~~stock, ~~shares~~who negotiate and rely on themselves with respect to the allocation of ~~Evofem~~stockholder ~~were~~proceeds ~~acquired~~arising from ownership of the shares. We are not facilitating or participating in athe ~~private~~trading ~~placement~~in ~~and,~~our ~~absent~~common ~~registration~~stock or interests in proceeds from our liquidation. Accordingly, ~~are~~trading ~~deemed~~in toour bestock ~~restricted~~is highly speculative and the market for our stock is highly illiquid. AAs ~~such~~we are no longer an operating company, itthe ~~may~~only bevalue ~~difficult~~underlying tothe ~~sell~~trading ~~our~~price ~~Evofem~~of our shares inis ~~connection~~the ~~with~~right ~~our~~to ~~monetization~~receive ~~strategy~~further distributions, ~~and~~if any, ~~such~~as ~~sale~~part ~~may~~of bethe ~~delayed~~liquidation process. Because of the difficulty in estimating the amount and timing of the liquidating distributions and due to the ~~lead~~other ~~time~~risk ~~required~~factors discussed herein, the economic interests derived from our common stock may be subject to ~~register~~significant ~~such~~volatility ~~shares~~and ~~with~~may trade above or below the ~~Securities~~amount ~~and~~of ~~Exchange~~any ~~Commission~~future liquidating distribution that may be made.

~~Furthermore,~~The itloss isof ~~expected~~key ~~that~~personnel ~~Evofem~~could ~~will~~adversely ~~seek~~affect ~~to raise significant additional capital to finance its operations in the future. Raising additional capital may cause substantial dilution in~~ our ~~investment and such financing activities could limit our~~ ability to ~~generate~~efficiently adissolve, ~~meaningful~~liquidate ~~return~~and orwind ~~sell our investment as we attempt to monetize or otherwise dispose of our position~~down.

We ~~account~~intend ~~for~~to ~~our~~rely ~~investment~~on ina ~~Evofem~~few ~~using~~individuals ~~the~~in ~~fair~~key ~~value~~management ~~method.~~roles ~~Because a mark~~ to ~~market valuation will occur at the end of each quarterly reporting period~~dissolve, ~~changes~~liquidate inour ~~fair~~remaining ~~value~~assets ~~will~~and ~~vary~~wind-down ~~based~~operations. ~~upon~~Loss ~~the volatility~~ of ~~the~~one ~~stock~~or ~~price,~~more ~~and~~of ~~such~~these ~~changes~~key inindividuals ~~fair value~~ could ~~have~~hamper athe ~~material~~efficiency ~~and~~or ~~adverse~~effectiveness ~~impact on our financial condition and results~~ of ~~operations~~these processes.

IfOur weremaining dolicensees, ~~not~~borrowers ~~meet~~and ~~the~~royalty-agreement ~~requirements~~counterparties may be unable to maintain regulatory approvals for ~~continued~~their ~~listing~~products, onor ~~The~~to ~~Nasdaq~~obtain ~~Stock~~regulatory ~~Market~~approvals or favorable pricing for new products, ~~our~~and ~~common~~they ~~stock~~may ~~could~~voluntarily beremove ~~delisted~~products ~~which~~from ~~would~~marketing ~~adversely~~and ~~affect~~commercial ~~the~~distribution. ~~ability~~Any of such events, whether due to safety issues or other factors, could limit our ~~stockholders~~revenues or return on investment. or our ability to ~~sell~~generate ~~shares~~expected returns from the monetization of such assets, including their sale, and reduce resulting distributions to our ~~common~~stockholders ~~stock~~in dissolution.

Our ~~common~~licensees, ~~stock~~borrowers isand ~~currently~~royalty-agreement ~~listed~~counterparties onare ~~The~~subject ~~Nasdaq~~to ~~Stock~~stringent ~~Market~~regulation with respect to product safety and efficacy by various international, federal, state and local authorities. ~~The~~Even ~~Nasdaq~~if ~~Stock~~our ~~Market~~licensees’, ~~imposes~~borrowers’ ~~continued~~and ~~listing~~royalty-agreement ~~requirements~~counterparties’ ~~that~~products ~~companies~~receive ~~must~~regulatory ~~meet~~approval, tothey will remain ~~listed~~subject onto ~~that~~ongoing ~~market.~~FDA ~~These~~and ~~requirements~~other ~~include~~international regulations including, ~~among~~but not limited to, obligations to conduct additional clinical trials or other ~~things~~testing, changes to the product label, new or revised regulatory requirements for manufacturing practices, written advisements to physicians and/or a product recall or

2912

~~minimum~~withdrawal. ~~levels~~Our oflicensees, ~~assets~~borrowers and ~~revenues.~~royalty-agreement ~~The~~counterparties ~~Nasdaq~~may ~~Stock~~not ~~Market~~maintain ~~also~~necessary ~~considers~~regulatory ~~factors~~approvals ~~like~~for ~~the~~their ~~number~~existing ~~of employees of a company and a company’s ongoing revenue generating operations and plans~~products. IfMoreover, wethe docurrent ~~not~~political ~~meet~~environment in the ~~requirements~~United ~~for~~States ~~continued~~is ~~listing~~focused on ~~The~~potential ~~Nasdaq~~reductions ~~Stock~~in ~~Market,~~pricing ~~whether~~for aspharmaceutical ~~a result of our monetization~~ and ~~distribution~~other ofhealthcare ~~net proceeds to stockholders or otherwise~~products, ~~our~~which ~~common~~may ~~stock~~negatively ~~could~~impact beany ~~delisted.~~existing ~~Further,~~or ~~upon~~new ~~dissolution,~~products ~~we anticipate that our stock would then be delisted~~ from ~~Nasdaq~~which ~~and~~ our ~~stock~~revenues ~~transfer books closed, after which time it~~ would ~~not~~ be ~~possible for stockholders to publicly trade our stock~~derived. AtWe ~~that~~are ~~point,~~unable ~~the~~to ~~proportionate~~control ~~interests of all of our stockholders will be fixed on~~ the ~~basis~~pricing ofstrategies ~~their~~used ~~respective stock holdings at the close of business on the final record date, and, after the final record date, in general any distributions made~~ by ~~us will be made solely to the stockholders of record at the close of business on the final record date. The delisting of~~ our ~~common stock would have an adverse effect on the liquidity of our common stock~~licensees, ~~such~~borrowers asand ~~the~~royalty-agreement ~~ability of our stockholders to sell their shares of our common stock~~counterparties, and ~~its~~if ~~trading~~they ~~price.~~fail ~~If our common stock ceases~~ to beuse ~~traded~~appropriate orpricing ~~quoted on any of the NYSE~~strategies, ~~the NASDAQ Global Select Market~~ or ~~the~~receive NASDAQ Global Market, a “fundamental change” under each of our convertible notes indentures would occur, which entitles the holders of the convertible notes issued under such indentures to require us to repurchase the convertible notes of such holders. Delisting could also have other negative ~~results,~~reactions ~~including, but not limited~~ to, ~~the~~their ~~potential~~pricing ~~loss of confidence by employees~~strategies, ~~the~~it ~~loss~~could ofnegatively ~~institutional~~impact ~~investor~~our ~~interest~~revenues ~~and~~or ~~fewer~~return ~~opportunities~~on ~~with counterparties to potential monetization transactions~~investment.

IfIn weaddition, ~~remain~~communications anfrom ~~independent~~government ~~company,~~officials regarding pricing for pharmaceutical and other health care products could have a negative impact on the value of the assets we intend to monetize, even if such communications do not ultimately impact our borrowers’ and royalty-agreement counterparties’ products. The occurrence of adverse events reported by any borrower or royalty-agreement counterparty may ~~need~~result in the revocation of regulatory approvals or decreased sales of the applicable product due to ~~obtain~~a ~~funds~~change ~~from~~in ~~additional~~physicians’ ~~financings~~willingness to prescribe, or ~~other~~patients’ ~~sources~~willingness ~~for~~to ~~our~~use ~~business~~the ~~activities~~applicable product. IfOur weborrowers doand ~~not~~royalty-agreement ~~receive~~counterparties ~~these~~could ~~funds,~~also choose to voluntarily remove licensed products from marketing and commercial distribution. Any value we may ~~need~~receive toupon ~~reduce,~~a ~~delay~~potential ortransaction ~~eliminate~~in ~~some~~furtherance of our ~~expenditures~~monetization strategy in dissolution could be materially and adversely affected.

IfThe wevalue ~~are not successful in implementing, or the board~~ of ~~directors~~our ~~decides~~remaining toincome ~~terminate,~~generating ~~the~~royalty ~~monetization~~assets ~~strategy, and we were to therefore remain an independent company, we~~ may ~~need~~be todependent ~~raise~~on ~~additional capital to accomplish our business plan over~~ the ~~next~~actions ~~several years through debt or equity financing, joint ventures, license agreements, sale~~ of ~~assets,~~unrelated asthird ~~well as various other financing arrangements. If we obtain additional funds by issuing equity securities~~parties, ~~dilution~~which ~~to stockholders~~ may ~~occur.~~negatively ~~There~~impact ~~can~~the bevalue nowe ~~assurance~~are asable to ~~the~~realize ~~availability~~in ~~or terms upon which such financing and capital might be available~~dissolution.

~~Through~~In ~~our~~connection ~~investments~~with inour ~~Noden~~income ~~and~~generating ~~Evofem~~assets, ~~and~~we ~~our~~are ~~acquisition~~dependent, ofto ~~LENSAR~~a large extent, weon ~~have~~third aparties ~~significant~~to ~~investment~~enforce incertain rights for our benefit. For example, Assertio (formerly Depomed), as the ~~commercialization~~licensor of ~~products~~certain ~~worldwide~~patents, ~~and~~retains ~~our~~various ~~returns~~rights, ~~from~~including ~~these~~the ~~assets~~contractual ~~are~~right ~~subject~~to audit its licensees and to aensure ~~number~~those oflicensees ~~risks~~are ~~associated~~complying with ~~international~~the ~~operations~~terms ~~that~~of ~~could~~the ~~materially~~underlying ~~and~~license ~~adversely~~agreements. ~~affect~~Assertio ~~our~~also ~~business,~~retained ~~results~~full ofresponsibility ~~operations~~to protect and ~~cash~~maintain ~~flows~~the ~~and/or~~intellectual ~~our~~property ~~ability~~rights underlying the licenses. While we have contractual rights to ~~monetize~~require Assertio to take action regarding certain of these rights, because Assertio’s economic interest in the license agreements is limited, it may not enforce or protect those rights as it otherwise ~~dispose~~would ofhave ~~such~~had ~~assets~~it retained the full economic interest in the payments under the license agreements.

AsOur aroyalty-agreement ~~result~~counterparties offace ~~our~~significant ~~Noden~~market ~~and~~pressures ~~LENSAR~~with ~~operating~~respect ~~businesses~~to their products, and ~~our~~the ~~strategic~~amount ~~investment~~of inrevenues ~~Evofem,~~from wetheir ~~are~~pharmaceutical ~~directly~~products ~~and~~or ~~indirectly~~medical ~~subject~~devices, toor afrom ~~number~~our ofincome ~~risks~~generating ~~related~~assets that we receive are subject to ~~the~~various ~~sale~~competitive ofand ~~products~~market ~~worldwide~~factors, including: generic competitors, that may be outside of our control.

•Our ~~international~~royalty-agreement ~~regulatory~~counterparties ~~requirements~~face competition from other pharmaceutical companies. The introduction of new competitive products, including generics, may result in lost market share for ~~drug~~our royalty-agreement counterparties, reduced use of their products, lower prices and/or ~~medical~~reduced ~~device~~sales, ~~marketing~~any of which could reduce our royalty revenues, and ~~pricing~~have a material adverse effect on any realized value we may obtain in ~~foreign~~connection ~~countries;~~with the evaluation of potential transactions to monetize such remaining assets in dissolution.

•The ~~varied~~amounts ~~standards~~we ofare ~~care~~able to realize from any transaction in ~~various~~furtherance ~~countries~~of ~~that~~our ~~could~~monetization ~~complicate~~of ~~the~~our ~~commercial~~remaining ~~success~~assets, and the amount of ~~products;~~cash or other assets we are able to distribute our stockholders in dissolution, will depend on many factors, including the following:

•the ~~varied~~timing ~~drug~~ and ~~medical~~availability ~~device~~of ~~import~~generic ~~and~~product ~~export~~competition ~~rules~~for our royalty-agreement counterparties’ products;

•potential ~~varying~~challenges ~~standards~~or ~~for~~design-arounds ~~the~~to ~~protection~~product, ofuse ~~intellectual~~or ~~property~~manufacturing ~~rights~~related patents which ~~may~~provide ~~result~~exclusivity infor ~~reduced~~products orand ~~compromised~~assets ~~exclusivity~~before intheir ~~certain~~expiration ~~countries~~by generic pharmaceutical manufacturers;

•the ~~unexpected~~size ~~changes~~of inthe ~~tariffs,~~market ~~trade~~for ~~barriers~~our ~~and~~royalty-agreement ~~regulatory~~counterparties’ ~~requirements~~products;

•the ~~varied~~extent ~~reimbursement systems~~ and ~~different~~effectiveness ~~competitive~~of ~~drugs indicated to treat~~ the ~~indications~~sales ~~for~~and ~~which~~marketing ~~Noden Products are being commercialized~~ and ~~medical~~distribution ~~devices~~support ~~indicated to treat the indications~~ for ~~which~~our ~~LENSAR~~royalty-agreement ~~products~~counterparties’ ~~are being commercialized~~products;

•the ~~economic~~existence ~~weakness,~~of ~~including~~novel ~~inflation,~~ or ~~political~~superior ~~instability~~products into ~~particular~~our ~~foreign~~royalty-agreement ~~economies~~counterparties’ ~~and markets~~products;

•the ~~widespread~~availability ~~outbreak~~ of ~~health~~reduced ~~epidemics~~pricing ~~that~~and ~~could~~discounts ~~impact~~applicable ~~international~~to ~~sales~~our ~~and~~royalty-agreement ~~operations~~counterparties’ products;

•stocking ~~compliance~~and ~~with~~inventory ~~tax,~~management ~~employment,~~practices ~~immigration~~related ~~and~~to ~~labor~~our ~~laws~~royalty-agreement ~~applicable~~counterparties’ ~~to foreign operations~~products;

•limitations ~~compliance~~on ~~with~~indications ~~the~~for ~~U.S.~~which ~~Foreign~~our ~~Corrupt~~royalty-agreement ~~Practices~~counterparties’ ~~Act~~products ~~(“FCPA”),~~can be marketed; the UKcompetitive ~~Bribery~~landscape ~~Act,~~for approved products and ~~other~~developing ~~anti-corruption~~therapies ~~and~~that ~~anti~~compete with royalty-~~bribery~~agreement ~~laws~~counterparties’ products;

•the ~~foreign~~ability ~~taxes~~of ~~and~~patients ~~duties~~to be able to afford our royalty-agreement counterparties’ products or obtain healthcare coverage that covers those products;

•acceptance ~~foreign~~of, ~~currency~~and ~~fluctuations~~ongoing ~~and~~satisfaction ~~other~~with, ~~obligations~~our ~~incident~~royalty-agreement tocounterparties’ ~~doing~~products ~~business~~by inthe ~~another~~care ~~country~~providers, patients receiving therapy and third-party payors; or

•the ~~workforce~~unfavorable ~~uncertainty~~outcome in(or ~~countries~~potential ~~where~~thereof) ~~labor~~of ~~unrest~~any islitigation ~~more~~relating ~~common~~to ~~than~~our inroyalty-agreement ~~the~~counterparties’ ~~United~~business ~~States;~~practices or products.

• reliance on management, contract services organizations and other third parties that may be less experienced with manufacturing and commercialization than the party from whom the Noden Products were acquired;13

•For ~~potential~~example, ~~liability~~in ~~resulting~~mid-2019, ~~from~~Bausch Health announced expected price decreases on Glumetza, a royalty-bearing product ~~liability~~under ~~laws~~our orAssertio Royalty Agreement. These price decreases could negatively affect revenues and thus our royalties. Due to the ~~activities~~uncertainties caused by changes in pricing by third parties that are outside our control, including as a result of ~~foreign~~generic ~~distributors;~~competition, ~~and~~we may not be able to accurately estimate the impact on royalties on such sales paid to us for Glumetza or any other product.

•We ~~business~~are ~~interruptions~~also ~~resulting~~aware ~~from~~of ~~geopolitical~~a ~~actions,~~number ~~including~~of ~~war~~approved ~~and~~generic ~~terrorism~~extended-release metformin products, orwhich ~~natural~~could ~~disasters~~further negatively affect Glumetza revenues.

30Any of these factors may have a material and adverse effect on our ability to realize significant value for our remaining royalty assets and negatively affect the amount of cash or other assets we are able to distribute to our stockholders in dissolution.

InRisks ~~addition,~~Related our international operations could be affected by capital and exchange controls, expropriation and other restrictive government actions as well as by political unrest, unstable governments and legal systems and inter-governmental disputes. Any of these circumstances could materially and adversely affect our business, results of operations and cash flows, as well as adversely affect our ability to ~~monetize or dispose of such assets and/or reduce the proceeds we realize in such a monetization or disposition.~~Taxes

~~The~~We ~~terms~~may ofnot ~~our~~be ~~convertible~~able ~~notes indentures could negatively affect our ability~~ to ~~execute~~realize ~~the~~certain ~~monetization~~expected ~~strategy~~tax benefits.

InDuring ~~addition~~2020, towe ~~the~~engaged ~~requirement~~in ~~under~~certain ~~our~~transactions ~~convertible~~that ~~notes~~may ~~indentures~~result ~~for~~in ~~us to repurchase~~ the ~~convertible~~recognition ~~notes upon the election~~ of ~~the~~ordinary ~~holders~~tax oflosses. ~~such~~Such ~~convertible notes upon a “fundamental change~~losses,” ~~each~~through provisions of the ~~convertible~~CARES ~~notes~~Act, ~~indentures~~could ~~includes~~generate ameaningful ~~merger~~tax ~~covenant~~benefits ~~that requires any successor company that purchases “substantially all” of our property and assets~~ to ~~assume~~ the ~~obligations~~Company ~~under~~as ~~such~~the ~~convertible~~CARES ~~notes~~Act ~~indenture.~~permits ~~There~~taxpayers isto nocarry ~~precise~~back ~~established~~five ~~definition~~years ofany ~~the~~net ~~phrase~~operating ~~“substantially~~losses ~~all”~~arising ~~under~~in ~~New~~a ~~York~~taxable ~~law,~~year ~~the~~beginning ~~law~~in ~~which governs each of our convertible notes indentures~~2018, ~~and~~2019 ~~whether a transaction~~ or ~~series~~2020. ofIn ~~transactions~~connection ~~constitutes~~with ~~“substantially all” of~~ our ~~property~~monetization ~~and assets depends on the consideration of both quantitative and qualitative factors. Consequently~~process, ~~depending~~we onhave ~~the~~executed transactions ~~pursued~~that byresult us in ~~connection~~ordinary ~~with~~tax ~~the~~losses ~~monetization~~that ~~strategy~~could ~~and~~be ~~the~~applied ~~sequencing~~to ~~and~~prior ~~timing~~tax ofyears ~~these~~in ~~transactions,~~which ~~our~~PDL ~~monetization~~was ~~strategy~~a ~~could~~substantial ~~result~~tax inpayor. aThere ~~transfer~~can ofbe ~~“substantially~~no ~~all”~~assurance ofthat ~~our~~such ~~properties~~tax ~~and~~benefits ~~assets~~will ~~under~~be ~~each~~realized ofas ~~our~~expected. ~~convertible~~For ~~notes indentures~~example, ~~which~~in ~~would~~February ~~require~~2021, ~~the~~a ~~transferee~~letter ~~under~~was ~~such~~sent ~~monetization strategy~~ to ~~assume~~congressional ~~the~~leaders ~~obligations~~signed ~~under~~by ~~such~~120 ~~convertible~~members ~~notes~~of ~~indenture~~Congress ~~and~~that ~~could~~proposed ~~thus~~retroactively ~~negatively~~repealing ~~affect our ability to execute~~ the ~~monetization~~net ~~strategy.~~operating Inloss ~~order~~carry toback ~~minimize~~provisions ~~the impact~~ of the ~~merger~~CARES ~~covenants~~Act. inIf ~~our~~these ~~convertible~~provisions ~~notes~~were ~~indentures~~retroactively ~~on our ability to execute the monetization strategy~~repealed, weit ~~could~~would ~~either~~likely ~~conduct~~have a ~~tender~~material ~~offer~~adverse ~~for~~effect ~~our~~on ~~outstanding convertible notes or could solicit consents from~~ the ~~holders~~amount of ~~our~~tax ~~outstanding~~benefits ~~convertible~~that ~~notes~~may tobe ~~waive~~available ~~the~~to ~~requirements~~us ofunder ~~such~~the ~~merger~~current ~~covenants,~~provisions ~~or could pursue a combination~~ of ~~tender~~the ~~offers~~CARES ~~and~~Act. ~~consent~~Any ~~solicitations,~~failure ~~but~~to weobtain ~~cannot~~such ~~assure~~expected ~~you~~tax ~~that~~benefits ~~any~~under ~~such~~the ~~tender~~CARES ~~offers~~Act ~~or consent solicitations~~ would ~~become~~likely ~~effective~~reduce orthe ~~that~~funds ~~they~~available ~~would~~for bedistribution ~~agreed~~to ~~upon~~our ~~on commercially acceptable terms~~stockholders.

WeU.S. ~~have~~Stockholders inmay ~~the~~not ~~past~~be ~~and~~able ~~are currently involved in, and expect that in the future we will from time~~ to ~~time~~recognize bea ~~involved~~loss ~~in,~~for ~~litigation,~~U.S. ~~either~~federal asincome atax ~~defendant~~purposes oruntil athey ~~plaintiff,~~receive ~~which could have~~ a ~~negative~~final ~~impact~~distribution onfrom ~~our business, results of operations and cash flows and/or our monetization strategy~~us.

~~Monitoring~~Distributions ~~and~~made ~~defending~~pursuant ~~against or prosecuting legal actions is time-consuming for our management, will require litigation related expenses, and may detract from our ability~~ to ~~fully~~the ~~focus~~Plan ~~our internal resources on our operations and monetization strategy. Moreover, we may be subject to additional litigation as we pursue potential transactions in furtherance~~ of ~~our~~Dissolution ~~monetization~~are ~~strategy,~~intended ~~and expect~~ to be ~~subject~~treated toas ~~increased~~received ~~risk~~by ofa ~~litigation~~U.S. ~~following~~stockholder ~~the~~in ~~completion~~exchange offor the ~~divestiture~~U.S. ofstockholder’s ~~all~~shares ~~or a portion~~ of our assets or businesses, a spin-off transaction, a merger, or any combination thereof. In addition, the stock markets have experienced significant price and volume fluctuations that have affected the market prices for the common stock ~~of companies~~. ~~These broad market fluctuations as well a broad range of other factors~~Accordingly, ~~including~~ the ~~realization~~amount of any ofsuch ~~the~~distribution ~~risks~~allocable ~~described~~to ina ~~these~~block ~~“Risk~~of ~~Factors,”~~shares ~~may cause the market price~~ of our common stock toowned ~~decline.~~by In the ~~past,~~U.S. ~~securities~~stockholder ~~class~~will ~~action~~reduce ~~litigation~~the ~~has~~U.S. ~~often~~stockholder’s ~~been~~tax ~~brought~~basis ~~against a company involved~~ in ~~significant~~such ~~corporate~~shares, ~~transaction~~but ornot ~~following~~below azero. ~~decline~~Any inexcess ~~the~~amount ~~market~~allocable ~~price~~to ofsuch ~~its~~shares ~~securities.~~will ~~Legal~~be ~~fees~~taxable ~~and~~as ~~costs~~capital ~~incurred~~gain. inSuch ~~connection~~gain ~~with~~generally ~~litigation~~will ~~may~~ be ~~significant.~~taxable ~~Depending~~as onlong-term ~~the~~capital ~~nature~~gain ofif the ~~lawsuit,~~shares ahave ~~decision~~been ~~adverse~~held tofor ~~our~~more ~~interests~~than ~~could~~one ~~result~~year. inAny ~~the~~tax ~~payment~~basis ofremaining ~~substantial~~in ~~damages and could have~~ a ~~material~~share ~~adverse~~of ~~effect on~~ our ~~cash~~common ~~flow,~~stock ~~results~~following ofthe ~~operations,~~final ~~financial~~liquidating ~~position~~distribution ~~and~~by ~~ability~~the toCompany ~~return~~will ~~value~~be totreated ~~stockholders,~~as ora ~~impact~~capital ~~our rights in an adverse way~~loss. InThe ~~addition,~~deductibility ~~if we elect to file a certificate~~ of ~~dissolution,~~capital welosses ~~may~~is be subject to ~~litigation~~limitations. ~~with~~U.S. ~~potential~~stockholders orshould ~~unknown~~consult ~~claimants,~~their ~~which~~tax ~~litigation~~advisors ~~will~~as ~~have~~to ~~an effect on~~ the ~~timing~~particular ~~and~~tax ~~ability~~consequences of ~~the~~our ~~Company~~dissolution tofor ~~make~~them, ~~distributions~~including tothe ~~stockholders,~~applicability ~~and~~of ~~will~~any beU.S. ~~accompanied~~federal, bystate, ~~litigation~~local ~~related~~and ~~costs~~non-U.S. ~~and~~tax ~~operations~~laws.

WeThe ~~rely~~tax ontreatment ~~third-party~~of ~~manufacturers~~any toliquidating ~~manufacture~~distribution ~~our~~may ~~pharmaceutical~~vary ~~products,~~from ~~and~~stockholder ~~these~~to ~~third parties may not perform adequately~~stockholder.

We dohave not ~~have~~requested ~~any~~a ~~operating~~ruling ~~manufacturing~~from ~~facilities~~the ~~for~~IRS ~~Noden~~with ~~Products~~respect to the anticipated tax consequences of our complete dissolution and liquidation, and dowe will not ~~expect~~seek toan ~~independently~~opinion ~~manufacture~~of ~~our~~counsel ~~products~~with ~~under~~respect to the ~~Pharmaceutical~~anticipated ~~segment~~tax consequences of any liquidating distributions. WeIf ~~currently~~any ~~rely~~of onthe ~~Novartis~~anticipated ~~for~~tax aconsequences ~~specified~~prove ~~period~~to ofbe ~~time~~incorrect, the result could be increased taxation at the corporate or stockholder level, thus reducing the benefit to ~~manufacture~~our stockholders and ~~package~~us from our dissolution and liquidation. Tax considerations applicable to particular stockholders may vary with and be contingent on the ~~Noden~~stockholder’s ~~Products~~individual circumstances. Stockholders should consult with their own tax advisors for tax advice on our dissolution and liquidation’s impact on their taxes.

~~Risks~~General ~~arising~~Risk ~~from reliance on third-party manufacturers include:~~Factors

•Failure ~~reduced~~to ~~control~~protect ~~and~~our ~~additional~~information ~~burdens~~technology ofinfrastructure ~~oversight~~against ascyber-based aattacks, ~~result~~network ofsecurity ~~using~~breaches, ~~third-party~~service ~~manufacturers~~interruptions ~~for~~or ~~all~~data ~~aspects~~corruption ofcould ~~manufacturing~~materially ~~activities,~~disrupt ~~including~~our ~~regulatory~~operations ~~compliance~~ and ~~quality~~adversely ~~control~~affect our business and ~~assurance;~~operating results.

•We ~~termination~~rely oron ~~non-renewal~~our ofinformation ~~manufacturing~~technology systems to effectively manage all business activities and ~~supply~~data, ~~agreements~~including ~~with~~accounting, ~~third~~financial ~~parties~~and inlegal afunctions, ~~manner~~asset ormanagement atand abusiness ~~time~~development. ~~that~~Our ~~may~~information ~~negatively~~technology ~~impact~~systems ~~commercialization~~are ~~activities;~~vulnerable to damage or interruption from earthquakes, fires, floods and other natural disasters, terrorist attacks, power losses, computer system

• disruption in the operations of third-party manufacturers or suppliers unrelated to our products, including the bankruptcy of the manufacturer or supplier or a catastrophic event affecting the third manufacturers or suppliers.14

31or data network failures, security breaches, data corruption and cyber-based attacks, including malicious software programs or other attacks, which have been attempted against us in the past. In addition, a variety of our software systems are cloud-based data management applications, hosted by third-party service providers whose security and information technology systems are subject to similar risks.

InThe ~~addition,~~failure ~~difficulties~~to orprotect ~~delays~~either inour ~~product~~or ~~manufacturing~~our ~~and~~service ~~reliance~~providers’ oninformation ~~third-party~~technology ~~manufacturing~~infrastructure could ~~adversely~~disrupt ~~affect~~our ~~performance~~entire ofoperation ~~Noden~~or ~~and~~result ~~the~~in ~~Noden~~our ~~Products~~inability byto ~~virtue~~manage ofand ~~regulatory~~monetize ~~actions,~~our ~~shut-downs,~~remaining ~~approval delays~~assets, ~~withdrawals,~~increased ~~recalls,~~overhead ~~penalties~~costs, ~~supply~~loss ~~disruptions~~ or ~~shortages~~misuse orof ~~force~~proprietary ~~majeure~~or ~~events,~~confidential ~~reputational harm~~information, ~~product~~intellectual ~~liability,~~property ~~unanticipated costs~~ or ~~otherwise.~~sensitive ~~Examples of such difficulties~~ or ~~delays~~personal ~~include~~information, ~~but~~all ~~are not limited to, the possibility that the supply~~ of ~~incoming~~which ~~materials~~could ~~may~~have bea ~~delayed~~material oradverse ~~become~~effect ~~unavailable~~on orour bebusiness ~~subject to increased costs~~ and ~~that~~affect the ~~quality~~amount of ~~incoming~~cash materials may be substandard and not detected; the possibility that third-party manufacturers may fail to maintain appropriate quality standards throughout the internal and external supply network and/or ~~comply with cGMPs and~~ other ~~applicable~~assets ~~regulations~~we ~~such~~may asbe ~~tracking~~able ~~and tracing of products in the supply chain~~ to ~~enhance~~distribute ~~patient safety; risks~~ to supply chain continuity as a result of natural or man-made disasters at a supplier or vendor; or failure to maintain the integrity of the supply chains against intentional and criminal acts such as economic adulteration, product diversion, product theft, and counterfeit goods. Any of these events could adversely affect our ~~ability~~stockholders ~~to successfully commercialize our products and/or our ability to sell our products as part of our monetization strategy or realize expected value~~ in ~~such a sale~~dissolution.

Our products are subject to the risks and uncertainties of branded pharmaceutical and medical device products.

If our products become subject to problems such as changes in prescription growth rates, product utilization, product liability litigation, unexpected side effects, regulatory proceedings, manufacturing issues, publicity affecting doctor or patient confidence, pressure from existing competitive products, changes in labeling, loss of patent protection (when applicable), or, if a new, more effective treatment should be introduced, the adverse impact on our revenues could be significant. The occurrence of any of the foregoing problems, or additional problems that may arise in the future, could materially and adversely affect our business, results of operations and financial condition, and/or our ability to successfully monetize the underlying assets pursuant to our monetization strategy.

For as long as we own our Noden business, we will continue to depend upon a limited number of wholesalers for a significant portion of our revenues from the Noden Products, and the loss of, or significant reduction in sales to, any one of these wholesalers could materially and adversely affect our business, results of operations and financial condition and/or our ability to sell Noden or its assets, as well as materially reduce the amount of value we could realize in such a sale.

We sell the Noden Products primarily to wholesalers. Wholesalers sell the Noden Products to hospitals and pharmacies. We do not promote the Noden Products to wholesalers, and they do not set or determine demand for Noden Products. Our ability to successfully commercialize Noden Products will depend, in part, on the extent to which we are able to provide adequate distribution of the Noden Products to patients. Although we have contracted with a number of wholesalers, they are expected generally to carry a very limited inventory and may be reluctant to be part of our distribution network in the future if demand for the product does not increase.

The use of pharmaceutical wholesalers involves certain risks, including, but not limited to, risks that these pharmaceutical wholesalers will not provide us accurate or timely information regarding their inventories, demand from wholesaler customers buying the Noden Products or complaints about the Noden Products, that these wholesalers will reduce their efforts or discontinue to sell or support or otherwise not effectively sell or support the Noden Products, or not devote the resources necessary to sell the Noden Products in the volumes and within the time frames that we expect.

Further, it is possible that these wholesalers could decide to change their policies or fees, or both, at some time in the future. This could result in their refusal to carry smaller volume products such as Noden Products, or lower margins or the need to find alternative methods of distributing the Noden Products. Although we believe we can find alternative channels to distribute the Noden Products on relatively short notice, our revenue during that period of time may suffer and we may incur additional costs to replace any such wholesaler. The loss of any large wholesaler as part of our distribution network, a significant reduction in sales we make to wholesalers, or any failure to pay for the Noden Products we have shipped to them could materially and adversely affect our business, results of operations and financial condition and/or our ability to sell Noden, as well as materially reduce the amount of value we could realize in such a sale.

Certain of our income generating assets are secured by collateral, and we may be, or may become, under-secured by the collateral, or such collateral may not have a value equal to our investment in the event of a default by our counterparties, or may lose value, each of which could negatively affect our ability recuperate our capital expenditures in such income generating assets.

Among our current income generating assets, the Wellstat Diagnostics loan and the CareView loan have exposed us to credit risk due to default or potential default by the counterparty. To mitigate this risk at the initiation of the loans, we obtained security

interests as collateral in the assets of such counterparty. Our credit risk in respect of such counterparty may be exacerbated when the collateral held by us cannot be realized upon or is liquidated at prices not sufficient to recover the full amount we are due pursuant to the terms of the particular credit agreement. This could occur in circumstances where the original collateral was not sufficient to cover a complete loss (e.g., our interests were only partially secured) or may result from the deterioration in value of the collateral, so that, in either such case, we are unable to recover our full capital outlay and any anticipated return. Obligations under these credit agreements are secured by a pledge of substantially all the assets of the borrower and any of its subsidiaries and, in the instance of Wellstat Diagnostics, by assets held by its affiliates. Although these loans are secured, we cannot guarantee that we will be able to collect all or part of the amounts owed to us. If we are unable to collect any amount, or amounts collected are not equal to our investment in the event of default by our counterparties, the value of our assets may decrease, which could materially and adversely affect our business, results of operations and financial condition, and/or our ability to successfully monetize the underlying assets pursuant to our monetization strategy. Additionally, we may face difficulty in collection efforts with respect to the Wellstat Diagnostics and CareView loans. Such difficulties with the CareView loan could lead to litigation or other legal procedures which may or may not be successful, and which will require significant financial and management resources to address. We have been engaged in multiple legal proceedings with Wellstat Diagnostics and its affiliates related to their credit agreement default, which is described in more detail in Note 25, Legal Proceedings, of this Annual Report. Any such losses resulting therefrom could materially and adversely affect our business, results of operations and financial condition.

We are exposed to the credit risk of some of our customers, which could result in material losses.

In our Medical Devices segment, customers may finance through leasing the acquisition of certain devices, and we believe there has been an increase in demand for customer financing through leasing in recent years. We may experience loss from a customer’s failure to make payments according to the contractual lease terms. Our exposure to the credit risks relating to our lease financing arrangements may increase if our customers are adversely affected by changes in healthcare laws, coverage and reimbursement, economic pressures or uncertainty, or other customer-specific factors. The factors affecting our customers’ ability to make timely payments according to the contractual lease terms are out of our control, and as a result, exposes us to additional risks that may materially and adversely affect our business and results of operations. The occurrence of any such factors affecting our customers may cause delays in payments or, in some cases, defaults on payment obligations, which could result in material losses.

Although we have programs in place that are designed to monitor and mitigate the associated risk, there can be no assurance that such programs will be effective in reducing credit risks relating to these lease financing arrangements. If the level of credit losses we experience in the future exceed our expectations, such losses could have a material adverse effect on our financial condition or results of operations or adversely affect our ability to sell such assets as part of our monetization strategy.

We, our licensees, borrowers and royalty-agreement counterparties and the companies in which we invest may be unable to maintain regulatory approvals for currently licensed products, or to obtain regulatory approvals or favorable pricing for new products, and we or they may voluntarily remove currently licensed products from marketing and commercial distribution. Any of such events, whether due to safety issues or other factors, could reduce our revenues or return on investments, and could limit our ability to generate expected returns from the monetization of such assets.

We and our licensees, borrowers and royalty-agreement counterparties and companies in which we have invested, are subject to stringent regulation with respect to product safety and efficacy by various international, federal, state and local authorities. Of particular significance are the FDA requirements covering research and development, testing, manufacturing, quality control, labeling and promotion of drugs and medical devices for human use in the United States. As a result of these requirements, the length of time, the level of expenditures and the laboratory and clinical information required for approval of a biologic license application or new drug application and approval or clearance of a medical device are substantial and can require a number of years. In addition, even if our products, our licensees’, borrowers’ and royalty-agreement counterparties’ products or products of companies in which we invest receive regulatory approval, we and they will remain subject to ongoing FDA and other international regulations including, but not limited to, obligations to conduct additional clinical trials or other testing, changes to the product label, new or revised regulatory requirements for manufacturing practices, written advisements to physicians and/or a product recall or withdrawal. We, our licensees, borrowers and royalty-agreement counterparties and the companies in which we invest may not maintain necessary regulatory approvals for our or their existing licensed products or we or our licensees may not obtain necessary regulatory approvals on a timely basis, if at all, for any of our products, or the licensed products our licensees are developing or manufacturing. Moreover, the current political environment in the United States is focused on potential reductions in pricing for pharmaceutical and other healthcare products, which may negatively impact any existing or new products from which our revenues would be derived. We are unable to control the pricing strategies used by our licensees, borrowers and royalty-agreement counterparties and may have limited influence over the pricing strategies used by companies in which we invest, and if they fail to use appropriate pricing strategies, or receive negative reactions to their pricing strategies, it could negatively impact our revenues or return on investment. We may also select pricing strategies for our own products and medical

devices that are less competitive than those of our competitors, or we may fail to obtain acceptable prices or an adequate level of reimbursement for products or medical devices from third-party payors or governmental agencies, which could negatively impact our revenues or return on investment and could limit our ability to generate expected returns from the monetization of such assets.

In addition, communications from government officials regarding pricing for pharmaceutical and other health care products could have a negative impact on our stock price or the value of the assets we are seeking to monetize, even if such communications do not ultimately impact our products, our licensees’, borrowers’ and royalty-agreement counterparties’ products or the products of companies in which we invest. The occurrence of adverse events reported by any licensee, borrower or royalty-agreement counterparty or company in which we invest may result in the revocation of regulatory approvals or decreased sales of the applicable product due to a change in physicians’ willingness to prescribe, or patients’ willingness to use the applicable product. We, our licensees, borrowers and royalty-agreement counterparties and the companies in which we invest could also choose to voluntarily remove licensed products from marketing and commercial distribution. For example, in November 2011, the FDA removed the indication for breast cancer from Avastin’s label. In 2005, Tysabri was temporarily suspended and then returned to the market. In any of these cases, our revenues or return on investment could be materially and adversely affected. Moreover, any value we may receive upon the potential sale of our company or other potential transaction in furtherance of our monetization strategy could be materially and adversely affected.

In addition, the current regulatory framework could change, or additional regulations could arise at any stage during our licensees’ or invested company’s product development or marketing which may affect their ability to obtain or maintain approval of their respective products. Delays in our licensees or the companies in which we have invested receiving regulatory approval for their respective products or their failure to maintain existing regulatory approvals could have a material adverse effect on our business or our ability to successfully implement our monetization strategy.

Many of our pharmaceutical products, investments, medical devices and income generating assets are in companies or assets that have limited commercialized revenue-generating products or are dependent on the actions of unrelated third parties, which may negatively impact the value we are able to realize as part of our monetization strategy.

Our ability to realize full value for certain of our assets (including in connection with executing a successful monetization strategy) depends on the progress of such assets towards commercialization, and the ability to further the development in a competitive and highly regulated market. Our or our counterparties or their licensees inability to do so would negatively affect our investment returns and could limit our ability to generate expected returns from the monetization of such assets.

In addition, in connection with our income generating assets and our investments in our Strategic Positions segment, we are dependent, to a large extent, on third parties to enforce certain rights for our benefit. For example, when we acquired certain royalty rights from Assertio (formerly Depomed), which, as the licensor of certain patents, retains various rights, including the contractual right to audit its licensees and to ensure those licensees are complying with the terms of the underlying license agreements. Assertio also retained full responsibility to protect and maintain the intellectual property rights underlying the licenses. While we have contractual rights to require Assertio to take action regarding many of these rights, because Assertio’s economic interest in the license agreements is limited, it may not enforce or protect those rights as it otherwise would have had it retained the full economic interest in the payments under the license agreements. Moreover, in respect of the royalty stream relating to the Glumetza diabetes medication that we acquired from Assertio, which is the royalty right producing the highest revenues from our Assertio acquired royalties, a single generic manufacturer was approved by the FDA in February 2013 and in August 2016, two additional generic manufacturers were approved by the FDA to enter the US as provided for in settlement agreements between Assertio and these generic manufacturers. In February 2016, Lupin Pharmaceuticals, Inc., and in August 2017, Teva Pharmaceutical Industries Ltd., and in July 2018, Sun Pharmaceutical, Inc., each launched a generic equivalent approved product. We were aware of these settlement agreements, considered them in the cost of the acquiring this asset and expected the entry of these generic products to reduce our Glumetza revenues. We are further aware of additional approved generic extended release metformin products, which could negatively affect Glumetza revenues.

We and our companies’ licensees, borrowers and royalty-agreement counterparties face significant market pressures with respect to our and their products, and the amount of revenues from our or their pharmaceutical products or medical devices, or from our income generating assets that we receive are subject to various competitive and market factors that may be outside of our control.

We and our companies, licensees, borrowers and royalty-agreement counterparties face competition from other pharmaceutical, biotechnology, device and diagnostic companies. The introduction of new competitive products may result in lost market share for us or our licensees, borrowers and royalty-agreement counterparties, reduced use of our or their products or devices, lower prices and/or reduced sales, any of which could reduce our royalty revenues, or the revenues on which we rely to produce the returns on

our acquisitions, and have a material adverse effect on our results of operations. Any such reduction to revenues could further limit any realized value we may obtain in connection with the evaluation of potential transactions to monetize such assets.

The amount of any royalties or revenues, and the subsequent returns on our investments that we receive from our pharmaceutical products, medical devices and/or income generating assets will depend on many factors, including the following:

• the timing and availability of generic product or devices competition for our products or devices, and our licensees’, borrowers’ and royalty-agreement counterparties’ products or devices;

• potential challenges or design-arounds to product, use or manufacturing related patents which provide exclusivity for products and assets before their expiration by generic pharmaceutical manufacturers;

• the size of the market for our products or devices, and our licensees’, borrowers’ and royalty-agreement counterparties’ products or devices;

• the extent and effectiveness of the sales and marketing and distribution support for our licensees’, borrowers’ and royalty-agreement counterparties’ products or devices and commercial infrastructure with respect to our products or devices;

• the existence of novel or superior products or devices to our products or devices, or our licensees’, borrowers’ and royalty-agreement counterparties’ products or devices;

• the availability of reduced pricing and discounts applicable to our licensees’, borrowers’ and royalty-agreement counterparties’ products or devices;

• stocking and inventory management practices related to our products or our licensees’, borrowers’ and royalty-agreement counterparties’ products or devices;

• limitations on indications for which our products or devices or our licensees’, borrowers’ and royalty-agreement counterparties’ products or devices can be marketed; the competitive landscape for approved products or devices and developing therapies that compete with our products or devices or our licensees’, borrowers’ and royalty-agreement counterparties’ products or devices;

• the ability of patients to be able to afford our products or devices, or our licensees’, borrowers’ and royalty-agreement counterparties’ products or devices or obtain healthcare coverage that covers those products or devices;

• acceptance of, and ongoing satisfaction with, our products or devices and our licensees’, borrowers’ and royalty-agreement counterparties’ products or devices by the care providers, patients receiving therapy and third-party payors; or

• the unfavorable outcome of any potential litigation relating to our products or devices and our licensees’, borrowers’ and royalty-agreement counterparties’ products or devices.

For example, in mid-2019, Bausch Health announced potential price decreases on Glumetza, a royalty-bearing product under our Assertio Royalty Agreement. These price decreases could negatively affect revenues and thus our royalties. Due to the uncertainties caused by changes in pricing by third parties that are outside our control, including as a result of generic competition, we may not be able to accurately estimate the impact on royalties on such sales paid to us for Glumetza or any other product.

Additionally, Noden’s ’111 Patent, which was previously extended by virtue of pediatric testing requirements, expired in January 2019. While Noden has additional patent coverage related to drug formulation and manufacturing technology which relate to our commercialization of Tekturna in the United States which has not yet expired, the expiration of the composition of matter patents related to our Tekturna products will allow entry of competitors which have been able to design around the remaining formulation patents. For example, in 2018, Noden settled a paragraph IV challenge with Anchen Pharmaceuticals, Inc. which allowed entry into the market of a generic aliskiren product in March 2019, which generic product was subsequently made commercially available through Par Pharmaceuticals, Inc. and competes with Tekturna and our authorized generic product. While we are unaware of the entry of any additional third-party generic product at the present time, we cannot preclude the possibility that another third-party generic version of aliskiren will be available at some time in the future. In March 2019, under an agreement with Prasco Laboratories, we launched in the United States an authorized generic form of Tekturna which currently competes with the Par Pharmaceuticals generic aliskiren product. The increase in competition and additional generic competition may have a material and adverse effect on our ability to realize significant value for stockholders on the disposition or sale of the Noden Products in furtherance of our monetization strategy.

We, our licensees and the companies in which we have invested must continue to protect our and their intellectual property rights for us to protect the value of our assets and/or execute a successful monetization strategy.

Our success in protecting the value of our assets (including in connection with executing a successful monetization strategy) is dependent in significant part on our ability and the ability of third parties in control of the assets in which we’ve invested to

protect the scope, validity and enforceability of our and their intellectual property, including the patents, SPCs and license agreements, all of which support our revenues. The scope, validity, enforceability and effective term of patents and SPCs can be highly uncertain and often involve complex legal and factual questions and proceedings. In addition, the legal principles applicable to patents in any given jurisdiction may be altered through changing court precedent and legislative action, and such changes may affect the scope, strength and enforceability of our patent rights or the nature of proceedings which may be brought related to the relevant patent rights. A finding in a proceeding related to patent rights which support our revenues which narrows the scope or which affects the validity or enforceability of some or all of our patent rights could have a material impact on our ability to continue to collect royalty payments from our investments or collect revenue from our sales of our pharmaceutical products and medical devices. If the scope, validity and enforceability of our and their intellectual property were to be negatively impacted prior to monetizing any such assets, our expected return on such assets could be materially and adversely affected.

Our reliance on sole and single source suppliers could harm our ability to meet demand for our products or devices in a timely manner or within budget.

Some of the components necessary for the assembly of our Medical Devices segment are currently provided to us by sole-sourced suppliers or single-sourced suppliers. We generally purchase components through purchase orders rather than long-term supply agreements and generally do not maintain large volumes of inventory. While alternative suppliers exist and could be identified for sole-sourced components, the disruption or termination of the supply of components could cause a significant increase in the costs of these components, which could affect our operating results. A disruption or termination in the supply of components could also result in our inability to meet demand for our products, which could harm our ability to generate revenues, lead to customer dissatisfaction and damage our reputation. Furthermore, if we are required to change the manufacturer of a key component of our products, we may be required to verify that the new manufacturer maintains facilities and procedures that comply with quality standards and with all applicable regulations and guidelines. The delays associated with the verification of a new manufacturer could delay our ability to manufacture our products in a timely manner or within budget, which may have a material adverse impact on our business, financial condition, results of operations, or cash flows, as well as our ability to successfully monetize or otherwise dispose of such products and/or related businesses.

Recently enacted and future legislation is expected to increase the difficulty and costs to maintain revenues from our products, and in particular may negatively impact the pricing of our products and/or the ability to realize value as part of our monetization strategy.

In the United States and some foreign jurisdictions, there have been, and we expect there will continue to be, a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could, among other things, affect our ability to profitably sell our products.

For example, in the United States in March 2010, the Patient Protection and Affordable Care Act (“ACA”) was enacted to increase access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for healthcare and the health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms. The law has continued the downward pressure on pharmaceutical pricing, especially under the Medicare program, and increased the industry’s regulatory burdens and operating costs. Among the provisions of the ACA of importance are the following:

• manufacturers and importers of certain branded prescription drugs with annual sales of more than $5 million made to or covered by specified federal healthcare programs are required to pay an annual, non-tax deductible fee based on each company’s market share of all such sales in the prior year;

• an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program for brand and generic drugs;

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

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

• expansion of eligibility criteria for Medicaid programs in certain states;

• a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries under their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D. Subsequent legislative amendments have increased the point-of-sale discounted to 70%, effective 2019;

• expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program, commonly referred to as the “340B Program”;

• a new requirement to annually report drug samples that manufacturers and distributors provide to physicians, also known as the “Physicians Payment Sunshine Act”; and

• a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research.

The potential financial impact of the ACA over the next few years will depend on a number of factors including policies reflected in implementing regulations and guidance and changes in sales volumes for products affected by the new system of rebates, discounts and fees. The taxes imposed by the ACA and the expansion in the government’s role in the U.S. healthcare industry may result in decreased profits to us, lower reimbursement by payors for our products, and/or reduced medical procedure volumes, all of which may have a material adverse effect on our business, financial condition and results of operations. The Trump Administration and the U.S. Congress may take further action regarding the ACA, including, but not limited to, repeal or replacement. For example, the Tax Cuts and Jobs Act of 2017 (the “2017 Tax Act”) was enacted, which, among other things, removes penalties for not complying with the individual mandate to carry health insurance. On December 14, 2018, a U.S. District Court Judge in the Northern District of Texas, ruled that the individual mandate is a critical and inseverable feature of the ACA, and therefore, because it was repealed as part of the 2017 Tax Act, the remaining provisions of the ACA are invalid as well. On December 18, 2019, the United States Court of Appeals for the Fifth Circuit affirmed the portion of the district court’s ruling declaring the individual mandate unconstitutional and remanded for the district court to conduct analysis in the first instance on which provisions of the statute are severable from it and thus remain intact. On March 2, 2020, the Supreme Court of the United States granted certiorari to hear the case. While the Trump Administration and the Centers for Medicare & Medicaid Services have both stated that the ruling will have no immediate effect, it is unclear how this decision, subsequent appeals, including the aforementioned appeal, and other efforts to repeal and replace the ACA will impact the ACA. There may be additional challenges and amendments to the ACA in the future, including continued litigation and legislation, and all or a portion of the ACA and related subsequent legislation may be modified, repealed or otherwise invalidated through judicial challenge. We cannot predict the ultimate content, timing or effect of any healthcare reform legislation or the impact of potential legislation on us and will continue to evaluate the effect that the ACA and its possible repeal and replacement has on our business.

In addition, other legislative changes have been proposed and adopted in the United States since the ACA was enacted. These changes included automatic aggregate reductions to Medicare payments to providers of 2% per fiscal year as part of the federal budget sequestration under the Budget Control Act of 2011, which went into effect in April 2013 and, due to subsequent legislative amendments, will remain in effect through 2025 unless additional action is taken by Congress. In January 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, further reduced Medicare payments to several types of providers and increased the statute of limitations period in which the government may recover overpayments to providers from three to five years. In addition, recently there has been heightened governmental scrutiny over the manner in which drug manufacturers set prices for their commercial products and regulatory action aimed at reducing the cost of prescription drugs. For example, in December 2019, the U.S. Department of Health and Human Services and the FDA issued a proposed rule and draft guidance concerning two new pathways for importing lower-cost drugs into the United States. The proposed rule, if finalized, would allow certain prescription drugs to be imported from Canada. The draft guidance describes procedures for drug manufacturers to facilitate the importation of FDA-approved drugs and biologics manufactured abroad and originally intended for sale in a foreign country into the United States. Additionally, President Trump’s administration has proposed to establish an international pricing index that would tie domestic prices for certain drugs and biologics to the prices in other countries with more aggressive drug price regulation. The implementation of cost containment measures or other healthcare reforms may limit us from being able to generate revenue, attain profitability, or commercializing our products, which could have a material adverse effect on business and results of operations.

In any event, we expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for pharmaceutical products, which could result in reduced demand for our products or our counterparties’ products or additional pricing pressures on our products or our counterparties’ products, as well as negatively affect our ability to successfully execute our monetization strategy.

Changes in third-party coverage and reimbursement may affect sales of our products, product sales from which we receive royalty revenues and the products our borrowers sell to generate revenues and the growth of managed care organizations (“MCOs”), is expected to increase pricing pressures on our products in the United States.

Sales of our products, product sales from which we receive royalties and the products our borrowers sell to generate revenues will depend significantly on the extent to which reimbursement for the cost of such products and related treatments will be available to physicians and patients from various levels of United States and international government health authorities, private health insurers and other organizations. Third-party payers and government health administration authorities increasingly attempt to limit and/or regulate the coverage and reimbursement of medical products and services, including branded prescription drugs. Changes

in government legislation or regulation, such as the ACA, and changes in formulary or compendia listing or changes in private third-party payers’ policies toward reimbursement for such products may reduce reimbursement of the cost of such products to physicians, pharmacies and distributors. Decreases in third-party reimbursement could reduce usage of such products and sales to collaborators, which may have a material adverse effect on our revenues derived from our products, those from which we receive royalties from the business of our borrowers. In addition, macroeconomic factors may affect the ability of patients to pay or co-pay for costs or otherwise pay for our products or the products from which we, our royalty counterparties and borrowers generate revenues by, for example, decreasing the number of patients covered by insurance policies or increasing costs associated with such policies. All of these factors could negatively impact our ability to sell or otherwise dispose of our assets or reduce the value we realize as we seek to execute our monetization strategy.

In the United States in particular, the influence of MCOs has increased in recent years due to the growing number of patients receiving coverage through MCOs. The growth of MCOs has increased pressure on drug prices as well as revenues for pharmaceutical companies. One objective of MCOs is to contain and, where possible, reduce healthcare expenditures. MCOs typically use formularies as a means to negotiate prices with pharmaceutical providers; physician protocols requiring prior authorization for a branded product if a generic product is available or requiring the patient to first fail on one or more generic products before permitting access to a branded medicine; volume purchasing; and long-term contracts. In addition, by placing branded medicines on higher-tier status in their formularies or non-preferred tier status, MCOs transfer a portion of the cost of those medicines to the patient (through and increase in co-payment requirements), resulting in significant out-of-pocket expenses for the patient. This financial disincentive is a means by which MCOs manage drug costs and influence patients to use medicines preferred by the MCOs.

Exclusion of a product from a formulary or other MCO-implemented restrictions can significantly impact drug usage in the MCO patient population. Consequently, pharmaceutical companies compete to gain access to formularies for their products. Unique product features, such as greater efficacy, better patient ease of use, or fewer side effects, are generally beneficial to achieving access to formularies. Larger pharmaceutical companies have the ability to bundle available products and discounts in an effort to place and maintain products on formulary. We will be responsible for meeting the requirements of MCO’s in the United States and ensuring the competitive use of our products in a highly uncertain and changing environment. There can be no assurance that we will be able to maintain the level of use of our products, and their inability to do so could have a material adverse impact on the value we receive from any sale of our products or related businesses as part of our asset monetization strategy.

Generic products may increase pricing pressures on our products.

Although we believe that our products benefit from issued and/or pending patents as well as proprietary manufacturing technology, one competitive challenge that our branded pharmaceuticals products face is or will be from generic pharmaceutical manufacturers. Upon the expiration or loss of patent protection for a product, especially a small molecule product, the major portion of revenues for that product may be dramatically reduced in a very short period of time. Several such competitors make a regular practice of challenging product patents before their expiration. Also, manufacturers of generic pharmaceutical products may file or have already filed an abbreviated NDA (“ANDA”) with the FDA seeking to market generic forms of our products prior to the expiration of relevant patents owned by Noden. In June 2018, Noden Pharma DAC entered into a settlement agreement with Anchen pursuant to which Anchen, the sole ANDA filer for Tekturna of which the Company is aware, was granted a license from Noden to commercialize its generic form of aliskiren starting March 1, 2019. Under their license, Anchen may commercialize their formulation of aliskiren, but is not permitted to commercialize a generic version of aliskiren which closely relates to the formulation of Tekturna. As a result of a settlement with Anchen, Par Pharmaceuticals has commercialized a generic form of aliskiren. Further patent litigation and other challenges to Noden’s patents would be costly and unpredictable, would require extensive management time and resources, and may ultimately deprive us of market exclusivity for our products in a given geographical territory. The FDA ANDA approval process exempts generics from costly and time-consuming clinical trials to demonstrate their safety and efficacy, as long as they can scientifically demonstrate that their product performs in the same manner as the innovator drug, thus allowing generic manufacturers to rely on the safety and efficacy data of the innovator’s product. Generic competitors do not generally need to conduct clinical trials and can market a competing version of a product after the expiration or loss of patent or regulatory exclusivity and often charge significantly lower prices. In addition, as noted above, MCOs that focus primarily on the immediate cost of medicines often favor generics over branded drugs. Many governments also encourage the use of generics as alternatives to brand-name drugs in their healthcare programs. Additionally, certain foreign governments have indicated that compulsory licenses to patents may be granted in the case of national emergencies or in other circumstances, which could diminish or eliminate sales and profits from those regions, negatively affect our results of operations and cash flows, lead to an impairment charge of our long-lived assets or result in a material decline of our revenue. In March 2019, under an agreement with Prasco Laboratories, we launched in the United States an authorized generic form of Tekturna which competes with the Par Pharmaceuticals generic aliskiren product. Pricing pressure could reduce the value of the product, and consequently of Noden, as we seek to sell it as part of our monetization strategy.

Our ability to generate revenue from an authorized generic may be limited in the future.

In March 2019, we launched in the United States aliskiren hemifumarate tablets, 150 mg and 300 mg, an authorized generic of Tekturna, through Prasco Laboratories under an agreement with Noden Pharma DAC. Our ability to generate revenue related to our authorized generic may be limited for a number of reasons, including, without limitation, the entry into the market of additional generic products, the ratings for any existing or potential additional generic products, and the effect of increased generic competition on pricing. All of these factors could materially and adversely affect Noden’s business and the value we are able to realize as we seek to sell Noden as part of our asset monetization strategy.

Our products may develop undesirable side effects or have other properties impacting safety or efficacy.

Undesirable side effects caused by our products or similar products sold or developed by other companies, could reveal a high and unacceptable severity and prevalence of side effects or adverse events resulting in a number of potentially significant negative consequences, including:

• regulatory authorities may withdraw approvals of such product;

• regulatory authorities may require additional warnings on the label;

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

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

• our reputation may suffer.

Any of these events could result in a material decline of our revenue negatively affecting the value of our assets and the proceeds we realize from a sale of such assets as part of our monetization strategy.

We may have significant product liability exposure and our insurance may not cover all potential claims.

We are exposed to product liability and other claims in the event that our technologies or products are alleged to have caused harm. Any potential product liability claims could exceed the amount of our insurance coverage or may be excluded from coverage under the terms of our policies. Our insurance may not be renewed at a cost and level of coverage comparable to that then in effect. Any of these events could materially and adversely affect our business, results of operations and financial condition, as well as the ability to successfully execute our monetization strategy.

Our third-party contractors as well as our own employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could result in significant liability for us and harm our reputation.

We are exposed to the risk of fraud or other misconduct in connection with international business operations and our reliance on third-party contractors to manage and conduct those activities with respect to our products. These risks include potential failures to:

• comply with FDA regulations or similar regulations of comparable foreign regulatory authorities;

• provide accurate information to the FDA or comparable foreign regulatory authorities;

• comply with manufacturing standards applicable to our products;

• comply with federal and state healthcare fraud and abuse laws and regulations and similar laws and regulations established and enforced by comparable foreign regulatory authorities;

• comply with the FCPA, the UK Bribery Act, and other anti-bribery laws;

• report financial information or data and our business affairs accurately; or

• disclose unauthorized activities to us.

Our investment in Noden, an Irish entity, subjects us to both United States and international tax laws with respect to the structure and operations of our business and the business conducted by Noden, which are subject to continued scrutiny and change by governments and may result in additional liabilities that may affect our results of operations or reduce the proceeds we are able to realize as we seek to sell Noden or its assets as part of our monetization strategy.

Noden is incorporated in Ireland and maintains the performance of certain functions and ownership of certain assets in a more tax-efficient jurisdiction than the United States. Taxing authorities, such as the United States Internal Revenue Service (“IRS”),

actively audit and otherwise challenge these types of arrangements, and have regularly done so in the pharmaceutical industry. We remain subject to reviews and audits by the IRS and other taxing authorities from time to time, and the IRS or other taxing authority may challenge our structure and intra-company arrangements through an audit or lawsuit. Responding to or defending against those and other challenges from taxing authorities could be expensive and, in any event, would consume time and other resources, and divert management’s time and focus, as well as restrict or delay our ability to sell Noden. We generally cannot predict whether taxing authorities will conduct an audit or file a lawsuit challenging our current structure, the cost involved in responding to any inquiry or audit or lawsuit, or the outcome. If we are unsuccessful, we may be required to consolidate income and pay greater taxes as well as interest, fines or penalties, and may be obligated to pay increased taxes in the future, any of which could have a material adverse effect on our results of operations or the proceeds we are able to realize from a sale of Noden.

The regulatory clearance and approval processes of the FDA are lengthy, time-consuming and inherently unpredictable, and if we are ultimately unable to obtain regulatory clearance or approval for any new product candidates or modifications to existing products, our business or monetization strategy could be harmed.

The time required to obtain approval or clearance of a drug or device, respectively, by the FDA is unpredictable but typically takes many years following the commencement of clinical trials, if required, and depends upon numerous factors, including the substantial discretion of the regulatory authorities. In addition, approval or clearance policies, regulations, or the type and amount of clinical data necessary to gain marketing authorization may change during the course of a product candidate’s development and may vary among jurisdictions. We are not permitted to market any new product candidates in the United States until we receive regulatory approval of an NDA for any new drug product candidate or clearance of a 510(k) premarket notification (or approval of a PMA application) for any new medical device from the FDA, unless the device is exempt from such requirements.

Prior to obtaining approval to commercialize a drug product candidate in the United States or abroad, we or our collaborators must demonstrate with substantial evidence from well-controlled clinical trials, and to the satisfaction of the FDA, that such product candidates are safe and effective for their intended uses. Results from preclinical studies and clinical trials can be interpreted in different ways. Even if we believe the preclinical or clinical data for our product candidates are promising, such data may not be sufficient to support approval by the FDA and other regulatory authorities. The FDA may also require us to conduct additional preclinical studies or clinical trials for our product candidates either prior to or post-approval, or it may object to elements of our clinical development program.

In the United States, before we can market a new medical device, or a new use of, new claim for or significant modification to an existing product, we must first receive either clearance under Section 510(k) of the FFDCA or approval of a PMA application from the FDA, unless an exemption applies. In the 510(k) clearance process, before a device may be marketed, the FDA must determine that a proposed device is “substantially equivalent” to a legally-marketed “predicate” device, which includes a device that has been previously cleared through the 510(k) process, a device that was legally marketed prior to May 28, 1976 (pre-amendments device), a device that was originally on the U.S. market pursuant to an approved PMA and later down-classified, or a 510(k)-exempt device. To be “substantially equivalent,” the proposed device must have the same intended use as the predicate device, and either have the same technological characteristics as the predicate device or have different technological characteristics and not raise different questions of safety or effectiveness than the predicate device. Clinical data are sometimes required to support substantial equivalence. In the PMA process, the FDA must determine that a proposed device is safe and effective for its intended use based, in part, on extensive data, including, but not limited to, technical, pre-clinical, clinical trial, manufacturing and labeling data. The PMA process is typically required for devices that are deemed to pose the greatest risk, such as life-sustaining, life-supporting or implantable devices.

Modifications to products that are approved through a PMA application generally require FDA approval. Similarly, certain modifications made to products cleared through a 510(k) may require a new 510(k) clearance. Both the PMA approval and the 510(k) clearance process can be expensive, lengthy and uncertain. The FDA’s 510(k) clearance process usually takes from three to 12 months, but can last longer. The process of obtaining a PMA is much costlier and more uncertain than the 510(k) clearance process and generally takes from one to three years, or even longer, from the time the application is filed with the FDA. In addition, a PMA generally requires the performance of one or more clinical trials. Despite the time, effort and cost, we cannot assure you that any particular device will be approved or cleared by the FDA. Any delay or failure to obtain necessary regulatory approvals could harm our business or monetization strategy.

In the United States, we have obtained 510(k) premarket clearance from the FDA to market the LENSAR device. An element of our strategy is to continue to add new features and seek new indications. We expect that any such modifications may require new 510(k) clearance; however, future modifications may be subject to the substantially more costly, time-consuming and uncertain PMA process. If the FDA requires us to go through a lengthier, more rigorous examination for future products or modifications to

existing products than we had expected, product introductions or modifications could be delayed or canceled, which could cause our sales to decline.

The FDA can delay, limit or deny clearance or approval of our product candidates or require us to conduct additional preclinical or clinical testing or abandon a program for many reasons, including:

• the FDA’s disagreement with the design or implementation of our clinical trials;

• negative or ambiguous results from our clinical trials;

• results that may not meet the level of statistical significance required by the FDA for approval or clearance;

• serious and unexpected drug-related adverse events experienced by participants in our clinical trials or by individuals using drugs similar to our product candidates;

• our inability to demonstrate to the satisfaction of the FDA that our product candidates are safe and effective for the proposed indication or, in the case of our medical devices, are substantially equivalent to our proposed predicate device;

• the FDA’s disagreement with the interpretation of data from preclinical studies or clinical trials;

• our inability to demonstrate that the clinical and other benefits of our product candidates outweigh any safety or other perceived risks;

• the FDA’s requirement for additional preclinical studies or clinical trials;

• the FDA’s disagreement regarding the formulation, labeling or the specifications of our product candidates;

• the FDA’s agency’s failure to approve the manufacturing processes or facilities of third-party manufacturers with which we contract; or

• the potential for approval policies or regulations of the FDA to significantly change in a manner rendering our clinical data insufficient for approval.

Of the large number of products in development, only a small percentage successfully complete the FDA marketing authorization process and become commercialized. The lengthy process as well as the unpredictability of outcomes from future clinical trials may result in our failing to obtain regulatory authorization to market our product candidates.

Even if we eventually complete clinical testing and receive approval of an NDA, 510(k), or similar foreign marketing application for our product candidates, the FDA may grant approval contingent on the performance of costly additional clinical trials, including Phase 4 clinical trials, or in the case of our drugs, the implementation of a Risk Evaluation and Mitigation Strategy (“REMS”), which may be required to ensure safe use of the drug after approval. The FDA also may authorize a product candidate for a more limited indication or patient population than we originally requested, and the FDA may not authorize us to market the product with the labeling that we believe is necessary or desirable for the successful commercialization of a product candidate. Any delay in obtaining, or inability to obtain, applicable regulatory authorization would delay or prevent commercialization of that product candidate. In addition, our drugs may become subject to class-wide REMS that implicate all manufactures of a particular class of drugs, which could significantly impact our ability to commercialize our drugs and could reduce their market potential.

The safety and efficacy of our medical device products is not yet supported by long-term clinical data, which could limit sales, and our products might therefore prove to be less safe or effective than initially thought.

Our medical device products have received premarket clearance under Section 510(k) of the FFDCA. In the 510(k) clearance process, before a device may be marketed the FDA must determine that a proposed device is “substantially equivalent” to a legally-marketed “predicate” device, which includes a device that has been previously cleared through the 510(k) process, a device that was legally marketed prior to May 28, 1976 (pre-amendments device), a device that was originally on the U.S. market pursuant to an approved PMA application and later down-classified, or a 510(k)-exempt device. This process is typically shorter and generally requires the submission of less supporting documentation than the FDA’s PMA application process and does not always require long-term clinical studies.

In the European Economic Area (“EEA”) manufacturers of medical devices are required by the Medical Devices Directive to collect post-marketing clinical data in relation to their CE marked medical devices. Post-market surveillance includes the conduct of post-market clinical follow-up studies permitting manufacturers to gather information concerning quality, safety or performance of medical devices after they have been placed on the market in the EEA. All information collected as part of the post-market surveillance process must be reviewed, investigated and analyzed on a regular basis in order to determine whether trending conclusions can be made concerning the safety or performance of the medical device and decisions must be taken in relation to the continued marketing of medical devices currently on the market. If development of these products is continued by

us, we would expect to incur ongoing costs to comply with these post-market clinical obligations in EEA markets for so long as we continue to market and sell products in those markets.

Given the foregoing regulatory environment in which we operate, we lack the breadth of published long-term clinical data supporting the safety and efficacy of our medical devices and the benefits they offer that might have been generated in connection with other approval processes. For these reasons, the market may be slow to adopt our products, we may not have comparative data that our competitors have or are generating, and we may be subject to greater regulatory and product liability risks.

In addition, while our LENSAR® Laser Systems were first cleared in 2010 in the United States and in 2013 in EEA, we have limited complication or patient success rate data with respect to uses of our products. In addition, if future studies and experience indicate that our products cause unexpected or serious complications or other unforeseen negative effects, we could be subject to mandatory product recalls or suspension or withdrawal of clearance in the United States or the EEA, and our reputation with physicians, patients and healthcare providers may suffer.

The misuse or off-label use of our products may harm our reputation in the marketplace, result in injuries that lead to product liability suits or result in costly investigations, fines or sanctions by regulatory bodies if we are deemed to have engaged in the promotion of these uses, any of which could be costly to our business.

Our products have been approved or cleared by the FDA for specific indications. Our marketing does not promote our products for uses outside of these cleared or approved indications for use, known as “off-label uses.” We cannot, however, prevent a physician from using or prescribing our products off-label, when in the physician’s independent professional medical judgment he or she deems it appropriate. There may be increased risk of injury to patients if physicians prescribe or use our products off-label. Furthermore, the use of our products for indications other than those cleared or approved by the FDA or any foreign regulatory body may not effectively treat such conditions, which could harm our reputation in the marketplace among physicians and patients.

If the FDA or any foreign regulatory body determines that our promotional materials or training constitute promotion of an off-label use, it could request that we modify our training or promotional materials or subject us to regulatory or enforcement actions, including the issuance or imposition of a warning letter or an untitled letter, which is used for violators that do not necessitate a warning letter, injunction, seizure, civil fine or criminal penalties. It is also possible that other federal, state or foreign enforcement authorities might take action under other regulatory authority, such as false claims laws, if they consider our business activities to constitute promotion of an off-label use, which could result in significant penalties, including, but not limited to, criminal, civil and administrative penalties, damages, fines, disgorgement, exclusion from participation in government healthcare programs and the curtailment of our operations.

Moreover, if our products do not comply with regulatory requirements, including with respect to labeling and promotion, or are misused or used with improper technique, we may become subject to costly litigation. Product liability claims could divert management’s attention from our core business, be expensive to defend and result in sizeable damage awards against us that may not be covered by insurance. In addition, any of the events described above could harm our business and/or negatively affect our ability to monetize such assets or the value we may receive from such a monetization.

Even though we have received regulatory approval for our drug product candidates and clearance of a premarket notification for our devices, we are subject to ongoing regulatory obligations and continued regulatory review, which results in significant additional expense, and we may be subject to penalties, if we fail to comply with regulatory requirements or experience unanticipated problems with our product candidates.

Any regulatory approvals or clearances that we receive may be subject to limitations on the indicated uses for which the product may be marketed or the conditions of approval, or contain requirements for potentially costly post-market testing and surveillance to monitor the safety and efficacy of the product candidate. The FDA may also require a REMS as a condition of approval of our product candidates, which could include requirements for a medication guide, physician communication plans or additional elements to ensure safe use, such as restricted distribution methods, patient registries and other risk minimization tools.

In addition, once the FDA or a comparable foreign regulatory authority authorizes a product for marketing, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion, import, export and recordkeeping are subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with cGMPs and GCP requirements for any clinical trials that we conduct post-approval. For example, we are subject to the medical device reporting requirements for our medical device products, which require us to report to the FDA when we receive or become aware of

information that reasonably suggests that one or more of our medical devices may have caused or contributed to a death or serious injury or malfunctioned in a way that, if the malfunction were to recur, it could cause or contribute to a death or serious injury. The timing of our obligation to report is triggered by the date we become aware of the adverse event as well as the nature of the event. We may fail to report adverse events of which we become aware within the prescribed timeframe. We may also fail to recognize that we have become aware of a reportable adverse event, especially if it is not reported to us as an adverse event or if it is an adverse event that is unexpected or removed in time from the use of the product. If we fail to comply with our reporting obligations, the FDA could take enforcement action against us. We are subject to similar post-market reporting requirements with respect to our drug products.

Later discovery of previously unknown problems with our product candidates, including adverse events of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in, among other things:

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

• fines, warning letters or holds on clinical trials;

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

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

• injunctions or the imposition of civil or criminal penalties.

The FDA’s and other regulatory authorities’ policies may change and additional government regulations may be enacted that could impact our business. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may fail to obtain any marketing approvals, lose any marketing approval that we have obtained and we may not achieve or sustain profitability.

We also cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. For example, certain policies of the Trump administration may impact our business and industry. Namely, the Trump administration has taken several executive actions, including the issuance of a number of Executive Orders, that could impose significant burdens on, or otherwise materially delay, the FDA’s ability to engage in routine regulatory and oversight activities such as implementing statutes through rulemaking, issuance of guidance, and review and approval of marketing applications. If these executive actions impose constraints on FDA’s ability to engage in oversight and implementation activities in the normal course, our business may be negatively impacted.

We are subject to extensive healthcare laws, regulation and enforcement, and our failure to comply with those laws could have a material adverse effect on our results of operations and financial condition.

We are subject to potential risk of civil and criminal enforcement by the federal government and the states and foreign governments due to the acquisitions of Noden and LENSAR. Our business practices and relationships with providers are subject to scrutiny under these laws. We are also be subject to privacy and security regulation related to patient, customer, employee and other third-party information by both the federal government and the states and foreign jurisdictions in which we conduct our business. The laws, regulations and codes that may affect us in the United States include:

• the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, to induce, or in return for, the purchase or recommendation of an item or service reimbursable under a federal healthcare program, such as the Medicare and Medicaid programs. A person or entity does not need to have actual knowledge of the statute or specific intent to violate it to have committed a violation. The U.S. government has interpreted this law broadly to apply to the marketing and sales activities of manufacturers. Moreover, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal civil False Claims Act. Violations of the federal Anti-Kickback Statute may result in civil monetary penalties plus up to three times the remuneration involved. Civil penalties for such conduct can further be assessed under the federal False Claims Act. Violations can also result in criminal penalties and imprisonment of up to 10 years. Similarly, violations can result in exclusion from participation in government healthcare programs, including Medicare and Medicaid;

• federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payors that are false or fraudulent. Private individuals can bring False Claims Act ‘‘qui tam’’ actions, on behalf of the government and such individuals, commonly known as ‘‘whistleblowers,’’ may share in amounts paid by the entity to the government in fines or settlement. When an entity is determined to have violated the federal civil False Claims Act, the government may impose civil fines and penalties for each false claim, plus treble damages, and exclude the entity from participation in Medicare, Medicaid and other federal healthcare programs;

• the federal Civil Monetary Penalties Law, which prohibits, among other things, offering or transferring remuneration to a federal healthcare beneficiary that a person knows or should know is likely to influence the beneficiary’s decision to order or receive items or services reimbursable by the government from a particular provider or supplier;

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

• HIPAA, as amended by the Health Information for Economic and Clinical Health Act of 2009 (“HITECH”), and its implementing regulations, which imposes certain requirements on certain covered healthcare providers, health plans and healthcare clearinghouses as well as their business associates that perform services for them that involve individually identifiable health information, relating to the privacy, security and transmission of individually identifiable health information, without appropriate authorization, including mandatory contractual terms as well as directly applicable privacy and security standards and requirements. Failure to comply with the HIPAA privacy and security standards can result in civil monetary penalties for each violation and, in certain circumstances, criminal penalties with fines for each violation and/or imprisonment. State attorneys general can also bring a civil action to enjoin a HIPAA violation or to obtain statutory damages on behalf of residents of his or her state;

• the federal physician sunshine requirements under the ACA, which require manufacturers of drugs, devices, biologics, and medical supplies to report annually to the Centers for Medicare and Medicaid Services (“CMS”), information related to payments and other transfers of value to physicians, other healthcare providers, and teaching hospitals, and ownership and investment interests held by physicians and other healthcare providers and their immediate family members. Applicable manufacturers are required to submit annual reports to CMS. Failure to submit required information may result in civil monetary penalties for all payments, transfers of value or ownership or investment interests that are not timely, accurately, and completely reported in an annual submission, and may result in liability under other federal laws or regulations;

• guidelines promulgated by the Office of Inspector General of the U.S. Department of Health and Human Services related to pharmaceutical and medical device company regulatory compliance programs and the PhRMA Code on Interactions with Healthcare Professionals and the AdvaMed Code of Ethics, as amended;

• foreign and state law equivalents of each of the above federal laws, such as the FCPA, anti-kickback and false claims laws that may apply to items or services reimbursed by any third-party payor, including commercial insurers;

• state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the applicable compliance guidance promulgated by the federal government, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources;

• state laws that require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; and

• state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways, thus complicating compliance efforts.

These laws and regulations, among other things, constrain our business, marketing and other promotional activities by limiting the kinds of financial arrangements, including sales programs, we may have with hospitals, physicians or other potential purchasers of our products. Due to the breadth of these laws, the narrowness of statutory exceptions and regulatory safe harbors available, and the range of interpretations to which they are subject, it is possible that some of our current or future practices might be challenged under one or more of these laws.

To enforce compliance with the healthcare regulatory laws, certain enforcement bodies have recently increased their scrutiny of interactions between healthcare companies and healthcare providers, which has led to a number of investigations, prosecutions, convictions and settlements in the healthcare industry. Responding to investigations can be time-and resource-consuming and can divert management’s attention from the business. Additionally, as a result of these investigations, healthcare providers and entities may have to agree to additional compliance and reporting requirements as part of a consent decree or corporate integrity

agreement. Any such investigation or settlement could increase our costs or otherwise have an adverse effect on our business. Even an unsuccessful challenge or investigation into our practices could cause adverse publicity and be costly to respond to.

We do not have experience in establishing the compliance programs necessary to comply with this complex and evolving regulatory environment and our reliance on Noden and LENSAR to operate and address these requirements appropriately increases the risks that we may be found to violate the applicable laws and regulations. If we are found to be in violation of any of such laws or any other governmental regulations, we may be subject to penalties, including administrative, civil and criminal penalties, damages, fines, the exclusion from participation in federal and state healthcare programs, imprisonment, contractual damages, reputational harm, disgorgement and the curtailment or restructuring of our operations, any of which could materially and adversely affect interests in our products, including having a material adverse effect on our financial results or our ability to monetize such products or related businesses as part of our monetization strategy.

An impairment charge with respect to intangible assets could have a material impact on our results of operations and/or negatively affect our monetization strategy.

We periodically evaluate our intangible assets to determine whether all or a portion of their carrying values may be impaired, in which case a charge to earnings may be necessary. The occurrence of certain events, changes in business strategy, government regulations or economic or market conditions may cause us to remeasure the fair value of certain assets and liabilities. Our judgments regarding the existence of impairment indicators are based on, among other things, legal factors, market conditions, and operational performance. If an event or events occur that would cause us to revise our estimates and assumptions used in analyzing the value of our intangible assets, such revision could result in an impairment charge that could have a material impact on our results of operations in the period in which the impairment occurs. For example, at December 31, 2019, we recorded an impairment charge of $22.5 million for the Noden intangible assets related to our monetization strategy and updated forecasts for Noden. As a result of this impairment charge, which was based on the estimated fair value of the assets, the remaining carrying value of these intangible assets were determined to be $10.1 million. For additional information on the impairment charge, see Note 10, Intangible Assets.

We may use a certain amount of cash from time to time in order to repurchase or satisfy obligations relating to our convertible notes. The maturity or conversion of any of our convertible notes could materially and adversely affect our business, results of operations and financial condition.

We are required to repay the full principal amount of approximately $19.2 million in principal amount outstanding under the 2.75% Convertible Senior Notes due December 1, 2021 (the “December 2021 Notes”) and approximately $11.5 million in principal amount outstanding plus an additional accreted amount of $1.5 million under the 2.75% Convertible Senior Notes due December 1, 2024 (the “December 2024 Notes”) if not previously converted or repurchased.

Our ability to make scheduled payments of the principal of, to pay interest on, to pay any cash due upon conversion of, or to refinance, our indebtedness, depends on our future performance, which is subject to economic, financial, competitive and other

factors beyond our control. Our business may not generate cash flow from operations in the future sufficient to service our debt and make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations.

Holders of the December 2021 Notes may convert their notes at their option under the following conditions at any time prior to the close of business on the business day immediately preceding June 1, 2021: (i) during any fiscal quarter (and only during such fiscal quarter) commencing after the fiscal quarter ending June 30, 2017, if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive), in the period of 30 consecutive trading days, ending on, and including, the last trading day of the immediately preceding fiscal quarter, exceeds 130% of the conversion price for the notes on each applicable trading day; (ii) during the five business day period immediately after any five consecutive trading-day period (the measurement period), in which the trading price per $1,000 principal amount of the December 2021 Notes for each trading day of that measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate for the notes for each such trading day; or (iii) upon the occurrence of specified corporate events. Holders of the December 2024 Notes may convert their notes at their option under the following conditions at any time prior to the close of business on the business day immediately preceding June 1, 2024: (i) during any fiscal quarter (and only during such fiscal quarter) if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive), in the period of 30 consecutive trading days, ending on, and including, the last trading day of the immediately preceding fiscal quarter, exceeds 130% of the

conversion price for the notes on each applicable trading day; (ii) during the five business day period immediately after any five consecutive trading-day period (the measurement period), in which the trading price per $1,000 principal amount of the December 2024 Notes for each trading day of that measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate for the notes for each such trading day; or (iii) upon the occurrence of specified corporate events.

The December 2021 Notes and the December 2024 Notes may be settled by paying or delivering, as applicable, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election. During the year ended December 31, 2019 we repurchased approximately $44.8 million in principal amount of our December 2021 Notes and approximately $74.6 million in principal amount of our December 2024 Notes. In furtherance of our monetization strategy, we expect to use a certain amount of cash from time to time in order to repurchase or satisfy obligations relating to our convertible notes which could adversely affect the amount or timing of any distribution to our stockholders.

The conversion or any future exchanges of any of the December 2021 Notes or the December 2024 Notes into shares of our common stock would have a dilutive effect that could cause our stock price to go down.

Until June 1, 2021, the December 2021 Notes are convertible into shares of our common stock only if specified conditions are met and thereafter convertible at any time, at the option of the holder. Until June 1, 2024, the December 2024 Notes are convertible into shares of our common stock only if specified conditions are met and thereafter convertible at any time, at the option of the holder. We have reserved shares of our authorized common stock for issuance upon conversion of the December 2021 Notes and the December 2024 Notes. Upon conversion, the principal amount of our convertible notes may be settled in, at our option, cash, common stock or a combination of cash and common stock. If any or all of these convertible notes are converted into shares of our common stock, our existing stockholders will experience immediate dilution of voting rights and our common stock price may decline. Furthermore, the perception that such dilution could occur may cause the market price of our common stock to decline. If our stock price is negatively impacted, any value we may receive upon the potential sale of our company or other potential transaction in furtherance of our monetization strategy could be materially and adversely affected.

We entered into capped call transactions in connection with the issuance of our December 2021 Notes and our December 2024 Notes that may affect the value of our common stock and any desired dilution mitigation will be limited to the extent that our stock price rises above the cap price of the applicable capped call transactions.

In connection with the issuance of our December 2021 Notes and our December 2024 Notes, we entered into capped call transactions, with hedge counterparties, which we expect to reduce the potential dilution upon conversion of the December 2021 Notes and the December 2024 Notes in the event that the market price per share of our common stock, as measured under the terms of the applicable capped call transaction, at the time of exercise is greater than the strike price of the applicable capped call transaction, which corresponds to the initial conversion price of the applicable notes and is subject to certain adjustments similar to those contained in the applicable notes. If, however, the market price per share of our common stock, as measured under the terms of the applicable capped call transaction, exceeds the cap price of the applicable capped call transaction, there would nevertheless be dilution to the extent that such market price exceeds the cap price of the applicable capped call transaction.

In connection with hedging the capped call transactions, the hedge counterparties or their affiliates:

• expect to purchase our common stock in the open market and/or enter into various derivatives and/or enter into various derivative transactions with respect to our common stock; and

• may enter into or unwind various derivatives and/or purchase or sell our common stock in secondary market transactions.

These activities could have the effect of increasing or preventing a decline in the price of our common stock concurrently with or following the pricing of the applicable notes and could have the effect of decreasing the price of our common stock during the period immediately prior to a conversion of the applicable notes.

The hedge counterparties or their affiliates are likely to modify their hedge positions in relation to the capped call transactions from time to time prior to conversion or maturity of the applicable notes by purchasing and selling our common stock, other of our securities, or other instruments they may wish to use in connection with such hedging.

In addition, we intend to exercise options we hold under the capped call transaction whenever the notes are converted. In order to unwind its hedge positions with respect to those exercised options, the counterparties or affiliates thereof expect to sell our common stock in secondary market transactions or unwind various derivative transactions with respect to our common stock during the period immediately prior to conversion of the applicable notes. We have also agreed to indemnify the hedge

counterparties and affiliates thereof for losses incurred in connection with a potential unwinding of their hedge positions under certain circumstances.

The effect, if any, of any of these transactions and activities on the market price of our common stock will depend in part on market conditions and cannot be ascertained at this time, but any of these activities could adversely affect the value of our common stock. For further information regarding the mechanics of our capped call transactions, refer to our discussion in Note 13, Convertible Senior Notes, to the Consolidated Financial Statements.

We have implemented a corporate structure taking into consideration our limited operations and potentially applicable tax impact on our royalty and other income, and any changes in applicable tax laws and regulations or enforcement positions of tax authorities may negatively impact our financial condition and operating results.

We have established our corporate structure to be closely aligned with the financial nature of our business. There can be no assurance that the applicable tax laws and regulations will continue in effect or that the taxing authorities in any or all of the applicable jurisdictions will not challenge one or more aspects or characterizations of our corporate structure and the treatment of transactions or agreements within our corporate structure, or determine that the manner in which we operate our business is not consistent with our corporate structure. For example, recently enacted U.S. tax legislation may result in an increased tax liability as a result of our current corporate structure. We may also have disputes with one or more state tax authorities regarding whether we are subject to that state’s tax and, if we are subject to such state’s tax, what proportion of our revenues is subject to taxation in such state. For example, we are currently subject to an audit by the California Franchise Tax Board and, while we may disagree with their conclusions regarding such issues, the proceedings may extend over a long period of time and we may ultimately be required to pay taxes either in a settlement or upon a final decision of an agency or court. In addition, an inability to resolve our audit with the Franchise Tax Board in a satisfactory manner without extensive legal proceedings may result in an extended period of operation prior to wind-down or dissolution. Any unfavorable changes in laws and regulations or positions by tax authorities could harm our financial position, results of operations and cash flows.

We may have exposure to additional tax liabilities.

We are subject to taxes in the United States and other jurisdictions. Tax rates in these jurisdictions may be subject to significant change due to economic and/or political conditions. A number of other factors may also impact our future effective tax rate including:

• the jurisdictions in which profits are determined to be earned and taxed;

• the resolution of issues arising from tax audits with various tax authorities;

• changes in valuation of our deferred tax assets and liabilities;

• increases in expenses not deductible for tax purposes, including write-offs of acquired intangibles and impairment of goodwill in connection with acquisitions;

• changes in availability of tax credits, tax holidays, and tax deductions;

• changes in share-based compensation; and

• changes in tax laws or the interpretation of such tax laws and changes in generally accepted accounting principles.

On December 22, 2017, the U.S. federal government enacted the 2017 Tax Act. The 2017 Tax Act significantly changed the existing U.S. corporate income tax laws by, among other things, lowering the corporate tax rate (from a top rate of 35% to a flat rate of 21%), implementing elements of a territorial tax system, and imposing a one-time deemed repatriation transition tax on cumulative undistributed foreign earnings, for which we have not previously paid U.S. taxes. The Company recognized in its Consolidated Financial Statements for the year ended December 31, 2017 estimated tax impacts related to the revaluation of deferred tax assets and liabilities. The ultimate impact did not differ materially from these provisional amounts after additional analysis, changes in interpretations and assumptions the Company made and additional regulatory guidance that was issued. The accounting was completed when the Company’s 2017 U.S. corporate income tax return was filed in 2018. We have made a policy election with respect to our treatment of potential GILTI to account for taxes on GILTI as a current-period expense as incurred.

In addition, certain activities conducted by our foreign subsidiaries may give rise to United States corporate income tax, even if there are no distributions to the United States. These taxes would be imposed on us when our subsidiaries that are controlled foreign corporations generate income that is subject to Subpart F of the U.S. Internal Revenue Code (“Subpart F”) or Global intangible low-taxed income (“GILTI”). Passive income, such as rents, royalties, interest and dividends, is among the types of income subject to taxation under Subpart F. Any income taxable under Subpart F or GILTI is taxable in the United States at federal corporate income tax rates of 21%. Subpart F income that is taxable to us, even if it is not distributed to us, may also include income from intercompany transactions between our U.S. and non-U.S. subsidiaries, or where our non-U.S. subsidiaries

make an “investment in U.S. property,” within the meaning of Subpart F, such as holding the stock in, or making a loan to, a U.S. corporation.

While we may mitigate this increase in our effective tax rate through claiming a foreign tax credit against our U.S. federal income taxes or potentially have foreign or U.S. taxes reduced under applicable income tax treaties, we are subject to various limitations on claiming foreign tax credits and we may lack treaty protections in certain jurisdictions that will potentially limit any reduction of the increased effective tax rate. A higher effective tax rate may also result to the extent that losses are incurred in non-U.S. subsidiaries that do not reduce our U.S. taxable income.

Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited.

At December 31, 2019, we had federal, state and foreign net operating loss carryforwards of $108.6 million, $63.9 million and $125.6 million, respectively, and federal and state tax credit carryforwards of $2.2 million and $19.3 million, respectively. There may be limitations on our ability to use our net operating loss carryforwards or other tax assets. For example, under Section 382 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an “ownership change” (generally defined as a greater than 50% change (by value) in its equity ownership over a three-year period), the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes to offset its post-change income may be limited. We or our subsidiaries may have experienced, or may in the future experience, “ownership changes” as a result of shifts in stock ownership. Tax attributes acquired from LENSAR may be subject to separate return limitations that may limit the corporation’s ability to use the acquired net operating losses and credits. Any limitations on our ability to use our net operating loss carryforwards and other tax assets could materially and adversely impact our financial condition and results of operations. Furthermore, under the 2017 Tax Act, although the treatment of tax losses generated in taxable years ending before December 31, 2017 has generally not changed, tax losses generated in taxable years beginning after December 31, 2017 may only be utilized to offset 80% of taxable income annually. This change may require us to pay additional federal income taxes in future years.

We depend on our licensees and royalty-agreement counterparties for the determination of royalty payments. While we have rights to audit our licensees and royalty-agreement counterparties, the independent auditors may have difficulty determining the correct royalty calculation, we may not be able to detect errors and payment calculations may call for retroactive adjustments. We may have to exercise legal remedies to resolve any disputes resulting from the audit or otherwise related to non-performance by a licensee or royalty counterparty.

The royalty payments we receive are determined by our licensees based on their reported sales. Each licensee’s calculation of the royalty payments is subject to and dependent upon the adequacy and accuracy of its sales and accounting functions, and errors may occur from time to time in the calculations made by a licensee. Our license and royalty agreements provide us the right to audit the calculations and sales data for the associated royalty payments; however, our right to conduct such audits may be limited in terms of the covered periods, and such audits may occur many months following our recognition of the royalty revenue, may require us to adjust our royalty revenues in later periods and may require incurring additional expenses on our part. Further, our licensees and royalty-agreement counterparties may be uncooperative or have insufficient records, which may complicate and delay the audit process.

Although we regularly exercise our royalty audit rights, and reference publicly available information in the assessment of the paid royalties, we rely in the first instance on our licensees and royalty-agreement counterparties to accurately report sales and calculate and pay applicable royalties and, upon exercise of such royalty audit rights, we rely on licensees’ and royalty-agreement counterparties’ cooperation in performing such audits. In the absence of such cooperation, we may be forced to exercise legal remedies to enforce our agreements.

We may experience increases and decreases in our revenues due to fluctuations in foreign currency exchange rates and we may be unsuccessful in our attempts to mitigate this risk.

Our operating results are subject to volatility due to fluctuations in foreign currency exchange rates. Our primary exposure to fluctuations in foreign currency exchange rates relates to revenue and operating expenses denominated in currencies other than the U.S. dollar. Fluctuations in foreign currency rates, particularly the Euro, relative to the U.S. dollar can significantly affect our revenues and operating results. While foreign currency conversion terms vary by license agreement, generally most agreements require that royalties first be calculated in the currency of sale and then converted into U.S. dollars using the average daily exchange rates for that currency for a specified period at the end of the calendar quarter. For example, when the U.S. dollar weakens in relation to other currencies, the converted amount is greater than it would have been had the U.S. dollar exchange rates remained unchanged. Our revenues may fluctuate due to changes in foreign currency exchange rates and is subject to foreign currency exchange risk.

To compensate for Euro currency fluctuations, we may hedge Euro currency exposures with Euro forward and option contracts, to offset the risks associated with these Euro currency exposures. We may suspend the use of these contracts from time to time or we may be unsuccessful in our attempt to hedge our Euro currency risk. We will continue to experience foreign currency related fluctuations in our royalty revenues in certain instances when we do not enter into foreign currency exchange contracts or where it is not possible or cost effective to hedge our foreign currency related exposures. Currency related fluctuations in our royalty revenues will vary based on the currency exchange rates associated with these exposures and changes in those rates, whether we have entered into foreign currency exchange contracts to offset these exposures and other factors. All of these factors could materially impact our results of operations, financial position and cash flows, the timing of which is variable and generally outside of our control.

Legislative or regulatory reforms in the United States or the EU may make it more difficult and costly for us to obtain regulatory clearances or approvals for our medical device products or to manufacture, market or distribute our products after clearance or approval is obtained.

From time to time, legislation is drafted and introduced in Congress that could significantly change the statutory provisions governing the regulation of medical devices. In addition, the FDA may change its clearance and approval policies, adopt additional regulations or revise existing regulations, or take other actions, which may prevent or delay approval or clearance of our future products under development or impact our ability to modify our currently cleared products on a timely basis. Over the last several years, the FDA has proposed reforms to its 510(k) clearance process, and such proposals could include increased requirements for clinical data and a longer review period, or could make it more difficult for manufacturers to utilize the 510(k) clearance process for their products. For example, in November 2018, FDA officials announced forthcoming steps that the FDA intends to take to modernize the premarket notification pathway under Section 510(k) of the FFDCA. Among other things, the FDA announced that it planned to develop proposals to drive manufacturers utilizing the 510(k) pathway toward the use of newer predicates. These proposals included plans to potentially sunset certain older devices that were used as predicates under the 510(k) clearance pathway, and to potentially publish a list of devices that have been cleared on the basis of demonstrated substantial equivalence to predicate devices that are more than 10 years old. In May 2019, the FDA solicited public feedback on these proposals. These proposals have not yet been finalized or adopted, and the FDA may work with Congress to implement such proposals through legislation. Accordingly, it is unclear the extent to which any proposals, if adopted, could impose additional regulatory requirements on us that could delay our ability to obtain new 510(k) clearances, increase the costs of compliance, or restrict our ability to maintain our current clearances, or otherwise create competition that may negatively affect our business or monetization strategy.

In addition, FDA regulations and guidance are often revised or reinterpreted by the FDA in ways that may significantly affect our business and our products. Any new statutes, regulations or revisions or reinterpretations of existing regulations may impose additional costs or lengthen review times of any future products or make it more difficult to obtain clearance or approval for, manufacture, market or distribute our products. We cannot determine what effect changes in regulations, statutes, legal interpretation or policies, when and if promulgated, enacted or adopted may have on our business in the future. Such changes could, among other things, require: additional testing prior to obtaining clearance or approval; changes to manufacturing methods; recall, replacement or discontinuance of our products; or additional record keeping.

On April 5, 2017, the European Parliament passed the Medical Devices Regulation (Regulation 2017/745), which repeals and replaces the EU Medical Devices Directive and the Active Implantable Medical Devices Directive. Unlike directives, which must be implemented into the national laws of the EEA member states, the regulations would be directly applicable, i.e., without the need for adoption of EEA member state laws implementing them, in all EEA member states and are intended to eliminate current differences in the regulation of medical devices among EEA member States. The Medical Devices Regulation, among other

things, is intended to establish a uniform, transparent, predictable and sustainable regulatory framework across the EEA for medical devices and ensure a high level of safety and health while supporting innovation.

The Medical Devices Regulation will, however, only become applicable three years after publication (in 2020). Once applicable, the new regulations will among other things:

• strengthen the rules on placing devices on the market and reinforce surveillance once they are available;

• establish explicit provisions on manufacturers’ responsibilities for the follow‑up of the quality, performance and safety of devices placed on the market;

• improve the traceability of medical devices throughout the supply chain to the end‑user or patient through a unique identification number;

• set up a central database to provide patients, healthcare professionals and the public with comprehensive information on products available in the EU;

• strengthened rules for the assessment of certain high‑risk devices, such as implants, which may have to undergo an additional check by experts before they are placed on the market.

These modifications may have an effect on the way we conduct our business in the EEA.

Our agreements with Facet may not reflect terms that would have resulted from arm’s-length negotiations between unaffiliated third parties.

The agreements associated with the spin-off of Facet in December 2008 (the “Spin-Off”), including the Separation and Distribution Agreement, Tax Sharing and Indemnification Agreement and Cross License Agreement, were negotiated in the context of the Spin-Off while Facet was still part of us and, accordingly, may not reflect more favorable terms that may have resulted from arm’s-length negotiations between unaffiliated third parties.

We may have obligations for which we may not be able to collect under our indemnification rights from Facet.

Under the terms of the Separation and Distribution agreement with Facet, we and Facet agreed to indemnify the other from and after the Spin-Off with respect to certain indebtedness, liabilities and obligations that were retained by our respective companies. These indemnification obligations could be significant. The ability to satisfy these indemnities, if called upon to do so, will depend upon our future financial strength. We cannot assure you that, if Facet has to indemnify us for any substantial obligations, Facet will have the ability to satisfy those obligations. If Facet does not have the ability to satisfy those obligations, we may be required to satisfy those obligations instead. For example, in connection with the Spin-Off, we entered into amendments to the leases for the facilities in Redwood City, California, which formerly served as our corporate headquarters, under which Facet was added as a co-tenant under the leases and a Co-Tenancy Agreement under which Facet agreed to indemnify us for all matters related to the leases attributable to the period after the Spin-Off date. Should Facet default under its lease obligations, we would be held liable by the landlord as a co-tenant and, thus, we have in substance guaranteed the payments under the lease agreements for the Redwood City facilities, the disposition of which could have a material adverse effect on the amount or timing of any distribution to our stockholders. As of December 31, 2019, the total lease payments for the duration of the guarantee, which runs through December 2021, are approximately $22.6 million. We would also be responsible for lease-related payments including utilities, property taxes and common area maintenance that may be as much as the actual lease payments. In April 2010, Abbott Laboratories acquired Facet and renamed the company Abbott Biotherapeutics Corp., and in January 2013, Abbott Biotherapeutics Corp. was renamed AbbVie Biotherapeutics, Inc. and spun off from Abbott as a subsidiary of AbbVie Inc. We do not know how Abbott’s acquisition of Facet will impact our ability to collect under our indemnification rights or whether Facet’s ability to satisfy its obligations will change. In addition, we have limited information rights under the Co-Tenancy Agreement. As a result, we are unable to determine definitively whether Facet continues to occupy the space and whether it has subleased the space to another party or the basis upon which our potential co-tenant obligation may be triggered. See “Item 2-Properties.”

As we continue to operate our business and as we implement our monetization strategy, our mix of assets and sources of income may require that we register with the SEC as an “investment company” in accordance with the Investment Company Act of 1940.

We are not registered and have no intention to register as an “investment company” under the Investment Company Act of 1940 (the “40 Act”). As a result, we are not and do not expect to become subject to regulation under the 40 Act, including its reporting and corporate governance requirements and restrictions on leverage and affiliate transactions.

Generally, to avoid being regulated as an “investment company” under the 40 Act an issuer must:

• not be engaged or hold itself out as being engaged primarily in the business of investing, reinvesting or trading in securities and not own or propose to acquire “investment securities” with a value of more than 40% of the value of its total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis; or

• be able to rely on an exception from the definition of “investment company” under the ’40 Act or an exemptive rule.

“Investment securities” are any securities other than U.S. government securities and securities issued by a majority-owned subsidiary that is not itself either an “investment company” or a private investment company, meaning a company that is excluded from the definition of “investment company” by Section 3(c)(1) or Section 3(c)(7) of the 40 Act.

We have in the past and may in the future rely on one or more exceptions to the definition of “investment company” under the 40 Act, including the exception under Section 3(c)(5) of the 40 Act. To rely on Section 3(c)(5), as interpreted by the staff of the SEC, we would be required to have at least 55% of our total assets in certain qualifying assets. In a no-action letter issued to Royalty Pharma on August 13, 2010, the SEC staff stated that certain royalty interests of the type we own can be treated as qualifying assets.

Ensuring that we do not fall within the definition of “investment company” under the 40 Act may limit our ability to make certain investments (including divesting certain assets), or require us to take or forego certain actions, that could materially and adversely affect our financial condition and results of operation. In addition, if the SEC, its staff or the courts changes their interpretation of certain provisions of the 40 Act, including Section 3(c)(5), we may need to take additional steps in order to avoid becoming subject to regulation under the 40 Act, which could materially and adversely affect our financial condition and results of operation.

If we were required to register as an “investment company,” the obligations imposed on us by the 40 Act would likely require substantial changes in the way we do business and would result in significant additional regulatory and administrative burdens and costs. In order to remain outside the scope of regulation under the 40 Act, we may need to take various actions which we might otherwise not pursue. These actions may include restructuring our company and modifying our mixture of assets and income, including divesting certain desirable assets immediately, and could have a material and adverse effect on us.

Failure in our information technology and storage systems could significantly disrupt the operation of our business.

Our ability to execute our business plan depends, in part, on the continued and uninterrupted performance of our information technology (“IT”) systems. IT systems are vulnerable to damage from a variety of sources, including telecommunications or network failures, malicious human acts and natural disasters. Moreover, despite network security and back-up measures, some of our servers may be vulnerable to physical or electronic break-ins, computer viruses and similar disruptive problems. Despite the precautionary measures we have taken to prevent unanticipated problems that could affect our IT systems, sustained or repeated system failures that interrupt our ability to generate and maintain data could adversely affect our ability to operate our business.

Changes to financial accounting standards may affect our reported results of operations.

A change in accounting standards or practices can have a significant effect on our reported results and may even affect our reporting of transactions completed before the change is effective. New accounting pronouncements and varying interpretations of accounting pronouncements have occurred and may occur in the future. Changes to existing standards or the reevaluation of current practices may adversely affect our reported financial results or the way we conduct our business.

We use estimates, make judgments, and apply certain methods in measuring the progress of our business in determining our financial results and in applying our accounting policies. As these estimates, judgments, and methods change, our assessment of the progress of our business and our results of operations could vary.

The methods, estimates, and judgments we use in applying our accounting policies have a significant impact on our results of operations. Such methods, estimates, and judgments are, by their nature, subject to substantial risks, uncertainties, and assumptions, and factors may arise over time may lead us to change our methods, estimates, and judgments. Changes in any of our assumptions may adversely affect our reported financial results.

If we fail to maintain an effective system of internal control over financial reporting in the future, we may not be able to accurately report our financial condition, results of operations or cash flows, which may adversely affect investor confidence in us and, as a result, the value of our common stock.

The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal controls for financial reporting and disclosure controls and procedures. We are required, under Section 404 of the Sarbanes-Oxley Act (“Section 404”), to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting. This assessment must include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. A material weakness is a control deficiency, or combination of control deficiencies, in internal control over financial reporting that results in more than a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected on a timely basis. Section 404 also generally requires an attestation from our independent registered public accounting firm on the effectiveness of our internal control over financial reporting.

Our compliance with Section 404 requires that we incur substantial accounting expense and expend significant management efforts. Our acquired businesses may have limited experience complying with Section 404 and if in the future we identify one or more material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal control over financial reporting is effective. Furthermore, we cannot assure you that there will not be material weaknesses or significant deficiencies in our internal control over financial reporting in the future. Any failure to maintain internal control over financial reporting could severely inhibit our ability to accurately report our financial condition, results of operations or cash flows. If our independent registered public accounting firm determines we have a material weakness or significant deficiency in our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, the market price of our common stock could decline, and we could be subject to sanctions or investigations by Nasdaq, the SEC or other regulatory authorities. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

~~Medical~~We ~~Devices~~lease ~~Segment~~approximately 1,750 square feet of office space in Reno, Nevada, which serves as our corporate headquarters. The lease expires in December 2022. Previously, we leased approximately 5,900 square feet of office space in Incline Village, Nevada, which served as our corporate headquarters until December 31, 2020 when the lease was terminated.

~~LENSAR~~In ~~leases~~July an2006, ~~office~~we entered into two leases and ~~manufacturing~~a ~~facility~~sublease offor facilities in Redwood City, California, which formerly served as our corporate headquarters and cover approximately 33450,~~900~~000 square feet of office space. Under the amendments to the leases entered into in ~~Orlando,~~connection ~~Florida~~with the spin-off of Facet, ~~which~~Facet ~~serves~~was added as a co-tenant under the ~~office~~leases. ~~managing~~As a co-tenant, Facet is bound by all ~~medical~~of ~~device~~the ~~operations~~terms and conditions of the leases. We and Facet are jointly and severally liable for all obligations under the leases, including the payment of rental obligations. The guarantee runs through December 2021. We also entered into a Co-Tenancy Agreement with Facet in connection with the spin-off and the lease ~~expires~~amendments under which we assigned to Facet all rights under the leases, including, but not limited to, the right to amend the leases, extend the lease terms or terminate the leases, and Facet assumed all of our obligations under the leases. Under the Co-Tenancy Agreement, we also relinquished any right or option to regain possession, use or occupancy of these facilities. Facet agreed to indemnify us for all matters associated with the leases attributable to the period after the spin-off date and we agreed to indemnify Facet for all matters associated with the leases attributable to the period before the spin-off date. In addition, in ~~July~~connection ~~2021~~with the spin-off, we assigned the sublease to Facet. In April 2010, Abbott Laboratories acquired Facet and later renamed the entity AbbVie Biotherapeutics, Inc. (“AbbVie”). To date, AbbVie has satisfied all obligations under the Redwood City leases.

~~Pharmaceutical~~We ~~Segment~~believe that our existing facilities are adequate to meet our business requirements for the reasonably foreseeable future.

Noden Pharma DAC leases approximately 3,100 square feet of office space in Dublin, Ireland, which serves as the office managing all pharmaceutical operations. The lease expires in September 2025. Noden Pharma DAC has the option to terminate the lease in September 2021.

Income Generating Assets Segment

We lease approximately 5,900 square feet of office space in Incline Village, Nevada, which serves as our corporate headquarters. The lease expires in May 2022.

In July 2006, we entered into two leases and a sublease for facilities in Redwood City, California, which formerly served as our corporate headquarters and cover approximately 450,000 square feet of office space. Under the amendments to the leases entered into in connection with the Spin-Off, Facet was added as a co-tenant under the leases. As a co-tenant, Facet is bound by all of the terms and conditions of the leases. We and Facet are jointly and severally liable for all obligations under the leases, including the payment of rental obligations. The guarantee runs through December 2021. We also entered into a Co-Tenancy Agreement with Facet in connection with the Spin-Off and the lease amendments under which we assigned to Facet all rights under the leases, including, but not limited to, the right to amend the leases, extend the lease terms or terminate the leases, and Facet assumed all of our obligations under the leases. Under the Co-Tenancy Agreement, we also relinquished any right or option to regain possession, use or occupancy of these facilities. Facet agreed to indemnify us for all matters associated with the leases attributable to the period after the Spin-Off date and we agreed to indemnify Facet for all matters associated with the leases attributable to the period before the Spin-Off date. In addition, in connection with the Spin-Off, we assigned the sublease to Facet. In April 2010, Abbott Laboratories acquired Facet and later renamed the entity AbbVie Biotherapeutics, Inc. (“AbbVie”). To date, AbbVie has satisfied all obligations under the Redwood City leases.

We believe that our existing facilities are adequate to meet our business requirements for the reasonably foreseeable future and that additional space will be available on commercially reasonable terms, if required.

ITEM 3. LEGAL PROCEEDINGS

The information set forth in Note 25, Legal Proceedings, to the Consolidated Financial Statements included in Item 8, “Financial Statements and Supplementary Data” of this Annual Report is incorporated by reference herein.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

5315

PART II

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

AsOn ofDecember ~~February 28~~8, 2020, we ~~had~~formally ~~approximately~~notified ~~120~~the ~~common~~Nasdaq ~~stockholders~~Stock Market, Inc. of ~~record~~our intent to delist the Company's common stock from the Nasdaq Global Select Market ("Nasdaq"). ~~Most~~We filed a Form 25 (Notification of Removal from Listing) with the SEC and Nasdaq relating to the voluntary delisting of our ~~outstanding~~common ~~shares~~stock on December 28, 2020 and suspended trading of our common stock ~~are~~prior ~~held~~to the opening of ~~record~~trading byon ~~one~~December ~~stockholder~~31, ~~Cede & Co~~2020., asWe ~~nominee~~filed ~~for~~a certificate of dissolution with the ~~Depository~~Delaware ~~Trust~~Secretary ~~Company.~~of ~~Many~~State ~~brokers~~on January 4, ~~banks~~2021 (the “Final Record Date”) and ~~other~~instructed ~~institutions~~our ~~hold~~transfer ~~shares~~agent ofto ~~common~~close our stock astransfer ~~nominees~~books ~~for~~at ~~beneficial~~the ~~owners~~close ~~that~~of ~~deposit~~business ~~these~~on ~~shares~~this ofdate. PDL's common stock inwas ~~participant~~delisted ~~accounts~~effective aton ~~the~~January ~~Depository~~7, ~~Trust Company~~2021. ~~The~~On ~~actual~~January ~~number~~8, of2021, ~~beneficial~~we ~~owners~~filed a Form 15 notifying the SEC of our ~~stock~~deregistration isof ~~likely~~our ~~significantly~~common ~~greater~~stock ~~than~~under ~~the~~Section ~~number~~12(g) of ~~stockholders~~the ofExchange ~~record;~~Act ~~however,~~and wesuspension ~~are~~of ~~unable~~our duty to ~~reasonably~~file ~~estimate~~reports ~~the~~under ~~total~~Sections ~~number~~13 and 15(d) of ~~beneficial~~the ~~owners~~Exchange Act.

As of January 6, 2021, we had approximately 86 common stockholders of record. Most of our outstanding shares of common stock are held of record by one stockholder, Cede & Co., as nominee for the Depository Trust Company. Many brokers, banks and other institutions hold shares of common stock as nominees for beneficial owners that deposit these shares of common stock in participant accounts at the Depository Trust Company. The actual number of beneficial owners of our stock is likely significantly greater than the number of stockholders of record; however, we are unable to reasonably estimate the total number of beneficial owners.

Dividends

On May 5, 2020, our board of directors approved a distribution of all of the Company’s shares of common stock of Evofem Biosciences, Inc. (“Evofem”) via a special one-time dividend to PDL stockholders. The Evofem shares were distributed on May 21, 2020 to PDL shareholders of record as of the close of business on May 15, 2020 (the “Evofem Record Date”). Based on the shares of PDL common stock outstanding as of the close of business on the Evofem Record Date, PDL stockholders were entitled to receive 0.11591985 shares of Evofem common stock for each share of PDL common stock held.

On September 10, 2020, our board of directors approved a distribution of all of the Company’s shares of common stock of LENSAR via a special one-time dividend to PDL stockholders. The LENSAR shares were distributed on October 2, 2020 to PDL shareholders of record as of the close of business on September 22, 2020 (the “LENSAR Record Date”). Based on the shares of PDL common stock outstanding as of the close of business on the LENSAR Record Date, PDL stockholders were entitled to receive 0.075879 shares of LENSAR common stock for each share of PDL common stock held.

Equity Compensation Plan Information

See Part III, Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” for information regarding securities authorized for issuance under equity compensation plans.

Recent Sales of Unregistered Securities

OnThere ~~September~~were ~~12,~~no ~~2019,~~unregistered wesales ~~entered into separate, privately negotiated agreements with a limited number~~ of ~~holders~~equity ofsecurities ~~our~~during ~~2.75% Convertible Senior Notes due 2021 (~~the ~~“December~~period ~~2021~~covered ~~Notes”)~~by tothis ~~exchange an aggregate of approximately $86~~report.1 million principal amount of the 2021 Notes for (i) an aggregate of approximately $86.1 million original principal amount of new 2.75% Convertible Senior Notes due 2024 (the “December 2024 Notes” or the “Exchanged Notes”) and (ii) an aggregate of $6.0 million in cash (such transactions, collectively, the “September Exchange”).

The 2024 Notes were issued in private placements exempt from registration in reliance on Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”). We did not receive any cash proceeds from the issuance of the 2024 Notes. In connection with the September Exchange, we entered into a capped call transaction with Royal Bank of Canada (“RBC”). The capped call transaction covers, subject to customary anti-dilution adjustments, the number of shares of our common stock that will initially underlie the Exchange Notes. The capped call transaction is intended to reduce the dilutive impact of the conversion feature of the Exchange Notes on the Company’s outstanding shares of common stock and/or offset any cash payments the Company will be required to make in excess of the original principal amount upon any conversion of the Exchange Notes, with such offset subject to a cap. In connection with the September Exchange, we also entered into an unwind agreement with RBC in order to partially unwind the previous capped call transaction entered into by the Company related to the 2021 Notes that were exchanged.

On December 12, 2019, we entered into separate, privately negotiated exchange agreements pursuant to which we repurchased $119.3 million in aggregate principal amount of our December 2021 and December 2024 convertible notes for (i) $97.9 million excluding accrued and unpaid interest and (ii) 13.4 million shares of our common stock in exchange for $44.8 million in aggregate principal amount of our outstanding December 2021 Notes and $74.6 million in aggregate principal amount of our outstanding December 2024 Notes (the “December Exchange”). The issuance of shares of common stock was exempt from registration in reliance on Section 3(a)(9) of the Securities Act of 1933, as amended.

Issuer purchases of Equity Securities

OnThere ~~December~~were 9,no ~~2019,~~repurchases ~~we announced that our board~~ of ~~directors authorized the repurchase of issued and outstanding shares of~~ our common stock ~~and convertible notes up to an aggregate value of $200.0 million pursuant to a repurchase program. Repurchases under the new repurchase program will be~~ made ~~from~~by ~~time~~us ~~to time~~ in the ~~open~~three ~~market~~months orended in privately negotiated transactions and funded from our working capital. The amount and timing of repurchases of shares of our common stock or convertible notes will depend upon the price and availability of shares, general market conditions and the availability of cash. Repurchases may also be made under a trading plan under Rule 10b5-1, which would permit shares or convertible notes to be repurchased when we might otherwise be precluded from doing so because of self-imposed trading blackout periods or other regulatory restrictions. All shares of common stock repurchased under the share repurchase program are expected to be retired and restored to authorized but unissued shares of common stock. All convertible notes repurchased under the program will be retired. This repurchase program may be suspended or discontinued at any time without notice. On December 1631, ~~2019, we announced that our board of directors approved a $75~~2020.~~0 million increase to the previous $200.0 million repurchase program to acquire outstanding common stock and convertible notes.~~

In connection with the December Exchange, we unwound a pro rata portion of the capped call transactions we entered into with the issuance of the December 2021 Notes and the December 2024 Notes. We received cash proceeds from RBC of $6.7 million as a result of the partial unwinding of the capped call agreements. Pursuant to the partial unwinding of the capped call agreements, we entered into an agreement with RBC to purchase 3.2 million shares of our common stock previously acquired by RBC to hedge the capped calls. We acquired the common stock at its closing price on December 12, 2019.

The following table contains information relating to the repurchases of our common stock made by us in the three months ended December 31, 2019 (in thousands, except per share amounts):

Fiscal Period			Total Number of Shares Repurchased		Average Price Paid Per Share		Total Number of Shares Purchased As Part of a Publicly Announced Program	Approximate Dollar Amount of Shares That May Yet be Purchased Under the Program
October 1, 2019	to	October 31, 2019	—		$	—	—	$	—
November 1, 2019	to	November 30, 2019	—		$	—	—	$	—
December 1, 2019	to	December 31, 2019	3,209	(1)	$	3.43	3,209	$	120,204	(2)
Total during three months ended December 31, 2019			3,209		$	3.43	3,209	$	120,204

________________

(1) Purchases in December 2019 were made pursuant to capped call options the Company entered into in connection with the issuance of the December 2021 Notes and the December 2024 Notes. For additional information on the capped call transactions, see Note 13, Convertible Notes.

(2) The approximate dollar amount of shares that may yet be purchased under the share repurchase program was reduced by the cash and PDL common stock issued as consideration to repurchase the convertible notes in December 2019.

Comparison of Stockholder Returns

The line graph below compares the cumulative total stockholder return on our common stock between December 31, ~~2014~~2015, and December 31, ~~2019~~2020, with the cumulative total return of (i) the Nasdaq Biotechnology Index and (ii) the Nasdaq Composite Index over the same period. This graph assumes that $100.00 was invested on December 31, ~~2014~~2015, in our common stock at the closing sales price for our common stock on that date and at the closing sales price for each index on that date and that all dividends were reinvested. Stockholder returns over the indicated period should not be considered indicative of future stockholder returns and are not intended to be a forecast.

	12/31/2014		12/31/2015		12/31/2016		12/31/2017		12/31/2018		12/31/2019
PDL BioPharma, Inc.	$	100.00	$	50.20	$	30.98	$	40.04	$	42.38	$	48.55
Nasdaq Composite Index	$	100.00	$	140.56	$	112.25	$	133.67	$	121.24	$	200.49
Nasdaq Biotechnology Index	$	100.00	$	122.81	$	133.19	$	172.11	$	165.84	$	121.92


	12/31/2015		12/31/2016		12/31/2017		12/31/2018		12/31/2019		12/31/2020
PDL BioPharma, Inc.	$	100.00	$	61.71	$	79.76	$	84.42	$	94.46	$	95.29
Nasdaq Composite Index	$	100.00	$	108.87	$	141.13	$	137.12	$	187.44	$	271.64
Nasdaq Biotechnology Index	$	100.00	$	78.65	$	95.67	$	87.19	$	109.08	$	137.90

The information in this section shall not be deemed to be “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that we specifically incorporate it by reference in such filing.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

~~The following selected consolidated financial information has been derived from our Consolidated Financial Statements~~Reserved. The information below is not necessarily indicative of the results of future operations and should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” Item 1A, “Risk Factors” and the Consolidated Financial Statements and related notes thereto included in Item 8, “Financial Statements and Supplementary Data” in order to fully understand factors that may affect the comparability of the information presented below.

	For the Years Ended December 31,
(in thousands, except per share data)	2019			2018			2017			2016			2015
Revenues:
Product revenue, net	$	85,835		$	105,448		$	84,123		$	31,669		$	—
Royalty rights - change in fair value	(31,042		)	85,256			162,327			16,196			68,367
Royalties from Queen et al. patents	9			4,536			36,415			166,158			485,156
Interest revenue	—			2,337			17,744			30,404			36,202
License and other	(45		)	533			19,451			(126		)	723
Total revenues	54,757			198,110			320,060			244,301			590,448
Operating expenses:
Cost of product revenue (excluding intangible asset amortization and impairment)	53,619			48,460			30,537			4,065			—
Amortization of intangible assets	6,306			15,831			24,689			12,028			—
General and administrative expenses	45,598			45,420			45,641			39,790			36,090
Sales and marketing	8,482			17,139			17,683			538			—
Research and development	7,308			2,955			7,381			3,820			—
Impairment of intangible assets	22,490			152,330			—			—			—
Asset impairment loss	10,768			8,200			—			3,735			—
Acquisition-related costs	—			—			—			3,564			—
Loss on extinguishment of notes receivable	—			—			—			51,075			3,979
Change in fair value of anniversary payment and contingent consideration	—			(41,631		)	349			(3,716		)	—
Total operating expenses	154,571			248,704			126,280			114,899			40,069
Operating (loss) income	(99,814		)	(50,594		)	193,780			129,402			550,379
Non-operating income (expense), net:
Equity affiliate - change in fair value	36,402			—			—			—			—
Gain on bargain purchase	—			—			9,309			—			—
Other non-operating expense, net	(10,328		)	(5,328		)	(18,562		)	(20,032		)	(20,241		)
Non-operating income (expense), net	26,074			(5,328		)	(9,253		)	(20,032		)	(20,241		)
(Loss) income before income taxes	(73,740		)	(55,922		)	184,527			109,370			530,138
Income tax (benefit) expense	(3,049		)	12,937			73,826			45,711			197,343
Net (loss) income	(70,691		)	(68,859		)	110,701			63,659			332,795
Less: Net (loss) income attributable to noncontrolling interests	(280		)	—			(47		)	53			—
Net (loss) income attributable to PDL’s stockholders	$	(70,411	)	$	(68,859	)	$	110,748		$	63,606		$	332,795
Net (loss) income per basic share	$	(0.59	)	$	(0.47	)	$	0.71		$	0.39		$	2.04
Net (loss) income per diluted share	$	(0.59	)	$	(0.47	)	$	0.71		$	0.39		$	2.03
Cash dividends declared and paid	$	—		$	—		$	—		$	0.10		$	0.60

Consolidated Balance Sheet Data

	December 31,
(in thousands)	2019		2018		2017		2016		2015
Cash, cash equivalents, short-term investments and restricted investments	$	193,451	$	394,590	$	532,114	$	242,141	$	220,352
Working capital	$	268,202	$	464,747	$	447,334	$	267,716	$	245,969
Total assets	$	716,119	$	963,736	$	1,243,123	$	1,215,387	$	1,012,205
Long-term obligations, less current portion	$	77,148	$	181,487	$	204,124	$	329,649	$	279,512
Retained earnings	$	670,832	$	828,547	$	945,614	$	857,116	$	810,036
Total stockholders’ equity	$	593,278	$	729,779	$	845,890	$	755,423	$	695,952

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with ~~“Selected Consolidated Financial Data” and~~ the Consolidated Financial Statements and related Notes included elsewhere in this ~~Report~~Form 10-K.

Overview

~~In September 2019~~Historically, we ~~engaged~~generated ~~financial and legal advisors and initiated~~ a ~~review~~substantial portion of our ~~strategy.~~revenues ~~This~~through ~~review~~the ~~was~~license ~~completed~~agreements inrelated ~~December~~to ~~2019.~~patents Atcovering ~~such~~the ~~time,~~humanization weof ~~disclosed~~antibodies, ~~that~~which we ~~planned~~refer to ~~halt~~as the ~~execution~~Queen ofet ~~our~~al. ~~growth~~patents. ~~strategy~~In 2012, ~~cease making additional strategic transactions~~ and ~~investments~~in ~~and~~anticipation ~~pursue~~of adeclining ~~formal~~revenues ~~process~~from ~~to unlock~~ the ~~value~~Queen ofet ~~our portfolio by monetizing our assets and ultimately distributing net proceeds to stockholders~~al. ~~Over~~patents, ~~the~~we ~~subsequent~~began ~~months,~~providing ~~our~~alternative ~~board~~sources of ~~directors~~capital ~~and~~through ~~management~~royalty ~~analyzed,~~monetization ~~together with our outside financial~~ and ~~legal~~debt ~~advisors~~facilities, ~~how to best capture value pursuant to our monetization strategy~~ and, ~~best return the significant intrinsic value of the high-quality assets~~ in ~~our portfolio to the stockholders. In February of 2020~~2016, ~~the~~we ~~board~~began ofacquiring ~~directors~~commercial-stage ~~approved~~products ~~a plan of complete liquidation of our assets~~ and ~~passed~~launching aspecialized ~~resolution~~companies todedicated ~~seek stockholder approval~~ to ~~dissolve~~ the ~~Company~~commercialization ~~under Delaware law at its next annual meeting~~ of ~~the~~these ~~stockholders.~~products, Infirst ~~the~~with ~~event~~our ~~that~~acquisition ~~the board~~ of ~~directors~~branded ~~concludes~~prescription ~~that~~pharmaceutical ~~the~~drugs ~~whole company sale process is unlikely to maximize the value that can be returned to the stockholders~~ from ~~our~~Novartis ~~monetization process, we would, if approved by the stockholders, file a Certificate of Dissolution~~ in ~~Delaware~~2016 and, ~~proceed to wind-down and dissolve the Company~~ in ~~accordance~~2017, with ~~Delaware~~the ~~law.~~acquisition ~~Pursuant to its monetization strategy, we are exploring a variety~~ of ~~potential transactions~~LENSAR, ~~including~~ a ~~whole~~medical ~~company~~device ~~sale,~~ophthalmology ~~divestiture~~equipment ofmanufacturing ~~assets, spin-offs of operating entities, merger opportunities or a combination thereof~~company. In ~~addition~~2019, we ~~have~~entered ~~analyzed,~~into ~~and~~a ~~continue~~securities topurchase ~~analyze,~~agreement ~~the~~with ~~optimal~~Evofem ~~mechanisms~~pursuant ~~for returning value~~ to ~~stockholders~~which inwe ainvested ~~tax-efficient manner, including via share repurchases, cash dividends and other distributions of assets~~$60.0 Wemillion ~~have not set a definitive timeline and intend to pursue monetization~~ in a ~~disciplined~~private ~~and~~placement ~~cost-effective~~of ~~manner to maximize returns to stockholders~~securities. WeThese ~~recognize,~~investments ~~however,~~provided ~~that~~funding ~~accelerating~~for ~~the~~Evofem’s ~~timeline,~~pre-commercial ~~while~~activities ~~continuing~~for ~~to optimize asset value~~Phexxi®, ~~could~~its ~~increase returns to stockholders due to reduced general and administrative expenses as well as provide faster returns to stockholders. While~~non-hormonal, ~~as noted above, we cannot provide a definitive timeline for the monetization and wind~~on-~~down~~demand ~~process,~~prescription wecontraceptive ~~are~~gel ~~targeting the end of 2020~~ for ~~completing the monetization of our key assets, at which time we may be in a position to file a certificate of dissolution under Delaware law~~women.

InBased ~~conjunction~~on ~~with~~the ~~our~~nature ~~intent to seek stockholder approval for complete dissolution~~ of ~~the Company, a proxy statement will be presented to the stockholders that identifies in detail the rationale for~~ our ~~decision~~investments toentered ~~seek~~into ~~stockholder~~between ~~approval~~2012 ~~for~~through ~~dissolution~~2019 and ~~which~~ further ~~presents~~discussed ~~the~~below, ~~risk~~our ~~factors~~operations ~~associated~~were ~~with~~structured ~~such dissolution. While we ultimately expect that wind-down will conclude with dissolution~~ in ~~accordance~~four ~~with~~segments ~~Delaware~~designated ~~law,~~as weMedical ~~will continue to be receptive to offers to purchase the entire company throughout the monetization process~~Devices, ~~with~~Strategic ~~all or less than all of our current assets~~Positions, ~~should~~Income ~~such~~Generating ~~an offer be made. However~~Assets, ifand we conclude that a whole company sale is unlikely or that the value from a whole company sale will not maximize the returns we can provide to our stockholders, we expect that wind-down will ultimately conclude with dissolution in accordance with Delaware lawPharmaceutical.

~~Historically,~~Our weMedical ~~generated~~Devices asegment ~~substantial~~consisted ~~portion~~ of ~~our~~revenue ~~revenues~~from ~~through~~ the ~~license~~sale ~~agreements~~and ~~related~~lease toof ~~patents covering~~ the ~~humanization~~LENSAR® ofLaser ~~antibodies~~System, which weincluded ~~refer~~equipment, ~~to as the Queen et al. patents. In 2012~~PIDs, weprocedure ~~began providing alternative sources of capital through royalty monetizations and debt facilities~~licenses, ~~and~~training, ~~in 2016~~installation, wewarranty ~~began acquiring commercial-stage products~~ and ~~launching~~maintenance ~~specialized companies dedicated to the commercialization of these products~~agreements. In 2019, we entered into a securities purchase agreement with Evofem, pursuant to which we invested $60.0 million in a private placement of securities. These investments are expected to provide funding for Evofem's pre-commercial activities for Amphora, its investigational, non-hormonal, on-demand prescription contraceptive gel for women. To date, we have consummated eighteen transactions, the following ten of which are active and outstanding:

59Our Strategic Positions segment consisted of an investment in Evofem (NASDAQ: EVFM). Our investment included shares of common stock and warrants to purchase additional shares of common stock.

Investment	Investment Type	Segment	Deployed Capital 4(in millions)
LENSAR, Inc. (“LENSAR”)	Converted equity and loan	Medical Devices	$	47.0
Evofem	Equity	Strategic Positions	$	60.0
Noden 1	Equity and loan	Pharmaceutical	$	191.2
CareView communications, Inc. (“CareView”)	Debt	Income Generating Assets	$	20.0
Wellstat Diagnostics, LLC (“Wellstat Diagnostics”) 2	Royalty/debt hybrid	Income Generating Assets	$	44.0
Assertio Therapeutics, Inc. (“Assertio”) 3	Royalty	Income Generating Assets	$	260.5
The Regents of the University of Michigan (“U-M”)	Royalty	Income Generating Assets	$	65.6
AcelRx Pharmaceuticals, Inc. (“AcelRx”)	Royalty	Income Generating Assets	$	65.0
Viscogliosi Brothers, LLC (“VB”)	Royalty	Income Generating Assets	$	15.5
KYBELLA	Royalty	Income Generating Assets	$	9.5

Our Pharmaceutical segment consisted of revenue derived from the Noden Products.

~~_______________~~Our Income Generating Assets segment consisted of revenue derived from (i) notes and other long-term receivables, (ii) royalty rights and hybrid notes/royalty receivables, (iii) equity investments and (iv) royalties from issued patents in the United States and elsewhere covering the humanization of antibodies, which we refer to as the Queen et al. patents.

1Financial ~~Noden~~information ~~Pharma~~about ~~DAC~~our segments, including our revenues and ~~Noden~~net ~~Pharma~~loss ~~USA~~for the eight months ended August 31, ~~Inc.~~2020 ~~(together~~and the years ended December 31, 2019 and ~~including~~2018, ~~their~~and ~~respective~~select ~~subsidiaries~~long-lived assets as of December 31, ~~“Noden”)~~2020 and 2019, is included in our Consolidated Financial Statements and accompanying notes in this Form 10-K.

2In ~~Also~~September ~~known~~2019, aswe ~~Defined~~engaged ~~Diagnostic,~~financial ~~LLC~~and legal advisors and initiated a review of our strategy. ~~The~~This ~~Wellstat~~review ~~Diagnostics~~was ~~investment~~completed ~~also~~in ~~includes~~December 2019. At such time, we disclosed that we planned to halt the execution of our ~~note~~growth ~~receivable~~strategy, cease making additional strategic transactions and investments and instead pursue a formal process to unlock the value of our portfolio by monetizing our assets and ultimately distributing net proceeds to stockholders (the “monetization strategy”). Pursuant to our monetization strategy, we did not expect to enter into any additional strategic investments. We further announced in December 2019 that we would explore a variety of potential transactions in connection with ~~Hyperion~~the ~~Catalysis~~monetization ~~International~~strategy, ~~Inc~~including a whole Company sale, divestiture of our assets, spin-offs of operating entities, merger opportunities or a combination thereof. Over the subsequent months, our board of directors (the “~~Hyperion~~Board”) and management analyzed, together with our outside financial and legal advisors, how to best capture value pursuant to our monetization strategy and best return the significant intrinsic value of the assets in our portfolio to the stockholders.

3In ~~Formerly~~February ~~Depomed~~2020, ~~Inc~~the Board approved a plan of complete liquidation (the “Plan of Liquidation”) of our assets and passed a resolution to seek stockholder approval to dissolve our Company. At our Annual Meeting of Stockholders in August 2020, the proposal to liquidate and dissolve our Company pursuant to a plan of dissolution was approved by our stockholders. On November 5, 2020, our Board approved filing a certificate of dissolution with the Secretary of State of Delaware in January 2021

~~4 Excludes transaction costs.~~18

Inand ~~connection~~proceeding ~~with~~to complete the dissolution process for our ~~investment~~Company in ~~Evofem~~accordance inwith ~~April~~the ~~2019~~Delaware General Corporate Law. The filing of the certificate of dissolution occurred on January 4, 2021 and we ~~established~~closed our ~~Strategic~~stock ~~Positions~~transfer ~~operating~~books ~~segment~~as ~~and~~of ~~began~~such ~~operating~~date in(the ~~four~~“Final ~~operating~~Record ~~segments~~Date”). ~~designated~~After assuch ~~Medical~~time, ~~Devices~~we are not recording any further transfers of our common stock, ~~Strategic~~except ~~Positions~~pursuant to the provisions of a deceased stockholder’s will, ~~Pharmaceutical~~intestate succession, or by operation of law and ~~Income~~we ~~Generating~~will ~~Assets~~not issue any new stock certificates, other than replacement certificates. ~~The~~In ~~creation~~addition, we will not be issuing any shares of our common stock upon exercise of outstanding stock options. As a result of the ~~Strategic~~closing ~~Positions’~~of ~~segment~~our ~~had~~transfer nobooks, ~~impact~~it is anticipated that distributions, if any, made in connection with the dissolution will be made pro rata to the stockholders of record as of the Final Record Date. In accordance with our dissolution plan, we completed the voluntary delisting process from the Nasdaq Stock Market exchange so that suspension of trading occurred before the market opened on December 31, 2020 and official delisting of our ~~prior~~stock ~~segment~~occurred ~~reporting~~on ~~structure~~January 7, 2021. We do not anticipate participating in any OTC trading of our stock or economic rights in our stock.

~~Our~~Pursuant ~~Medical~~to ~~Devices~~our ~~segment~~monetization ~~consists~~strategy, ofwe ~~revenue~~explored ~~derived~~a ~~from~~variety ~~the sale and lease~~ of ~~the~~potential ~~LENSAR® Laser System~~transactions, ~~which~~including ~~may~~a ~~include~~whole ~~equipment,~~Company ~~PIDs~~sale, ~~procedure~~divestiture ~~licenses,~~of ~~training~~assets, ~~installation,~~spin-offs ~~warranty~~of ~~and~~operating ~~maintenance~~entities, ~~agreements.~~merger ~~Our~~opportunities ~~Strategic~~or ~~Positions~~a ~~segment~~combination ~~consists of an investment in Evofem~~thereof. ~~Our~~In ~~Evofem~~addition, ~~investment~~we ~~includes~~analyzed, ~~shares of common stock~~ and ~~warrants~~continue to ~~purchase~~analyze, ~~additional~~optimal ~~shares~~mechanisms offor ~~common~~returning ~~stock.~~value ~~Evofem~~to isstockholders in a ~~pre~~tax-~~commercial~~efficient ~~company and~~manner, asincluding ~~such,~~share is not yet engaged in revenue-generating activities. Our Pharmaceutical segment consists of revenue derived from branded prescription medicine products sold under the name Tekturna and Tekturna HCT in the United Statesrepurchases, ~~and~~cash ~~Rasilez~~dividends and ~~Rasilez~~other ~~HCT~~distributions ~~in the rest~~ of ~~the~~assets. ~~world~~Despite ~~and revenue generated from~~ the ~~sale~~challenges of anCOVID-19, ~~authorized~~we ~~generic~~made ofsignificant ~~Tekturna~~progress in ~~the~~our ~~United~~monetization ~~States~~strategy ~~(collectively~~during 2020, ~~the~~including ~~“Noden~~monetizing ~~Products”).~~most ~~Our Income Generating Assets segment consists~~ of ~~revenue~~our ~~derived~~key ~~from~~assets ~~(i) notes~~ and ~~other~~resolving ~~long-term~~a ~~receivables,~~longstanding ~~(ii)~~legal ~~royalty~~issue rights and hybrid notes/royalty receivables, (iii) equity investments and (iv) royalties from issued patents in the United States and elsewhere covering the humanization of antibodies, which we refer to as ~~the Queen et al. patents.~~follows:

~~Prospectively~~•In May 2020, we domade ~~not~~a ~~expect~~liquidation todistribution ~~make~~of ~~any~~all ~~additional~~of ~~acquisitions in~~ our ~~four~~common ~~operating~~stock ~~segments~~in asEvofem weto ~~pursue~~ our ~~monetization strategy~~stockholders. WeAs doof December 31, ~~however~~2020, ~~expect~~we held warrants to ~~continue~~purchase ~~supporting~~up ~~the~~to ~~development~~3,333,334 shares of ~~LENSAR’s~~Evofem ~~next~~common ~~generation~~stock ~~equipment~~with byan ~~providing~~exercise ~~necessary~~price ~~funding~~of $6.38

•In August 2020, we entered into a settlement agreement (the “ Settlement Agreement”) with related entities of Defined Diagnostics, LLC (f/k/a Wellstat Diagnostics, LLC) ("Wellstat Diagnostics" and, together with such related entities, the "Wellstat Parties") resolving previously reported litigation relating to loans made to Wellstat Diagnostics by us

•In August 2020, we sold three royalty interests related to third party sales of Kybella®, Zalviso®, and Coflex®

•In September 2020, we completed the previously announced sale of our interest in Noden DAC and Noden USA

•In October 2020, we completed the previously announced spin-off of LENSAR whereby we made a liquidation distribution of all of our shares of LENSAR common stock to our stockholders as of September 22, 2020

•In December 2020, we entered into a Capital Provision Agreement with Epps Investments LLC (“Epps”) regarding our previously announced Settlement Agreement with the Wellstat Parties whereby we sold all remaining amounts owed to us under the Settlement Agreement for consideration received

The Settlement Agreement with the Wellstat Parties provided for the payment of $7.5 million upon the signing of the Settlement Agreement, which has been received, and either (1) $5.0 million by February 10, 2021 and $55.0 million by July 26, 2021; or (2) $67.5 million by July 26, 2021. Under the terms of the Settlement Agreement, failure by the Wellstat Parties to make payment in full by July 26, 2021, authorized us to record judgment against the Wellstat Parties for an amount of $92.5 million or such lesser amount as may be owed under the Settlement Agreement.

The Capital Provision Agreement with Epps provided for the payment of $51.4 million, which was received on December 31, 2020, in exchange for 100% of the payments or other property or value received by PDL on or after the date of the Capital Provision Agreement pursuant to the Settlement Agreement.

The proceeds from the sale of the three royalty interests totaled $4.35 million, 90% of which was received at the closing of the transaction. The remaining 10% is currently held in escrow against certain potential contingencies and is to be released on the one-year anniversary of the closing, subject to the satisfaction of any such potential contingencies.

closing of the transaction, the guaranty agreement between Novartis and us which guaranteed certain payments owed to Novartis by Noden was terminated.

We intend to pursue monetization of our remaining assets in a disciplined and cost-effective manner to maximize returns to stockholders. At the same time, we recognize that accelerating the timeline to complete our monetization process, while continuing to optimize asset value, could increase returns to stockholders due to reduced general and administrative expenses as well as provide for faster returns to stockholders. While we are cognizant that an accelerated timeline may provide greater and faster returns to our stockholders, we also recognize that the duration and extent of the public health issues related to the COVID-19 pandemic make it possible that the timing of the sale of all or substantially all of our remaining assets may require additional time to execute or for us to pursue alternatives to the sale of these assets. For example, if a suitable offer to purchase the remaining royalty assets is not received prior to completing the dissolution process, they could be ultimately placed in a liquidating trust. The available proceeds from either the ongoing collection of royalty income or from the sale of the royalty assets would ultimately be distributed to our stockholders. We will continue to assess the market for our remaining assets to determine the appropriate time to sell them or to opt for alternative paths to return their value to our stockholders.

Critical Accounting Policies and Significant Estimates

The preparation of financial statements and related disclosures in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) and the discussion and analysis of our financial condition and operating results require our management to make judgments, assumptions and estimates that affect the amounts reported in its Consolidated Financial Statements and accompanying notes. Note 2, Summary of Significant Accounting Policies, to the Consolidated Financial Statements included in ~~Item~~this 8Form 10-K describes the significant accounting policies and methods used in the preparation of our Consolidated Financial Statements. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates and such differences may be material.

While our significant accounting policies are more fully described in the notes to our Consolidated Financial Statements appearing elsewhere in this ~~Annual~~Form ~~Report~~10-K, management believes that the following accounting policies related to the liquidation basis of accounting, assets and liabilities held for sale, discontinued operations, notes receivable and other long-term receivables, inventory, intangible assets, convertible notes, product revenue, royalty rights - at fair value, and income taxes, ~~and business combination~~ are critical because they are both important to the portrayal of our financial condition and operating results, and they require management to make judgments and estimates about inherently uncertain matters.

60Liquidation Basis of Accounting

~~condition~~As ~~and~~a ~~operating~~result ~~results~~of the approval of the Company’s stockholders to pursue dissolution of the Company pursuant to a plan of dissolution, the Company’s basis of accounting transitioned, effective September 1, 2020, from the going concern basis of accounting (“Going Concern Basis”) to the liquidation basis of accounting (“Liquidation Basis”) in accordance with Generally Accepted Accounting Principles. Under the Liquidation Basis, the values of the Company's assets and ~~they~~liabilities ~~require~~include management's estimate of income to ~~make~~be ~~judgments~~generated ~~and~~from the remaining assets until the anticipated date of sale, estimated sales proceeds, estimates ~~about~~for ~~inherently~~operating ~~uncertain~~expenses ~~matters~~and expected amounts required to settle liabilities. The estimated liquidation values for assets derived from future revenue streams and asset sales and the settlement of estimated liabilities are reflected on the Consolidated Statement of Net Assets in Liquidation. The actual amounts realized could differ materially from the estimated amounts.

Assets Held for Sale

Under the Going Concern Basis, assets and liabilities are classified as held for sale and presented separately on the balance sheet when all of the following criteria for a plan of sale have been met: (1) management, having the authority to approve the action, commits to a plan to sell the assets; (2) the assets are available for immediate sale, in their present condition, subject only to terms that are usual and customary for sales of such assets; (3) an active program to locate a buyer and other actions required to complete the plan to sell the assets have been initiated; (4) the sale of the assets is probable and is expected to be completed within one year; (5) the assets are being actively marketed for a price that is reasonable in relation to their current fair value; and (6) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or the plan will be withdrawn. The Pharmaceutical segment, Strategic Positions segment and certain royalty right assets within the Income Generating Assets segment are classified as held for sale. The royalty right assets that were classified as held for sale are Assertio, Viscogliosi Brothers, University of Michigan, AcelRx, and Kybella. The assets and liabilities held for sale are included on the Company’s Consolidated Balance Sheet as of December 31, 2019, as Assets held for sale and Liabilities held for sale.

Discontinued Operations

Discontinued operations comprise those activities that were disposed of during the period or that were classified as held for sale at the end of the period, represent a separate major line of business or geographical area that can be clearly distinguished for operational and financial reporting purposes, and represent a strategic shift that has or will have a major effect on the Company’s operations and financial results. The profits and losses of the investments classified as held for sale, the Pharmaceutical segment, the Strategic Positions segment, and certain royalty assets noted above, are presented on the Consolidated Statements of Operations as discontinued operations. Depreciation and amortization of assets ceases upon designation as held for sale.

See Note 4, Discontinued Operations Classified as Assets Held for Sale, for additional information.

Notes Receivable and Other Long-Term Receivables

WeUnder ~~account~~the Going Concern Basis, we accounted for our notes receivable at amortized cost, net of unamortized origination fees, if any, and adjusted for any impairment losses. Interest iswas accreted or accrued to “Interest revenue” using the effective interest method. When and if supplemental payments are received from certain of these notes and other long-term receivables, an adjustment to the estimated effective interest rate iswas affected prospectively.

We ~~evaluate~~evaluated the collectability of both interest and principal for each note receivable or loan to determine whether it is impaired. A note receivable or loan iswas considered to be impaired when, based on ~~current~~available information and events, we ~~determine~~determined it is probable that it ~~will~~would be unable to collect amounts due according to the existing contractual terms. When a note receivable or loan iswas considered to be impaired, the amount of loss iswas calculated by comparing the carrying value of the financial asset to the value determined by discounting the expected future cash flows at the loan’s effective interest rate or to the estimated fair value of the underlying collateral, less costs to sell, if the loan iswas collateralized and we ~~expect~~expected repayment to be provided solely by the collateral. Impairment assessments ~~require~~required significant judgments and ~~are~~were based on significant assumptions related to the borrower’s credit risk, financial performance, expected sales, and estimated fair value of the collateral.

We ~~record~~recorded interest on an accrual basis and ~~recognize~~recognized it as earned in accordance with the contractual terms of the applicable credit agreement, to the extent that the underlying note receivable or loan iswas not impaired and such amounts ~~are~~were expected to be collected. When a note receivable or loan ~~becomes~~became past due, or if management otherwise ~~does~~did not expect that principal, interest, and other obligations due ~~will~~would be collected in full, we ~~will~~ generally ~~place~~placed the note receivable or loan on an impaired status and ~~cease~~ceased recognizing interest income on that note receivable or loan ~~until all principal and interest due has been paid or until such time that we believe the borrower has demonstrated the ability to repay its current and future contractual obligations~~. Any uncollected interest related to prior periods iswas reversed from income in the period that collection of the interest receivable is determined to be doubtful. ~~However, we may make exceptions to this policy if the investment has sufficient collateral value and is in the process of collection.~~

As of December 31, ~~2019~~2020, we had ~~three~~one ~~notes~~note receivable ~~investments~~investment ~~which we determined to be impaired~~ with an aggregate carrying value ~~and fair value~~ of approximately $520.17 million ~~and $57.3 million~~, ~~respectively,~~ compared to ~~three~~two note receivable investments which we determined to be impaired as of December 31, ~~2018~~2019 with an aggregate carrying value and fair value of approximately $6252.81 million and $7057.03 million, respectively. We did not recognize any losses on extinguishment of notes receivable during the eight months ended August 31, 2020 or the years ended December 31, 2019 and 2018. ~~During~~There ~~the~~were ~~year~~no ~~ended~~impairment ~~December~~losses ~~31,~~on ~~2017,~~notes wereceivable ~~recognized~~for athe ~~loss~~eight onmonths ~~extinguishment~~ended ofAugust ~~notes~~31, ~~of $51~~2020.1 ~~million.~~ During the years ended December 31, 2019 and 2018, we recorded impairment losses of $10.8 million and $8.2 million, respectively, related to the CareView note receivable. ~~There~~For ~~were no impairment losses on notes receivable for~~ the ~~year~~eight months ended ~~December~~August 31, ~~2017.~~2020 ~~For~~and the year ended December 31, 2019, we did not recognize any interest income for note receivable investments as all such note receivable investments were on an impaired status and no cash interest payments were received. For the ~~years~~year ended December 31, 2018 ~~and 2017~~, we recognized $2.3 million ~~and $3.1 million, respectively,~~ of interest revenue for the CareView note receivable investment as result of cash interest payments made during the ~~respective~~ fiscal ~~years~~year.

Inventory

~~Inventory~~Under the Going Concern Basis, inventory, which ~~consists~~consisted of raw materials, work-in-process and finished goods, iswas stated at the lower of cost or net realizable value. We ~~determine~~determined cost using the first-in, first-out method. Inventory levels ~~are~~were analyzed periodically and written down to their net realizable value if they ~~have~~had become obsolete, ~~have~~had a cost basis in excess of its expected net realizable value or ~~are~~were in excess of expected requirements. We ~~analyze~~analyzed current and future product demand relative to the remaining product shelf life to identify potential excess inventory. We ~~build~~built demand forecasts by considering factors such as, but not limited to, overall market potential, market share, market acceptance and patient usage. The Company ~~classifies~~classified inventory as current on the Consolidated Balance ~~Sheets~~Sheet when the Company ~~expects~~expected inventory to be consumed for commercial use within the next twelve months. During the years ended December 31, 2019 and 2018 we recognized reductions in the inventory reserve of $0.3 million and $1.2 million, respectively. During the year ended December 31, 2017, we recognized an inventory write-down of approximately $2.0 million.

Intangible Assets

~~Intangible~~Under the Going Concern Basis, intangible assets with finite useful lives ~~consist~~consisted primarily of acquired product rights and acquired technology and ~~are~~were amortized on a straight-line basis over their estimated useful lives (~~seven~~five to 20 years). The estimated useful lives associated with finite-lived intangible assets were consistent with the estimated lives of the associated products. Such assets were reviewed for impairment when events or circumstances indicated that the carrying value of an asset may not be recoverable. An impairment loss was recognized when estimated undiscounted future cash flows expected to result from the use of an asset and its eventual disposition were less than its carrying amount. The amount of any impairment loss was measured as the difference between the carrying amount and the fair value of the impaired asset.

intangible assets are consistent with the estimated lives of the associated products and may be modified when circumstances warrant. Such assets are reviewed for impairment when events or circumstances indicate that the carrying value of an asset may not be recoverable. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of an asset and its eventual disposition are less than its carrying amount. The amount of any impairment loss is measured as the difference between the carrying amount and the fair value of the impaired asset.

In June 2018, a settlement agreement with Anchen was reached that granted Anchen a nonexclusive royalty-free license to manufacture and commercialize a generic version of aliskiren in the United States. In return, Anchen agreed not to commercialize its generic version of aliskiren prior to March 1, 2019. As a result of this settlement agreement, we performed an impairment assessment of our Noden asset group and concluded that the sum of undiscounted cash flows was not greater than the carrying value of the assets. Therefore, we performed a discounted cash flow analysis to estimate the fair value of the asset group in accordance with Accounting Standard Codification (“ASC”) 360, Impairment or Disposal of Long-lived Assets, resulting in an impairment charge of $152.3 million in the second quarter of 2018.

On March 4, 2019, we announced the U.S. commercial launch of an authorized generic form of Tekturna, with the same drug formulation as Tekturna. Future events, such as FDA approval of a third-party generic version of aliskiren or publicly announced plans of a launch of a generic version of aliskiren, may be further indicators of impairment which may require us to perform additional impairment testing. On March 22, 2019, the FDA approved Anchen’s generic form of aliskiren.

In December 2019, given our monetization strategy and updated forecasts for Noden, we revised our estimates of Noden’s future cash flows and as a result of this analysis, determined that the sum of undiscounted cash flows was not greater than the carrying value of the assets. Therefore, we performed a discounted cash flow analysis to estimate the fair value of the asset group in accordance with ASC 360, resulting in an impairment charge of $22.5 million in the fourth quarter of 2019.

Future events, such as FDA approval of another third-party generic form of aliskiren or publicly announced plans of a launch of another generic form of aliskiren, may be further indicators of impairment which may require us to perform additional impairment testing.

Convertible Notes

WeUnder ~~perform~~the Going Concern Basis, we performed an assessment of all embedded features of a debt instrument to determine if (i) such features should be bifurcated and separately accounted for, and (ii) if bifurcation requirements are met, whether such features should be classified and accounted for as equity or debt instruments. If the embedded feature ~~meets~~met the requirements to be bifurcated and accounted for as a liability, the fair value of the embedded feature is measured initially, included as a liability on the Consolidated Balance ~~Sheets~~Sheet, and re-measured to fair value at each reporting period. Any changes in fair value ~~are~~were recorded in the Consolidated Statement of Operations. We ~~monitor~~monitored, on an ongoing basis, whether events or circumstances could give rise to a change in our classification of embedded features.

We issued ~~the~~$150.0 million of December 2021 Notes with an option to settle conversions by paying or delivering, as applicable, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election. In accordance with accounting guidance for convertible debt instruments that may be settled in cash or other assets on conversion, we separated the principal balance between the fair value of the liability component and the common stock conversion feature using a market interest rate for a similar nonconvertible instrument at the date of issuance.

~~The~~On ~~fair~~September ~~value~~17, of2019, ~~the~~we ~~liability~~exchanged ~~component~~$86.1 ofmillion ~~the~~aggregate principal of December 2021 Notes ~~was~~for ~~estimated~~an atidentical aggregate original principal amount of December 2024 Notes, plus a cash payment of $~~109~~70.~~1 million~~00 atfor ~~issuance.~~each ~~Therefore~~$1,000 ~~the~~principal ~~difference~~amount ~~between~~exchanged (the ~~face~~“September ~~value~~2019 ofExchange Transaction”). We issued the December ~~2021~~2024 Notes atwith ~~issuance~~an option to settle conversions by paying or delivering, as applicable, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election. In accordance with accounting guidance for convertible debt instruments that may be settled in cash or other assets on conversion, we separated the ~~estimated~~principal balance between the fair value of the liability component ~~was~~and ~~being~~the ~~amortized~~common tostock ~~interest~~conversion ~~expense~~feature ~~over~~using ~~the~~a ~~term~~market ofinterest ~~the~~rate ~~December~~for ~~2021~~a ~~Notes~~similar ~~using~~nonconvertible instrument at the ~~effective~~date ~~interest~~of ~~method~~issuance.

OnThe September ~~17,~~ 2019, we exchanged $86.1 million aggregate principal of December 2021 Notes for an identical aggregate original principal amount of December 2024 Notes, plus a cash payment of $70.00 for each $1,000 principal amount exchanged (the “September Exchange Transaction~~”).~~ Wequalified pay interest at 2.75% on the December 2024 Notes semiannually in arrears on June 1 and December 1 of each year, beginning December 1, 2019. The original principal of the December 2024 Notes will accrete at a rate of 2.375% per year (“Accretion Interest”) commencing September 17, 2019 through the maturity of the December 2024 Notes. The accreted principal amount of the December 2024 Notes is payable in cash upon maturity. We issued the December 2024 Notes with an option to settle conversions by paying or delivering, as ~~applicable, cash, shares of our common stock or~~ a ~~combination of cash and shares of our common stock, at our election. In accordance with accounting guidance for convertible~~ debt ~~instruments that may be settled in cash or other assets on conversion, we separated the principal balance between the fair~~ extinguishment.

62In accordance with the accounting guidance for an extinguishment of convertible debt instruments with a cash conversion feature, we were required to allocate the fair value of the consideration transferred between the liability component and the equity component. To calculate the fair value of the debt immediately prior to derecognition, the carrying value was recalculated in a manner that reflected the estimated market interest rate for a similar nonconvertible instrument at the date of issuance.

~~value~~In ofconnection with the ~~liability~~September ~~component~~2019 Exchange Transaction, we entered into a capped call transaction with a counterparty on similar terms and conditions as the ~~common~~capped ~~stock~~call ~~conversion~~transaction ~~feature~~entered ~~using~~into abetween ~~market~~the ~~interest~~two ~~rate~~parties when the December 2021 Notes were issued. We evaluated the capped call transaction under authoritative accounting guidance and determined that it should be accounted for as a ~~similar~~separate ~~nonconvertible~~transaction ~~instrument~~and classified as a net reduction to Additional paid-in capital within stockholders’ equity with no recurring fair value measurement recorded. Also with the September 2019 Exchange Transaction, we and the counterparty unwound a portion of the capped call entered into when the December 2021 Notes were issued as they were no longer scheduled to mature in 2021. The proceeds from the unwind of the capped call, which reflected the value of the options outstanding at the ~~date~~time of ~~issuance~~the September 2019 Exchange Transaction and the average share price of our common stock, were included as an increase to Additional paid-in capital within stockholders’ equity.

~~The~~On ~~September~~December ~~Exchange~~12, ~~Transaction~~2019, ~~qualified~~we asinitiated athe ~~debt~~repurchase ~~extinguishment~~of ~~and~~$119.3 wemillion ~~recognized~~in aaggregate ~~loss~~principal onamount ~~exchange~~ of ~~the~~our December 2021 and December 2024 convertible notes offor $397.9 million, ~~which~~in iscash ~~included~~and 13.4 million shares of our common stock in ~~Non-operating~~privately ~~income~~negotiated transactions (~~expense~~the “December Exchange Transaction”),. ~~net~~The inclosing of the ~~Consolidated~~December ~~Statement~~Exchange Transaction occurred on December 17, 2019. We determined that the repurchase of ~~Operations~~the principal amount should be accounted for as a partial extinguishment of the ~~year~~December ~~ended~~2021 Notes and December ~~31,~~2024 ~~2019~~Notes and a loss on extinguishment was recorded at closing of the transaction. The loss on extinguishment included the derecognition of a proportional share of the deferred issuance costs. In connection with the December Exchange Transaction, we unwound a corresponding portion of the capped call related to the convertible notes and

In accordance with the accounting guidance for an extinguishment of convertible debt instruments with a cash conversion feature, we were required to allocate the fair value of the consideration transferred between the liability component and the equity component. To calculate the fair value of the debt immediately prior to derecognition, the carrying value was recalculated in a manner that reflected the estimated market interest rate for a similar nonconvertible instrument at the date of issuance. Using an assumed borrowing rate of 7.05%, we calculated the fair value of the debt representing the amount allocated to the liability component of the December 2024 Notes with the remainder of the consideration allocated to the equity conversion feature, to reflect the reacquisition of the embedded conversion option. The conversion feature together with the fees allocated to the debt are accounted for as a debt discount. As a result of the September Exchange Transaction, we recorded a total debt discount of $9.4 million, which included the common stock conversion feature of $8.1 million and the debt issuance fees of $1.3 million, charged $5.5 million to Additional paid-in capital ($13.5 million charge to Additional paid-in capital representing the reduction to the 2021 equity component, partially offset by the $8.1 million allocated to equity for the 2024 notes) and recorded $1.2 million to deferred tax liability. The net amount charged to Additional paid-in capital represents the difference between the consideration paid for the September Exchange Transaction and the fair value of the convertible debt prior to the extinguishment.22

Inrepurchased ~~connection~~3.2 ~~with~~million ~~the~~shares ~~September~~of ~~Exchange~~our ~~Transaction,~~common westock ~~entered~~from ~~into~~the a capped call ~~transaction with a~~ counterparty. onThe ~~similar~~common ~~terms~~stock ~~and~~repurchased ~~conditions~~was reflected as ~~the~~a ~~capped~~decrease ~~call~~to ~~transaction~~Retained ~~entered~~earnings ~~into~~within ~~between~~stockholders’ ~~the two parties when the December 2021 Notes were issued~~equity. The ~~aggregate~~proceeds ~~cost~~from of the capped call ~~transaction~~were ~~was~~included ~~$4.5 million. We evaluated the capped call transaction under authoritative accounting guidance and determined that it should be accounted for~~ as aan ~~separate~~increase ~~transaction and classified as a net reduction~~ to Additional paid-in capital within stockholders’ equity ~~with no recurring fair value measurement recorded~~. ~~Also~~In ~~with~~furtherance ~~the~~of ~~September~~our ~~Exchange~~monetization ~~Transaction~~strategy, we ~~and~~expect ~~the~~to ~~counterparty~~continue ~~unwound~~to arepurchase ~~portion~~or ofsatisfy ~~the~~obligations ~~capped~~relating ~~call entered into when the December 2021 Notes were issued as they were no longer scheduled~~ to mature in 2021. The $0.9 million proceeds from the unwind of the capped call, which reflected the value of the options outstanding at the time of the September Exchange Transaction and the average share price of our ~~common~~convertible ~~stock, were included as an increase to Additional paid-in capital within stockholders’ equity~~notes.

OnDuring ~~December 12, 2019, we initiated~~ the ~~repurchase~~eight ofmonths ~~$119.3~~ended ~~million~~August in31, ~~aggregate~~2020, ~~principal~~the ~~amount~~Company ofrepurchased ~~our December 2021 and December 2024 convertible notes for~~ $975.~~9 million in cash and 13.~~4 million ~~shares of our common stock~~ in ~~privately~~aggregate ~~negotiated transactions (the “December Exchange Transaction”). The closing of the December Exchange Transaction occurred on December 17, 2019. We determined that the repurchase of the~~ principal amount ~~should be accounted for as a partial extinguishment~~ of ~~the~~its December 2021 Notes and ~~December 2024 Notes and a loss on extinguishment of~~ $410.5 million ~~was~~in ~~recorded~~aggregate atprincipal ~~closing~~amount of ~~the~~its ~~transaction. The loss on extinguishment included the de-recognition of a proportional share of the deferred issuance costs of $1.5 million. In connection with the~~ December ~~Exchange~~2024 ~~Transaction, we unwound a corresponding portion of the capped call related to the convertible~~ notes ~~and repurchased 3.2 million shares of our common stock from the capped call counterparty. We paid the capped call counterparty $4.3 million representing $11.0 million~~ for ~~the common stock repurchased, net of $6~~cash.7 million owed to us for unwinding the capped call, which reflected the value of the options outstanding at the time of the December Exchange Transaction. The common stock repurchased was reflected as a decrease to Retained earnings within stockholders’ equity. The proceeds from the capped call were included as an increase to Additional paid-in capital within stockholders’ equity. In furtherance of our monetization strategy, we expect to continue to repurchase or satisfy obligations relating to our convertible notes.

In December 2020, the Company repurchased an additional $2.2 million par value of December 2021 Notes and $1.0 million par value of December 2024 Notes in a privately negotiated transactions for cash.

The estimated fair value of the liability components at the date of issuance for the December 2021 Notes and December 2024 Notes were determined using valuation models and are complex and subject to judgment. Significant assumptions within the valuation models included an implied credit spread, the expected volatility and dividend yield of our common stock and the risk-free interest rate for notes with a similar term.

Product Revenue

General

In accordance with ASC 606, revenue isunder the Going Concern Basis, was recognized from the sale of products and services when a customer ~~obtains~~obtained control of such promised products and services. The amount of revenue recognized ~~reflects~~reflected the consideration to which we ~~expect~~expected to be entitled to receive in exchange for these products and services. A five-step model was utilized to achieve the core principle and includes the following steps: (1) identify the customer contract; (2) identify the contract’s performance obligations; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations; and (5) recognize revenue when the performance obligations were satisfied.

63The following is a description of principal activities, separated by reportable segments, from which we generated revenue.

entitled to receive in exchange for these products and services. A five-step model is utilized to achieve the core principle and includes the following steps: (1) identify the customer contract; (2) identify the contract’s performance obligations; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations; and (5) recognize revenue when the performance obligations are satisfied.

The following is a description of principal activities - separated by reportable segments - from which we generate our revenue.

Medical Devices

We principally ~~generate~~generated revenue in our Medical Devices segment from the sale and lease of the LENSAR® Laser System, which ~~may~~included ~~include~~ equipment, PIDs, procedure licenses, and training, installation, warranty and maintenance agreements.

For bundled packages, we ~~account~~accounted for individual products and services separately if they ~~are~~were distinct - i.e. if a product or service is separately identifiable from other promises in the bundled package and if the customer can benefit from it on its own or with other resources that are readily available to the customer. The LENSAR® Laser system, training and installation services ~~are~~were one performance obligation. All other elements are separate performance obligations. PIDs, procedure licenses, warranty and maintenance services ~~are~~were also sold on a stand-alone basis.

As we both ~~sell~~sold and ~~lease~~leased the LENSAR® Laser System, the consideration (including any discounts) iswas first allocated between lease and non-lease components and then allocated between the separate products and services based on their stand-alone selling prices. The stand-alone selling prices for the PIDs and procedure licenses ~~are~~were determined based on the prices at which we separately ~~sell~~sold the PIDs and procedure licenses. The LENSAR® Laser System and warranty stand-alone selling prices ~~are~~were determined using the expected cost plus a margin approach.

For LENSAR® Laser System sales, we ~~recognize~~recognized revenue in product revenue when a customer ~~takes~~took possession of the system. This usually ~~occurs~~occurred after the customer signs a contract, LENSAR ~~installs~~installed the system, and LENSAR ~~performs~~performed the requisite training for use of the system. For LENSAR® Laser System leases, we recognized revenue in Product revenue over the length of the lease in accordance with ASC Topic 840, Leases through December 31, 2018 and ~~recognizes~~recognized Product revenue in accordance with ASC Topic 842, Leases, after January 1, 2019.

The LENSAR® Laser System requires both a ~~consumable, a~~ PID, and a procedure license to perform each procedure. We ~~recognize~~recognized revenue for PIDs in product revenue when the customer ~~takes~~took possession of the PID. PIDs ~~are~~were sold by the case. We ~~recognize~~recognized revenue for procedure licenses in product revenue when a customer ~~purchases~~purchased a procedure license from the web portal. Typically, consideration for PIDs and procedure licenses iswas considered fixed consideration except for certain customer agreements that ~~provide~~provided for tiered volume discount pricing which iswas considered variable consideration.

We offer an extended warranty that provides additional services beyond the standard warranty. We recognize revenue from the sale of extended warranties in product revenue over the warranty period. Customers have the option of renewing the warranty period, which is considered a new and separate contract.23

~~Pharmaceutical~~We offered an extended warranty that provided additional services beyond the standard warranty. We recognized revenue from the sale of extended warranties in product revenue over the warranty period. Customers had the option of renewing the warranty period, which was considered a new and separate contract.

We principally generate revenue in our Pharmaceutical segment from products sold to wholesalers and distributors. Customer orders are generally fulfilled within a few days of receipt resulting in minimal order backlog. Contractual performance obligations are usually limited to transfer of the product to the customer. The transfer occurs either upon shipment or upon receipt of the product in certain countries outside the United States after considering when the customer obtains control of the product. In addition, for some non-U.S. countries, we sell product on a consignment basis where control is not transferred until the customer resells the product to an end user. At these points, customers are able to direct the use of and obtain substantially all of the remaining benefits of the product.

Sales to customers are initially invoiced at contractual list prices. Payment terms are typically 30 to 90 days based on customary practice in each country. Revenue is reduced from the list price at the time of recognition for expected chargebacks, discounts, rebates, sales allowances and product returns, which are referred to as gross-to-net adjustments. These reductions are attributed to various commercial agreements, managed healthcare organizations and government programs such as Medicare, Medicaid, and the 340B Drug Pricing Program containing various pricing implications such as mandatory discounts, pricing protection below wholesaler list price and other discounts when Medicare Part D beneficiaries are in the coverage gap. These various reductions in the transaction price have been estimated using either a most likely amount, in the case of prompt pay discounts, or expected value method for all other variable consideration and have been reflected as liabilities and are settled through cash payments,

typically within time periods ranging from a few months to one year. Significant judgment is required in estimating gross-to-net adjustments considering legal interpretations of applicable laws and regulations, historical experience, payer channel mix, current contract prices under applicable programs, unbilled claims, processing time lags and inventory levels in the distribution channel.

Reserves for chargebacks, discounts, rebates, sales allowances and product returns are included within current liabilities in our Consolidated Balance Sheets.

For the period from July 1, 2016 through October 4, 2016, all of the Noden Products were distributed by Novartis under the terms of the Noden Purchase Agreement while transfer of the marketing authorization rights were pending. We presented revenue under the Novartis transition arrangement on a “net” basis and established a reserve for retroactive adjustment to the profit split with Novartis during this time. Beginning on October 5, 2016, Noden Pharma USA, Inc. distributed the Noden Products in the United States and we began presenting revenue for all sales in the United States on a “gross” basis and established a reserve for allowances.

Beginning on September 1, 2017, Noden Pharma DAC began distributing the Noden Products to select countries outside the United States and we began presenting revenue for Noden Products sold by Novartis outside of the United States on a “gross” basis as the marketing authorization rights were transferred. Noden Pharma DAC completed the marketing authorization transfers for all territories in the third quarter of 2018.

Income Generating Assets

Royalty Rights - At Fair Value

WeUnder ~~account~~the Going Concern Basis, we accounted for our investments in royalty rights at fair value with changes in fair value presented in earnings. The fair value of the investments in royalty rights iswas determined by using a discounted cash flow analysis related to the expected future cash flows to be received. For each arrangement, we are entitled to royalty payments based on revenue generated by the net sales of the product.

~~These~~Under the Going Concern Basis, these assets are classified as Level 3 assets within the fair value hierarchy, as our valuation estimates utilize significant unobservable inputs, including estimates. Critical estimates may include probability and timing of future sales of the related products, product demand and market growth assumptions, inventory target levels, product approval and pricing assumptions. Factors that could cause a change in estimates of future cash flows include a change in estimated market size, market share of the products on which we receive royalties, a change in pricing strategy or reimbursement coverage, a delay in obtaining regulatory approval, changes to forecast volume and pricing as a result of generic competition, a change in dosage of the product, and a change in the number of treatments.

~~The~~Under the Going Concern Basis, the changes in the estimated fair value from investments in royalty rights along with cash receipts in each reporting period are presented together on our Consolidated Statements of Operations as a component of revenue under the caption, “Royalty rights - change in fair value.” Realized gains and losses on Royalty Rights were recognized as they were earned and when collection was reasonably assured. Royalty Rights revenue was recognized over the respective contractual arrangement period. Transaction-related fees and costs were expensed as incurred.

Realized gains and losses on Royalty Rights are recognized as they are earned and when collection is reasonably assured. Royalty Rights revenue is recognized over the respective contractual arrangement period. Transaction-related fees and costs are expensed as incurred.

In the second quarter of 2019, due to the slower than expected adoption of Zalviso (the AcelRx Royalty Agreement product) since its initial launch relative to our estimates and the increased variance noted between our forecast model and actual results in the three months ended June 30, 2019, we utilized a third-party expert to reassess the market and expectations for the product. Based on this analysis and the impact to the projected sales-based royalties and milestones, we wrote down the fair value of the royalty asset by $60.0 million.

In the fourth quarter of 2019, management re-evaluated, with assistance of a third-party expert, the market share data, the gross-to-net revenue adjustment assumptions, expected ex-U.S. launch dates and demand data for our Assertio royalty asset and wrote down the fair value of the asset by $46.3 million.

Income Taxes

The provision for income taxes is determined using the asset and liability approach. Tax laws require items to be included in tax filings at different times than the items are reflected in the financial statements. A current liability is recognized for the estimated taxes payable for the current year. Deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. Deferred taxes are adjusted for enacted changes in tax rates and tax laws. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized.

taxes payable for the current year. Deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. Deferred taxes are adjusted for enacted changes in tax rates and tax laws. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized.

We recognize tax benefits from uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the Consolidated Financial Statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. We adjust the level of the liability to reflect any subsequent changes in the relevant facts surrounding the uncertain positions. Any interest and penalties on uncertain tax positions are included within the tax provision.

The ~~Tax~~Coronavirus ~~Cuts~~Aid, Relief, and ~~Jobs~~Economic Security (“CARES”) Act ofwas ~~2017~~signed (into law at the ~~“2017~~end ~~Tax~~of ~~Act”)~~March ~~significantly~~2020 ~~changed~~and ~~the~~contains ~~existing~~numerous ~~U.S.~~forms ~~corporate~~of economic stimulus, including Small Business Association guaranteed loans and certain income tax ~~laws~~provisions. byThe CARES Act, among other ~~things~~provisions, ~~lowering~~permits ~~the~~Net ~~corporate~~Operating ~~tax~~Loss ~~rate~~ (~~from~~“NOL”) acarryovers ~~top~~and ~~rate~~carrybacks ofto 35offset 100% toof ataxable ~~flat~~income ~~rate~~for oftaxable ~~21%)~~years beginning before 2021. In addition, ~~implementing~~the ~~elements~~CARES ofAct aallows ~~territorial~~NOLs ~~tax~~incurred ~~system~~in 2018, 2019, and ~~imposing~~2020 ato ~~one-time~~be ~~deemed~~carried ~~repatriation~~back ~~transition~~to ~~tax~~each onof ~~cumulative~~the ~~undistributed~~five ~~foreign~~preceding ~~earnings,~~taxable ~~for~~years ~~which~~to wegenerate ~~have~~a ~~not~~refund of previously paid ~~U.S.~~income taxes at the 35% corporate tax rate then in effect.

Business Combination

We apply ASC 805, Business combinations, pursuant to which the cost of an acquisition is measured as the aggregate of the fair values at the date of exchange of the assets given, liabilities incurred, and equity instruments issued. The costs directly attributable to the acquisition are expensed as incurred. Identifiable assets, liabilities and contingent liabilities acquired or assumed are measured separately at their fair value as of the acquisition date, irrespective of the extent of any noncontrolling interests. The excess of the (i) the total of cost of acquisition, fair value of the noncontrolling interests and acquisition date fair value of any previously held equity interest in the acquiree over (ii) the fair value of the identifiable net assets of the acquiree is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the Consolidated Statements of Operations.

The determination and allocation of fair values to the identifiable assets acquired and liabilities assumed is based on various assumptions and valuation methodologies requiring considerable management judgment. The most significant variables in these valuations are discount rates, terminal values, the number of years on which to base the cash flow projections, as well as the assumptions and estimates used to determine the cash inflows and outflows. Management determines discount rates to be used based on the risk inherent in the related activity’s current business model and industry comparisons. Terminal values are based on the expected life of products and forecasted life cycle and forecasted cash flows over that period. Although management believes that the assumptions applied in the determination are reasonable based on information available at the date of acquisition, actual results may differ from the forecasted amounts and the difference could be material.

Recently Issued Accounting Standards

See ~~Part II, Item 8, “Financial Statements and Supplementary Data”,~~ Note 2, Summary of Significant Accounting Policies, to the Consolidated Financial Statements of this Form 10-K for a discussion of recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted as of December 31, ~~2019~~2020.

Recent Developments

~~Repurchase Program~~Dissolution

~~From~~On January 14, ~~2020 to March 10~~2021, ~~2020,~~we ~~the~~filed ~~Company repurchased approximately 3.8 million shares of its common stock at~~ a ~~weighted-average~~Certificate ~~price~~ of ~~$3.42~~Dissolution ~~per~~with ~~share~~the ~~for~~State ~~a total~~ of ~~$12.9~~Delaware ~~million~~ and ~~repurchased~~closed ~~$3.2~~our ~~million~~stock intransfer ~~aggregate~~books. ~~principal~~On ~~amount~~January of7, ~~December~~ 2021, ~~Convertible~~we ~~Notes~~were ~~and~~formally ~~$10.5~~de-listed ~~million~~from ~~in aggregate principal amount of December 2024 Convertible Notes~~Nasdaq.

~~Amendment~~Convertible toSenior ~~CareView Modification Agreement~~Notes

AsIn ~~further~~connection ~~discussed~~with inthe ~~Note~~Fundamental 7,Change ~~Notes~~Repurchase ~~and~~Right ~~Other~~resulting ~~Long-Term~~from ~~Receivables, to~~ the ~~Consolidated~~suspension ~~Financial~~of ~~Statement,~~trading inof ~~January~~the ~~2020~~Company’s wecommon ~~entered~~stock ~~into~~on anNasdaq ~~additional~~prior ~~amendment~~to ~~with~~the ~~CareView~~opening ~~whereby~~of webusiness ~~agreed~~on ~~that~~December ~~the~~31, ~~principal~~2020, ~~and~~holders ~~interest~~of ~~payments~~142 ~~would~~December be2021 ~~further~~Notes ~~deferred~~tendered ~~until~~their ~~April~~notes ~~30,~~for ~~2020~~repurchase, which ~~was~~occurred ~~conditioned~~on ~~upon~~February ~~CareView~~17, ~~raising additional financing from third parties~~2021.

~~Plan~~In connection with the Fundamental Make-Whole Change resulting from the suspension of ~~Liquidation~~trading of the Company’s common stock on Nasdaq prior to the opening of business on December 31, 2020, holders of 50 December 2021 Notes exercised their conversion rights. Such notes will be retired for cash.

66CareView

OnAs ~~February~~further 7discussed in Note 9, ~~2020~~Notes and Other Long-Term Receivables, ~~our~~to ~~board~~the ofConsolidated ~~directors~~Financial ~~approved~~Statements aincluded ~~plan~~in ofItem ~~complete~~8, ~~liquidation~~the ~~which~~first ~~triggered~~principal payment and the ~~change~~scheduled ininterest ~~control~~payment ~~clause~~due inDecember ~~the~~31, ~~Amended~~2018 and ~~Restated~~those ~~2005~~that ~~Equity~~followed ~~Incentive~~that ~~Plan,~~were ~~accelerating~~previously ~~the~~deferred ~~vesting~~until ofJanuary a31, ~~significant~~2021 ~~portion~~were ofsubsequently ~~our~~deferred ~~outstanding~~until ~~equity~~May ~~awards~~31, 2021 under additional amendments.

Summary of 2020, 2019 and 2018 Financial Results

~~This~~•Our ~~section~~net ~~provides~~loss ~~an analysis of our financial results~~ for the ~~fiscal~~eight ~~year~~months ended ~~December~~August 31, ~~2019~~2020 ~~compared~~and to the ~~fiscal~~years ~~year~~ ended December 31, ~~2018.~~2019 ~~For~~and ~~the~~2018 ~~discussion~~was ~~covering~~$77.3 ~~the fiscal year ended December 31~~million, ~~2017,~~$70.4 ~~please~~million ~~refer~~and to$68.9 ~~Item 7~~million, ~~“Management’s~~respectively ~~Discussion~~ and ~~Analysis~~included ofnet ~~Financial~~loss ~~Condition~~from ~~and~~discontinued ~~Results~~operations of ~~Operations”~~$34.9 inmillion, ~~our~~$13.6 ~~Form~~million ~~10-K~~and ~~for~~$36.1 ~~the fiscal year ended December 31~~million, ~~2018.~~respectively;

•At ~~Our~~December 31, ~~net~~2020, ~~loss~~we ~~for~~had ~~the~~cash ~~years~~and ~~ended~~cash equivalents of $126.8 million as compared with $169.0 million at December 31, 2019, excluding, as of December 31, 2019, cash and ~~2018~~cash ~~was~~equivalents ~~$70.4~~classified ~~million~~in ~~and~~assets held for sale of $6824.95 million~~, respectively~~;

• At December 31, ~~2019~~2020, we had ~~cash and cash equivalents of~~ $~~193~~386.59 million asin ~~compared~~net ~~with~~assets ~~$394.6~~in ~~million at December 31, 2018~~liquidation;

• At December 31, 2019, we had $~~716~~717.12 million in total assets, including $447.9 million classified as ~~compared~~assets ~~with~~held for sale; and $~~963~~123.79 million in total liabilities at December 31, ~~2018;~~2019, ~~and~~including $31.2 million classified as liabilities held for sale.

• At December 31, 2019, we had $122.8 million in total liabilities as compared with $234.0 million at December 31, 2018.

Revenues

A summary of our revenues for the eight months ended August 31, 2020 and the years ended December 31, 2019 and 2018, is presented below:

(Dollars in thousands)	2019			2018		Change fromPrior Year %
				Eight Months Ended August 31,				Year Ended December 31,		Change from		Year Ended December 31,		Change from
Revenues:
(Dollars in thousands)				2020				2019		Prior Year %		2018		Prior Year %
Product revenue, net	$	85,835		$	105,448	(19	)%
Revenues:
Royalty rights - change in fair value	(31,042		)	85,256		(136	)%
Product revenue, net (1)				$	10,946			$	22,331	(51)	%	$	15,928	40	%
Royalties from Queen et al. patents	9			4,536		(100	)%
Lease revenue				2,139				5,072		(58)	%	5,903		(14)	%
Interest revenue	—			2,337		N/M
Service revenue				2,126				3,339		(36)	%	2,821		18	%
License and other	(45		)	533		(108	)%
Royalty rights - change in fair value				—				—		N/M		(30)		N/M
Total revenues	$	54,757		$	198,110	(72	)%
Royalties from Queen et al. patents				—				9		N/M		4,536		(100)	%
Interest revenue				—				—		N/M		2,337		N/M
License and other				110				(45)		344	%	533		(108)	%
Total revenues				$	15,321			$	30,706	(50)	%	$	32,028	(4)	%

___________________

N/M Not meaningful

~~Our total revenues decreased by 72%, or $143.4 million, for the year ended December 31, 2019, when compared to the year ended December 31, 2018. The decrease was primarily due to:~~25

•(1) Our ~~decreased~~Product ~~royalty~~revenue, ~~asset~~net ~~revenues~~consisted ~~due~~entirely inof ~~part~~revenue tofrom aour ~~decrease~~Medical inDevices ~~fair~~segment. ~~value~~We ofrecorded ~~the~~Product ~~AcelRx~~revenue ~~and~~from ~~Assertio~~our ~~royalty~~Medical ~~assets~~Devices segment from our LENSAR product sales which include LENSAR® Laser Systems, PIDs, procedures, training, installation, warranty and maintenance services.

•For athe ~~decrease~~eight inmonths ~~product~~ended ~~revenue~~August ~~from~~31, ~~the~~2020, ~~sale~~compared ofto the ~~Noden~~year ~~Products~~ended ~~in our Pharmaceutical segment~~December 31, 2019

•Our total revenues decreased ~~interest~~by ~~revenue~~50%, ~~related~~or $15.4 million, for the eight months ended August 31, 2020, when compared to the ~~CareView~~year ~~note~~ended ~~receivable~~December ~~asset~~31, 2019. The decrease was primarily due to:

•the ~~lower~~shorter ~~license~~measurement ~~and~~period ~~other~~in ~~revenue,~~the ~~partially~~current ~~offset~~year byperiod due to the transition to the Liquidation Basis on September 1, 2020,

•a andecrease ~~increase~~ in ~~product~~Product, ~~revenue~~Lease and Service revenues from ~~sales~~our ofMedical Devices segment due to the ~~LENSAR~~COVID-19 ~~Laser~~pandemic ~~System~~reducing demand for elective surgical procedures in ~~our~~North ~~Medical~~America ~~Devices~~and ~~segment.~~the rest of the world, and

~~Revenue~~•no ~~from~~Queen ~~our~~et ~~Medical Devices segment for the year ended December 31, 2019 was $30~~al.7 ~~million,~~patent anrevenue ~~increase of 25% compared to the year ended December 31, 2018. The increase is attributable to higher net revenues~~ in ~~both North America and~~ the ~~rest~~current ofyear ~~the world~~period, ~~with~~partially ~~the~~offset majority of the increase outside of North America. Revenue from LENSAR product consists of revenue from the sale and lease of the LENSAR® Laser System, which may include equipment, PIDs, procedure licenses, training, installation, warranty and maintenance agreements.by

~~Revenue~~•higher ~~from~~license our Pharmaceutical segment for the year ended December 31, 2019 was $55.1 million, a decrease of 32% when compared to the same period in 2018. The decrease in revenue from our Pharmaceutical segment reflects lower net revenues in the United States and ~~the~~other ~~rest of the world. The decrease in~~ revenue from our Pharmaceutical segment in the United States for the year ended December 31, 2019 reflects the introduction of our authorized generic form of Tekturna and a third-party generic form of aliskiren during the year ended December 31, 2019. ~~The decrease in revenue for the rest of the world is due to lower sales~~

67Revenue from our Medical Devices segment for the eight months ended August 31, 2020 was $15.2 million, a decrease of 51% compared to the year ended December 31, 2019. The decrease is attributable to lower net revenues in both North America and the rest of the world. The decrease was primarily driven by the impact of the COVID-19 pandemic on the Medical Devices segment and the associated decline in elective surgical procedures in addition to the shorter measurement period in the current year.

~~volume~~Revenue offrom ~~Rasilez~~our inIncome ~~certain~~Generating ~~territories.~~Assets ~~All~~segment ~~revenues~~for ~~from~~the ~~our~~eight ~~Pharmaceutical~~months ~~segment~~ended ~~were~~August ~~derived~~31, ~~from~~2020 ~~sales~~was $0.1 million, an increase of $0.1 million when compared to the ~~Noden~~year ~~Products~~ended December 31, 2019. The increase was primarily due to:

~~The~~•higher ~~following~~license ~~table provides a summary of activity with respect to our sales allowances~~ and ~~accruals~~other ~~for~~revenue, ~~the~~partially ~~year~~offset ~~ended December 31, 2019:~~by

(in thousands)	Discount and Distribution Fees			Government Rebates and Chargebacks			Assistance and Other Discounts			Product Return			Total
Balance as of December 31, 2018	$	3,094		$	8,901		$	3,457		$	4,681		$	20,133
Allowances for current period sales	5,090			12,104			5,003			1,720			23,917
Allowances for prior period sales	50			1,848			142			46			2,086
Credits/payments for current period sales	(3,813		)	(8,843		)	(4,186		)	(276		)	(17,118		)
Credits/payments for prior period sales	(3,076		)	(10,393		)	(3,411		)	(2,295		)	(19,175		)
Balance as of December 31, 2019	$	1,345		$	3,617		$	1,005		$	3,876		$	9,843

•decreasing royalties from the Queen et al. patents as the patents have expired.

WeFor ~~record~~the ~~revenue~~year ~~from~~ended ~~our Pharmaceutical segment net of estimated product returns~~December 31, ~~pricing discounts~~2019, ~~including~~compared ~~rebates offered pursuant~~ to ~~mandatory federal and state government programs~~December 31, ~~chargebacks,~~2018 ~~prompt pay discounts, distribution fees and co-pay assistance for product sales each period.~~

~~Revenue~~Our ~~from~~total ~~our~~revenues ~~Income~~decreased ~~Generating~~by ~~Assets~~4%, ~~segment~~or $1.3 million, for the year ended December 31, 2019 ~~was $(31.1) million~~, ~~a decrease of 134%, or $123.7 million,~~ when compared to the ~~same~~year ~~period~~ended inDecember 31, 2018. The decrease was primarily due to:

•lower aQueen ~~decrease~~et inal. ~~the~~patent ~~estimated~~revenue ~~fair~~in ~~value of~~ the ~~AcelRx~~current ~~and Assertio royalty assets in 2019,~~period

•decreased ~~decreasing~~interest ~~royalties~~revenue ~~from~~related ~~the~~to ~~Queen et al. patents as~~ the ~~patents~~CareView ~~have~~note ~~expired~~receivable asset, and

•lower ~~the~~license ~~absence~~and ofother ~~interest~~ revenue, ~~recognized~~partially ~~from~~offset ~~our CareView note receivable in 2019, and~~by

•an ~~lower~~increase ~~license~~in ~~and~~product ~~other~~ revenue from sales of the LENSAR Laser Systems in our Medical Devices segment.

~~The~~Revenue ~~adjustment~~from toour ~~the~~Medical ~~fair~~Devices ~~value~~segment offor the ~~AcelRx~~year ~~royalty~~ended ~~asset~~December in31, ~~the second quarter of~~ 2019 was ~~due~~$30.7 tomillion, ~~the~~an ~~slower~~increase ~~than expected adoption~~ of ~~Zalviso~~25% ~~since~~compared ~~its initial launch relative~~ to ~~our estimates and~~ the ~~increased~~year ~~variance~~ended ~~noted~~December 31, ~~between~~2018. ~~our~~The ~~forecast~~increase ~~model~~is ~~and~~attributable ~~actual~~to ~~results~~higher innet ~~the~~revenues ~~second quarter of 2019. We engaged a third-party expert~~ in ~~the~~both ~~second~~North ~~quarter~~America ~~of 2019 to reassess the market~~ and ~~expectations for~~ the ~~product.~~rest ~~Key findings from the third-party study included: the post-surgical PCA (Patient-Controlled Analgesia) market being smaller than previously forecasted; the higher price~~ of the ~~product relative to alternative therapies~~world, ~~the~~with ~~product not being used as a replacement for systemic opioids and~~ the ~~design~~majority of the ~~delivery~~increase ~~device,~~outside ~~which is pre-filled for up to three days~~ of ~~treatment,~~North ~~which limited its use for procedures with anticipated shorter recovery times~~America.

~~The~~Revenue ~~adjustment~~from toour ~~the~~Income ~~fair~~Generating ~~value~~Assets ofsegment ~~the~~for ~~Assertio royalty asset in~~ the ~~fourth~~year ~~quarter~~ended ofDecember 31, 2019 was ~~due~~$(36,000), to a decrease inof ~~the~~100%, ~~sales~~or ~~forecast for the Assertio products~~$7.4 Wemillion, ~~engaged~~when acompared ~~third-party expert in the fourth quarter of 2019~~ to ~~reassess~~ the ~~market~~same ~~and~~period ~~expectations~~in ~~for the royalty asset~~2018. ~~Key~~The ~~findings from the third-party study included: an anticipated~~ decrease inwas ~~the Glumetza net sales forecast~~ due to an accelerated shift in the channel mix resulting in a substantial decline in net selling prices, particularly in the fourth quarter of 2019 and beyond, as previously announced by Bausch Health and the delayed launch dates of the extended release products in the Assertio royalty asset portfolio outside of the United States.:

~~The~~•the ~~following~~absence ~~tables provide a summary~~ of ~~activity~~royalties ~~with~~from ~~respect~~the toQueen ~~our~~et ~~royalty~~al. ~~rights~~patents -as ~~change in fair value for~~ the ~~years~~patents ~~ended~~have ~~December 31~~expired, ~~2019 and 2018:~~

	Year Ended December 31, 2019
			Change in
(in thousands)	Cash Royalties		Fair Value			Total
Assertio	$	72,225	$	(45,699	)	$	26,526
VB	966		(518		)	448
U-M	5,664		(5,197		)	467
AcelRx	307		(57,428		)	(57,121		)
KYBELLA	110		(1,472		)	(1,362		)
	$	79,272	$	(110,314	)	$	(31,042	)

•the absence of interest revenue recognized from our CareView note receivable in 2019, and

68•lower license and other revenue.

	Year Ended December 31, 2018
			Change in
(in thousands)	Cash Royalties		Fair Value			Total
Assertio	$	71,502	$	12,333		$	83,835
VB	1,062		(272		)	790
U-M	4,631		(1,174		)	3,457
AcelRx	249		(2,514		)	(2,265		)
Avinger	366		(396		)	(30		)
KYBELLA	159		(690		)	(531		)
	$	77,969	$	7,287		$	85,256

The following table summarizes the percentage of our total revenues earned, which individually accounted for 10% or more of our total revenues for the eight months ended August 31, 2020 and one or more of the years ended December 31, 2019 and 2018:

The following table summarizes the percentage of our total revenues earned, which individually accounted for 10% or more of our total revenues for the years ended December 31, 2019 and 2018:


	Eight Months Ended August 31,		Year Ended December 31,
Product Name	2020		2019		2018


Biogen	—	%	—	%	14	%
LENSAR	99	%	100	%	77	%

		Year Ended December 31,
Source	Product Name	2019		2018
AcelRx	Zalviso	(104	)%	(1	)%
Assertio	Glumetza, Janumet XR1, Jentadueto XR, Invokamet XR and Synjardy XR	48	%	42	%
LENSAR	LENSAR Laser System	56	%	12	%
Noden	Tekturna, Tekturna HCT, Rasilez and Rasilez HCT	101	%	41	%

_______________

1 Royalties received through the third quarter of 2018.

Foreign currency exchange rates also impact our reported revenues from royalty assets and product sales. Our revenues may fluctuate due to changes in foreign currency exchange rates and are subject to foreign currency exchange risk. While foreign currency conversion terms vary by license agreement, generally most agreements require that royalties first be calculated in the currency of sale and then converted into U.S. dollars using the average daily exchange rates for that currency for a specified period at the end of the calendar quarter. Accordingly, when the U.S. dollar weakens against other currencies, the converted amount is greater than it would have been had the U.S. dollar not weakened. In addition, our Noden Product sales in markets outside the United States are typically denominated in foreign currencies and can cause fluctuations in our reported revenue from period to period. The impact of changes in foreign currency exchange rates to our reported revenue was insignificant for the years ended December 31, 2019 and 2018.

Operating Expenses

A summary of our operating expenses for the eight months ended August 31, 2020 and the years ended December 31, 2019 and 2018 is presented below:

(Dollars in thousands)	2019			2018			Change from Prior Year %
				Eight Months Ended August 31,					Year Ended December 31,			Change from		Year Ended December 31,			Change from
Costs of product revenue (excluding intangible amortization and impairment)	$	53,619		$	48,460		11	%
(Dollars in thousands)				2020					2019			Prior Year %		2018			Prior Year %
Amortization of intangible assets	6,306			15,831			(60	)%
Costs of product revenue (excluding intangible amortization)				$	6,626				$	17,276		(62)	%	$	13,555		27	%
General and administrative	45,598			45,420			0	%
Amortization of intangible assets				841					1,290			(35)	%	1,294			—	%
Sales and marketing	8,482			17,139			(51	)%
Severance and retention				24,713					—			N/M		—			N/M
Research and development	7,308			2,955			147	%
General and administrative				29,695					38,334			(23)	%	33,700			14	%
Impairment of intangible assets	22,490			152,330			(85	)%
Sales and marketing				3,322					6,806			(51)	%	6,341			7	%
Asset impairment loss	10,768			8,200			31	%
Research and development				4,374					7,350			(40)	%	2,759			166	%
Change in fair value of contingent consideration	—			(41,631		)	N/M
Asset impairment loss				—					10,768			(100)	%	8,200			31	%
Total operating expenses	$	154,571		$	248,704		(38	)%
Change in fair value of contingent consideration				—					—			N/M		369			N/M
Percentage of total revenues	282		%	126		%
Total operating expenses				$	69,571				$	81,824		(15)	%	$	66,218		24	%
Percentage of total revenues				454		%			266		%			207		%

___________________

N/M Not meaningful

~~Total~~For ~~operating expenses decreased by 38%, or $94.1 million for~~ the ~~year~~eight months ended ~~December~~August 31, ~~2019~~2020, ~~when~~ compared to the year ended December 31, ~~2018.~~2019 ~~The decrease was primarily a result of:~~

•Total aoperating expenses decreased by 15%, or $2212.53 million ~~impairment~~for of the ~~Noden~~eight ~~intangible~~months ~~asset~~ended inAugust ~~the~~31, ~~current~~2020, ~~year~~when compared to athe ~~$152~~year ended December 31, 2019.3 ~~million~~The ~~impairment~~decrease inwas ~~2018,~~primarily a result of:

• lower ~~amortization~~general ~~expense~~and ~~for~~administrative ~~the~~expenses, ~~Noden~~primarily ~~intangible assets in 2019 resulting from the impairment recorded in 2018~~ due to ~~the increased probability of~~ a ~~third-party~~shorter ~~generic~~measurement ~~form~~period ofdue ~~aliskiren~~to ~~being~~our ~~launched~~transition into the ~~United~~Liquidation ~~States~~Basis,

•a ~~lower~~decrease ~~sales~~in research and ~~marketing~~development expenses ~~reflecting the cost savings from the change~~ in our ~~marketing~~Medical ~~strategy~~Devices tosegment aprimarily ~~non-personal~~due ~~promotion~~to ~~strategy for~~ the ~~Noden~~exclusive ~~Products~~licensing ~~in anticipation~~ of aintellectual ~~launch~~property offrom a third- party ~~generic~~in ~~form~~2019 offor ~~aliskiren~~$3.5 ~~This~~million ~~non-personal promotion strategy was subsequently discontinued upon the launch of our authorized generic form of Tekturna~~ in ~~the first quarter of 2019~~cash, ~~partially offset by~~

•lower ~~the~~cost ~~favorable~~of ~~adjustment~~product ~~to the Noden acquisition related contingent consideration~~revenue, ~~which~~due ~~was~~to ~~first~~decreased ~~reduced~~sales in ~~the~~our ~~second~~Medical ~~quarter~~Devices ofsegment, ~~2018~~as ~~prompted~~previously ~~by the increased probability of a third-party generic form of aliskiren being launched in the United States and subsequently eliminated in the fourth quarter of 2018 when the launch was imminent~~discussed,

•lower ansales ~~increase in research~~ and ~~development~~marketing expenses in our Medical Devices segment ~~primarily~~ due to the ~~exclusive~~impact ~~licensing~~ of ~~intellectual property from a third party for $3.5 million in cash for use in developing its next generation technology~~COVID-19, and

•a ~~higher~~$10.8 ~~cost~~million ofimpairment ~~product~~loss ~~revenue,~~on ~~due~~the toCareView ~~increased~~note ~~sales~~receivable recorded in ~~our~~2019 ~~Medical~~with ~~Devices~~no ~~segment~~comparable ~~and~~adjustment ~~costs~~in ~~associated with~~ the ~~amended~~current ~~Novartis~~year ~~supply~~period, ~~agreement~~partially inoffset ~~our Pharmaceutical segment,~~by

•severance aand ~~small~~retention ~~increase~~recorded in the current year period with no corresponding expense in the prior year period, including provisions under our ~~general~~Wind ~~and~~Down ~~administrative~~Retention ~~expenses~~Plan, which, as ~~detailed~~a ~~below~~result of the adoption of the Plan of Liquidation in the first quarter of 2020, ~~and~~accelerated the vesting of outstanding stock awards for employees.

•For ~~a $10.8 million impairment loss on~~ the ~~CareView~~year ~~note~~ended ~~receivable~~December 31, ~~recorded in~~ 2019, compared to ~~the~~December 31, ~~$8.2 million impairment loss on the CareView note receivable recorded in~~ 2018.

70Total operating expenses increased by 24%, or $15.6 million for the year ended December 31, 2019, when compared to the year ended December 31, 2018. The increase was primarily a result of:

~~General~~•an increase in research and ~~administrative~~development expenses ~~for~~in our Medical Devices segment primarily due to the ~~years~~exclusive ~~ended~~licensing ~~December~~of ~~31,~~intellectual ~~2019~~property ~~and~~from ~~2018~~a bythird ~~segment~~party ~~are~~for ~~summarized~~$3.5 million in ~~the~~cash ~~tables~~for ~~below:~~use in developing its next generation technology,

	Year Ended December 31, 2019
(in thousands)	Pharmaceutical		Medical Devices		Income Generating Assets		Total
Compensation	$	1,858	$	4,109	$	16,656	$	22,623
Salaries and Wages (including taxes)	1,306		1,883		6,277		9,466
Bonuses (including accruals)	344		1,260		3,643		5,247
Equity	208		966		6,736		7,910
Asset management	—		—		2,741		2,741
Business development	—		—		1,282		1,282
Accounting and tax services	1,115		759		4,400		6,274
Other professional services	654		403		2,262		3,319
Other	2,645		1,713		5,001		9,359
Total general and administrative	$	6,272	$	6,984	$	32,342	$	45,598

•higher cost of product revenue, due to increased sales in our Medical Devices segment, with the majority of the increase related to increased system sales in 2019,

~~_______________~~•an increase in our general and administrative expenses, as detailed below,

No•an ~~general~~increase ~~and~~in ~~administrative~~our ~~expenses~~sales ~~were~~and ~~attributable~~marketing toexpenses ~~the~~in ~~Strategic~~our ~~Positions~~Medical ~~segment~~Devices ~~for the years ended December 31~~segment, ~~2019 or 2018.~~and

	Year Ended December 31, 2018
(in thousands)	Pharmaceutical		Medical Devices		Income Generating Assets			Total
Compensation	$	1,971	$	3,627	$	10,204		$	15,802
Salaries and Wages (including taxes)	1,506		1,871		6,193			9,570
Bonuses (including accruals)	325		991		(203		)	1,113
Equity	140		765		4,214			5,119
Asset management	—		—		5,386			5,386
Business development	203		—		1,168			1,371
Accounting and tax services	1,528		39		4,288			5,855
Other professional services	3,891		825		1,921			6,637
Other	3,781		1,399		5,189			10,369
Total general and administrative	$	11,374	$	5,890	$	28,156		$	45,420

•a $10.8 million impairment loss on the CareView note receivable recorded in 2019 compared to the $8.2 million impairment loss on the CareView note receivable recorded in 2018, partially offset by

~~Non-operating~~•a ~~Income~~decline ~~(Expense),~~in ~~Net~~the expense recorded for the change in fair value of contingent consideration.

~~A summary of our non-operating expense, net, for the years ended December 31, 2019 and 2018, is presented below:~~27

(Dollars in thousands)	2019			2018			Change from Prior Year %
Interest and other income, net	$	6,030		$	6,065		(1	)%
Interest expense	(11,404		)	(12,157		)	(6	)%
Equity affiliate - change in fair value	36,402			—			N/M
Gain on sale of intangible assets	3,476			—			N/M
Gain on investments	—			764			N/M
Loss on exchange and extinguishment of convertible notes	(8,430		)	—			N/M
Total non-operating income (expense), net	$	26,074		$	(5,328	)	(589	)%

General and administrative expenses for the eight months ended August 31, 2020 and the years ended December 31, 2019 and 2018 by segment are summarized in the tables below:


	Eight Months Ended August 31, 2020
(in thousands)	Medical Devices		Income Generating Assets		Total
Compensation	$	2,464	$	8,633	$	11,097
Salaries and wages (including taxes)	1,666		4,468		6,134
Bonuses (including accruals)	410		1,890		2,300
Equity	388		2,275		2,663
Asset management	—		5,299		5,299
Business development	—		650		650
Accounting and tax services	2,221		4,156		6,377
Other professional services	369		2,365		2,734
Other	1,184		2,354		3,538
Total general and administrative	$	6,238	$	23,457	$	29,695


	Year Ended December 31, 2019
(in thousands)	Medical Devices		Income Generating Assets		Total
Compensation	$	4,109	$	16,656	$	20,765
Salaries and wages (including taxes)	1,883		6,277		8,160
Bonuses (including accruals)	1,260		3,643		4,903
Equity	966		6,736		7,702
Asset management	—		2,041		2,041
Business development	—		1,282		1,282
Accounting and tax services	759		4,400		5,159
Other professional services	403		1,970		2,373
Other	1,713		5,001		6,714
Total general and administrative	$	6,984	$	31,350	$	38,334


	Year Ended December 31, 2018
(in thousands)	Medical Devices		Income Generating Assets		Total
Compensation	$	3,627	$	10,204	$	13,831
Salaries and wages (including taxes)	1,871		6,193		8,064
Bonuses (including accruals)	991		(203)		788
Equity	765		4,214		4,979
Asset management	—		5,040		5,040
Business development	—		1,168		1,168
Accounting and tax services	39		4,288		4,327
Other professional services	825		1,921		2,746
Other	1,399		5,189		6,588
Total general and administrative	$	5,890	$	27,810	$	33,700

Non-operating Expense, Net

A summary of our non-operating expense, net, for the eight months ended August 31, 2020 and the years ended December 31, 2019 and 2018, is presented below:


	Eight Months Ended August 31,		Year Ended December 31,		Change from		Year Ended December 31,		Change from
(Dollars in thousands)	2020		2019		Prior Year %		2018		Prior Year %
Interest and other income, net	$	608	$	6,030	(90)	%	$	6,065	(1)	%
Interest expense	(996)		(11,404)		(91)	%	(12,157)		(6)	%

Gain on sale of intangible assets	—		3,476		N/M		—		N/M

(Loss) gain on investments	(5,576)		—		N/M		764		N/M

Loss on exchange and extinguishment of convertible notes	(606)		(8,430)		(93)	%	—		N/M

Total non-operating expense, net	$	(6,570)	$	(10,328)	(36)	%	$	(5,328)	94	%

___________________

N/M Not meaningful

71For the eight months ended August 31, 2020, compared to the year ended December 31, 2019

Total non-operating expense, net, decreased by 36% from $10.3 million for the year ended December 31, 2019 to $6.6 million for the eight months ended August 31, 2020, primarily due to:

•lower interest expense in conjunction with the extinguishment of a substantial portion of our convertible notes, and

•a larger loss on the exchange and extinguishment of convertible notes in the prior period, partially offset by

•a decrease in interest and other income due to lower cash balances in the current period,

•a decrease in the value of our investment in AEON, and

•a gain recognized in the prior year on the sale of our Direct Flow Medical, Inc. (“Direct Flow Medical”) intangible assets.

For the year ended December 31, 2019, compared to December 31, 2018

Total non-operating ~~income (expense)~~expenses, net, ~~changed~~increased ~~from~~by ~~expense~~94%, ofor $5.30 million for the year ended December 31, ~~2018~~2019, compared to ~~income of $26.1 million for~~ the year ended December 31, ~~2019~~2018. Non-operating expense, ~~primarily~~net, increased due to:

•the anloss ~~increase~~on to the ~~fair~~exchange ~~value~~and extinguishment of ~~our~~a ~~investment~~portion inof ~~common~~our ~~stock~~December ~~and~~2021 ~~warrants~~Notes ofand ~~Evofem~~December ~~subsequent~~2024 toNotes, ~~our~~partially ~~acquisition~~offset ~~earlier in 2019,~~by

• the decrease in interest expense due to the repurchase of some of our convertible notes, and

• the gain recognized in 2019 on the sale of our Direct Flow Medical, Inc. ~~(“Direct Flow Medical”)~~ intangible assets~~, partially offset by~~.

• the losses on the exchange and extinguishment of a portion of our December 2021 Notes and December 2024 Notes,

• the absence of a realized gain on investments in 2019, and

• lower interest and other income.

Income Taxes

Income tax (benefit) ~~expense~~from continuing operations for the eight months ended August 31, 2020 and the years ended December 31, 2019 and 2018 was $(317.0)8 million, $4.4 million and $126.98 million, respectively, which resulted primarily from applying the federal statutory income tax rate to (loss) ~~income~~ before income taxes from continuing operations. The tax rate of 429.12% infor ~~2019~~the eight months ended August 31, 2020 differs from the statutory tax rate of 21% primarily as a result of ~~increases~~net inoperating ~~our~~loss ~~valuation~~carryback ~~allowance~~under the CARES Act. The tax rate of ~~(23~~7.1)2% in 2019 and 17.0% in 2018 differs from the statutory tax rate of 21%, primarily as a result of the ~~foreign~~increase ~~rate~~in ~~differential~~our onvaluation ~~income~~allowance orin ~~loss~~both atyears ~~our~~and, ~~foreign~~for ~~subsidiaries~~2019, ~~and~~the ~~increases~~increase in our ~~valuation~~unrecognized ~~allowance~~tax benefits.

During ~~2019~~2020, the amount of our unrecognized tax benefits increased by $31.45 million. The future impact of the unrecognized tax benefits of $8485.28 million, if recognized, is comprised of $2732.96 million, which would affect the effective tax rate, and $5653.32 million, which would result in adjustments to deferred tax assets and our valuation allowance.

Estimated interest and penalties associated with unrecognized tax benefits increased our income tax expense in the Consolidated Statements of Operations by $1.60 million during the ~~year~~eight months ended ~~December~~ August 31, ~~2019~~2020, ~~and~~ $1.06 million during the year ended December 31, ~~2018.~~2019 ~~In general, our income tax returns are subject to examination by U.S. federal, state~~ and ~~local tax authorities for tax years 2000 forward. Interest and penalties associated with unrecognized tax benefits accrued on the balance sheet were~~ $91.70 million ~~and~~during ~~$8.0~~the ~~million~~year asended of December 31, ~~2019 and~~ 2018~~, respectively~~. WeInterest ~~are currently under income tax examination by the State of California for tax years 2009 through 2015~~ and bypenalties ~~the~~associated ~~Internal~~with Revenue Service for the tax year 2016. The timing of the resolution of income tax examinations is highly uncertain, and the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ materially from the amounts accrued for each year. We do not anticipate any material change to the amount of our unrecognized tax benefit over the next 12 months.

~~Net (Loss) Income per Share~~29

~~Net~~unrecognized ~~(loss)~~tax ~~income~~benefits ~~per~~accrued ~~share~~on ~~for~~ the ~~years~~balance ~~ended~~sheet were $11.2 million, $9.7 million and $8.0 million as of December 31, 2020, 2019 and 2018, isrespectively. ~~presented below:~~

	Year Ended December 31,
	2019			2018
Net (loss) per basic share	$	(0.59	)	$	(0.47	)
Net (loss) per diluted share	$	(0.59	)	$	(0.47	)

The Company’s U.S. federal income tax returns are subject to examination for the tax years 2017 forward, In general, our state and local income tax returns are subject to examination by tax authorities for tax years 2000 forward. We are currently under income tax examination by the State of California for tax years 2009 through 2018. The timing of the resolution of the income tax examination is highly uncertain, and the amount ultimately paid, if any, upon resolution of the issues raised by the taxing authority may differ materially from the amounts accrued for each year. We do not anticipate any material change to the amount of our unrecognized tax benefit over the next 12 months.

Assets held for sale and discontinued operations

The Strategic Positions segment, Pharmaceutical segment and the royalty right assets in the Income Generating Assets segment have been classified as held for sale and reported as discontinued operations. The operating results from discontinued operations are presented separately in the Company’s Consolidated Statements of Operations as discontinued operations. Components of amounts reflected in Loss from discontinued operations are as follows:


	Eight Months Ended August 31,		Year Ended December 31,
(in thousands)	2020		2019		2018
Revenues
Product revenue, net	$	29,479	$	55,093	$	80,796
Royalty rights - change in fair value	(8,804)		(31,042)		85,287
Total revenues	20,675		24,051		166,083
Operating expenses
Cost of product revenue (excluding intangible asset amortization and impairment)	17,576		36,343		34,906
Amortization of intangible assets	389		5,016		14,536
General and administrative	6,105		7,264		11,720
Sales and marketing	257		1,675		10,800
Research and development	—		(41)		196
Impairment of intangible assets	—		22,490		152,330
Change in fair value of anniversary payment and contingent consideration	—		—		(42,000)
Total operating expenses	24,327		72,747		182,488
Operating loss from discontinued operations	(3,652)		(48,696)		(16,405)
Non-operating expense (income), net
Equity affiliate - change in fair value	(25,365)		36,402		—
Loss on classification as held for sale	(28,904)		—		—
Total non-operating expense (income), net	(54,269)		36,402		—
Loss from discontinued operations before income taxes	(57,921)		(12,294)		(16,405)
Income tax (benefit) expense from discontinued operations	(23,006)		1,303		19,689
Loss from discontinued operations	$	(34,915)	$	(13,597)	$	(36,094)

The following tables provides a summary of activity with respect to our royalty rights assets in discontinued operations for the eight months ended August 31, 2020 and the year ended December 31, 2019:


	Eight Months Ended August 31, 2020
			Change in
(in thousands)	Cash Royalties		Fair Value		Total
Assertio	$	29,926	$	(18,209)	$	11,717
VB	612		(9,408)		(8,796)
U-M	4,355		(2,948)		1,407

AcelRx	194		(12,952)		(12,758)

KYBELLA	42		(416)		(374)
	$	35,129	$	(43,933)	$	(8,804)


	Year Ended December 31, 2019
			Change in
(in thousands)	Cash Royalties		Fair Value		Total
Assertio	$	72,225	$	(45,699)	$	26,526
VB	966		(518)		448
U-M	5,664		(5,197)		467

AcelRx	307		(57,428)		(57,121)
KYBELLA	110		(1,472)		(1,362)
	$	79,272	$	(110,314)	$	(31,042)

The adjustment to the fair value of the AcelRx royalty asset in the second quarter of 2019 was due to the slower than expected adoption of Zalviso® since its initial launch relative to our estimates and the increased variance noted between our forecast model and actual results in the second quarter of 2019. We engaged a third-party expert in the second quarter of 2019 to reassess the market and expectations for the product. Key findings from the third-party study included: the post-surgical PCA (Patient-Controlled Analgesia) market being smaller than previously forecasted; the higher price of the product relative to alternative therapies, the product not being used as a replacement for systemic opioids and the design of the delivery device, which is pre-filled for up to three days of treatment, which limited its use for procedures with anticipated shorter recovery times.

The adjustment to the fair value of the Assertio royalty asset in the fourth quarter of 2019 was due to a decrease in the sales forecast for the Assertio products. We engaged a third-party expert in the fourth quarter of 2019 to reassess the market and expectations for the royalty asset. Key findings from the third-party study included: an anticipated decrease in the Glumetza net sales forecast due to an accelerated shift in the channel mix resulting in a substantial decline in net selling prices, particularly in the fourth quarter of 2019 and beyond, as previously announced by Bausch Health and the delayed launch dates of the extended release products in the Assertio royalty asset portfolio outside of the United States.

Revenue from our Pharmaceutical segment for the eight months ended August 31, 2020 was $29.5 million, a decrease of 46% when compared to the year ended December 31, 2019. All revenues from our Pharmaceutical segment were derived from sales of the Noden Products. The decrease in revenue from our Pharmaceutical segment reflects a shorter measurement period as well as lower net revenues in the United States and the rest of the world. The decrease in revenue from our Pharmaceutical segment in the United States for the eight months ended August 31, 2020 reflects the introduction of our authorized generic of Tekturna and a third-party generic of aliskiren late in the first quarter of 2019. The decrease in revenue for the rest of the world is due to lower sales volume of Rasilez in certain territories.

Revenue from our Pharmaceutical segment for the year ended December 31, 2019 was $55.1 million, a decrease of 32% when compared to the same period in 2018. The decrease in revenue from our Pharmaceutical segment reflects lower net revenues in the United States and the rest of the world. In particular, the decrease in revenue from our Pharmaceutical segment in the United States for the year ended December 31, 2019 reflects the introduction of our authorized generic form of Tekturna and a third-party generic form of aliskiren during the year ended December 31, 2019. The decrease in revenue for the rest of the world is due to lower sales volume of Rasilez in certain territories. This increase in cost of goods sold, compared to the prior year is due to the higher percentage of authorized generic sales in the current period and costs associated with the amended Novartis supply

agreement. Sales and marketing expenses have decreased substantially while the portion of general and administrative expenses attributable to the Pharmaceutical segment decreased as well. Intangible assets amortization expense decreased after Noden’s intangible assets were impaired at June 30, 2018.

Expenses decreased in our Pharmaceutical segment by 70%, or $50.0 million for the eight months ended August 31, 2020, when compared to the year ended December 31, 2019. The decrease was primarily a result of:

•a shorter measurement period in the current year,

•lower cost of sales due to decreased sales in the current year period,

•lower amortization expense for the Noden intangible assets in 2020 resulting from the accounting for discontinued operations, and

•lower sales and marketing expenses.

Expenses decreased in our Pharmaceutical segment by 61%, or $110.4 million for the year ended December 31, 2019, when compared to the year ended December 31, 2018. The decrease was primarily a result of:

•a $22.5 million impairment of the Noden intangible asset in the current year compared to a $152.3 million impairment in 2018,

•lower amortization expense for the Noden intangible assets in 2019 resulting from the impairment recorded in 2018 due to the increased probability of a third-party generic form of aliskiren being launched in the United States,

•lower sales and marketing expenses reflecting the cost savings from the change in our marketing strategy to a non-personal promotion strategy for the Noden Products in anticipation of a launch of a third-party generic form of aliskiren. This non-personal promotion strategy was subsequently discontinued upon the launch of our authorized generic form of Tekturna in the first quarter of 2019, partially offset by,

•the favorable adjustment to the Noden acquisition related contingent consideration, which was first reduced in the second quarter of 2018 prompted by the increased probability of a third-party generic form of aliskiren being launched in the United States and subsequently eliminated in the fourth quarter of 2018 when the launch was imminent.

Net Loss per Share

Net loss per share for the eight months ended August 31, 2020 and the years ended December 31, 2019 and 2018, is presented below:


	Eight Months Ended August 31,		Year Ended December 31,
	2020		2019		2018

Net loss per share - basic:
Continuing operations	$	(0.36)	$	(0.48)	$	(0.22)
Discontinued operations	$	(0.30)	$	(0.11)	$	(0.25)
Net loss attributable to PDL’s shareholders per basic share	$	(0.66)	$	(0.59)	$	(0.47)

Net loss per share - diluted:
Continuing operations	$	(0.36)	$	(0.48)	$	(0.22)
Discontinued operations	$	(0.30)	$	(0.11)	$	(0.25)
Net loss attributable to PDL’s shareholders per diluted share	$	(0.66)	$	(0.59)	$	(0.47)

Liquidity and Capital Resources

WeIn ~~have~~February ~~previously~~2020, ~~financed~~ our ~~operations~~Board ~~primarily~~approved ~~through~~the ~~royalty~~Plan ~~and~~of ~~other~~Liquidation. ~~license-related~~In ~~revenues~~August 2020, ~~public~~we ~~and~~received ~~private~~stockholder ~~placements~~approval ofto ~~debt~~dissolve ~~and~~our ~~equity~~Company ~~securities,~~under ~~interest~~Delaware ~~income~~law onand ~~invested~~in ~~capital~~January ~~and~~2021 ~~cash~~we ~~generated~~filed ~~from~~a ~~pharmaceutical~~certificate ~~and~~of ~~medical~~dissolution ~~device~~in ~~product sales~~Delaware. WeOur ~~plan~~liquidity toand ~~continue~~capital toresource ~~finance~~needs ~~our~~in ~~operations~~dissolution inprimarily ~~the~~consist ~~near~~of ~~term~~managing ~~primarily~~the ~~through~~successful ~~royalty~~wind ~~and~~down ~~other~~of ~~license-related~~our ~~revenues~~business and ~~cash~~distributing ~~generated~~the ~~from~~remaining ~~product~~net ~~sales.~~proceeds to our stockholders,

InWe ~~September~~have ~~2019,~~previously wefinanced ~~engaged~~our ~~financial~~operations ~~and~~primarily ~~legal~~through ~~advisors~~royalty and ~~initiated~~other alicense-related ~~review~~revenues, ofpublic ~~our~~and ~~strategy.~~private Inplacements ~~December~~of ~~2019,~~debt weand ~~disclosed~~equity ~~that~~securities, weinterest ~~planned~~income toon ~~halt~~invested ~~the~~capital ~~execution~~and ofcash ~~our~~generated ~~growth~~from ~~strategy,~~pharmaceutical ~~cease~~and ~~making~~medical ~~additional~~device ~~strategic~~product ~~transactions~~sales. ~~and~~During ~~investments~~2020, ~~and~~we ~~pursue~~also agenerated ~~formal~~cash ~~process~~from ~~to unlock~~ the ~~value~~sale of ~~our~~several ~~portfolio by monetizing our~~ assets ~~and~~in ~~ultimately returning net proceeds to~~ our ~~stockholders. Over the subsequent months~~portfolio, including our ~~board of directors and management analyzed, together with its~~

7232

~~outside~~Pharmaceutical ~~financial~~segment and ~~legal~~certain ~~advisors,~~royalty ~~how~~rights ~~to best capture value pursuant to its monetization strategy and best return the significant intrinsic value of the high-quality~~ assets included in ~~its~~our ~~portfolio~~Income toGenerating ~~the~~Assets’ ~~stockholders~~segment. InWe ~~February of 2020, the board of directors approved a~~ plan ~~of complete liquidation of our assets and passed a resolution~~ to ~~seek~~finance stockholder approval to dissolve the Company under Delaware law at its next annual meeting of the stockholders. In the event that the Board concludes that the whole company sale process is unlikely to maximize the value that can be returned to the stockholders from our ~~monetization~~operations ~~process, we would, if approved by the stockholders, file a certificate of dissolution~~ in ~~Delaware and proceed to wind-down and dissolve~~ the ~~Company~~near interm ~~accordance~~primarily ~~with~~through ~~Delaware~~existing ~~law. Pursuant to its monetization strategy~~cash, wefrom ~~are~~our ~~exploring~~remaining aroyalty ~~variety~~rights ofassets ~~potential~~until ~~transactions,~~such ~~including a whole company sale, divestiture of~~ assets, ~~spin-offs~~are ofsold ~~operating entities, merger opportunities~~ or aplaced ~~combination thereof. In addition, we have analyzed, and continue to analyze, the optimal mechanisms for returning value to stockholders~~ in a ~~tax-efficient~~liquidating ~~manner,~~trust ~~including~~and ~~via~~from ~~share~~additional ~~repurchases,~~ cash ~~dividends~~proceeds ~~and~~from ~~other~~the ~~distributions~~sale of ~~assets.~~one Weor ~~have~~more not set a definitive timeline and intend to pursue monetization in a disciplined and cost-effective manner to maximize returns to stockholders. We recognize, however, that accelerating the timeline, while continuing to optimize asset value, could increase returns to stockholders due to reduced general and administrative expenses as well as provide faster returns to stockholders. While we cannot provide a definitive timeline for the monetization and wind-down process, we are targeting the end of ~~2020 for completing~~ the ~~monetization~~assets ofin ~~its~~our ~~key assets~~portfolio.

AsIn ~~a result of this monetization strategy~~addition, we expect to generate additional cash from the ~~sale~~recovery ofunder ~~one~~the orCARES ~~more~~Act of ~~the~~previous ~~assets~~taxes inpaid ~~our~~and ~~portfolio~~from ~~with~~ the ~~intention~~collection of ~~managing~~additional ~~the~~amounts ~~successful~~owed ~~wind~~from ~~down~~prior ofassets ~~our~~sales, ~~business~~primarily ~~and distributing~~ the ~~remaining~~sale ~~net~~of ~~proceeds to~~ our ~~stockholders~~Pharmaceutical segment.

~~Our~~In ~~future~~September ~~capital~~2020, ~~requirements~~we ~~are~~sold ~~difficult~~our tointerests ~~forecast~~in Noden DAC and ~~will~~Noden ~~depend~~USA ~~upon~~which ~~many~~comprised ~~factors~~our Pharmaceutical segment. Upon closing, ~~including~~we ~~the~~were ~~type~~released of ~~distributions~~our weguarantee ~~make,~~to Novartis under Noden’s supply agreement. Under the ~~amount~~terms of ~~net~~the ~~cash~~sale ~~proceeds~~of our interests in Noden DAC and Noden USA, we ~~receive~~received proceeds of $12.2 million on September 9, ~~after~~2020, the closing date of the transaction. ~~costs,~~We ~~and~~are also entitled to recover $0.5 million related to VAT for inventory purchases from Novartis. The agreement provides for an additional $33.0 million to be paid to the ~~time~~us itin ~~takes~~twelve equal quarterly installments from January 2021 to ~~monetize~~October ~~our~~2023, ~~assets~~of which the first installment has been received. ~~Our~~An ~~future~~additional ~~capital~~$3.9 ~~requirements~~million will be paid in four equal quarterly installments from January 2023 to October 2023. The agreement also ~~depend~~provides onfor the ~~amount~~potential for additional contingent payments to us. We are entitled to receive $2.5 million upon Stanley Capital or any of ~~common~~its ~~stock~~affiliates ~~and~~entering ~~convertible~~into ~~notes~~a webinding ~~repurchase~~agreement ~~under~~for ~~our~~a ~~repurchase~~specified ~~program,~~transaction ~~both~~within one year of ~~which~~the weclosing ~~expect~~date. We are also entitled to ~~pursue~~50% asof ~~part~~a license fee from a third party distributor within 10 days of ~~our~~receipt ~~monetization~~by ~~strategy~~Noden.

~~The~~Our ~~general~~future ~~cash~~capital ~~needs~~requirements ofprimarily ~~our~~relate ~~Medical~~to ~~Devices~~the costs to wind down the Company, ~~Strategic~~including ~~Positions~~expenses to manage the remaining business, ~~Pharmaceutical~~such as salaries and ~~Income~~other ~~Generating~~employee ~~Assets~~compensation, ~~segments~~rental ~~can~~payments, ~~vary~~insurance, ~~significantly~~and taxes, contractual obligations to current and former employees (e.g., true-up payments to holders of stock options that vested prior to the filing for dissolution) and other legal, accounting, financial advisory and consultant fees, which will reduce any amounts available for distribution to our stockholders.

•On InDecember ~~our~~9, ~~Medical~~2019, ~~Devices~~we ~~segment,~~announced that our Board authorized the ~~primary~~repurchase ~~factor~~of ~~determining~~issued ~~cash~~and ~~needs~~outstanding isshares ~~the~~of ~~funding~~our common stock and convertible notes up to an aggregate value of ~~operations~~$200.0 million pursuant to a share repurchase program. On December 16, ~~which~~2019, we ~~expect~~announced that our Board approved a $75.0 million increase to ~~continue~~this repurchase program. Repurchases under this program were eligible to ~~expand~~be asmade from time to time in the ~~business~~open ~~grows,~~market or in privately negotiated transactions and ~~enhancing~~funded from our ~~product~~working ~~offerings~~capital. ~~through~~Common stock and convertible note repurchases were also eligible to be made under a trading plan under Rule 10b5-1, which would permit shares and convertible notes to be repurchased when we might otherwise be precluded from doing so because of self-imposed trading blackout periods or other regulatory restrictions. The 10b5-1 plan was terminated on May 31, 2020 in consideration of the ~~research~~impact and ~~development~~uncertainty introduced by the COVID-19 pandemic on our monetization process and no common stock was repurchased after this date. All shares of common stock repurchased under our ~~next~~repurchase ~~generation~~program ~~device~~were ~~which~~retired and restored to authorized but unissued shares of common stock. All convertible notes repurchased under the program were retired as will ~~integrate~~any aadditional ~~femtosecond~~convertible ~~laser~~notes ~~and~~that amay ~~phacoemulsification~~be ~~system~~repurchased inprior ato ~~single,~~their ~~compact~~scheduled ~~workstation~~maturity on December 1, 2021.

•Our Indebt service obligations consist of interest payments and repayment of our ~~Pharmaceutical~~December ~~segment~~2021 Notes. As of December 31, ~~cash~~2020 ~~needs~~approximately ~~tend~~$2.3 million in aggregate principal amount of December 2021 Notes outstanding of which $1.9 million par value was repurchased prior to beDecember ~~driven~~31, ~~primarily~~2021 bybut ~~material~~pending ~~purchases~~settlement. We may continue to repurchase the remaining outstanding December 2021 Notes with cash on hand.

•We ~~The~~had cash ~~needs~~and cash equivalents in the aggregate of ~~our~~$126.8 ~~Income~~million ~~Generating~~and ~~Assets~~$169.0 ~~segment~~million ~~tend~~at December 31, 2020 and 2019, respectively, representing a decrease of $42.2 million. The decrease was primarily attributable to bethe ~~driven~~repurchase byof ~~legal~~the December 2021 Notes and ~~professional~~December ~~service~~2024 ~~fees~~Notes ~~required~~and ~~for~~the ~~operating~~repurchase aof ~~publicly~~stock, ~~traded~~partially ~~company~~offset by cash received from royalties, ascash ~~well~~received asfrom the ~~funding~~sale of ~~potential~~the ~~repurchases~~Wellstat receivable (including the subsequent sale of ~~our~~the ~~common~~Settlement ~~stock~~Agreement) and ~~convertible~~the ~~notes~~sale of the Noden entities and certain royalty rights assets.

•We ~~The~~believe ~~current~~that cash ~~needs~~on ~~for~~hand and cash generated from the above-described sources, net of operating expenses, debt service and income taxes, will be sufficient to fund our ~~Strategic~~wind-down ~~Positions~~operations ~~segment~~until all net proceeds are ~~insignificant~~distributed to our stockholders.

On December 9, 2019, we announced that our board of directors authorized the repurchase of issued and outstanding shares of our common stock and convertible notes up to an aggregate value of $200.0 million pursuant to a share repurchase program. On December 16, 2019, we announced that our board of directors approved a $75.0 million increase to this repurchase program. Repurchases under the new repurchase program will be made from time to time in the open market or in privately negotiated transactions and funded from our working capital. The amount and timing of such repurchases will depend upon the price and availability of shares or convertible notes, general market conditions and the availability of cash. Common stock and convertible note repurchases may also be made under a trading plan under Rule 10b5-1, which would permit shares and convertible notes to be repurchased when we might otherwise be precluded from doing so because of self-imposed trading blackout periods or other regulatory restrictions. All shares of common stock repurchased under our repurchase program are expected to be retired and restored to authorized but unissued shares of common stock. All convertible notes repurchased under the program will be retired. As of December 31, 2019, we had repurchased $44.8 million in aggregate principal amount of December 2021 Notes and $74.5 million in aggregate principal amount of December 2024 Notes under the board authorized program for aggregate consideration consisting of a cash payment of $97.9 million and the issuance of 13.4 million shares of our common stock. Pursuant to the convertible note repurchase transactions and the unwinding of a proportional amount of the capped call transaction entered into for the notes, we also repurchased 3.2 million shares of our common stock under this program directly from our capped call counterparty. This repurchase program may be suspended at any time without notice.

Our debt service obligations consists of interest payments and repayment of our December 2021 Notes and December 2024 Notes. We have and may continue to repurchase the remaining outstanding convertible notes, which could adversely affect the amount or timing of any distributions to our stockholders. We expect to finance such repurchases with cash on hand.

We had cash and cash equivalents in the aggregate of $193.5 million and $394.6 million at December 31, 2019 and 2018, respectively, representing a decrease of $201.1 million. The decrease was primarily attributable to the repurchase of the December 2021 Notes and December 2024 Notes for $97.9 million, the repurchase of stock of $86.9 million, the investment in Evofem of $60.0 million and cash used in operating activities of $32.4 million, partially offset by cash received from royalties of $79.3 million.

We believe that cash on hand and cash generated from future revenues and from asset sales, net of operating expenses, debt service and income taxes, will be sufficient to fund our operations until all net proceeds are distributed to our stockholders. Our continued success is dependent on our ability to execute on our planned strategy to monetize our assets, in order to return capital to our stockholders and service our remaining debt.

Off-Balance Sheet Arrangements

As of December 31, ~~2019~~2020, we did not have any off-balance sheet arrangements, as defined under SEC Regulation S-K Item 303(a)(4)(ii).

Contractual Obligations

The following table summarizes our contractual obligations and commercial commitments as of December 31, ~~2019~~2020:

	~~Payments Due by Period~~		Payments Due by Period
(in thousands)	~~Less than 1 year~~		Less than 1-3 ~~years~~year		~~3-5 years~~		1-3 years		~~Thereafter~~		~~Total~~3-5 years		Thereafter		Total
Operating leases 1	$	~~958~~	$	~~776~~37	$	—	$	38	$	—	$	~~1,734~~—	$	—	$	75
Convertible notes 2	~~843~~		~~20,329~~412		~~13,636~~		—		—		~~34,808~~—		—		412
Inventory 3	49,419		22,639		—				—		72,058
Total contractual obligations			$	449			$	38			$	—	$	—	$	487
Total contractual obligations	$	51,220	$	43,744	$	13,636			$	—	$	108,600

_____________________________

1 Amounts represent the lease for our ~~headquarters~~offices in ~~Incline Village~~Reno, Nevada, ~~the~~and ~~lease~~do ~~for~~not ~~the~~include ~~Noden~~estimated ~~Pharma~~remaining ~~DAC~~lease ~~office~~payments inguaranteed ~~Dublin,~~under ~~Ireland,~~ the ~~lease~~Redwood ~~for~~City ~~the~~lease ~~LENSAR~~discussed ~~office and manufacturing facility in Orlando, Florida and operating leases for office equipment~~below.

2 ~~Amounts~~Amount ~~represent~~represents estimated remaining principal and cash interest payments due on the December 2021 Notes and ~~the~~excludes ~~December~~amounts ~~2024~~paid ~~Notes~~before ~~and~~December ~~accretion~~31, ~~interest~~2020 onfor ~~the~~an ~~December~~unsettled ~~2024~~trade ~~Notes~~totaling $1.9 million.

Our liability for uncertain tax positions was $35.3 ~~Consist~~million as of ~~minimum~~December 31, ~~purchase~~2020, ~~obligation~~all ~~under~~of ~~the~~which ~~Novartis~~has ~~supply~~been ~~agreement~~excluded ~~for~~from ~~API~~the ~~and~~table ~~bulk~~above ~~tablets~~due ~~and~~to ~~inventory~~the ~~components~~uncertainty ~~for~~in ~~LENSAR,~~the astiming ~~discussed~~of inthe ~~“Purchase~~settlement ~~Obligations”~~of ~~below~~these positions.

InThe ~~addition~~above ~~to amounts in the~~ table ~~above,~~excludes weany ~~are~~ contractually ~~obligated~~committed towind ~~pay~~down ~~$1.0~~payments ~~million~~due to astock ~~third~~option ~~party~~holders ~~upon~~discussed ~~achievement~~under ofGuarantees ~~product~~below ~~sales~~as ~~milestones~~the ~~for~~amount ~~KYBELLA,~~and ~~which~~timing weof dosuch ~~not~~payments, ~~believe~~if ~~are probable. As such~~any, ~~this contingent payment~~ is ~~not recorded on our Consolidated Balance Sheets~~uncertain. ~~See “Kybella Royalty Agreement” below for further discussion.~~

Our liability for uncertain tax positions was $37.6 million as of December 31, 2019, all of which has been excluded from the table above due to the uncertainty in the timing of the settlement of these positions.

Purchase Obligations

~~Noden~~After ~~DAC and Novartis entered into a supply agreement pursuant to which Novartis will manufacture and supply to Noden DAC a bulk tableted form of~~ the ~~Noden~~sale ~~Products and API. In May 2019, Noden DAC and Novartis entered into an amended supply agreement pursuant to which Novartis will supply to Noden DAC a bulk tableted form~~ of ~~the~~ Noden ~~Products through 2020~~ and ~~API through June 2021. The supply agreement may be terminated by either party for material breach that remains uncured for a specified time period. Under~~ the ~~terms~~spin-off of ~~the amended supply agreement~~LENSAR, ~~Noden~~we ~~DAC~~no islonger ~~committed~~have toany purchase ~~certain~~obligations ~~quantities of bulk product~~ and ~~API~~were ~~that~~released ~~would~~from ~~amount~~all ~~to approximately $61.7 million through June 2021,~~ of ~~which~~our ~~$39.8~~guarantees ~~million~~for ispurchase ~~committed over the next twelve months, which are guaranteed by us~~obligations. While the supply agreement provides that the parties will agree to reasonable accommodations with respect to changes in firm orders, we expect that Noden DAC will meet the requirements of the supply agreement, unless otherwise negotiated.

LENSAR entered into various supply agreements for the manufacture and supply of certain components. The supply agreements commit LENSAR to a minimum purchase obligation of approximately $10.4 million over the next twenty-four months of which $9.6 million is due in the next 12 months, a portion of which are guaranteed by us. LENSAR expects to meet these requirements.

Kybella Royalty Agreement

On July 8, 2016, we entered into a royalty purchase and sales agreement with an individual, whereby we acquired that individual’s rights to receive certain royalties on sales of KYBELLA by Allergan plc, in exchange for a $9.5 million cash payment and up to a $1.0 million future milestone payment based upon product sales targets.

Guarantees

Redwood City Lease Guarantee

In connection with the spin-off of Facet in December 2008, we entered into amendments to the leases for our former facilities in Redwood City, California, under which Facet was added as a co-tenant and a Co-Tenancy Agreement, under which Facet agreed to indemnify us for all matters related to the leases attributable to the period after the spin-off date. In April 2010, Abbott Laboratories acquired Facet and later renamed the entity AbbVie Biotherapeutics, Inc. (“AbbVie”). If AbbVie were to default under its lease obligations, we could be held liable by the landlord as a co-tenant, and, thus, we have in substance guaranteed the payments under the lease agreements for the Redwood City facilities. As of December 31, ~~2019~~2020, the total lease payments for the duration of the guarantee, which runs through December 2021, are approximately $2211.63 million. For additional information regarding our lease guarantee, see Note 1516, Commitments and Contingencies.

~~Escrow~~Wind ~~Receivable~~Down Payments to Stock Option Holders

On ~~September~~December 21, ~~2017~~2019, wethe ~~entered~~Compensation ~~into~~Committee anof ~~agreement~~the (Board adopted a Wind Down Retention Plan in which our executive officers and other employees who are participants in the ~~“kaléo~~Company’s ~~Note~~Severance ~~Sale~~Plan ~~Agreement”)~~are eligible to participate. The Wind Down Retention Plan provides for equitable adjustments to outstanding stock options held by participants to ensure such participants realize the same benefits provided to shareholders in the event one or more cash or other distributions become payable to shareholders. Consistent with ~~MAM-Kangaroo~~the ~~Lender~~existing terms of the Equity Plan, ~~LLC~~in the event one or more cash or other distributions are paid to shareholders, the exercise price of outstanding stock options will be reduced on a ~~Delaware~~dollar-for-dollar ~~limited~~basis ~~liability~~to ~~company~~reflect (the ~~“kaléo~~per ~~Purchaser”~~share value of such cash or other distributions. In the event that the Company declares cash or other distributions that, in the aggregate, exceed the difference between the exercise price of an outstanding stock option and the par value of the underlying shares ($0.01), ~~pursuant~~the holder of such stock option will be entitled to ~~which~~receive wefrom ~~sold~~the ~~our~~Company ~~entire~~a ~~interest~~cash payment in an amount equal to the ~~notes~~number ~~issued~~of shares subject to such stock option multiplied by ~~Accel~~the ~~300,~~per ~~LLC~~share amount of the cash or other distribution that exceeds the difference between exercise price of the outstanding option and the par value of the underlying shares (a “~~Accel~~true-up ~~300~~payment”). ~~pursuant~~As toof ~~that~~January ~~certain~~4, ~~Indenture~~2021, ~~dated~~the asdate ofwe ~~April~~filed 1our Certificate of Dissolution, ~~2014~~the Company was unable to issue stock for any purpose, byincluding ~~and~~to ~~between~~cover ~~Accel~~the ~~300~~exercise of employee options, and Uas a result such options became unexercisable.S. ~~Bank~~For ~~National~~a ~~Association,~~full asdiscussion regarding the ~~current~~Wind-Down ~~trustee~~Retention ofPlan, ~~the~~including ~~notes~~benefits ~~described~~conferred ~~therein~~on ~~(the~~employee ~~“kaléo~~option ~~Note”)~~holders post-dissolution, please see Item 11.

Pursuant to the kaléo Note Sale Agreement, the kaléo Purchaser paid to us an amount equal to 100% of the then outstanding principal, a premium of 1% of such amount and accrued interest under the kaléo Notes, for an aggregate cash purchase price of $141.7 million.34

The aggregate purchase price of $1.4 million was deposited into an escrow account as a potential payment against certain contingencies for 18 months. The escrow period ended on March 20, 2019 and the escrow agent released the entire $1.4 million to us.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Sensitive Financial Instruments

Our exposure to market risk for changes in interest rates relates primarily to our excess cash investments and our convertible notes.

Our excess cash investments consist of Rule 2a-7 money market funds and had a fair value of approximately $~~131~~51.32 million at December 31, ~~2019~~2020 and $~~226~~131.73 million at December 31, ~~2018~~2019. Due to the short duration of these investments, with a maximum weighted average maturity of 60 days or less, if market interest rates were to increase or decrease by 1%, there would be no material impact on the fair value of our portfolio.

~~The~~As ~~aggregate~~of ~~fair~~December ~~value~~31, of2020, our convertible notes ~~was~~consisted ~~estimated~~of ~~to be~~ $332.93 million atin principal of the December ~~31,~~ ~~2019~~2021 Notes with an annual fixed interest rate of 2.75%, ~~and~~of which $~~151~~1.49 million atpar value was acquired before December 31, ~~2018,~~2020 ~~based~~in ona ~~available~~transaction ~~pricing~~that ~~information~~remained unsettled at year end. The aggregate fair value of our convertible notes was estimated to be $33.9 million at December 31, 2019. At December 31, 2019 our convertible notes consisted of the December 2021 Notes, and the December 2024 Notes,. ~~both~~The ofDecember ~~which~~2024 ~~have~~Notes ahad an annual fixed interest rate of 2.75%, and ~~also for the December 2024 Notes,~~ a principal accretion rate of 2.375% per year. ~~As of December 31, 2018, our convertible notes consisted of the December 2021 Notes.~~ Changes in interest rates do not affect interest expense on fixed rate debt. While changes in interest rates do not impact the amount of interest we pay, these obligations are subject to interest rate risk because changes in interest rates would affect the fair values of fixed rate debt.

7535

The following table presents information about our material debt obligation that is sensitive to changes in interest rates. The table presents principal amounts and related interest rates by year of expected maturity for our debt obligations or the earliest year in which the holders may put the debt to us. The convertible notes may be converted to our common stock prior to the maturity date under certain conditions.

(in thousands)	2020			2021			2022			2023			2024			Total		Fair Value
Convertible notes
Fixed Rate	$	—		$	19,170		$	—		$	—		$	11,500		$	30,670	$	33,931	(1)
Average Interest Rate	3.64		%	3.69		%	5.13		%	5.13		%	5.13		%

_________________________

(1) The fair value of the remaining payments under our December 2021 Notes and December 2024 Notes was estimated based on the trading value of these notes at December 31, 2019.

Equity Price Risk

Our investments in equity securities expose us to equity price risk. Equity price risk results from fluctuations in quoted market prices for equity securities and instruments that derive their value from such securities. The fair value of our investments that are subject to equity price risk as of December 31, 2019 was approximately $96.4 million. The impact of a 10% decrease in the quoted market price related to these investments would have been approximately a $10.0 million decrease to pre-tax income. Due to equity securities being measured at fair value with net unrealized gains and losses from changes in the fair value recognized in earnings, fluctuations in quoted market prices for equity securities could have a material effect on our results of operations and our financial position.

Foreign Currency Sensitive Financial Instruments

Our international operations are affected by fluctuations in the value of the U.S. dollar as compared to foreign currencies, predominantly the euro. Increases and decreases in our international product sales from movements in foreign currency exchange rates are offset partially by the corresponding increases or decreases in our international operating expenses. Our revenues, expenses and cash flows may fluctuate due to changes in foreign currency exchange rates and are subject to foreign currency exchange risk. While foreign currency conversion terms vary by agreement, generally most agreements require that royalties first be calculated in the currency of sale and then converted into U.S. dollars using the average daily exchange rates for that currency for a specified period at the end of the calendar quarter. Similarly, sales outside of the United States of our Noden Products as well as a portion of the cash balances and expenses of our Irish subsidiary are denominated in currencies other than the U.S. dollar. Accordingly, when the U.S. dollar weakens against other currencies, the converted amount is greater than it would have been had the U.S. dollar not weakened and when the U.S. dollar strengthens against other currencies, the converted amount is less.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Consolidated Financial Statements

Item	~~Page~~	Page
Report of Independent Registered Public Accounting Firm	78	38
Consolidated Balance Sheets at December 31, 2019 and 2018	80
Statement of Net Assets in Liquidation as of December 31, 2020		40
Consolidated Statements of Operations for the years ended December 31, 2019, 2018 and 2017	81
Consolidated Balance Sheet at December 31, 2019		41
Consolidated Statements of Comprehensive (Loss) Income for the years ended December 31, 2019, 2018 and 2017	82
Statement of Changes in Net Assets in Liquidation for the four months ended December 31, 2020		42
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2019, 2018 and 2017	83
Consolidated Statements of Operations for the eight months ended August 31, 2020, and the years ended December 31, 2019 and 2018		43
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017	84
Consolidated Statements of Comprehensive Loss for the eight months ended August 31, 2020, and the years ended December 31, 2019 and 2018		44
Notes to Consolidated Financial Statements	86
Consolidated Statements of Stockholders’ Equity for the eight months ended August 31, 2020, and the years ended December 31, 2019 and 2018		45
Consolidated Statements of Cash Flows for the eight months ended August 31, 2020, and the years ended December 31, 2019 and 2018		46
Notes to Consolidated Financial Statements		48

7736

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of PDL BioPharma, Inc.

~~Opinions~~Opinion on the Financial Statements ~~and Internal Control over Financial Reporting~~

We have audited the accompanying consolidated balance ~~sheets~~sheet of PDL BioPharma, Inc. and its subsidiaries (the “Company”) as of December 31, 2019 ~~and 2018~~, and the related consolidated statements of operations, of comprehensive (loss) income, of stockholders’ equity and of cash flows for each of the ~~three~~two years in the period ended December 31, 2019 and for the period from January 1, 2020 to August 31, 2020, and audited the consolidated statement of net assets in liquidation as of December 31, 2020, and the related consolidated statement of changes in net assets in liquidation for the period from September 1, 2020 to December 31, 2020, including the related notes (collectively referred to as the “consolidated financial statements”). WeIn ~~also~~our ~~have~~opinion, ~~audited~~ the ~~Company's~~consolidated ~~internal~~financial ~~control~~statements ~~over~~present fairly, in all material respects, the financial ~~reporting~~position of the Company as of December 31, 2019, ~~based~~the onresults ~~criteria~~of ~~established~~its operations and its cash flows for each of the two years in ~~Internal~~the ~~Control~~period -ended ~~Integrated~~December ~~Framework~~31, ~~(2013)~~2019 ~~issued~~and byfor the ~~Committee~~period from January 1, 2020 to August 31, 2020, its net assets in liquidation as of ~~Sponsoring~~December ~~Organizations~~31, 2020, and the changes in its net assets in liquidation for the period from September 1, 2020 to December 31, 2020 in conformity with accounting principles generally accepted in the United States of America applied on the ~~Treadway~~bases ~~Commission~~described ~~(COSO)~~below.

InBasis ~~our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position~~ of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.Accounting

~~Basis~~As ~~for~~discussed ~~Opinions~~in Notes 2 and 3 to the consolidated financial statements, the stockholders of the Company approved a plan of liquidation on August 19, 2020, and the Company determined liquidation is imminent. As a result, the Company changed its basis of accounting on September 1, 2020 from the going concern basis to a liquidation basis. This matter is also discussed below as a critical audit matter.

~~The~~Basis ~~Company's management is responsible~~ for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.Opinion

WeThese ~~conducted~~consolidated ~~our~~financial ~~audits~~statements inare ~~accordance with~~ the ~~standards~~responsibility of the ~~PCAOB~~Company’s management. ~~Those~~Our ~~standards~~responsibility ~~require~~is ~~that~~to weexpress ~~plan~~an ~~and~~opinion ~~perform~~on the Company’s consolidated financial statements based on our audits. toWe ~~obtain~~are ~~reasonable~~a ~~assurance~~public ~~about~~accounting ~~whether~~firm registered with the ~~consolidated~~Public ~~financial~~Company ~~statements~~Accounting Oversight Board (United States) (PCAOB) and are ~~free~~required ofto ~~material~~be ~~misstatement,~~independent ~~whether~~with ~~due~~respect to ~~error~~the orCompany ~~fraud,~~in accordance with the U.S. federal securities laws and ~~whether~~the ~~effective~~applicable ~~internal~~rules ~~control~~and ~~over~~regulations ~~financial~~of ~~reporting~~the ~~was~~Securities ~~maintained~~and inExchange ~~all~~Commission ~~material~~and ~~respects~~the PCAOB.

~~Our~~We conducted our audits of ~~the~~these consolidated financial statements ~~included~~in ~~performing~~accordance ~~procedures~~with ~~to assess~~ the ~~risks~~standards of ~~material misstatement of~~ the ~~consolidated~~PCAOB. ~~financial~~Those ~~statements,~~standards ~~whether~~require ~~due~~that towe ~~error~~plan ~~or fraud,~~ and ~~performing~~perform ~~procedures~~the ~~that~~audit ~~respond~~ to ~~those~~obtain ~~risks.~~reasonable ~~Such~~assurance ~~procedures~~about ~~included~~whether ~~examining,~~the onconsolidated afinancial ~~test~~statements ~~basis,~~are ~~evidence~~free ~~regarding~~of ~~the~~material ~~amounts~~misstatement, ~~and~~whether ~~disclosures~~due into ~~the~~error ~~consolidated~~or ~~financial statements~~fraud. The ~~Our~~Company ~~audits~~is ~~also~~not ~~included~~required ~~evaluating~~to ~~the~~have, ~~accounting~~nor ~~principles~~were ~~used~~we ~~and~~engaged ~~significant~~to ~~estimates made by management~~perform, asan ~~well~~audit asof ~~evaluating~~its ~~the~~internal ~~overall~~control ~~presentation~~over ~~of the consolidated~~ financial ~~statements~~reporting. ~~Our~~As ~~audit~~part of ~~internal~~our ~~control~~audits ~~over~~we ~~financial~~are ~~reporting~~required ~~included~~to ~~obtaining~~obtain an understanding of internal control over financial reporting, ~~assessing~~but ~~the~~not ~~risk~~for ~~that~~the apurpose ~~material~~of ~~weakness~~expressing ~~exists,~~an ~~and~~opinion ~~testing~~on ~~and evaluating~~ the ~~design and operating~~ effectiveness of the Company's internal control ~~based~~over onfinancial ~~the assessed risk~~reporting. ~~Our~~Accordingly, ~~audits~~we ~~also~~express ~~included~~no ~~performing~~ such ~~other procedures as we considered necessary in the circumstances~~opinion. ~~We believe that our audits provide a reasonable basis for our opinions.~~

~~Subsequent~~Our ~~Event~~audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

AsCritical ~~discussed~~Audit ~~in Note 26 to the consolidated financial statements, on February 7, 2020, the Company’s board of directors approved a plan of liquidation.~~Matters

~~Definition~~The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and ~~Limitations~~that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of ~~Internal~~critical ~~Control~~audit ~~over~~matters ~~Financial~~does ~~Reporting~~not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

ALiquidation ~~company’s~~Basis ~~internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability~~ of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide Accounting

78As described above and in Notes 2 and 3 to the consolidated financial statements, as a result of the August 19, 2020 approval by the Company’s stockholders to file for dissolution pursuant to a plan of dissolution, it was determined that liquidation was imminent and the Company’s basis of accounting transitioned from the going concern basis of accounting to the liquidation basis of accounting on September 1, 2020, in accordance with generally accepted accounting principles. Under the liquidation basis,

~~reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.~~37

~~Because~~the remeasurement of ~~its~~the ~~inherent~~Company's ~~limitations,~~assets ~~internal~~and ~~control~~liabilities ~~over~~include ~~financial~~management's ~~reporting~~estimates ~~may~~and ~~not~~assumptions ~~prevent~~of: or(i) ~~detect~~income ~~misstatements.~~to ~~Also,~~be ~~projections~~generated from the remaining assets until the anticipated date of ~~any~~sale, ~~evaluation~~(ii) sales proceeds to be received for these assets at the time of ~~effectiveness~~sale, (iii) operating expenses to be incurred; and, (iv) amounts required to settle liabilities. The estimated liquidation values for assets derived from future ~~periods~~revenue streams and asset sales and the settlement of liabilities are ~~subject~~reflected toon the ~~risk~~consolidated statement of net assets in liquidation. Under the liquidation basis, the accounting estimates that ~~controls~~require ~~may~~management’s ~~become~~most ~~inadequate~~significant, ~~because~~difficult and subjective judgments include the determination that the liquidation was imminent, the estimated sales proceeds of ~~changes~~assets, inestimated ~~conditions~~settlement amounts of liabilities, orthe estimated revenue and operating expenses that are projected during dissolution, and discount rates. Additional significant estimates under the ~~degree~~liquidation basis include the recognition and measurement of ~~compliance~~amounts ~~with~~recoverable under the ~~policies~~Coronavirus orAid, ~~procedures~~Relief, ~~may~~and ~~deteriorate~~Economic Security (“CARES”) Act. The total effect of adoption of the liquidation basis of accounting was a $21,339 thousand increase from consolidated net equity as of August 31, 2020 to net assets in liquidation as of September 1, 2020. The changes in net assets and liabilities in liquidation from September 1, 2020 to December 31, 2020 was a reduction of $59,634 thousand.

The principal considerations for our determination that performing procedures relating to the Company’s adoption of the liquidation basis of accounting is a critical audit matter are the significant judgment by management when determining (i) the point at which liquidation was imminent, and (ii) remeasuring the values of assets and liabilities, which included significant assumptions related to sales proceeds of assets, settlement amounts of liabilities, revenue and operating expenses, discount rates and amounts recoverable under the CARES Act. This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence related to (i) management’s judgments around applying the liquidation basis to the consolidated financial statements and determining the point at which liquidation was imminent, and (ii) the remeasurement of certain assets and liabilities. Also, the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included, among others, (i) testing management’s process for and evaluating management’s judgments around applying the adoption of the liquidation basis of accounting and the point at which liquidation was imminent; (ii) testing management’s process for developing the estimates and assumptions used in the remeasurement of certain assets and liabilities as of September 1, 2020 and December 31, 2020; (iii) testing the completeness and accuracy of the data used by management in the developing the estimates, and (iv) evaluating the reasonableness of the significant assumptions used by management for certain assets related to (1) the estimated sales proceeds, (2) amounts estimated to be recoverable under the CARES act, (3) the estimated revenue and operating expenses that are projected during dissolution and (4) the discount rates; for certain liabilities related to (1) the amounts estimated to be paid in settlement, (2) the estimated revenue and operating expenses that are projected during dissolution, and (3) the discount rates; and (v) evaluating the adequacy of the Company’s disclosures. The work of management’s specialist was used in performing the procedures to evaluate the reasonableness of enterprise values. Evaluating management’s assumptions related to the estimated revenue and operating expenses that are projected during dissolution, estimated proceeds from sales of certain assets, and the estimated amounts to be paid in settlement of certain liabilities involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the Company; (ii) the consistency with external industry data; and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in evaluating the appropriateness of valuation methods and evaluating the reasonableness of the discount rates and amounts recoverable under the CARES Act.


						/s/ PricewaterhouseCoopers LLP

San Francisco, California

March 1126, ~~2020~~2021

We have served as the Company’s auditor since 2014.

7938

PDL BIOPHARMA, INC.

CONSOLIDATED ~~BALANCE~~STATEMENT ~~SHEETS~~OF NET ASSETS IN LIQUIDATION

(In thousands~~, except per share data~~)

	~~December 31,~~				December 31,
	2019			2018
					2020
Assets
					(Note 2)
Current assets:
					(Under Liquidation Basis of Accounting)
Cash and cash equivalents	$	193,451		$	394,590
Assets
Accounts receivable, net	13,552			21,648
Current assets:
Notes receivable	52,583			63,042
Cash and cash equivalents					$	126,842
Inventory	39,773			18,942
Receivables from asset sales					40,574
Prepaid and other current assets	14,536			18,995
Royalty assets					220,023
Total current assets	313,895			517,217
Income tax receivable					91,753
Property and equipment, net	5,520			7,387
Other assets					5,768
Royalty rights - at fair value	266,196			376,510
Total assets					$	484,960
Investment in equity affiliate	82,267			—
Liabilities
Notes and other receivables, long-term	827			771
Current liabilities:
Long-term deferred tax assets	—			1,539
Accounts payable					$	531
Intangible assets, net	23,298			51,319
Uncertain tax positions					43,742
Other assets	24,116			8,993
Compensation and benefit costs					9,337
Total assets	$	716,119		$	963,736
Lease guarantee					10,700
Liabilities and Stockholders’ Equity
Costs to sell assets					3,997
Current liabilities:
Other accrued liquidation costs					27,268
Accounts payable	$	17,370		$	13,142
Convertible notes payable					2,466
Accrued liabilities	28,306			39,312
Total liabilities					$	98,041
Accrued income taxes	17			16
Net assets in liquidation					$	386,919
Total current liabilities	45,693			52,470
Convertible notes payable	27,250			124,644
Other long-term liabilities	49,898			56,843
Total liabilities	122,841			233,957
Commitments and contingencies (Note 15)
Stockholders’ equity:
Preferred stock, par value $0.01 per share, 10,000 shares authorized; no shares issued and outstanding	—			—
Common stock, par value $0.01 per share, 350,000 shares authorized; 124,303 and 136,513 shares issued and outstanding at December 31, 2019 and 2018, respectively	1,243			1,365
Additional paid-in capital	(78,875		)	(98,030		)
Treasury stock, at cost (zero and 750 shares held)	—			(2,103		)
Retained earnings	670,832			828,547
Total PDL’s stockholders’ equity	593,200			729,779
Noncontrolling interests	78			—
Total stockholders’ equity	593,278			729,779
Total liabilities and stockholders’ equity	$	716,119		$	963,736

See accompanying notes.

8039

PDL BIOPHARMA, INC.

CONSOLIDATED BALANCE SHEET

(In thousands, except per share amounts)


	December 31,
	2019
	(Note 2)
	(Under Going Concern Basis of Accounting)
Assets
Current assets:
Cash and cash equivalents	$	168,982


Accounts receivable, net	6,559
Notes receivable	52,583

Inventory	8,061
Assets held for sale (Note 4)	70,366
Prepaid and other current assets	7,344
Total current assets	313,895
Property and equipment, net	2,560




Notes and other receivables, long-term	827

Intangible assets, net	13,186

Long-term assets held for sale (Note 4)	377,491
Other assets	9,247
Total assets	$	717,206

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	2,675

Accrued liabilities	11,923

Liabilities held for sale (Note 4)	31,095





Total current liabilities	45,693
Convertible notes payable	27,250

Liabilities held for sale, long-term (Note 4)	120
Other long-term liabilities	50,865
Total liabilities	123,928

Commitments and contingencies (Note 16)

Stockholders’ equity:
Preferred stock, par value $0.01 per share, 10,000 shares authorized; no shares issued and outstanding	—
Common stock, par value $0.01 per share, 350,000 shares authorized; 124,303 shares issued and outstanding at December 31, 2019	1,243
Additional paid-in capital	(78,875)


Retained earnings	670,832
Total PDL’s stockholders’ equity	593,200
Noncontrolling interests	78
Total stockholders’ equity	593,278
Total liabilities and stockholders’ equity	$	717,206

See accompanying notes.

PDL BIOPHARMA, INC.

CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION

(In thousands)


	(Note 2)
	(Under Liquidation Basis of Accounting)
Net assets in liquidation, at September 1, 2020	$	446,553

Changes in assets and liabilities in liquidation:

Decrease in liquidation value of royalty assets	(12,696)
Decrease in receivables from asset sales	(8,328)
Decrease in liquidation value of notes receivable	(44,920)
Decrease in other assets	(70,976)
Increase in income tax receivable	56,081
Decrease in estimated costs to sell assets	4,058
Increase in uncertain tax positions	(4,385)
Increase in accrued liquidation costs	(12,911)
Decrease in compensation and benefit costs	11,882
Decrease in other liabilities and accounts payable	22,561
Total changes in net assets in liquidation	(59,634)

Net assets in liquidation, at December 31, 2020	$	386,919

See accompanying notes.

PDL BIOPHARMA, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

	Year Ended December 31,
			Eight Months Ended August 31,					Year Ended December 31,
	2019				2018			2017
			2020					2019			2018
Revenues:
			(Under Going Concern Basis of Accounting)
Product revenue, net	$	85,835			$	105,448		$	84,123
Revenues
Royalty rights - change in fair value	(31,042		)		85,256			162,327
Product revenue, net			$	10,946				$	22,331		$	15,928
Royalties from Queen et al. patents	9				4,536			36,415
Lease revenue			2,139					5,072			5,903
Interest revenue	—				2,337			17,744
Service revenue			2,126					3,339			2,821
License and other	(45		)		533			19,451
Royalty rights - change in fair value			—					—			(30)
Total revenues	54,757				198,110			320,060
Royalties from Queen et al. patents			—					9			4,536
Operating expenses
Interest revenue			—					—			2,337
Cost of product revenue (excluding intangible asset amortization and impairment)	53,619				48,460			30,537
License and other			110					(45)			533
Amortization of intangible assets	6,306				15,831			24,689
Total revenues			15,321					30,706			32,028
General and administrative	45,598				45,420			45,641
Operating expenses
Sales and marketing	8,482				17,139			17,683
Cost of product revenue (excluding intangible asset amortization)			6,626					17,276			13,555
Research and development	7,308				2,955			7,381
Amortization of intangible assets			841					1,290			1,294
Impairment of intangible assets	22,490				152,330			—
Severance and retention			24,713					—			—
Asset impairment loss	10,768				8,200			—
General and administrative			29,695					38,334			33,700
Change in fair value of anniversary payment and contingent consideration	—				(41,631		)	349
Sales and marketing			3,322					6,806			6,341
Total operating expenses	154,571				248,704			126,280
Research and development			4,374					7,350			2,759
Operating (loss) income	(99,814		)		(50,594		)	193,780
Asset impairment loss			—					10,768			8,200
Non-operating income (expense), net
Change in fair value of anniversary payment and contingent consideration			—					—			369
Interest and other income, net	6,030				6,065			1,659
Total operating expenses			69,571					81,824			66,218
Interest expense	(11,404		)		(12,157		)	(20,221		)
Operating loss from continuing operations			(54,250)					(51,118)			(34,190)
Equity affiliate - change in fair value	36,402				—			—
Non-operating expense, net
Gain on sale of intangible assets	3,476				—			—
Interest and other income, net			608					6,030			6,065
Gain on bargain purchase	—				—			9,309
Interest expense			(996)					(11,404)			(12,157)
Gain on investments	—				764			—
Gain on sale of intangible assets			—					3,476			—
Loss on exchange and extinguishment of convertible notes	(8,430		)		—			—
(Loss) gain on investments			(5,576)					—			764
Total non-operating income (expense), net	26,074				(5,328		)	(9,253		)
Loss on exchange and extinguishment of convertible notes			(606)					(8,430)			—
(Loss) income before income taxes	(73,740		)		(55,922		)	184,527
Total non-operating expense, net			(6,570)					(10,328)			(5,328)
Income tax (benefit) expense	(3,049		)		12,937			73,826
Loss before income taxes from continuing operations			(60,820)					(61,446)			(39,518)
Net (loss) income	(70,691		)		(68,859		)	110,701
Income tax benefit from continuing operations			(17,780)					(4,352)			(6,753)
Less: Net (loss) income attributable to noncontrolling interests	(280		)		—			(47		)
Net loss from continuing operations			(43,040)					(57,094)			(32,765)
Net (loss) income attributable to PDL’s stockholders	$	(70,411	)		$	(68,859	)	$	110,748
Loss from discontinued operations before income taxes			(57,921)					(12,294)			(16,405)
Net (loss) income per share
Income tax (benefit) expense of discontinued operations			(23,006)					1,303			19,689
Basic	$	(0.59	)		$	(0.47	)	$	0.71
Loss from discontinued operations			(34,915)					(13,597)			(36,094)
Diluted	$	(0.59	)		$	(0.47	)	$	0.71
Net loss			(77,955)					(70,691)			(68,859)
Weighted-average shares outstanding
Less: Net loss attributable to noncontrolling interests			(659)					(280)			—
Basic	118,631				145,669			155,394
Net loss attributable to PDL’s stockholders			$	(77,296)				$	(70,411)		$	(68,859)
Diluted	118,631				145,669			156,257
Net loss per share - basic:
Continuing operations			$	(0.36)				$	(0.48)		$	(0.22)
Discontinued operations			(0.30)					(0.11)			(0.25)
Net loss attributable to PDL’s shareholders per basic share			$	(0.66)				$	(0.59)		$	(0.47)
Net loss per share - diluted:
Continuing operations			$	(0.36)				$	(0.48)		$	(0.22)
Discontinued operations			(0.30)					(0.11)			(0.25)
Net loss attributable to PDL’s shareholders per diluted share			$	(0.66)				$	(0.59)		$	(0.47)
Weighted-average shares outstanding
Basic			118,001					118,631			145,669
Diluted			118,001					118,631			145,669

See accompanying notes.

8142

PDL BIOPHARMA, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS~~) INCOME~~

(In thousands)

	Year Ended December 31,
				Eight Months Ended August 31,					Year Ended December 31,
	2019			2018			2017
				2020					2019		2018
Net (loss) income	$	(70,691	)	$	(68,859	)	$	110,701
				(Under Going Concern Basis of Accounting)
Other comprehensive (loss) income, net of tax
Net loss				$	(77,955)				$	(70,691)	$	(68,859)
Change in unrealized gains on investments in available-for-sale securities:
Other comprehensive loss, net of tax
Change in fair value of investments in available-for-sale securities, net of tax	—			(578		)	1,181
Change in unrealized losses on investments in available-for-sale securities:
Adjustment for net (gains) losses realized and included in net (loss) income, net of tax	—			(603		)	—
Change in fair value of investments in available-for-sale securities, net of tax				—					—		(578)
Total change in unrealized gains (losses) on investments in available-for-sale securities, net of tax(a)	—			(1,181		)	1,181
Adjustment for net (gains) losses realized and included in net loss, net of tax				—					—		(603)
Comprehensive (loss) income	(70,691		)	(70,040		)	111,882
Total change in unrealized losses on investments in available-for-sale securities, net of tax(a)				—					—		(1,181)
Less: Comprehensive (loss) income attributable to noncontrolling interests	(280		)	—			(47		)
Comprehensive loss				(77,955)					(70,691)		(70,040)
Comprehensive (loss) income attributable to PDL’s stockholders	$	(70,411	)	$	(70,040	)	$	111,929
Less: Comprehensive loss attributable to noncontrolling interests				(659)					(280)		—
Comprehensive loss attributable to PDL’s stockholders				$	(77,296)				$	(70,411)	$	(70,040)

___________________________________

(a) Net of tax of ($314) ~~and $314~~ for the ~~years~~year ended December 31, 2018 ~~and 2017, respectively~~.

See accompanying notes.

8243

PDL BIOPHARMA, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share amounts)

	~~PDL’s Stockholders Equity~~		PDL’s Stockholders Equity
	~~Common Stock~~		Common Stock				~~Treasury Stock~~			~~Additional Paid-InCapital~~			Treasury Stock	~~Retained Earnings~~			~~AccumulatedOther Comprehensive Income (Loss)~~	Additional Paid-InCapital		~~Non-controlling Interest~~			Retained Earnings	~~TotalStockholders’ Equity~~			AccumulatedOther Comprehensive Income (Loss)		Non-controlling Interest		TotalStockholders’ Equity
	~~Shares~~		Shares	~~Amount~~				Amount
Balance at December 31, 2016	165,538,447			$	1,655		$	—		$	(107,628	)		$	857,116		$	—		$	4,280			$	755,423
			(Under Going Concern Basis of Accounting)
Issuance of common stock, net of forfeitures	1,582,698			16			—			(16		)		—			—			—				—
Balance at December 31, 2017			153,774,756					$	1,538				$	—				$	(102,443)				$	945,614			$	1,181	$	—	$	845,890
Stock-based compensation expense	—			—			—			3,138				—			—			—				3,138
Issuance of common stock, net of forfeitures			(601,668)					(6)					—					6					58				—		—		58
Repurchase and retirement of common stock	(13,346,389	)		(133		)	—			—				(29,867		)	—			—				(30,000		)
Stock-based compensation expense			—					—					—					4,407					—				—		—		4,407
Acquisition of Noden common stock	—			—			—			2,063				—			—			(4,233		)		(2,170		)
Repurchase and retirement of common stock			(16,660,566)					(167)					(2,103)					—					(48,266)				—		—		(50,536)
Cumulative effect from change in accounting principles	—			—			—			—				7,617			—			—				7,617
Comprehensive loss:
Comprehensive income:
Net loss			—					—					—					—					(68,859)				—		—		(68,859)
Net income	—			—			—			—				110,748			—			(47		)		110,701
Change in unrealized gains and losses on investments in available-for-sale securities, net of tax			—					—					—					—					—				(1,181)		—		(1,181)
Change in unrealized gains and losses on investments in available-for-sale securities, net of tax	—			—			—			—				—			1,181			—				1,181
Total comprehensive loss			—					—					—					—					—				—		—		(70,040)
Total comprehensive income	—			—			—			—				—			—			—				111,882
Balance at December 31, 2018			136,512,522					1,365					(2,103)					(98,030)					828,547				—		—		729,779
Balance at December 31, 2017	153,774,756			1,538			—			(102,443		)		945,614			1,181			—				845,890
Issuance of common stock, net of forfeitures			729,191					7					—					(7)					8				—		—		8
Issuance of common stock, net of forfeitures	(601,668	)		(6		)	—			6				58			—			—				58
Stock-based compensation expense			—					—					—					6,907					—				—		—		6,907
Stock-based compensation expense	—			—			—			4,407				—			—			—				4,407
Repurchase and retirement of common stock			(26,321,293)					(263)					2,103					—					(87,312)				—		—		(85,472)
Repurchase and retirement of common stock	(16,660,566	)		(167		)	(2,103		)	—				(48,266		)	—			—				(50,536		)
Transfer of subsidiary shares to non-controlling interest			—					—					—					426					—				—		358		784
Comprehensive loss:
Exchange of convertible notes			—					—					—					(36,963)					—				—		—		(36,963)
Net loss	—			—			—			—				(68,859		)	—			—				(68,859		)
Issuance of common stock in connection with repurchase of convertible notes			13,382,196					134					—					45,767					—				—		—		45,901
Change in unrealized gains and losses on investments in available-for-sale securities, net of tax	—			—			—			—				—			(1,181		)	—				(1,181		)
Capped call transactions			—					—					—					3,025					—				—		—		3,025
Total comprehensive loss	—			—			—			—				—			—			—				(70,040		)
Comprehensive loss:
Balance at December 31, 2018	136,512,522			1,365			(2,103		)	(98,030		)		828,547			—			—				729,779
Net loss			—					—					—					—					(70,411)				—		(280)		(70,691)
Issuance of common stock, net of forfeitures	729,191			7			—			(7		)		8			—			—				8
Total comprehensive loss			—					—					—					—					—				—		—		(70,691)
Stock-based compensation expense	—			—			—			6,907				—			—			—				6,907
Balance at December 31, 2019			124,302,616					1,243					—					(78,875)					670,832				—		78		593,278
Repurchase and retirement of common stock	(26,321,293	)		(263		)	2,103			—				(87,312		)	—			—				(85,472		)
Issuance of common stock, net of forfeitures			2,131,730					22					—					438					—				—		—		460
Transfer of subsidiary shares to non-controlling interest	—			—			—			426				—			—			358				784
Stock-based compensation expense			—					—					—					15,527					—				—		—		15,527
Exchange of convertible notes	—			—			—			(36,963		)		—			—			—				(36,963		)
Repurchase and retirement of common stock			(12,322,988)					(124)					—					—					(39,245)				—		—		(39,369)
Issuance of common stock in connection with repurchase of convertible notes	13,382,196			134			—			45,767				—			—			—				45,901
Noncash liquidating distribution (0.11591985 shares of Evofem Biosciences, Inc. common stock distributed per share of the Company’s common stock )			—					—					—					—					(64,400)				—		—		(64,400)
Capped call transactions	—			—			—			3,025				—			—			—				3,025
Transfer of subsidiary shares to non-controlling interest			—					—					—					683					—				—		100		783
Comprehensive loss:
Extinguishment of convertible notes			—					—					—					(3,911)					—				—		—		(3,911)
Net loss	—			—			—			—				(70,411		)	—			(280		)		(70,691		)
Capped call transactions			—					—					—					801					—				—		—		801
Total comprehensive loss	—			—			—			—				—			—			—				(70,691		)
Comprehensive loss:
Balance at December 31, 2019	124,302,616			$	1,243		$	—		$	(78,875	)		$	670,832		$	—		$	78			$	593,278
Net loss			—					—					—					—					(77,296)				—		(659)		(77,955)
Total comprehensive loss			—					—					—					—					—				—		—		(77,955)
Balance at August 31, 2020			114,111,358					$	1,141				$	—				$	(65,337)				$	489,891			$	—	$	(481)	$	425,214

See accompanying notes.

8344

PDL BIOPHARMA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Year Ended December 31,
			Eight Months Ended August 31,					Year Ended December 31,
	2019				2018			2017
			2020					2019			2018
Cash flows from operating activities
			(Under Going Concern Basis of Accounting)
Net (loss) income	$	(70,691	)		$	(68,859	)	$	110,701
Cash flows from operating activities
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Net loss			$	(77,955)				$	(70,691)		$	(68,859)
Amortization of convertible notes conversion options and debt issuance costs	7,237				7,609			11,038
Less: Loss from discontinued operations			(34,915)					(13,597)			(36,094)
Accreted interest on convertible note principal	79				—			—
Net loss from continuing operations			(43,040)					(57,094)			(32,765)
Amortization of intangible assets	6,306				15,831			24,689
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of right-of-use assets	886				—			—
Amortization of convertible notes conversion options and debt issuance costs			622					7,237			7,609
Impairment of intangible asset	22,490				152,330			—
Accreted interest on convertible note principal			44					79			—
Asset impairment loss	10,768				8,200			—
Amortization of intangible assets			841					1,290			1,294
Change in fair value of royalty rights - at fair value	31,042				(85,256		)	(162,327		)
Amortization of right-of-use assets			497					729			—
Change in fair value of equity affiliate	(31,641		)		—			—
Asset impairment loss			—					10,768			8,200
Change in fair value of derivative assets	(4,715		)		(33		)	49
Loss on investment			5,576					—			(764)
Change in fair value of anniversary payment and contingent consideration	—				(41,631		)	349
Change in fair value of royalty rights - at fair value			—					—			31
Other amortization, depreciation and accretion of embedded derivative	2,901				3,696			2,366
Change in fair value of derivative assets			110					46			(33)
Loss on exchange and extinguishment of convertible notes	8,430				—			—
Change in fair value of anniversary payment and contingent consideration			—					—			369
Gain on sale of intangible assets	(3,476		)		—			—
Other amortization, depreciation and accretion of embedded derivative			1,017					2,691			3,149
Gain on sale of available-for-sale securities	—				(764		)	(108		)
Loss on exchange and extinguishment of convertible notes			606					8,430			—
Loss on disposal of property and equipment	1,200				66			—
Gain on sale of intangible assets			—					(3,476)			—
Escrow receivable	—				—			(1,400		)
Loss on disposal of property and equipment			331					—			66
Bargain purchase gain	—				—			(9,309		)
Stock-based compensation expense			18,802					6,834			4,337
Stock-based compensation expense	7,119				4,758			3,138
Deferred income taxes			(18,723)					(11,303)			11,597
Deferred income taxes	(10,617		)		13,846			39,172
Changes in assets and liabilities:
Changes in assets and liabilities:
Accounts receivable			3,344					(1,686)			234
Accounts receivable	8,195				9,349			11,008
Prepaid and other current assets			(29,875)					2,764			(1,629)
Prepaid and other current assets	4,464				(5,025		)	(9,100		)
Inventory			(8,062)					(4,744)			(889)
Accrued interest on notes receivable	—				—			1,475
Other assets			306					(165)			(2,142)
Inventory	(21,923		)		(9,508		)	892
Accounts payable			371					109			796
Other assets	(156		)		(2,120		)	(1,400		)
Accrued liabilities			5,762					4,845			(5,380)
Accounts payable	4,191				(6,642		)	10,840
Accrued income taxes			—					—			(28)
Accrued liabilities	(9,341		)		(7,449		)	13,120
Other long-term liabilities			1,030					4,967			(462)
Accrued income taxes	1				(1,361		)	(3,346		)
Net cash used in operating activities - continuing operations			(60,441)					(27,679)			(6,410)
Other long-term liabilities	4,808				(462		)	(1,223		)
Net cash provided by (used in) operating activities - discontinued operations			28,318					(4,765)			(7,015)
Net cash (used in) provided by operating activities	(32,443		)		(13,425		)	40,624
Cash flows from investing activities
Cash flows from investing activities
Settlement agreement cash received			7,500					—			—
Purchases of investments	—				—			(23,213		)
Payment of contingent consideration			—					—			(858)
Investment in equity affiliate	(60,000		)		—			—
Proceeds from sales of available-for-sale securities			—					—			4,116
Maturities of investments-other	—				—			75,000
Proceeds from royalty rights - at fair value			—					—			366
Payment of contingent consideration	—				(858		)	—
Purchase of intangible assets			—					(1,700)			—
Proceeds from sales of available-for-sale securities	—				4,116			39,956
Proceeds from the sale of intangible assets			—					5,000			—
Purchase of royalty rights - at fair value	—				(20,000		)	—
Purchase of property and equipment			(221)					(763)			(1,117)
Proceeds from royalty rights - at fair value	79,272				77,969			107,253
Net cash provided by investing activities - continuing operations			7,279					2,537			2,507
Purchase of intangible assets	(1,700		)		—			—
Net cash provided by investing activities - discontinued operations			38,966					19,273			54,197
Sale of royalty rights - at fair value	—				—			108,169
Cash flows from financing activities
Proceeds from the sale of intangible assets	5,000				—			—
Repurchase of convertible notes			(18,845)					(97,889)			—
Repayment of notes receivable	—				—			144,829
Repayment of convertible notes			—					—			(126,447)
Proceeds from sales of assets held for sale	—				—			8,190
Payment to exchange convertible notes			—					(7,451)			—
Purchase of property and equipment	(763		)		(4,523		)	(1,297		)
Capped call transactions			801					3,025			—
Net cash provided by investing activities	21,809				56,704			458,887
Payment of contingent consideration			—					(1,071)			—
Cash flows from financing activities
Repurchase of Company common stock			(39,373)					(86,898)			(49,109)
Repurchase of convertible notes	(97,889		)		—			—
Cash dividends paid			—					(9)			(48)
Repayment of convertible notes	—				(126,447		)	—
Proceeds from the exercise of stock options			461					—			—
Payment to exchange convertible notes	(7,451		)		—			—
Net settlement of stock-based compensation awards			(3,462)					(143)			(232)
Capped call transactions	3,025				—			—
Net cash used in financing activities - continuing operations			(60,418)					(190,436)			(175,836)
Payment of anniversary payment	—				—			(87,007		)
Net cash used in financing activities - discontinued operations			(359)					(69)			(119)
Payment of contingent consideration	(1,071		)		—			—
Net decrease in cash and cash equivalents			(46,655)					(201,139)			(132,676)
Cash paid for purchase of noncontrolling interest	—				—			(2,170		)
Cash and cash equivalents at beginning of period			193,451					394,590			527,266
Repurchase of Company common stock	(86,898		)		(49,109		)	(30,000		)
Cash and cash equivalents at end of period			146,796					193,451			394,590
Cash dividends paid	(9		)		(48		)	(222		)
Less: Cash and cash equivalents of discontinued operations at end of period			25,060					24,469			28,910
Net settlement of stock-based compensation awards	(212		)		(351		)	—
Cash and cash equivalents of continuing operations at end of period			$	121,736				$	168,982		$	365,680
Net cash used in financing activities	(190,505		)		(175,955		)	(119,399		)
Net (decrease) increase in cash and cash equivalents	(201,139		)		(132,676		)	380,112
Cash and cash equivalents at beginning of the year	394,590				527,266			147,154
Cash and cash equivalents at end the year	$	193,451			$	394,590		$	527,266

See accompanying notes

8445

PDL BIOPHARMA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS, continued

(In thousands)

	Year Ended December 31,
			Eight Months Ended August 31,				Year Ended December 31,
	2019				2018		2017
			2020				2019		2018
Supplemental cash flow information
			(Under Going Concern Basis of Accounting)
Cash (refunded) paid for income taxes	$	(2,689	)		$	3,805	$	43,366
Supplemental cash flow information for continuing and discontinued operations
Cash paid for interest	$	4,265			$	6,654	$	9,286
Cash (refunded) paid for income taxes			$	(4)			$	(2,689)	$	3,805
Supplemental schedule of non-cash investing and financing activities
Cash paid for interest			$	298			$	4,265	$	6,654
Convertible notes due December 2021 exchanged for convertible notes due December 2024	$	86,053			$	—	$	—
Supplemental schedule of non-cash investing and financing activities for continuing and discontinued operations
Common stock used to settle convertible notes payable	$	45,901			$	—	$	—
Noncash liquidating distribution			$	64,400			$	—	$	—
Assets held for sale reclassified from other assets to intangible assets	$	—			$	1,811	$	—
Convertible notes due December 2021 exchanged for convertible notes due December 2024			$	—			$	86,053	$	—
Asset held for sale reclassified from notes receivable to other assets	$	—			$	—	$	10,000
Common stock used to settle convertible notes payable			$	—			$	45,901	$	—
Extinguishment of notes receivable	$	—			$	—	$	43,909
Assets held for sale reclassified from other assets to intangible assets			$	—			$	—	$	1,811

See accompanying notes

8546

PDL BIOPHARMA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, ~~2019~~2020

1. Organization and Business

Throughout our history, the Company’s mission has been to improve the lives of patients by aiding in the successful development of innovative therapeutics and healthcare technologies. PDL BioPharma was founded in 1986 as Protein Design Labs, Inc. when it pioneered the humanization of monoclonal antibodies, enabling the discovery of a new generation of targeted treatments that have had a profound impact on patients living with different cancers as well as a variety of other debilitating diseases. In 2006, the Company changed its name to PDL BioPharma, Inc.

~~In December 2019~~Historically, the Company ~~announced~~generated ~~that~~a itsubstantial ~~had~~portion ~~completed~~of aits ~~strategic~~revenues ~~review~~through ~~process~~the ~~and~~license ~~decided~~agreements related to ~~halt~~patents covering the ~~execution~~

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