Recro is party to an exclusive license with Orion for the development and commercialization of Dexmedetomidine for use in the treatment of pain in humans in any dosage form for transdermal, transmucosal (including sublingual and intranasal), topical, enteral or pulmonary (inhalational) delivery, but specifically excluding delivery vehicles for administration by injection or infusion, worldwide, except for Europe, Turkey and the CIS (currently includes Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan, Ukraine and Uzbekistan), referred to herein as the Territory. Recro is required to pay Orion lump sum payments of up to €20,500 ($22,380 as of September 30, 2019) on the achievement of certain developmental and commercial milestones, as well as a royalty on net sales during the term, which varies from 10% to 20% depending on annual sales levels. Through September 30, 2019, no such milestones have been achieved.

Recro is also party to an exclusive license agreement with Orion for the development and commercialization of Fadolmidine for use as a human therapeutic, in any dosage form in the Territory. Recro is required to pay Orion lump sum payments of up to €12,200 ($13,320 as of September 30, 2019) on achievement of certain developmental and commercial milestones, as well as a royalty on net sales during the term, which varies from 10% to 15% depending on annual sales levels. Through September 30, 2019, no such milestones have been achieved.

Recro is party to a license agreement with Cornell for the exclusive license of the NMBA Related Compounds. Under the terms of the agreement, Recro will pay Cornell an initial upfront fee and Cornell is also entitled to receive additional milestone payments, annual license maintenance fees as well as royalties. See Note 5 for further information regarding these payment obligations.

These obligations will be transferred to the Company in connection with the spin-off.

Pursuant to the purchase and sale agreement and subsequent amendment governing the Gainesville Transaction, Recro agreed to pay to Alkermes up to an additional $140,000 in milestone payments including $50,000 upon regulatory approval payable over a seven-year period, as well as net sales milestones related to IV meloxicam and royalties on future product sales of injectable meloxicam between 10% and 12% (subject to a 30% reduction when no longer covered by patent). As of September 30, 2019, the Company has paid $10,000 in milestone payments to Alkermes.

Recro is party to a Development, Manufacturing and Supply Agreement (Supply Agreement), with Alkermes (through a subsidiary of Alkermes), pursuant to which Alkermes will (i) provide clinical and commercial bulk supplies of IV meloxicam formulation and (ii) provide development services with respect to the Chemistry, Manufacturing and Controls section of an NDA for IV meloxicam. Pursuant to the Supply Agreement, Alkermes will supply Recro with such quantities of bulk IV meloxicam formulation as shall be reasonably required for the completion of clinical trials of IV meloxicam. During the term of the Supply Agreement, Recro will purchase its clinical and commercial supplies of bulk IV meloxicam formulation exclusively from Alkermes, subject to certain exceptions, for a period of time.

These obligations will be transferred to the Company in connection with the spin-off.

Recro and the Company are involved, from time to time, in various claims and legal proceedings arising in the ordinary course of its business. Except as disclosed below, Recro and the Company are not currently a party to any such claims or proceedings that, if decided adversely to it, would either individually or in the aggregate have a material adverse effect on its business, financial condition or results of operations.

On May 31, 2018, a securities class action lawsuit was filed against Recro and certain of its officers and directors in the U.S. District Court for the Eastern District of Pennsylvania (Case No. 2:18-cv-02279-MMB) that purported to state a claim for alleged violations of Section 10(b) and 20(a) of the Exchange Act and Rule 10(b)(5) promulgated thereunder, based on statements made by Recro concerning the NDA for IV meloxicam. The complaint seeks unspecified damages, interest, attorneys’ fees and other costs. On December 10, 2018, lead plaintiff filed an amended complaint that asserted the same claims and sought the same relief but included new allegations and named additional officers and directors as defendants. On February 8, 2019, Recro filed a motion to dismiss the amended complaint in its entirety, which the lead plaintiff opposed on April 9, 2019. On May 9, 2019, Recro filed its response and briefing was completed on the motion to dismiss. On June 26, 2019, the judge heard oral arguments on the motion to dismiss.  The judge asked the plaintiffs to file a supplemental brief by August 30, 2019, and Recro will have 30 days to submit a reply brief.  This matter will be transferred to the Company in connection with the spin-off.  Recro and the Company believe that the lawsuit is without merit and intends to vigorously defend against it. The lawsuit is in the early stages and, at this time, no assessment can be made as to its likely outcome or whether the outcome will be material to Recro or the Company.

The Company is a party to various operating leases in Malvern, Pennsylvania, and Dublin, Ireland for office space and office equipment.

The Company determines if an arrangement is a lease at inception. The arrangement is a lease if it conveys the right to the Company to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. Lease terms vary based on the nature of operations, however, all leased facilities are classified as operating leases with remaining lease terms between 1 and 3 years. Most leases contain specific renewal options where notice to renew must be provided in advance of lease expiration or automatic renewals where no advance notice is required. Periods covered by an option to extend the lease were included in the non-cancellable lease term when exercise of the option was determined to be reasonably certain. Costs determined to be variable and not based on an index or rate were not included in the measurement of operating lease liabilities. As most leases do not provide an implicit rate, the Company's effective interest rate was used to discount its lease liabilities.

The Company’s leases with an initial term of 12 months or less that do not have a purchase option or extension that is reasonably certain to be exercised are not included in the right of use asset or lease liability on the Combined Balance Sheets. Lease expense is recognized on a straight-line basis over the lease term.

As of September 30, 2019, undiscounted future lease payments for non-cancellable operating leases are as follows:

As of December 31, 2018 under legacy ASC 840 “Leases”, undiscounted future lease payments for non-cancellable operating leases were as follows:

For the nine months ended September 30, 2019, the weighted average remaining lease term was 3 years and the weighted average discount rate was 16%.

The components of the Company’s lease cost were as follows for the three and nine months ended September 30, 2019:

As of September 30, 2019, the Company had outstanding non-cancelable and cancelable purchase commitments in the aggregate amount of $4,863 related to inventory, capital expenditures and other goods and services, including pre-commercial/manufacturing scale-up and clinical activities.  The timing of certain purchase commitments cannot be estimated as it is dependent on timing of FDA approval or the outcome of other strategic evaluations and agreements.  

The Company has entered into employment agreements with certain of its named executive officers. As of September 30, 2019, these employment agreements provided for, among other things, annual base salaries in an aggregate amount of not less than $624, from that date through June 2020.