FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

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

COMMISSION FILE NUMBER: 001-35518

or

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2016
COMMISSION FILE NUMBER: 001-35518
or
o☐		TRANSMISSION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM                           TO

FOR THE TRANSITION PERIOD FROM                                    TO                                   

SUPERNUS PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

Delaware			20-2590184
(State or other jurisdiction of incorporation or organization)				20-2590184 (I.R.S. Employer Identification Number)
1550 East Gude Drive,
9715 Key West Avenue	Rockville	MD	20850
(Address of Principal Executive Offices)			(zip code)
	(301)	838-2500
		(Registrant's telephone number, including area code)		20850 (zip code)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

	TITLE OF EACH CLASS:				Outstanding at February 13, 2020		Trading Symbol		NAME OF EACH EXCHANGE ON WHICH REGISTERED:
Common Stock, $0.001 Par Value		52,533,973		SUPN		The NASDAQ Stock Market LLC

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. Yeso☒    No ý

☐

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 o☐Noý

☒

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. Yesý☒    No o

☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yesý☒    No o

☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) 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. o

☐

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

Large accelerated filerý	☒	Accelerated filer	☐
		Accelerated
Non-accelerated filero	☐	Smaller reporting company	☐
		Non-accelerated filero (Do not check if a smaller reporting company)
		Smaller reportingEmerging growth companyo	☐

If an emerging growth company, indicate 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 is a shell company (as defined in Rule 12b-2 of the Act). Yes o☐    No ý

☒

As of June 30, 2016,2019, the aggregate market value of the common stock held by non-affiliates of the registrant based on the closing price of the common stock on The NASDAQ Global Market was $966,994,822.

        The number of shares of the registrant's common stock outstanding as of March 9, 2017 was 50,162,496.

$1,677,874,611.

DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of the registrant's definitive Proxy Statement for its 20172020 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission not later than 120 days after the end of the registrant's 20162019 fiscal year end, are incorporated by reference into Part III of this Annual Report on Form 10-K.

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SUPERNUS PHARMACEUTICALS, INC.

FORM 10-K

For the Year Ended December 31, 2016
2019

TABLE OF CONTENTS

				Page
PART I
Item 1.		Business		4Page
PART I Item 1A.				Risk Factors		25
Item 1B. 1.	Business	4
Item 1A.	Risk Factors	22
Item 1B.	Unresolved Staff Comments		5653
Item 2.	Properties	53 Properties		56
Item 3.		Legal Proceedings		5653
Item 4.		Mine Safety Disclosures		5953
PART II
Item 5.		Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchase of Equity Securities		6054
Item 6.		Selected Financial Data		6255
Item 7.		Management's Discussion and Analysis of Financial Condition and Results of Operations		6457
Item 7A.		Quantitative and Qualitative Disclosures about Market Risk		7467
Item 8.		Financial Statements and Supplementary Data		7568
Item 9.		Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		113102
Item 9A.		Controls and Procedures		113102
Item 9B.		Other Information		115103
PART III
Item 10.		Directors, Executive Officers and Corporate Governance		116104
Item 11.		Executive Compensation		116104
Item 12.		Security Ownership of Certain Owners and Management and Related Stockholder Matters		116104
Item 13.		Certain Relationships and Related Transactions, and Director Independence		116104
Item 14.		Principal Accounting Fees and Services		116104
PART IV
Item 15.		Exhibits, Financial Statement Schedules		117105
Item 16.		Form 10-K Summary	105
	117SIGNATURES
		SIGNATURES		118

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Unless the content requires otherwise, the words "Supernus," "we," "our" and "the Company" refer to Supernus Pharmaceuticals, Inc. and its subsidiary.

We are the owners of various U.S. federal trademark registrations(®) and registration applications(™applications(^TM), including the following marks referred to in this Annual Report on Form 10-K pursuant to applicable U.S. intellectual property laws: "Supernus®," "Oxtellar XR®," "Trokendi XR®," "Microtrol®," "Solutrol®," and the registered Supernus Pharmaceuticals logo.

All other trademarks or trade names referred to in this prospectusAnnual Report are the property of their respective owners. Solely for convenience, the trademarks and trade names in this Annual Report on Form 10-K are referred to without the ® andTM™ symbols, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto.

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PART I

This Annual Report on Form 10-K contains forward-looking statements, within the meaning of the Securities Exchange Act of 1934 and the Securities Act of 1933, that involve risks and uncertainties. Forward-looking statements convey our current expectations or forecasts of future events. All statements contained in this Annual Report other than statements of historical fact are forward-looking statements. Forward-looking statements include statements regarding our future financial position, business strategy, budgets, projected costs, plans and objectives of management for future operations. The words "may," "continue," "estimate," "intend," "plan," "will," "believe," "project," "expect," "seek," "anticipate," "should," "could," "would," "potential," or the negative of those terms and similar expressions may identify forward-looking statements, but the absence of these words does not necessarily mean that a statement is not forward-looking. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this report. All of these forward-looking statements are based on information available to us at this time, and we assume no obligation to update any of these statements. Actual results could differ from those projected in these forward-looking statements as a result of many factors, including those identified in the "Business," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections and elsewhere in this Annual Report on Form 10-K. We urge you to review and consider the various disclosures made by us in this report, and those detailed from time to time in our filings with the Securities and Exchange Commission, that attempt to advise you of the risks and factors that may affect our future results.

ITEM 1.     BUSINESS.

Overview

Supernus Pharmaceuticals, Inc. (the Company) was incorporated in Delaware, and commenced operations in 2005. The Company became publicly traded in 2012 and is listed on The NASDAQ Stock Exchange under the ticker symbol SUPN. Our principal executive offices are located in Rockville, Maryland.

We are a specialty pharmaceutical company focused on developing and commercializing products for the treatment of central nervous system (CNS) diseases. In 2013, we launched Oxtellar XR (extended-release oxcarbazepine)diseases in neurology and Trokendi XR (extended-release topiramate), our two novel treatments for patients with epilepsy. In addition, we are developing multiple product candidates in psychiatry to address significant unmet medical needs and market opportunities for the treatment of impulsive aggression (IA) and for the treatment of attention deficit hyperactivity disorder (ADHD). We are initially developing SPN-810 (molindone hydrochloride) to treat IA in patients who have ADHD. We subsequently plan to develop SPN-810 for the treatment of IA in other CNS diseases, such as autism, post traumatic stress disorder (PTSD), bipolar disorder, schizophrenia, and some forms of dementia. There are currently no approved products indicated for the treatment of IA. We are developing SPN-812 (viloxazine hydrochloride) as a candidate to treat patients who have ADHD.

psychiatry. Our extensive expertise in product development has been built over the past 25 years: initially as a standaloneprivately-held stand-alone development organization,organization; then, as a U.S.United States (U.S.) subsidiary of Shire plcPlc (Shire, a subsidiary of Takeda Pharmaceutical Company Ltd.); and upon our acquisition of substantially all of the assets of Shire Laboratories Inc. in late 2005, as Supernus Pharmaceuticals.

Products and Product Candidates

The table below summarizes our current portfolio of novel products and product candidates.

*	Prophylaxis of migraine headache in adults and adolescents.

**	Prescription Drug User Fee Act (PDUFA)

We currently market ourtwo products, in the United States through our own specialty sales force and have and will continue to seek strategic collaborations with other pharmaceutical companies to license our products outside the United States.

Our neurology portfolio consists of Oxtellar XR and Trokendi XR whichin the U.S. Oxtellar XR and Trokendi XR are the first once-daily extended release oxcarbazepine and topiramate products respectively, indicated for the treatment of epilepsy in the U.S. market. TheseIn April 2017, we launched Trokendi XR for the prophylaxis of migraine headache in adults and adolescents. In January 2019, we launched Oxtellar XR for monotherapy treatment of partial onset epilepsy seizures in adults and in children 6 to 17 years of age. We market our products are differentiated, comparedthrough our own sales force in the U.S. and seek strategic collaborations with other pharmaceutical companies to their immediate release counterpartcommercialize our products by offering convenient once-daily dosing and unique pharmacokinetic profiles. We believe that a once-daily dosing regimen improves compliance which in turn reducesoutside of the frequency of seizures. We also believe that the unique smooth and steady pharmacokinetic profiles of once-daily dosing mitigate the blood level fluctuations typically associated with immediate release products, which can result in adverse events (AEs) or decreased efficacy.

U.S.

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Our net product revenuessales of $210.1$383.4 million in 20162019 were driven by strongcontinued growth in prescriptions for Oxtellar XR and Trokendi XR. Total prescriptions as reported by Intercontinental Marketing Services (IMS) have shown a steady increase year over yearXR, as shown in the following graph.graph:

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Source: IMS Monthly Prescriptions

IQVIA

As of year-end 2016, our products2019, Trokendi XR represented approximately 5% of the topiramate market, and Oxtellar XR represented approximately 3% of the large and growing base ofoxcarbazepine market. Total annual prescriptions for the topiramate and oxcarbazepine (total annual prescriptions for topiramate market and oxcarbazepine market is 14.3markets are approximately 13.4 million and 4.54.7 million, respectively). respectively.

We expectare also developing multiple proprietary CNS product candidates to continueaddress significant unmet medical needs and market opportunities. We are developing SPN-812 (viloxazine hydrochloride) as a novel, non-stimulant product candidate to grow our revenues for Oxtellar XR and Trokendi XR for the foreseeable future by continuing to drive penetration in these markets. We believe these products have the potential to achieve combined peak net sales in excess of $500 million annually.

Oxtellar XR is indicated for add-on, adjunctive or concomitant therapy of partial seizures in adults and intreat children 6 years to 17 years of age. Trokendi XR is indicated for initial monotherapy in patients 6 years of age and older with partial onset or primary generalized tonic-clonic seizures, and as add-on therapy in patients 6 years of age and older with partial onset or primary generalized tonic-clonic seizures or with seizures associated with Lennox-Gastaut syndrome.

In August 2016, we received tentative approval to expand the label for Trokendi XR to include the indication of prophylaxis of migraine headaches in adults.who have ADHD. We continue to prepare and will be readyexpect to launch SPN-812, assuming FDA approval, in the migraine indication soon after receiving fullfourth quarter of 2020. Additionally, we initiated a Phase III ADHD program to study SPN-812 in adults during the third quarter of 2019.

Furthermore, we are developing SPN-604 (extended release oxcarbazepine) for the treatment of bipolar disorder. We initiated a pivotal Phase III monotherapy trial in the fourth quarter of 2019. We expect enrollment in this study to continue through 2021. If approved, SPN-604 would represent the first approval fromfor the treatment of bipolar disorder with oxcarbazepine in the U.S. Food

Following our acquisition of Biscayne Neurotherapeutics, Inc. in 2018, we are currently developing SPN-817 to treat severe pediatric epilepsy disorders.

We expect to incur significant research and Drug Administration (FDA).development expenses related to the continued development of each of our product candidates through FDA approval or until the program terminates. We incurred total research and development expenses of $69.1 million, $89.2 million and $49.6 million for the years ended December 31, 2019, 2018 and 2017, respectively.

Assuming we obtain FDA approval for the product candidates currently in our portfolio, we anticipate receiving this approval duringcreating a sales force to market our products to the second quarterrelevant population of 2017.

Regarding SPN-810, we initiated two Phase III clinical trials in 2015 (P301psychiatrists and P302) that will continue to enroll patients through 2017. Our Phase III clinical trial (P301) is being conducted under a Special Protocol Agreement (SPA). SPN-810 has been granted fast-track designation by the FDA.

We completed a Phase IIb dose ranging trial for SPN-812 and announced topline results in 2016. The trial met the primary endpoint, demonstrating that SPN-812 at daily doses of 400 mg, 300 mg, and 200 mg achieved a statistically significant improvement in the symptoms of ADHD when compared to placebo. All SPN-812 doses tested in the trial were well tolerated. Of the patients treated with SPN-812, only 6.7% discontinued due to an AE. In addition, 87% of patients who completed the trial elected to enroll in the ongoing open-label extension. Based on these positive results, we plan to have an end-of-Phase II meeting with the FDA after which we will initiate Phase III clinical testing during the second half of 2017.

care physicians.

We have a successful track record of developing and launching novel products by applying proprietary formulation technologies to known drugs to improve their side effect profile or to improve patient compliance. In addition, we have developed new indications for existing therapies and expand the treatment to new indications.

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therapies. Our key proprietary technology platforms include: Microtrol, Solutrol and EnSoTrol. These technologies have been utilized to create nineten marketed products, includingincluding: Trokendi XR and Oxtellar XR,XR; Adderall XR (developed for Shire),; Intuniv (developed for Shire),; Mydayis (developed for Shire); and Orenitram (developed for United Therapeutics Corporation); as well as our key product candidates SPN-810 andcandidate SPN-812.

Products and Product Candidates

The table below summarizes our current portfolio of novel products and product candidates.

Product		Indication		Status
Oxtellar XR		Epilepsy		Launched in 2013
Trokendi XR		Epilepsy		Launched in 2013
		Adult Migraine Prophylaxis		Tentative Approval
SPN-810		IA*		Phase III
SPN-812		ADHD		Phase IIb
SPN-809		Depression		Phase II ready

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*

Initial program is in patients with ADHD, with plansWe continue to follow on in other indications, such as IA in patients with autism, PTSD, bipolar disorder, schizophrenia, and some forms of dementia.

We are continuing to expandbuild our intellectual property portfolio to provide additional protection for our technologies, products and product candidates.

We currently have seven U.S. patents issued covering Oxtellar XRexpect to incur significant expenses as we: invest in research and eight U.S. patents issued covering Trokendi XR, providing patent protection expiring no earlier than 2027development related to the continued development of each of our product candidates through FDA approval or until the program terminates; expand product indications for each product.

approved products; invest in sales and marketing resources for existing and new products; enter into agreements to purchase products or other companies; and invest in support of our business, technology, regulatory and intellectual property portfolio.

Our Strategy

Our vision is to bebecome a leading specialty pharmaceutical company, developing and commercializing new medicines for treatment of CNS diseases in neurology and psychiatry. Key elements of our strategy to achieve this vision are to:

•

Drive growth and profitability.  We will continue to drive the prescription growth of Trokendi XR and Oxtellar XR by continuing to dedicate sales and marketing resources in the United States.



•

Advance our pipeline toward commercialization.  We initiated the Phase III clinical trials for SPN-810, a novel treatment for IA in patients who have ADHD, during the third quarter of 2015. We completed a Phase IIb dose ranging study for SPN-812 during 2016 and expect to initiate Phase III clinical testing during the second half of 2017.



•

Target strategic business development opportunities.  We are actively exploring a broad range of strategic opportunities that fit well with our strong presence in CNS. These include: in-licensing products and entering into co-promotion partnerships which are synergistic with our sales force call point for our marketed products and product candidates; co-development partnerships for our pipeline products; and growth opportunities through value-creating and transformative merger and acquisition transactions, including both commercial stage and development stage products.



•

Continue to grow our pipeline.  We plan to continue to evaluate and develop additional CNS product candidates that we believe have significant commercial potential through our internal research and development efforts.

•	Drive growth and profitability.  We will continue to drive the prescription growth of Trokendi XR and Oxtellar XR, by continuing to dedicate sales and marketing resources in the U.S.

•	Advance our pipeline toward commercialization.  In January 2020, the FDA accepted the NDA for SPN-812 for the treatment of ADHD in pediatric patients. We initiated a Phase III trial for the treatment of ADHD in adult patients with SPN-812 in the third quarter of 2019. We also initiated a Phase III trial for SPN-604 for the treatment of bipolar disorder in adults in the fourth quarter of 2019.

•

Pursue strategic business development opportunities.  We are actively exploring a broad range of strategic opportunities that fit well with our strong presence in CNS, while also exploring other disease areas that are driven by specialty physicians, including orphan or rare diseases. These strategic options include: in-licensing products and/or entering into development collaborations leading to commercialization rights; opportunities that leverage and/or expand our sales force call points for our marketed products and product candidates; co-development partnerships outside the U.S. for our pipeline products; and growth opportunities through value-creating and transformative merger and acquisition transactions, including both commercial stage and development stage products.

•	Continue to grow our pipeline.  Through our internal research and development efforts, we plan to continue to evaluate and develop additional CNS product candidates that we believe have significant commercial potential.

Our Neurology Portfolio

Our neurology portfolio includes two commercial products and one product candidate for the treatment of neurological diseases:

Trokendi XR, a once-daily extended release topiramate product for the prophylaxis of migraine headache and for the treatment of epilepsy;

Oxtellar XR, and Trokendi XR are the firsta once-daily extended release oxcarbazepine product that was initially approved for adjunctive treatment of partial onset epilepsy seizures. During January 2019, we launched Oxtellar XR for the monotherapy treatment of partial onset epilepsy seizures in adults and topiramate products indicated for patientsin children 6 to 17 years of age; and

SPN-817, a novel synthetic form of huperzine A, whose mechanism of action (MOA) includes potent acetyl cholinesterase inhibition, with epilepsypharmacological activities in the U.S. market. These products differ from the

CNS conditions such as epilepsy.

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immediate release products by offering once-daily dosing and unique pharmacokinetic profiles which we believe can have very positive clinical effects for many patients. We believe a once-daily dosing regimen improves adherence, making it more probable that patients maintain sufficient levels of medication in their bloodstreams to protect against seizures. In addition, we believe that the unique smooth and steady pharmacokinetic profiles of our once-daily formulations reduce the peak to trough blood level fluctuations that are typically associated with immediate release products and may result in increased AEs, more side effects and decreased efficacy.

Epilepsy Overview

Epilepsy is a complex neurological disorder characterized by spontaneous recurrence of unprovoked seizures, which are sudden surges of electrical activity in the brain that impair a person's mental and/or physical abilities.

Compliance with drug treatment regimens is critically important to achieving effective control for patients with epilepsy. Non-compliance with anti-epileptic drug (AED) therapy is a serious issue and remains the most common cause of breakthrough seizures for patients. Not only is taking all prescribed doses critical to control breakthrough seizures, but the timing of when patients take their prescribed doses can also be crucial.

We believe extended release products, and in particular Trokendi XR and Oxtellar XR, may offer important advantages in the treatment of epilepsy. The release profiles of extended release products can produce more consistent and steadier plasma concentrations as compared to immediate release products, potentially resulting in fewer side effects, better tolerability, fewer emergency room visits, improved efficacy and fewer breakthrough seizures. Extended release products may help patients improve adherence and, consequently, help patients enjoy a better quality of life.

In addition, when considering treatment regimens for patients with epilepsy, neurologists and epileptologists take into consideration the MOA of the different anti-epileptics that are available. By combining several different MOAs, it is sometimes possible to get significantly better seizure control. We recently acquired SPN-817, an antiepileptic, which we believe has an MOA that is different from that of other products, and can therefore potentially represent a unique additional treatment alternative.

Migraine Overview

Approximately 39 million individuals in the U.S. are affected by migraine. The World Health Organization categorizes migraine as one of the most disabling medical illnesses worldwide.

Migraine is a painful complex neurological disorder, consisting of recurring, painful attacks that can significantly disrupt time with loved ones, education and careers. Migraine headaches are often characterized by throbbing pain, extreme sensitivity to light or sound and, potentially, nausea and vomiting.

As in epilepsy, we believe extended release products, and in particular Trokendi XR, may offer important advantages for treatment of migraine. The release profiles of extended release products can produce more consistent and steadier plasma concentrations as compared to immediate release products, potentially resulting in fewer side effects, better tolerability, fewer emergency room visits and improved efficacy. Improved tolerabilityExtended release products may help patients improve adherence, have fewer breakthrough seizuresmigraines and, correspondingly,consequently, help patients enjoy a better quality of life.

Commercial Products

Trokendi XR

Trokendi XR is the firstindicated for: initial monotherapy in patients 6 years of age and older with partial onset or primary generalized tonic-clonic (PGTC) seizures; as add-on therapy in patients 6 years of age and older with partial onset or PGTC seizures or with seizures associated with Lennox-Gastaut syndrome; and for prophylaxis of migraine headache in adults and adolescents 12 years of age and older. Trokendi XR's once-daily extended release topiramate product indicated for patients with epilepsy in the U.S. market, anddosing is designed to improve patient adherence over the current immediate release products, which must be taken multiple times per day. We believe a once-daily dosing regimen improves compliance, making it more probable that patients take their medication and maintain sufficient levels of medication in their bloodstreams. Trokendi XR's unique smooth pharmacokinetic profile results in lower peak plasma concentrations, higher trough plasma concentrations, and slower plasma uptake rates. This results in smoother and more consistent plasma concentrations than immediate release topiramate formulations can deliver.formulations. We believe that such a profile mitigates blood level fluctuations that are frequently associated with many side effects, as well as mitigatingthereby reducing the likelihood of breakthrough seizures or migraine headaches that patients can suffer when taking immediate release products. Side effects associated with immediate release products may lead patients to skip doses, which could place them at higher risk for breakthrough seizures.

In August 2016, we received tentative approval to expand the label for Trokendi XR to include the indication of prophylaxis ofseizures or migraine headache in adults. We continue to prepare and will be ready to launch the adult migraine indication soon after receiving full FDA approval, which we anticipate will occur during the second quarter of 2017.

headaches.

Oxtellar XR

Oxtellar XR is the only once-daily extended release oxcarbazepine product indicated for adjunctive treatmentas therapy of patients with epilepsypartial onset seizures in the U.S.adults and in children 6 years to 17 years of age. With its novel pharmacokinetic profile showing lower peak plasma concentrations, a slower rate of plasma input, and smoother and more consistent blood levels as compared to immediate release products, we believe Oxtellar XR improves the tolerability of oxcarbazepine and thereby reduces side effects. In addition, Oxtellar XR once-per-day dosing is designed to improve patient adherencecompliance compared to the current immediate release products that must be taken multiple times per day.

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Sales and Marketing

We

Product Candidates

SPN-817 (huperzine A)

SPN-817 will have established a commercial organizationnew chemical entity status (NCE) in the U.S. market. We expect to support currenthave significant intellectual property (IP) protecting this product candidate through our own research and future sales of Oxtellar XR and Trokendi XR. We believe our current sales force of over 150 sales representatives is effectively targeting healthcare providers, primarily neurologists, to support and grow our epilepsy franchise. Simultaneously promoting two epilepsy products allows us to leverage our commercial infrastructure with these prescribers. Assuming we receive FDA approvaldevelopment efforts, as well as through in-licensed IP. SPN-817 represents a novel MOA for the prophylaxis of migraine in adults, we may expand the sales force dependingan anticonvulsant. Development will initially focus on the prescription uptake post launch.

Assuming we obtain FDA approvaldrug's anticonvulsant activity, which has been shown in preclinical models for treatment of partial seizures and Dravet Syndrome. SPN-817 is in clinical development, and has received an Orphan Drug designation for Dravet Syndrome from the product candidatesFDA.

SPN-817 Development Program

We plan on studying SPN-817 initially in our pipeline, we anticipate adding sales representatives to market our productssevere pediatric epilepsy disorders. A Phase I proof-of-concept trial is currently underway in adult patients with refractory complex partial seizures, studying the safety and pharmacokinetic profile of a new extended release formulation of non-synthetic huperzine A. The Company initiated an Investigational New Drug (IND) application, enabling preclinical activities in the U.S.

We will focus on completing and optimizing the synthesis process of the synthetic drug and developing a novel dosage form. Given the potency of huperzine A, a novel extended release oral dosage form is critical to the relevant populationsuccess of physicians, primarily psychiatrists.

this program, because initial studies with immediate release formulations of non-synthetic huperzine A have shown dose-limiting serious side effects.

Manufacturing

We currently depend on third-party commercial manufacturing organizations (CMOs) for all manufacturing operations, including production of raw materials, dosage form product and product packaging. This encompasses productproducts for commercial use, as well as productsome products for preclinical research and clinical trials.

research. We currently employ internal resources to manage our manufacturing contractors.

We have entered into agreements with leading CMOs headquartered in North America, including Patheon Pharmaceuticals, Inc. (a subsidiary of Thermo Fisher Scientific Inc.), Packaging Coordinators, Inc.Inc; and Catalent Pharma Solutions, for the manufacture and packaging of the final commercial products Oxtellar XR and Trokendi XR.XR, as well as for our pipeline candidate, SPN-812. These CMOs offer a comprehensive range of contract manufacturing and packaging services. Commercial products as well as our product candidates are single sourced from single third-party suppliers.

We do not own or operate manufacturing facilities for the production of any of our product candidates beyond that used in Phase II clinical trials, nor do we have plans to develop our own manufacturing operations for Phase III clinical materials or commercial products in the foreseeable future.

Sales and Marketing

We currently employ internal resourceshave a commercial sales and marketing organization in the U.S. to managesupport sales of Oxtellar XR and Trokendi XR. We believe our manufacturing contractors.

current sales force of over 200 sales representatives is effectively targeting healthcare providers, primarily neurologists, to support and grow our epilepsy and migraine product franchise. Simultaneously promoting two neurology products allows us to leverage our commercial infrastructure and gain efficiencies in operations.

Epilepsy Competition

Trokendi XR competes with all immediate release and extended release topiramate products, including Topamax, Qudexy XR and their related generic products. Oxtellar XR competes with all immediate release oxcarbazepine products, including Trileptal and its related generic products. Both Oxtellar XR and Trokendi XR compete with other anti-epileptic products, both branded and generic.

Migraine Competition

Trokendi XR competes with all immediate release and extended release topiramate products, including Topamax, Qudexy XR and their related generic products, as well as other anti-epileptic products. Oxtellar XR competes with all immediate release oxcarbazepine products including Trileptalused for the prevention of migraine headaches. Most notably, this includes a new class of products introduced in 2018, anti-CGRPs (calcitonin gene related peptide); Botox; beta-blockers; valproic acid; and its related generic products as well as other anti-epileptic products.

amitriptyline.

Our Psychiatry Portfolio

Our psychiatry portfolio includes three product candidates for the treatment of psychiatric disorders. Thedisorders:

SPN-812, the most advanced product candidate, SPN-810, has fast track statusis a novel non-stimulant product being developed for the treatment of ADHD. In January 2020, the FDA accepted the review of the NDA for SPN-812 for the treatment of children and is expected to be the first product approved for IA. SPN-812adolescents with ADHD and assigned a PDUFA target action date of November 8, 2020;

SPN-809, employwhich employs the same active ingredient as in SPN-812, is Phase II ready and areis in development for the treatment of depression; and

SPN-604 is being developed for ADHD and depression, respectively. SPN-812 recently completed athe treatment of bipolar disorder. A Phase IIbIII clinical trial and SPN-809 is Phase II ready.

IA Overview

Our market research shows that, for adolescents and children, child psychiatrists, psychiatrists, child neurologists, and high prescribing pediatricians write approximately 40%was initiated during the fourth quarter of their ADHD prescriptions, representing approximately 13 million prescriptions. By 2020, we project that this group of physicians will collectively write approximately 16 million prescriptions for ADHD medication. Of these 16 million ADHD prescriptions, roughly one-third will be written for patients with IA or with IA and other comorbidities.

2019.

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IA is not limited to individuals with ADHD. We believe IA occurs in patients with other CNS disorders, including autism, Alzheimer's, bipolar disorder, PTSD, oppositional defiant disorder, conduct disorder, and intermittent explosive disorder. Market research we have conducted indicates that the prevalence of IA in autistic children and adolescents is approximately 45%, and the prevalence of IA in children and adolescents with bipolar disorder is approximately 60%.

ADHD Overview

(1)

Dopheide, J.A.,Attention-Deficit- Hyperactivity Disorder: An Update, published June 2009 inPharmacotherapy.

for this indication.

second line therapy.

We cannot be sure that any patents, if granted, will sustain legal challenge.

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patents; our ability to preserve the confidentiality of our trade secretssecrets; and to operate our business without infringing the patents and proprietary rights of third parties.

We have established and continue to build proprietary positions for

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term may be lengthened byvia a patent term adjustment (PTA), which compensates a patentee for administrative delays by the USPTO in granting a patent. In viewBecause of a recent court decision, the USPTO is under greater scrutiny regarding its calculations becausein which the USPTO erred in calculating the PTA which resulted inby denying the patentee a portion of the patent term to which it was entitled. entitled, the USPTO is under greater scrutiny regarding its calculations of PTAs.

Product Approval

Government authorities in the United States at the federal, state and local level, and in other countries extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, recordkeeping, promotion, advertising, distribution, marketing, export and import of products such as those we are developing. Our product candidates must receive final approval from the FDA before they may be marketed legally in the U.S.

In the U.S., the FDA regulates drugs under the Federal Food, Drug,

The United States Congress and state legislatures may, from time to time, propose and adopt initiatives aimed at cost containment, which could impact our ability toturn, sell our products profitably. For example, in March 2010, President Obama signed into law the Patient Protectionto pharmacies, hospitals and Affordable Care Act as amended by the HealthCare and Education Reconciliation Act of 2010, which we refer to collectively as the HealthCare Reform Law. This is a sweeping law intended to broaden 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 health insurance industries, impose new taxes and fees on the healthcare industry, and impose additional healthcare policy reforms. Effective October 1, 2010, the HealthCare Reform Law revises the definition of "average manufacturer price" for reporting purposes, which could increase the amount of Medicaid drug rebates paid by drug companies to states once the provision is effective. Further, since 2011, the HealthCare Reform Law imposes a significant annual fee on companies that manufacture or import branded prescription drug products. Substantial new provisions affecting compliance have also been enacted, which may require us to modify our business practices with healthcare practitioners. We will not know the full effects of the HealthCare Reform Law until applicableother customers, including federal and state agencies issue regulations or guidance under the new law. Although it is too early to determine the effectentities. Each of the HealthCare Reform Law, the new law appears likely to continue to put pressure on pharmaceutical pricing, especially under the Medicare program,three customers, AmerisourceBergen Drug Corporation, Cardinal Health, Inc. and may also increase our regulatory burden and operating costs. Moreover, in the coming years, additional changes are likely to be made to governmental healthcare programs that could significantly impact the successMcKesson Corporation, accounted for more than 30% of our total product candidates.

The cost of pharmaceuticals continues to generate substantial governmentalrevenue in 2019, and third party payor interest. We expect that the pharmaceutical industry will experience pricing pressures due to the trend toward managed healthcare, the increasing influence of managed care organizations and additional legislative proposals. Our results of operations could be adversely affected by current and future healthcare reforms. Some third party payors also require pre-approval of coveragecollectively accounted for new or innovative devices or drug therapies before they will reimburse healthcare providers that use such therapies.

While we cannot predict whether any proposed cost-containment measures will be adopted or otherwise implemented in the future, the announcement or adoption of these proposals could have a material

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adverse effect on our ability to obtain adequate prices for our product candidates and operate profitably.

Other HealthCare Laws and Compliance Requirements

In the United States, our activities are potentially subject to statutes and regulation by various federal, state and local authorities in addition to the FDA, including CMS, other divisions of the United States Department of Health and Human Services (e.g., the Office of Inspector General), the United States Department of Justice and individual United States Attorney offices within the Department of Justice, and state and local governments. These statutes and regulations include:

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The federal healthcare program Anti-Kickback Statute, which prohibits, among other things, persons from soliciting, receiving or providing remuneration, directly or indirectly, to induce either the referral of an individual, for an item or service or the purchasing or ordering of a good or service, for which payment may be made under federal healthcare programs such as the Medicare and Medicaid programs. The term remuneration has been interpreted broadly to include anything of value, meaning that arrangements with healthcare professionals must be scrutinized carefully for compliance with the Statute;



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The Federal False Claims Act ("FCA"), which prohibits, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other government reimbursement programs that are false or fraudulent. We may be subject to FCA claims for, among other things, promoting our products for off-label indications or making false and misleading statements about the products' safety and efficacy;



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The federal Health Insurance Portability and Accountability Act of 1996, which prohibits executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters and which also imposes certain requirements relating to the privacy, security and transmission of individually identifiable health information and places restrictions on the use of such information for marketing communications;



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The federal Physician Payments Sunshine Act within the Patient Protection and Affordable Care Act, (PPACA), and its implementing regulations, and similar state law provisions require manufacturers of drugs, devices, biologics, and medical supplies to report to the Department of Health and Human Services information related to physician payments and other transfers of value and physician ownership and investment interests;



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The FDCA, which among other things, strictly regulates the distribution of drug samples and drug product marketing and prohibits manufacturers (i) from marketing drugs for off-label use; and (ii) from making false and misleading statements about a products' safety or efficacy;



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State law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers, and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by federal laws, thus complicating compliance efforts;



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State laws that require the registration of manufacturers and wholesale distributors of pharmaceutical products in a state, including, in certain states, manufacturers and distributors who ship products into the state even if such manufacturers or distributors have no place of business within the state;



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Laws and ordinances in various state and local jurisdictions that require pharmaceutical manufacturers to establish and fund drug "take-back" programs that allow consumers to return unused prescription and OTC medications for safe disposal;

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Various additional laws and regulations which result from our status as a supplier of pharmaceutical products to various agencies of the US federal government. Participation in certain government programs requires that discounted prices be offered for purchases by the government via a rebate system. Participation in these programs can require submission of pricing data and calculation of discounts and rebates pursuant to complex statutory formulas, as well as the entry into government procurement contracts governed by the Federal Acquisition Regulations;



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The Federal Drug Supply Chain Security Act (DSCSA), which requires development of an electronic pedigree to track and trace each prescription drug at the salable unit level through the distribution system, which will be effective incrementally over a 10-year period. Compliance with DSCSA and any additional federal or state electronic pedigree requirements may increase our operational expenses and impose significant administrative burdens; and



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Allmore than 90% of our activities potentially subject to federal and state consumer protection and unfair competition laws.

Depending on the circumstances, failure to comply with these laws and regulations can resulttotal product revenue in penalties, including criminal, civil, and/or administrative criminal penalties, damages, fines, disgorgement, exclusion of products from reimbursement under government programs, "qui tam" actions brought by individual whistleblowers in the name of the government, refusal to allow us to enter into supply contracts, including government contracts, reputational harm and diminished profits and future earnings, any of which could adversely affect our business.

2019.

Business

If any of our major products were to become subject to problems, such as changes in prescription growth rates, unexpected side effects, loss of intellectual property protection, supply chain or product supply shortages, regulatory proceedings, changes in labeling, publicity adversely affecting doctor or patient confidence in our product, material product liability litigation, pressure from new or existing competitive products, or adverse changes in coverage under managed care programs, the adverse impact on our revenue and profit could be significant. In addition, our revenue and profit could be significantly impacted by the timing and rate of commercial acceptance of key new products.

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made by payors. Reduced or partial payment, or reduced reimbursement coverage, could make our products or product candidates, including Oxtellar XR and Trokendi XR, less attractive to patients and prescribing physicians. We also may be required to sell our products or product candidates at a significant discount, which would adversely affect our ability to realize an appropriate return on our investment in our products or product candidates or to maintain profitability.

Accordingly, as it relates to SPN-812, for example, we may encounter additional manufacturing and supply-chain risks due to the regulatory and political structure of Switzerland, or as a result of the international relationship between Switzerland and the U.S.

marketing exclusivity may be granted for the approval of new and sNDAs, including Section 505(b)(2) applications, for, among other things, new indications, dosage forms, routes of administration, strengths, or for a new use of an existing drug. If the clinical investigations that were conducted or sponsored by the applicant are determined by the FDA to be essential to the approval of the application, the FDA may grant exclusivity for the product, sometimes referred to as clinical investigation exclusivity. This prevents the FDA from approving an application under Section 505(b)(2) for the same conditions of use for new clinical investigations prior to the expiration of three years from the date of approval. Such exclusivity, however, would not prevent the approval of another application if the applicant submits a full NDA, and has conducted its own adequate, well-controlled clinical trials, demonstrating safety and efficacy. It would not prevent approval of a generic product or Section 505(b)(2) product that did not incorporate the exclusivity-protected changes of the approved drug product.

financially significant to us.

Outside We utilize strategic partners outside the U.S., we utilize strategic partners where appropriate, to assist in the commercialization of our products and product candidates. We currently possess limited resources, and may not be successful in establishing collaborations or licensing arrangements on acceptable terms, if at all. We also face competition in our search for collaborators and licensing partners. By entering into strategic collaborations or similar arrangements, we will rely on third parties for financial resources andto financially support their local operations, including support required for development, commercialization, sales, and marketing and regulatory expertise. Our collaborators may fail to develop or effectively commercialize our products or product candidates because they cannot obtain the necessary regulatory approvals, they lack adequate financial or other resources or they decide to focus on other initiatives. Any failure of our third-party collaborators to successfully market and commercialize our products or product candidates outside the U.S. would diminish our revenues and harm our results of operations.

Limitations on our patent rights relating to our products and product candidates may limit our ability to prevent third parties from competing against us.

To a significant degree, our success will depend on our ability to obtain and maintain patent protection for our proprietary technologies and our products and product candidates, preserve our trade secrets,

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prevent third parties from infringing upon our proprietary rights and operate without infringing upon the proprietary rights of others. To that end, we seek patent protection in the U.S. and internationally for our products and product candidates. Our policy is to actively seek to protect our proprietary position by, among other things, filing patent applications in the U.S. and abroad (including Europe, Canada and certain other countries when appropriate) relating to proprietary technologies that are important to the development of our business.

The strength of patents in the pharmaceutical industry involves complex legal and scientific questions and can have uncertain results. Patent applications in the U.S. and most other countries are confidential for a period of time until they are published, and publication of discoveries in scientific or patent literature typically lags actual discoveries by several months or more. As a result, we cannot be certain that we were the first to conceive inventions covered by our patents and pending patent applications or that we were the first to file patent applications for such inventions. In addition, we cannot be certain that our patent applications will be granted, that any issued patents will adequately protect our intellectual property or that such patents will not be challenged, narrowed, invalidated or circumvented.

We also rely upon unpatented trade secrets, unpatented know-how and continuing technological innovation to develop and maintain our competitive position, which we seek to protect, in part, by confidentiality agreements with our employees and our collaborators and consultants. We also have agreements with our employees and selected consultants that obligate them to assign their inventions to us. It is possible that technology relevant to our business will be independently developed by a person that is not a party to such an agreement. Furthermore, if the employees and consultants that are parties to these agreements breach or violate the terms of these agreements, we may not have adequate remedies, and we could lose our trade secrets through such breaches or violations. Further, our trade secrets could otherwise become known or be independently discovered by our competitors. Any failure to adequately prevent disclosure of our trade secrets and other proprietary information could have a material adverse impact on our business.

In addition, the laws of certain foreign countries do not protect proprietary rights to the same extent or in the same manner as the U.S., and therefore we may encounter problems in protecting and defending our intellectual property in certain foreign jurisdictions.

If we are sued for infringing intellectual property rights of third parties, it could be costly and time consuming to defend such a suit. An unfavorable outcome in that litigation could have a material adverse effect on our business.

Our commercial success depends upon our ability and the ability of our collaborators to develop, manufacture, market and sell our approved products and our product candidates and use our proprietary technologies without infringing the proprietary rights of third parties. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we and our collaborators are developing product candidates. As the pharmaceutical industry expands and more patents are issued, the risk increases that our collaborators' approved products or our product candidates may give rise to claims of infringement of the patent rights of others. There may be issued patents of third parties of which we are currently unaware that may be infringed by our collaborators' approved products or Oxtellar XR or Trokendi XR, which could prevent us from being able to maximize revenue generated by our products or our product candidates. Because patent applications can take many years to issue, there may be currently pending applications which may later result in issued patents that our collaborators' approved products or our product candidates may infringe.

We may be exposed to, or threatened with, future litigation by third parties alleging that our collaborators' approved products or our products or product candidates infringe their intellectual

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property rights. If one of our collaborators' approved products or our products or product candidates is found to infringe the intellectual property rights of a third party, we or our collaborators could be enjoined by a court and required to pay damages. We could be unable to commercialize the applicable approved products and product candidates unless we obtain a license to the patent. A license may not be available to us on acceptable terms, if at all. In addition, during litigation, the patent holder could obtain a preliminary injunction or other equitable relief which could prohibit us from making, using or selling our approved products prior to a trial. Such a trial may not occur for several years.

There is a substantial amount of litigation involving patent and other intellectual property rights in the pharmaceutical industry generally. If a third party claims that we or our collaborators infringe its intellectual property rights, we may face a number of issues, including, but not limited to:

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Infringement and other intellectual property claims which, regardless of merit, may be expensive and time-consuming to litigate and may divert our management's attention from our core business;



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Substantial damages for infringement, which we may have to pay if a court decides that the product at issue infringes on or violates the third party's rights. If the court finds that the infringement was willful, we could be ordered to pay treble damages and the patent owner's attorneys' fees;



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Court rulings prohibiting us from selling our products or product candidate unless the third party licenses its rights to us, which it is not required to do;



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If a license is available from a third party, we may have to pay substantial royalties, fees or grant cross-licenses to our intellectual property rights; and



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Redesigning our products or product candidates so they do not infringe, which may not be possible or may require substantial monetary expenditures and time.

We depend on collaborators to work with us to develop, manufacture and commercialize their and our products and product candidates.

We have a license agreement with United Therapeutics Corporation to use one of our proprietary technologies for an oral formulation of treprostinil diethanolamine, or treprostinil, for the treatment of pulmonary arterial hypertension,activities, as well as for other indications. United Therapeutics Corporation launched Orenitram (treprostinil)expertise in 2014, which triggered a milestone payment to useach of $2.0 million. In the third quarter of 2014, we received a cash payment of $30.0 million as a result of HealthCare Royalty Partners III, L.P.'s (HC Royalty) purchase of certain of our rights under our license agreement with United Therapeutics Corporation related to the commercialization of Orenitram. We will retain full ownership of the royalty rights if a certain cumulative threshold payment to HC Royalty is reached. We are entitled to receive milestones and royalties for use of this formulation in other indications. If we materially breach any of our obligations under the license agreement, we could lose the right to receive any future royalty payments thereunder, which could be financially significant to us.

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collaboration partners may fail to develop or effectively commercialize products using our products, product candidates or technologies because they, among other things, may:

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We have in-licensed or acquired a portion Failure of our intellectual property necessarythird-party collaborators to develop certain ofsuccessfully market and commercialize our psychiatry product candidates. If we fail to comply with our obligations under any of these arrangements, we could lose such licensesproducts or intellectual property rights.

We are a party to and rely on several arrangements with third parties, such as those with Afecta and Rune, which give us rights to intellectual property that is necessary for the development of certain of our product candidates including SPN-810within and SPN-809, respectively. In addition, we may enter into similar arrangements inoutside the future for other product candidates. Our current arrangements impose various development, financialU.S. could materially diminish our revenues and other obligations on us. If we materially breach these obligations or if Afecta or Rune fail to adequately perform their respective obligations, these exclusive arrangements could be terminated, which would result inharm our inability to develop, manufacture and sell products that are covered by such intellectual property.

results of operations.

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differ from that required to obtain FDA approval. The regulatory approval process in other jurisdictions may include all of the risks detailed above regarding FDA approval in the U.S., as well as other risks. For example, legislation analogous to Section 505(b)(2) of the FDCA in the U.S., which relates to the ability of an NDA applicant to use published data not developed by such applicant, may not exist in other countries. In territories where data isare not freely available, we may not have the ability to commercialize our products without first negotiating rights fromwith third parties to obtain their permission to refer to their clinical data in our regulatory applications, whichapplications. This process could require the expenditure of significant additional funds and time.

Guidelines

Government agencies promulgate regulationscandidates, and guidelines directly applicablecould substantially increase commercialization costs.

We face potential product liability exposure, and if successful claims are brought against us, we may incur substantial liabilities.

The use of our product candidate in clinical trials and the sale of any of our products expose us to the risk of product liability claims. Product liability claims might be brought against us by consumers, healthcare providers or others selling or otherwise coming into contact with our products and product candidates. If we cannot successfully defend ourselves against product liability claims, we could incur substantial liabilities. In addition, product liability claims may result in:

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Decreased demand for any product that has received approval and is being commercialized;



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Impairment of our business reputation and exposure to adverse publicity;



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Withdrawal of bioequivalence and/or clinical trial participants;



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Initiation of investigations by regulators;



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Costs of related litigation;



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Distraction of management's attention from our primary business;



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Substantial monetary awards to patients or other claimants;



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Loss of revenues; and



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Our inability to commercialize productsan indication for which we obtain marketing approval.

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Our product liability insurance coverage for our clinical trials is limited to $15 million per claim and $15 million inmarket exclusivity. This implies that the aggregate, and covers bodily injury and property damage arising from our clinical trials, subject to industry-standard terms, conditions and exclusions. Our insurance coverageFDA may not be sufficientapprove any other firm's application for the same drug for that same indication for a period of seven years. Exceptions are limited, such as showing clinical superiority over the drug with orphan drug exclusivity.

Depending on what changes the FDA may make to its orphan drug regulations and policies, our business could be adversely impacted.

In both the U. S. (federal and certain states) and some foreign jurisdictions, there There have been a number of legislative and regulatory proposals and initiatives to change the health carehealthcare system in ways that could adversely affect our ability to profitably sell any approved product profitably.product. Some of these proposed and implemented reforms couldwould result in reduced reimbursement rates for our products, which would adversely affect our business strategy, operations and financial results. For example, in

In 2007, the Foodcommercialize our products and Drug Administration Amendments Act of 2007 was enacted, giving thetechnologies.

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costs to assure compliance with post-approval regulatory requirements, and could result in potential restrictions on the sale and/or distribution of any approved product.

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may not be able to make improvements to our management information and control systems in an efficient or timely manner, and may discover deficiencies in existing systems and controls. In addition, our growth will cause us to comply with an increasing number of regulations and statutory requirements. If our management is unable to effectively manage our expected growth, our expenses may increase more than expected,expected; our ability to generate or increase our revenues could be impaired,impaired; and we may not be able to implement our business strategy.

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Obtaining While we have implemented processes and maintaining our patent protection depends on complianceprocedures to ensure that the suppliers we use are complying with various procedural, document submission, fee paymentall applicable regulations, there can be no assurances that such suppliers in all instances will comply with such processes and other requirements imposed by governmental patent agencies, and our patent protection could be reducedprocedures, or eliminated for non-complianceotherwise comply with these requirements.

The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other provisions during the patent process. There are situations in which noncompliance can result in abandonment or lapse of a patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, competitors might be able to enter the market earlier than would otherwise have been the case.

We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.

We employ individuals who were previously employed at other pharmaceutical companies, including our competitors or potential competitors and, as such, we may be subject to claims that we or these employees have used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these claims. Even if we are successful in defending against such claims, litigationapplicable regulations. Noncompliance could result in substantial costsour marketing and be a distraction to management.

Security breaches and other disruptionsdistribution of contaminated, defective or dangerous products, which could compromise our information and exposesubject us to liability, which would cause our business and reputation to suffer.

In the ordinary course of our business, we collect and store sensitive data in our data centers and on our networks, including: intellectual property; our proprietary business information; proprietary information of our customers, suppliers and business partners; and personally identifiable information of our employees and patients in our clinical trials. The secure processing, maintenance and transmission of this information is critical to our operations and business strategy. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of informationliabilities. This could result in legal claimsthe imposition by governmental authorities of procedures or proceedings, liability under laws that protect the privacy of personal information, and regulatory penalties that could disruptrestrict or eliminate our operations and damage our reputation, whichability to sell products. Any or all of these effects could adversely affect our business, revenuesfinancial condition and competitive position.

results of operations.

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Our prior losses have had an adverse effect onproducts, and to further increase in anticipation of launching our stockholders' equity and cash position. product candidates.

performance. If our quarterly operating results fall below the expectations of investors or securities analysts, the price of our common stock could decline substantially. Furthermore, any quarterly fluctuations in our operating results may, in turn, cause the price of our stock to fluctuate substantially.

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our

We may not be able to maintain or increase profitability.

Our operating results may fluctuate significantly.

We expect that any revenues we generate will fluctuate from quarter to quarter and year to year as a result of revenue from approved products, our license agreements, the amount of and timing for development milestones and product revenues received under our collaboration license agreements.

Our net income and other operating results will be affected by numerous factors, including:

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the level of market acceptance for any approved product candidate, underlying demand for that product and wholesalers' buying patterns;



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variations in the level of expenses related to our development programs;



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the success of our bioequivalence and clinical trials through all phases of clinical development;



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our execution of any collaborative, licensing or similar arrangements, and the timing of payments we may make or receive under these arrangements;



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any delays in regulatory review and approval of product candidates in clinical development;



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the timing of any regulatory approvals, if received, of additional indications for our existing products;



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potential side effects of our products and our future products that could delay or prevent commercialization, cause an approved drug to be taken off the market, orpotentially result in litigation;



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any intellectual property infringement lawsuit in which we may become involved;



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our abilityincreased future cash tax liability to maintain an effective sales and marketing infrastructure;



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our dependency on third-party manufacturers to supply or manufacture our products and product candidates;



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competition from existing products, new products, or potential generics to our products that may emerge;



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regulatory developments affecting our products and product candidates; and



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changes in reimbursement environment and regulatory changes.

Our management has identified a Any system of internal controls, however well designed and operated, is based in part on certain assumptions, and can provide only reasonable, not absolute, assurances that the objectives of the system are met. Any material weakness in our internal control over financial reporting as of December 31, 2016 as described in Item 9A. Controls and Procedures below. As a result, our management, under the supervision and with the participation of our CEO and our CFO, has

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concluded that our disclosure controls and procedures were not effective as of December 31, 2016. Although our management and the audit committee of our board of directors has formulated and is implementing a plan to remediate this material weakness, we expect implementation to continue to be time consuming, and the remedial actions we take may prove to be ineffective or inadequate. Any deficiencies or material weaknessweaknesses in our internal controls could cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock.

Our ability to utilize our U.S. Federal and state net operating losses or U.S. Federal tax credits is currently limited, and may be limited further, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended. The limitations apply if an ownership change, as defined by Section 382, occurs. Generally, an ownership change occurs when certain shareholders change their aggregate ownership by more than 50 percentage points over their lowest ownership percentage in a testing period, which is typically three years or since the last ownership change. We are already subject to Section 382 limitations due to cumulative ownership changes that, as of November 15, 2013, totaled more than 50%. As of December 31, 2016, we had U.S. federal net operating loss carryforwards of $87.3 million and research and development tax credit carryforwards of $7.1 million available. Future changes in stock ownership may also trigger an additional ownership change and, consequently, another Section 382 limitation. Any limitation may result in expiration of a portion of the net operating loss or tax credit carryforwards before utilization which would reduce our gross deferred income tax assets. As a result, if we earn net taxable income,complete future acquisitions will depend on our ability to use our pre-change net operating loss carryforwards and tax credit carryforwards to reduce U.S. Federal and state income tax may be subject to limitations, which could potentially result in increased future cash tax liability to us.

Risks Related to Our Indebtedness

The Indenture governing the Notes contains restrictions that will limit our operating flexibility.

The Indenture governing the Notes contains covenants that, among other things, restrict our and our existing and future subsidiaries' ability to take specific actions, even ifidentify suitable acquisition candidates. If suitable candidates are identified, we believe them to be in our best interest. These covenants include restrictions on our ability to:

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incur additional indebtedness and issue certain types of preferred stock; and



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enter into mergers, consolidations or sales or leases of all or substantially all of our assets.

These covenants may limit our operational flexibility and could prevent us from taking advantage of business opportunities as they arise, growing our business or competing effectively.

We may not be permitted, by the agreements governingable to negotiate commercially acceptable terms for their acquisition or, if necessary, to finance those acquisitions. We anticipate competition for attractive candidates from other parties, some of whom have substantially greater financial and other resources than we have. Whether or not any particular acquisition is successfully completed, each of these activities is expensive and time consuming and would likely require our existing or future indebtedness,management to pay any interest make-whole payment upon conversion in cash, requiring usspend considerable time and effort to issue shares for such amounts,complete, which would detract from our management's ability to run our current business. Although we may spend considerable funds and efforts to pursue acquisitions, we may not be able to complete them.

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common stock formanagement's attention from other business concerns; being exposed to unanticipated or contingent liabilities from the Notes being converted. We haveacquired company, or incurring the option to issue our common stock to any converting holder in lieuimpairment of makinggoodwill; the interest make-whole payment in cash.loss of key employees or distribution partners; and difficulties implementing and maintaining sufficient controls, policies and procedures over the systems, products and processes of the acquired company. If we electdo not achieve the anticipated benefits of an acquisition as rapidly or to issue our common stock for such payment, then the stock will be valued at 95%extent anticipated by management, or if others do not perceive the same benefits of the simple averageacquisition as we do, there could be a material, adverse effect on our business, cash flows, financial condition or results of the daily volume-weighted average price (VWAP) of our common stock for the 10 trading days ending on and including the trading day immediately preceding the conversion date. Agreements governing our existing or future indebtedness may prohibit us from making cash payments in respect of the interest make-whole amount upon a conversion. Notwithstanding the foregoing, in no event will the shares we deliver in connection with a conversion, including those delivered in connection with the interest make-whole amount and repayment of principal, exceed 221.7294 shares per $1,000 principal amount of Notes, subject to adjustment or, in aggregate, 19.96 million shares. If, pursuant to our election to deliver common stock in connection with the payment of the interest make-whole amount, we would be required to deliver a number of shares of common stock in excess of such threshold, we will deliver cash in lieu of any shares otherwise deliverable upon conversions in excess thereof (based on the simple average of the daily VWAP for the 10 trading days ending on and including the trading day immediately preceding the conversion date).

operations.

any of the risks described in these "Risk Factors" could have a dramatic, material and adverse impact on the market price of our common stock. In addition, class action litigation has often been instituted against companies whose securities have experienced periods of volatility. Any such litigation brought against us could result in substantial costs and a diversion of management attention, which could hurt our business, operating results and financial condition.

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acquirers to obtain control of our board of directors or initiate actions that are opposed by the then-current board of directors.

The market priceconduct future offerings of our common stock, preferred stock or other securities that are convertible into or exercisable for our common stock to finance our operations or fund acquisitions, or for other purposes. In addition, as of December 31, 2019, 4,606,559 shares of our common stock were reserved for future issuance upon the exercise of outstanding options, 1,972,307 shares were reserved for future issuance under our 2012 Equity Incentive Plan and 54,081 shares were reserved for future issuance under our 2012 Employee Stock Purchase Plan.

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the commercial performance of Oxtellar XR, Trokendi XR, or any of our product candidates that receive marketing approval;



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substitution of our products in favor of generic versions;



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status of our ongoing patent infringement law suits;



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the filing of ANDAs by generic companies seeking approval to market generic versions of our products;



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plans for, progress in and results from clinical trials of our product candidates generally;



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FDA or international regulatory actions, including actions on regulatory applications for any of our product candidates;



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announcements of new products, services or technologies, commercial relationships, acquisitions or other events by us or our competitors;



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market conditions, inand cannot be ascertained at this time. Any of these activities could, however, adversely affect the pharmaceutical and biotechnology sectors;



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fluctuations in stock market prices and trading volumes of similar companies;



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fluctuations in stock market prices for the U.S. stock market;



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variations in our quarterly operating results;



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changes in accounting principles;



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litigation or public concern about the safety of our products and/or potential products;



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actual and anticipated fluctuations in our quarterly operating results;



•

deviations in our operating results from the estimates of securities analysts;



•

additions or departures of key personnel;

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sales of large blocksprice of our common stock including sales byand/or the trading price of the 2023 Notes and, consequently, adversely affect noteholders' ability to convert the 2023 Notes and/or affect the value of the consideration that you receive upon conversion of the 2023 Notes. In addition, the hedge counterparties and/or their affiliates may choose to engage in, or to discontinue engaging in, any of these transactions with or without notice at any time, and their decisions will be in their sole discretion and not within our executive officers, directorscontrol.