UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DCD.C. 20549

FORM 10-Q

(Mark One)
(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 20202021
ORor

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: 001-34962

ZOGENIX, INC.
(Exact Name of Registrant as Specified in its Charter)
____________________________________________
Delaware20-5300780
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
5959 Horton Street, Suite 500
Emeryville, California 94608
(Address of Principal Executive Offices and Zip Code)
510-550-8300
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, par value $0.001 per shareZGNXThe Nasdaq Global Market

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   ☐  No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).    Yes     No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an 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 filerAccelerated filer¨
Non-accelerated filer¨Smaller reporting company¨
Emerging growth company¨
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 Exchange Act).   ☐ Yes      No
The number of outstanding shares of the registrant’s common stock, par value $0.001 per share, as of April 30, 20202021 was 55,340,691.55,812,590.




ZOGENIX, INC.
FormFORM 10-Q
For the Quarterly Period Ended MarchFOR THE QUARTERLY PERIOD ENDED MARCH 31, 20202021
TABLE OF CONTENTS
Page
Financial Statements




PART I –I. FINANCIAL INFORMATION
Item 1. Financial Statements
Zogenix, Inc.ZOGENIX, INC.
Condensed Consolidated Balance SheetsCONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(inIn thousands, except par value)

March 31, 2020December 31, 2019March 31, 2021December 31, 2020
Assets:
ASSETSASSETS
Current assets:Current assets:Current assets:
Cash and cash equivalentsCash and cash equivalents$269,975  $62,070  Cash and cash equivalents$86,317 $166,916 
Marketable securitiesMarketable securities150,218  189,085  Marketable securities348,905 338,193 
Other receivable19,741  —  
Accounts receivable, netAccounts receivable, net6,119 3,824 
InventoryInventory2,324 1,026 
Prepaid expenses and other current assetsPrepaid expenses and other current assets13,647  11,084  Prepaid expenses and other current assets11,065 12,215 
Acquisition holdback placed in escrow25,000  25,000  
Total current assetsTotal current assets478,581  287,239  Total current assets454,730 522,174 
Property and equipment, netProperty and equipment, net9,560  9,424  Property and equipment, net8,377 8,724 
Operating lease right-of-use assetsOperating lease right-of-use assets8,546  7,774  Operating lease right-of-use assets7,452 7,748 
Indefinite-lived intangible assets102,500  102,500  
Intangible asset, netIntangible asset, net96,587 98,558 
GoodwillGoodwill6,234  6,234  Goodwill6,234 6,234 
Other noncurrent assets1,485  1,079  
Other non-current assetsOther non-current assets7,584 7,692 
Total assetsTotal assets$606,906  $414,250  Total assets$580,964 $651,130 
Liabilities and stockholders’ equity:
LIABILITIES AND STOCKHOLDERS’ EQUITYLIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:Current liabilities:Current liabilities:
Accounts payableAccounts payable$7,887  $7,979  Accounts payable$11,964 $11,945 
Accrued and other current liabilitiesAccrued and other current liabilities25,803  30,117  Accrued and other current liabilities30,749 54,964 
Acquisition holdback liability24,444  24,444  
Deferred revenue, currentDeferred revenue, current5,696  5,927  Deferred revenue, current5,297 5,318 
Current portion of operating lease liabilitiesCurrent portion of operating lease liabilities1,383  1,322  Current portion of operating lease liabilities1,621 1,688 
Current portion of contingent considerationCurrent portion of contingent consideration23,600  25,600  Current portion of contingent consideration8,900 8,800 
Total current liabilitiesTotal current liabilities88,813  95,389  Total current liabilities58,531 82,715 
Deferred revenue, noncurrentDeferred revenue, noncurrent6,407  7,425  Deferred revenue, noncurrent5,664 5,479 
Operating lease liabilities, net of current portionOperating lease liabilities, net of current portion11,454  10,752  Operating lease liabilities, net of current portion9,937 10,314 
Contingent consideration, net of current portionContingent consideration, net of current portion32,300  38,200  Contingent consideration, net of current portion34,100 33,600 
Deferred income taxes17,425  17,425  
Convertible senior notesConvertible senior notes151,451 149,353 
Total liabilitiesTotal liabilities156,399  169,191  Total liabilities259,683 281,461 
Commitments and contingenciesCommitments and contingenciesCommitments and contingencies00
Stockholders’ equity:Stockholders’ equity:Stockholders’ equity:
Preferred stock, $0.001 par value; 10,000 shares authorized; NaN issued and outstandingPreferred stock, $0.001 par value; 10,000 shares authorized; NaN issued and outstanding—  —  Preferred stock, $0.001 par value; 10,000 shares authorized; NaN issued and outstanding
Common stock, $0.001 par value; 100,000 shares authorized; and 55,341 and 45,272 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively55  45  
Additional paid-in capital1,591,497  1,360,092  
Common stock and additional paid-in capital, $0.001 par value: 100,000 shares authorized; 55,813 and 55,736 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectivelyCommon stock and additional paid-in capital, $0.001 par value: 100,000 shares authorized; 55,813 and 55,736 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively1,701,788 1,694,580 
Accumulated deficitAccumulated deficit(1,141,257) (1,115,457) Accumulated deficit(1,380,470)(1,324,840)
Accumulated other comprehensive income212  379  
Accumulated other comprehensive lossAccumulated other comprehensive loss(37)(71)
Total stockholders’ equityTotal stockholders’ equity450,507  245,059  Total stockholders’ equity321,281 369,669 
Total liabilities and stockholders’ equityTotal liabilities and stockholders’ equity$606,906  $414,250  Total liabilities and stockholders’ equity$580,964 $651,130 
See accompanying notes to the unaudited condensed consolidated financial statements.
Zogenix, Inc.ZOGENIX, INC. | Q1 20202021 Form 10-Q | 1


Zogenix, Inc.ZOGENIX, INC.

Condensed Consolidated Statements of OperationsCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(inIn thousands, except per share amounts)
Three Months Ended March 31,Three Months Ended March 31,
2020201920212020
Revenues:Revenues:
Net product salesNet product sales$12,349 $
Collaboration revenueCollaboration revenue$1,249  $—  Collaboration revenue1,335 1,249 
Operating expenses:
Total revenuesTotal revenues13,684 1,249 
Costs and expenses:Costs and expenses:
Cost of product sales (excluding amortization of intangible asset)Cost of product sales (excluding amortization of intangible asset)676 
Research and developmentResearch and development33,240  24,352  Research and development30,969 33,240 
Selling, general and administrativeSelling, general and administrative21,318  10,918  Selling, general and administrative31,272 21,318 
Acquired in-process research and development expense1,500  —  
Intangible asset amortizationIntangible asset amortization1,971 
Acquired in-process research and development costsAcquired in-process research and development costs1,500 
Change in fair value of contingent considerationChange in fair value of contingent consideration(7,900) 3,000  Change in fair value of contingent consideration600 (7,900)
Total operating expenses48,158  38,270  
Total costs and expensesTotal costs and expenses65,488 48,158 
Loss from operationsLoss from operations(46,909) (38,270) Loss from operations(51,804)(46,909)
Other income (expense):
Interest incomeInterest income1,088  3,156  Interest income308 1,088 
Other income (expense), net20,021  (88) 
Total other income21,109  3,068  
Interest expenseInterest expense(3,737)
Other (expense) income, netOther (expense) income, net(397)20,021 
Net lossNet loss$(25,800) $(35,202) Net loss$(55,630)$(25,800)
Net loss per share, basic and dilutedNet loss per share, basic and diluted$(0.54) $(0.83) Net loss per share, basic and diluted$(1.00)$(0.54)
Weighted average number of shares used in the calculation of basic and diluted net loss per common shareWeighted average number of shares used in the calculation of basic and diluted net loss per common share48,185  42,236  Weighted average number of shares used in the calculation of basic and diluted net loss per common share55,750 48,185 
See accompanying notes to the unaudited condensed consolidated financial statements.
Zogenix, Inc.ZOGENIX, INC. | Q1 20202021 Form 10-Q | 2


Zogenix, Inc.ZOGENIX, INC.

Condensed Consolidated Statements of Comprehensive LossCONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited)
(inIn thousands)
Three Months Ended March 31,Three Months Ended March 31,
2020201920212020
Net lossNet loss$(25,800) $(35,202) Net loss$(55,630)$(25,800)
Other comprehensive (loss) income, net of tax:Other comprehensive (loss) income, net of tax:Other comprehensive (loss) income, net of tax:
Change in unrealized (losses) gains related to marketable securities(172) 370  
Change in unrealized gains related to marketable securitiesChange in unrealized gains related to marketable securities(112)(172)
Foreign currency translation adjustmentsForeign currency translation adjustments —  Foreign currency translation adjustments146 
Total other comprehensive (loss) income(167) 370  
Total other comprehensive income (loss)Total other comprehensive income (loss)34 (167)
Comprehensive lossComprehensive loss$(25,967) $(34,832) Comprehensive loss(55,596)(25,967)
See accompanying notes to the unaudited condensed consolidated financial statements.
Zogenix, Inc.ZOGENIX, INC. | Q1 20202021 Form 10-Q | 3


Zogenix, Inc.ZOGENIX, INC.

Condensed Consolidated Statements of Stockholders' EquityCONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)
(inIn thousands)

Three Months Ended March 31, 2020
Common StockAdditional
Paid-in
Capital
Accumulated
Other
Comprehensive
Income
Accumulated
Deficit
Total
Stockholders’
Equity
SharesAmount
Balance at December 31, 201945,272  $45  $1,360,092  $379  $(1,115,457) $245,059  
Net loss—  —  —  —  (25,800) (25,800) 
Other comprehensive loss—  —  —  (167) —  (167) 
Issuance of common stock, net of offering costs9,798  10  221,698  —  —  221,708  
Issuance of common stock under employee equity plans297  —  3,882  —  —  3,882  
Shares repurchased for tax withholdings related to net share settlement of employee equity awards(26) —  (569) —  —  (569) 
Stock-based compensation—  —  6,394  —  —  6,394  
Balance at March 31, 202055,341  $55  $1,591,497  $212  $(1,141,257) $450,507  
Three Months Ended March 31, 2021Shares of
Common Stock
Common Stock
and
Additional
Paid-in Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Loss
Total
Stockholders’
Equity
Balance at December 31, 202055,736 $1,694,580 $(1,324,840)$(71)$369,669 
Net loss— — (55,630)— (55,630)
Other comprehensive income— — — 34 34 
Issuance of common stock under employee equity plans120 — — 
Shares repurchased to satisfy tax withholding obligation of vesting restricted stock units(43)(896)— — (896)
Stock-based compensation— 8,098 — — 8,098 
Balance at March 31, 202155,813 $1,701,788 $(1,380,470)$(37)$321,281 


Three Months Ended March 31, 2019
Common StockAdditional
Paid-in
Capital
Accumulated
Other
Comprehensive
Income
Accumulated
Deficit
Total
Stockholders’
Equity
SharesAmount
Balance at December 31, 201842,078  $42  $1,218,710  $ $(695,954) $522,801  
Net loss—  —  —  —  (35,202) (35,202) 
Other comprehensive income—  —  —  370  —  370  
Issuance of common stock under employee equity plans380  —  5,293  —  —  5,293  
Shares repurchased for tax withholdings related to net share settlement of employee equity awards(12) —  (606) —  —  (606) 
Stock-based compensation—  —  4,223  —  —  4,223  
Balance at March 31, 201942,446  $42  $1,227,620  $373  $(731,156) $496,879  
Three Months Ended March 31, 2020Shares of
Common Stock
Common Stock
and
Additional
Paid-in Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income
Total
Stockholders’
Equity
Balance at December 31, 201945,272 $1,360,137 $(1,115,457)$379 $245,059 
Net loss— — (25,800)— (25,800)
Other comprehensive loss— — — (167)(167)
Issuance of common stock, net of offering costs9,798 221,708 — — 221,708 
Issuance of common stock under employee equity plans297 3,882 — — 3,882 
Shares repurchased to satisfy tax withholding obligation of vesting restricted stock units(26)(569)— — (569)
Stock-based compensation— 6,394 — — 6,394 
Balance at March 31, 202055,341 $1,591,552 $(1,141,257)$212 $450,507 

See accompanying notes to the unaudited condensed consolidated financial statements.
Zogenix, Inc.ZOGENIX, INC. | Q1 20202021 Form 10-Q | 4


Zogenix, Inc.ZOGENIX, INC.

Condensed Consolidated Statements of Cash FlowsCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(inIn thousands)
Three Months Ended March 31,
20202019
Cash flow from operating activities:
Net loss$(25,800) $(35,202) 
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation6,394  4,223  
Depreciation and amortization357  191  
Noncash lease expense339  —  
Net accretion and amortization of investments in marketable securities(215) (1,703) 
Change in fair value of warrant liabilities(162) 303  
Acquired in-process research and development expense1,500  —  
Change in fair value of contingent consideration(7,900) 3,000  
Changes in operating assets and liabilities:
Accounts receivable—  (15,500) 
Other receivable(19,741) —  
Prepaid expenses, escrow holdback and other current assets(722) 5,270  
Other assets(405) (6,580) 
Accounts payable, accrued and other liabilities(4,435) (7,096) 
Operating lease liability(452) 12,767  
Deferred revenue(1,249) 15,500  
Net cash used in operating activities(52,491) (24,827) 
Cash flows from investing activities:
Cash paid for in-process research and development asset(1,500) —  
Purchases of marketable securities(15,695) (145,826) 
Proceeds from maturities of marketable securities54,605  171,225  
Purchases of property and equipment(193) (4,535) 
Net cash provided by investing activities37,217  20,864  
Cash flows from financing activities:
Payment of contingent consideration—  (10,000) 
Proceeds from issuance of common stock under equity incentive plans2,040  4,379  
Taxes paid related to net share settlement of equity awards(569) (582) 
Proceeds from issuance of common stock, net of issuance costs221,708  —  
Net cash provided by (used in) financing activities223,179  (6,203) 
Net decrease in cash and cash equivalents207,905  (10,166) 
Cash and cash equivalents, beginning of the period62,070  68,454  
Cash and cash equivalents, end of the period$269,975  $58,288  
Three Months Ended March 31,
20212020
Cash flows from operating activities:
Net loss$(55,630)$(25,800)
Adjustments to reconcile net loss to net cash used in operating activities
Stock-based compensation8,098 6,394 
Depreciation and amortization2,365 357 
Amortization of debt discount and issuance costs2,098 
Acquired in-process research and development expense1,500 
Change in fair value of contingent consideration liability600 (7,900)
Other non-cash items, net236 (38)
Changes in operating assets and liabilities:
Accounts receivable(2,295)
Inventory(1,298)
Prepaid expenses and other current assets1,150 (20,463)
Other non-current assets108 (405)
Accounts payable, accrued and other current liabilities(9,010)(4,435)
Operating lease liabilities(444)(452)
Deferred revenue164 (1,249)
Net cash used in operating activities(53,858)(52,491)
Cash flows from investing activities:
Cash paid for in-process research and development asset(1,500)
Purchases of marketable securities(141,652)(15,695)
Proceeds from sale and maturities of marketable securities130,888 54,605 
Purchases of property and equipment(87)(193)
Net cash (used in) provided by investing activities(10,851)37,217 
Cash flows from financing activities:
Payment of contingent consideration(15,000)
Proceeds from issuance of common stock under equity incentive plans2,040 
Payments of tax withholding obligation on vesting restricted stock units(896)(569)
Proceeds from issuance of common stock, net of issuance costs221,708 
Net cash (used in) provided by financing activities(15,890)223,179 
Net (decrease) increase in cash and cash equivalents(80,599)207,905 
Cash and cash equivalents, beginning of the period166,916 62,070 
Cash and cash equivalents, end of the period$86,317 $269,975 
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
 Right-of-use assets obtained in exchange for new operating lease liabilities$$1,156 
See accompanying notes to the unaudited condensed consolidated financial statements.
Zogenix, Inc.ZOGENIX, INC. | Q1 20202021 Form 10-Q | 5


Zogenix, Inc.ZOGENIX, INC.
Notes to Condensed Consolidated Financial StatementsNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 1 – Organization, Basis of Presentation and Liquidity
Zogenix, Inc., and subsidiaries (the Company,(also referred to as Zogenix, we, usour or our)us) is a global pharmaceuticalbiopharmaceutical company committed to developing and commercializing transformative therapies with the potential to improvetransform the lives of patients and their families living with rare diseases. We are primarily focused on developingOur first rare disease therapy, Fintepla (fenfluramine) oral solution, has been approved by the U.S. Food and commercializing two therapeutic product candidates: Fintepla, a low-dose fenfluramine investigational therapyDrug Administration (FDA) and the European Medicines Agency (EMA) for two pediatric epilepsy disorders,the treatment of seizures associated with Dravet syndrome, a rare, devastating, severe lifelong epilepsy. Fintepla is also currently under development in Japan. We also have 2 late-stage development programs underway: 1 for Fintepla for the treatment of seizures associated with Lennox-Gastaut syndrome (LGS), a rare childhood-onset epilepsy, and Lennox-Gastaut Syndrome (LGS); andanother for MT1621, an investigational deoxynucleosidenovel substrate enhancement therapy for the treatment of thymidine kinase 2TK2 deficiency, (TK2d), an inherited mitochondrial DNA depletion disorder that predominantly affects children and is often fatal.a rare genetic disorder.
We operate as a single operating segment engaged in 1 business segment—the research, development and commercialization of pharmaceutical products, and our headquarters are located in Emeryville, California.
Basis of Presentation
The accompanying condensed consolidated financial statements include the accounts of Zogenix, Inc. and its wholly-owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. The condensed consolidated financial statements have been prepared pursuant to generally accepted accounting principles in the United States (GAAP) for interim financial reporting and the rules and regulations of the Securities and Exchange Commission (SEC). The condensed consolidated financial statements do not include all of the information and note disclosures required by GAAP for interimcomplete financial reporting.statements and should therefore be read in conjunction with the consolidated financial statements and related notes included in our 2020 Annual Report on Form 10-K (2020 Form 10-K), which was filed with the SEC on March 1, 2021. In the opinion of management, thethese condensed consolidated financial statements reflect all adjustments, which are normal and recurring in nature, necessary for a fair statement of our financial statement presentation.position, results of operations and cash flows for the periods indicated. The results of operations for any interim period are not necessarily indicative of results of operations for any future period. Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States (GAAP) have been condensed or omitted. Accordingly, these unaudited interim
The accompanying condensed consolidated financial statements include the accounts of Zogenix, Inc. and accompanying notes should be read in conjunction with the consolidated financial statementsits wholly-owned subsidiaries. Intercompany accounts and related notes included in our 2019 Annual Report on Form 10-K (2019 Form 10-K), which was filed with the SEC on March 2, 2020.
Certain prior period amounts within the accompanying unaudited condensed consolidated financial statementstransactions have been reclassified to conform to current period presentation. These reclassifications did not affect our financial position, net loss, comprehensive loss, or cash flows as of and for the periods presented.eliminated in consolidation.
Future Funding RequirementsLiquidity
As of March 31, 2020,2021, our cash, cash equivalents and marketable securities totaled $420.2$435.2 million. Excluding gains from two2 discrete business divestitures, we have incurred significant net losses and negative cash flows from operating activities since inception, resulting in an accumulated deficit of $1.1$1.4 billion as of March 31, 2020.2021. We expect to continue to incur significant operating losses and negative cash flows from operations to support the sales and marketing of Fintepla for Dravet syndrome in the U.S. and Europe, potential commercialization of Fintepla for LGS, as we continuewell as continuing to advance our product candidates through development and commercialization.clinical programs. Additionally, we are obligated to make future milestone payments that are contingent upon the successful achievement of certain development, regulatory and sales-based milestone events related to Fintepla and certain regulatory milestone events related to MT1621. Historically, we have relied primarily on the proceeds from equity and convertible debt offerings to finance our operations. Until such time, if ever, we can generate a sufficient amount of revenue to finance our cash requirements, we may need to continue to rely on additional financing to achieve our business objectives. However, ifwe may not be able to secure such financing is not availablein a timely manner or on favorable terms, if at adequate levelsall, and this risk could be exacerbated by the impact of COVID-19 on global economic conditions. Failure to raise sufficient capital when needed we may be requiredcould require us to significantly delay, scale back or discontinue one or more of our product development programs or commercialization efforts or other aspects of our business plans, and our operating results and financial condition would be adversely affected.
Zogenix, Inc. | Q1 2020 Form 10-Q | 6


Note 2 – Summary of Significant Accounting Policies
Use of Estimates
The preparation of our condensed consolidated financial statements requires us to make estimates, judgments and assumptions that may affect the reported amounts of assets, liabilities, equity, revenues and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis we evaluate our estimates, judgments and methodologies. We base our estimates on historical experience and on various other assumptions that we believe are reasonable, the results of which form the basis for making judgments about the carrying values of assets, liabilities and equity and the amount of revenues and expenses. Actual results may differ from those estimates.
ZOGENIX, INC. | Q1 2021 Form 10-Q | 6


Significant Accounting Policies
The significant accounting policies and estimates used in the preparation of the accompanying condensed consolidated financial statements are described in Note 2, Summary of Significant Accounting Policies of notes to the consolidated financial statements in our 20192020 Form 10-K. There have been no material changes in our significant accounting policies during the three months ended March 31, 2020 other2021.
Recently Issued Accounting Pronouncements Not Yet Adopted
Account Standard Update (ASU) 2020-06, Debt — Debt with Conversion and Other Options (subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (subtopic 815-40) (ASU 2020-06) simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible debt instruments with cash conversion features. Specifically, ASU 2020-06 removes the existing guidance that we currently follow for our convertible senior notes, which requires entities to account for cash conversion features in equity separately from the host contract. These amendments are expected to result in more freestanding financial instruments qualifying for equity classification and, as a result, not accounted for as derivatives, as well as fewer embedded features requiring separate accounting from the host contract. In addition, ASU 2020-06 eliminates the treasury stock method when calculating diluted earnings per share for convertible instruments that can be settled in whole or in part with equity and requires the use of the if-converted method. Early adoption is permitted, but no earlier than the recently adoptedfiscal year beginning after December 15, 2020. The standard can be applied using a full or modified retrospective approach.    
ASU 2020-06 will be effective for us as of January 1, 2022. When effective, we expect the accounting pronouncements set forth below.
Impactfor our convertible senior notes as a single unit of COVID-19 Pandemic
In March 2020, the World Health Organization declared the global novel coronavirus disease (COVID-19) outbreak a pandemic. To date, our operations have not been significantly impacted by the COVID-19 outbreak. However, we cannot predict the specific extent, duration, or full impact that the COVID-19 outbreak will have on our financial condition and operations, including ongoing and planned clinical trials, the timelines for receiving feedback or approvals from regulatory authorities, and a potential product launch in the midst of a pandemic.
Management is monitoring the potential impact of the COVID-19 pandemic, if any, onaccount will: i) increase the carrying value of our indefinite-lived in-process research and development (IPR&D) intangible asset, goodwill, long-lived assets and right-of-use assets. The full extentconvertible notes to whichbe closer to its outstanding principal balance, ii) decrease our interest expense over the COVID-19 pandemic will directly or indirectly impact our business, resultsexpected life of operations and financial condition, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain it or treat COVID-19, as well as the economic impact on local, regional, national and international markets. If the financial markets and/orinstrument, and iii) result in the overall economy are impacted for an extended period, our business, results of operations and financial condition maydebt instrument’s effective interest rate to be adversely affected.
Income Taxes
On March 27, 2020, The Coronavirus Aid, Relief and Economic Security Act (CARES Act) was signed into law which lifts certain limitations originally imposed bycloser to the Tax Cuts and Jobs Act of 2017 (Tax Act). The CARES Act, among other provisions, retroactively and temporarily (for taxable years beginning before January 1, 2021) suspends application of the 80%-of-income limitation onstated coupon rate. In addition, the use of net operating losses,the more favorable treasury stock method, which was enacted as partallows an entity with a stated policy of settling convertible instruments with a combination of cash and shares to exclude shares issuable upon conversion that it expects to settle with cash when calculating diluted earnings per share, is no longer permitted. Even if we have the Tax Act. It also provides that net operating losses arisingintent and ability to settle conversions by paying the conversion value in any taxable year beginning after December 31, 2017, and before January 1, 2021 are generally eligible to be carried backcash up to five years.the principal amount being converted and any excess in shares, the adoption of ASU 2020-06 will require that we presume such instruments will be settled by issuance of shares (the “if-converted method”). As a result, our diluted earnings per share under ASU 2020-06 may be lower than if we were able to apply the treasury stock method when calculating the dilutive effect of our Notes in earnings per share.
Note 3 – Product Revenue and Concentration of Credit Risks
Net Product Sales
Fintepla is distributed in the U.S. through an exclusive arrangement with a specialty distributor, who is our customer. The enactment of the CARES Act did not resultspecialty distributor subsequently resells our product through its related specialty pharmacy provider to patients and health care providers. Separately, we have or may enter into payment arrangements with various third-party payers including pharmacy benefit managers, private healthcare insurers and government healthcare programs who provide coverage and reimbursement for our products that have been proscribed to a patient.
In February 2021, we began to distribute Fintepla in any material adjustmentsEurope (currently, in Germany) through a third-party logistics provider (3PL) for distribution to pharmacies throughout Germany. The pharmacies are our income tax provision forcustomers, who subsequently resell our product directly to patients and health care providers.
For the three months ended March 31 ,2021, total net product sales generated from Fintepla was $12.3 million, and consisted of $11.3 million derived in the United States and $1.0 million derived in Germany. Fintepla was approved by the FDA in June 2020 orand the EMA in December 2020.
We record product revenue at the net sales price (transaction price), which includes estimates of consideration payable to our net deferred tax assets ascustomers and third-party payers for which reserves are established and that result from government rebates, chargebacks, co-pay assistance, prompt-payment discounts and other allowances that are offered under arrangements between us, our customers, and third-party payers related to the sales of March 31, 2020. Given our history of losses, we do not expectFintepla.
The following table summarizes the provisions, of the CARES Act to have a material impact on our annual effective tax rate or condensed consolidated financial statements in 2020; however, we will continue to evaluate the impact of tax legislation and will update our disclosures as additional information and interpretive guidance becomes available.
Recently Adopted Accounting Pronouncements
Accounting Standards Update (ASU) 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments revises the measurement of credit lossescredits/payments, for most financial instruments measured at amortized cost, including trade receivables, from an incurred loss methodology to an expected loss methodology which results in earlier recognition of credit losses. Under the incurred loss model, a loss is not recognized until it is probable that the loss-causing event has already occurred. The standard introduces a forward-looking expected credit loss model that requires an estimate of the expected credit losses over the life of the instrument by considering all relevant information including historical experience, current conditions, and reasonable and supportable forecasts that affect collectability. In addition, the standard also modifies the impairment model for available-for-sale debt securities, which are measured at fair value, by eliminating the consideration for the length of time fair value has been less than amortized cost when assessing credit loss for a debt security and provides for reversals of credit losses through income upon credit improvement. The standard became effective for us beginning January 1, 2020. Based on the composition of our investment portfolio, which reflects our primary investment objective of capitalsales-related deductions.
Zogenix, Inc.ZOGENIX, INC. | Q1 20202021 Form 10-Q | 7


preservation, the adoption of this standard
(In thousands)RebatesTrade Discounts, Distributor Fees and OtherTotal
Balance at December 31, 2020$1,161 $129 $1,290 
Current period provisions1,904 593 2,497 
Credits/payments(774)(481)(1,255)
Balance at March 31, 2021$2,291 $241 $2,532 
We generally invoice our customers and recognize revenue once our performance obligations are satisfied, at which point payment is unconditional. Accordingly, our arrangements with customers did not havegive rise to contract assets or liabilities during the three months ended March 31, 2021.
Concentration of Credit Risk and Major Customers
As is common in the pharmaceutical industry for products treating rare diseases, Fintepla is distributed through exclusive arrangements with a materialspecialty distributor in the U.S. and through a 3PL who distributes to pharmacy providers throughout Germany. As a result, our accounts receivable balance at March 31, 2021 is highly concentrated with our U.S. customer accounting for over 90% of the balance and over 90% of net product revenue for the three months ended March 31, 2021. Accounts receivable are stated net of an allowance that reflects our current estimate of credit losses expected to occur over the life of the receivable. Estimates of our allowance for credit losses consider a number of factors including existing contractual payment terms, individual customer circumstances, historical payment patterns of our customers, a review of the local economic environment and its potential impact on expected future customer payment patterns. As of March 31, 2021 and December 31, 2020, we believe that the allowances for doubtful accounts, if any, are adequate based on our condensed consolidated financial statements or related disclosures.
ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. The implied fair value for a reporting unit is determined in the same manner as the amount of goodwill recognized in a business acquisitionanalysis of the reporting unit. Under the standard, an entity shall recognize an impairment chargespecific business circumstances and expectations of collection for the amount by which the carrying amount of a reporting unit exceeds its fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The standard became effective for us beginning January 1, 2020. The adoption of this standard did not have a material impact on our condensed consolidated financial statements or related disclosures; however, any prospective goodwill impairment losses recognized will be measured in accordance with the updated guidance.
ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure FrameworkChanges to the Disclosure Requirements for Fair Value Measurement modifies the disclosure requirements in Topic 820 by removing certain disclosure requirements related to the fair value hierarchy, modifying existing disclosure requirements related to measurement uncertainty and adding new disclosure requirements, such as disclosing the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. This standard became effective for us beginning January 1, 2020 and the adoption of this standard did not have a material impact on our condensed consolidated financial statements. For the new disclosures regarding our Level 3 fair value measurements, see Note 5, Fair Value Measurements to these condensed consolidated financial statements.
ASU 2019-12, Simplifying the Accounting for Income Taxes (Topic 740) removes certain exceptions to the general principles in Topic 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspectseach of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. This ASU is effective for us for all interim and annual periods beginning January 1, 2021, with early adoption permitted. We early adopted ASU 2019-12 beginning January 1, 2020 on a prospective basis. The adoption of this standard did not have a material impact on our condensed consolidated financial statements and related disclosures.
The only aspect of ASU 2019-12 that is currently applicable to us is the removal of the exception related to intraperiod tax allocation. Beginning in 2020, we will apply the general methodology regarding the intraperiod allocation of tax expense. After the adoption of ASU 2019-12, in periods where we have a loss from continuing operations, we will determine the amount of taxes attributable to continuing operations without regard to the tax effect of other items, including changes in unrealized gains related to marketable securities.
Recent Accounting Pronouncements
We have reviewed recently issued accounting pronouncements and concluded they are either not applicable to our business or no material effect is expected on our condensed consolidated financial statements as a result of future adoption.underlying accounts.
Note 34CollaborativeCollaboration Arrangement
Nippon Shinyaku Co., Ltd
In March 2019, we entered into an agreement (Shinyaku Agreement) with Nippon Shinyaku Co., Ltd. (Shinyaku) for the exclusive distribution of Fintepla in Japan for the treatment of Dravet syndrome and LGS. No development rights or intellectual property licenses were transferred. As part of the Shinyaku Agreement, we are responsible for completing the global clinical development and all regulatory approval activities for Fintepla to support the submission of new drug applications in Japan for Dravet syndrome and LGS. Upon regulatory approval of Fintepla in Japan, Shinyaku will act as our exclusive distributor for Fintepla and will be responsible for the commercialization activities including the promotion, marketing, sale and distribution of Fintepla in Japan. Upon regulatory approval of Fintepla in Japan, Shinyaku will also act as our exclusive distributor for commercial shipment and distribution of Fintepla in Japan. If we pursue global development of Fintepla for indications other than Dravet syndrome or LGS, Shinyaku has the option to participate in the development for such indications in Japan, subject to cost sharing requirements pursuant to the agreement. Activities under the Shinyaku Agreement will be governed by a joint steering committee (JSC) consisting of three representatives from each party to the agreement. All decisions of the JSC are to be made by a unanimous vote with tie-breaking rights provided to each party for certain matters related to development, regulatory approval and commercializationselect distribution activities of Fintepla in that territory.
Zogenix, Inc. | Q1 2020 Form 10-Q | 8


Shinyaku has agreed to support development and regulatory approval of Fintepla in Japan by actively participating in the design of non-clinical, clinical and manufacturing requirements needed for regulatory submission, actively planning and participating in product labeling decisions and discussions with the Japanese Ministry of Health, Labor and Welfare (MHLW) and obtained distribution exclusivity through the payment of an initial fixed consideration. The collaborative activities under the Shinyaku Agreement prior to regulatory approval are within the scope of the accounting guidance related to collaborative arrangements.
Pursuant to the terms of the agreement, Shinyaku agreed to make aggregate fixed payments of $20.0 million to us in scheduled installments.installments over a two-year period from the date of the agreement. As of March 31, 2020, we have received $17.0 million with the remaining balance due within the next year. We will be actively running the clinical trials, performing manufacturing validation activities, preparing regulatory filings and holding discussions with MHLW, and negotiating pricing. We and Shinyaku have agreed to proportionally share the Japan specific development costs that may arise outside of the initial development plan and any post-approval clinical study costs in Japan. 2021, all fixed consideration has been received. In addition, we can earn up to $66.0 million from Shinyaku for the achievement of certain regulatory milestones for the treatment of Dravet syndrome and LGS. IfAt contract inception and through March 31, 2021, the regulatory approval of Fintepla is received in Japan, we have agreed to supply Shinyaku with Fintepla upon receipt of purchase orders at our actual manufacturing cost plus a fixed transfer price mark-up, a fixed percentage of Shinyaku's net sales of Fintepla in Japan for such fiscal year, and a net price mark-up based on a percentmilestone variable consideration was fully constrained as the achievement of the applicable aggregate sales of Fintepla by Shinyaku for such fiscal year. The net price mark-up percentage increases with Shinyaku’s sales of Fintepla annual net sales in Japan and ranges between mid-twenties and is capped at a low thirties of the aggregate annual net sales for an applicable fiscal year. In addition, weevents tied to these regulatory milestone payments was highly dependent on factors outside our control.
We can earn up to an additional $42.5 million tied to the achievement of certain net sales milestones by Shinyaku through the term of the agreement, which generally expires in 2045.
The collaborative activities under the Shinyaku Agreement prior to regulatory approval are within the scope of the accounting guidance related to collaborative arrangements as both parties are active participants and are exposed to significant risks and rewards dependent on the success of commercializing Fintepla in Japan. Since Shinyaku is not a customer as it does not obtain an output of our development and regulatory approval activities for Fintepla as they were not provided a license to our intellectual property or the ability to manufacture the product, and we do not consider performing development and regulatory approval services to be a part of our ongoing activities. Shinyaku will only become a customer and subject to revenue from contracts from customers accounting guidance after regulatory approval of Fintepla in Japan occurs and Shinyaku places purchase orders with us.To date, Shinyaku has not provided us with any purchase orders and thus no revenue has been recognized for the supply of Fintepla.
We considered the revenue from contracts with customers guidance by analogy in determining the unit of account, and the recognition and measurement of such unit of account for collaborative activities under the Shinyaku Agreement and concluded that there are two development programs akin to performance obligations related to collaborative activities for development and regulatory approval efforts for Dravet and LGS. We are the principal as it relates to the collaborative development and regulatory approval activities primarily because we are responsible for the acceptability of the results of the work of the third-party vendors that are used to assist us in performing such activities. Therefore, such collaboration revenue is presented on a gross basis in our condensed consolidated statements of operations apart from research and development expenses incurred.
Since Shinyaku was not provided a license to our intellectual property or the ability to manufacture Fintepla, Shinyaku will only become a customer, and payments made under the Shinyaku Agreement will only be subject to the accounting guidance related to revenue from contracts from customers, after regulatory approval of Fintepla in Japan occurs and Shinyaku places purchase orders with us.
The initial collaboration consideration consisted solely of the fixed consideration payments of $20.0 million and was allocated on a relative standalone selling price basis to the two identified development programs akin to performance obligations related to collaborative activities for development and regulatory approval efforts for Dravet syndrome and LGS. Analogizing to the revenue from contracts with customers variable consideration guidance, all potential regulatory milestone payment consideration will be included in the collaboration consideration if and when it is probable that a significant reversal in the amount of cumulative collaboration consideration recognized will not occur when the uncertainty associated with the variable collaboration consideration is subsequently resolved. At contract inception and through March 31, 2020, this consideration was fully constrained as the achievement of the events tied to these regulatory milestone payments was highly dependent on factors outside our control.
Collaboration revenue is being recognized over time as the collaborative activities related to each development program are rendered. We determined an input method is a reasonable representative depiction of the performance of the collaborative activities under the Shinyaku Agreement. The method of measuring progress towards completion incorporates actual internal and external costs incurred, relative to total internal and external costs expected to be incurred over an estimated period to satisfy the collaborative activities. The period over which total costs are estimated reflects our estimate of the period over which it will perform the collaborative activities for each development program. Changes in estimates of total internal and external costs expected to be incurred are recognized in the period of change as a cumulative catch-up adjustment to collaboration revenue.
Zogenix, Inc. | Q1 2020 Form 10-Q | 9


For the three months ended March 31, 2021 and 2020, we recognized collaboration revenue ofunder this arrangement was $1.3 million and $1.2 million.million, respectively. As of March 31, 2020, $12.1 million related to this agreement was recorded as2021, the deferred revenue which isbalance of $11.0 million was classified as either current or net of current portion in the accompanying condensed consolidated balance sheets
ZOGENIX, INC. | Q1 2021 Form 10-Q | 8


based on the period over which the collaboration revenue is expected to be recognized. We expect to recognize collaboration revenue related to these collaborative activities through the end of 2023.
Note 5 – Strategic License Agreement
Tevard Collaboration, Option and License Agreement
In October 2019, we entered into an option agreement with Tevard Biosciences (Tevard), a privately-held company focused on advancing novel gene therapies and other genetic epilepsies. In December 2020, we exercised the option on Tevard’s Dravet syndrome program and entered into a collaboration, option and license agreement with Tevard (the Tevard Agreement) and will be responsible for funding preclinical studies and clinical development for this program. The financial terms of the Tevard Agreement included an upfront payment of $5.2 million. In connection with the transaction, we also purchased a convertible promissory note issued by Tevard in the amount of $5.0 million. The note matures in December 2022 and carries interest at 3.5% per year. The note will automatically convert into equity securities issued by Tevard in their next equity financing transaction at a conversion price equal to the price paid per share by other investors of the financing transaction.
For the three months ended March 31, 2021, amounts payable to reimburse Tevard for its costs incurred under the Dravet syndrome program of $0.8 million were recorded as research and development expense. For the three months ended March 31, 2020, option maintenance fees of $1.5 million incurred prior to our opt-in of Tevard’s Dravet syndrome program in December 2020 were immediately expensed to acquired in-process research and development costs.
At the inception of the agreement and through March 31, 2021, Tevard is a variable interest entity in which we held variable interests through our licensed Dravet syndrome program and convertible promissory note. We determined that we are not the primary beneficiary of Tevard as we do not have voting control or other forms of power to direct activities that most significantly impact Tevard’s economic performance.
At each reporting period, we evaluate the note receivable for current expected credit loss by considering factors such as historical experience, market data, issuer-specific factors, and current economic conditions. As of March 31, 2021, no provision for current expected credit losses was deemed necessary based on the expected timing of an equity financing that would result in the automatic conversion of the note to equity securities of Tevard and their existing cash on hand was sufficient to meet their operating requirements prior to the consummation of a financing transaction.
As of March 31, 2021, we do not have any current legal or contractual obligations to provide financing to Tevard and our maximum exposure to future loss is limited to the $5.0 million note receivable. While we have committed to fund the Dravet syndrome development program for Tevard’s early discovery activities, our obligation to fund these efforts is contingent upon continued involvement in the program and/or the lack of any adverse events which could cause the discontinuance of the program. Our exposure to future losses is limited as we have the unilateral right to terminate the agreement with 180 days advanced notice.
Note 46 – Cash, Cash Equivalents and Marketable Securities
The following tables summarize the amortized cost and the estimated fair value of our cash, cash equivalents and marketable securities as of March 31, 20202021 and December 31, 2019 (in thousands):
March 31, 2020
Amortized CostGross Unrealized GainsGross Unrealized LossesEstimated Fair Value
Current assets:
Cash$11,271  $—  $—  $11,271  
Cash equivalents:
Money market funds224,070  —  —  224,070  
Commercial paper34,634  —  —  34,634  
Total cash and cash equivalents269,975  —  —  269,975  
Marketable securities:
Commercial paper39,528  —  —  39,528  
Corporate debt securities70,543  273  (66) 70,750  
Certificate of deposits39,940  —  —  39,940  
Total marketable securities150,011  273  (66) 150,218  
Total cash, cash equivalents and marketable securities$419,986  $273  $(66) $420,193  

December 31, 2019
Amortized CostGross Unrealized GainsGross Unrealized LossesEstimated Fair Value
Current assets:
Cash$43,058  $—  $—  $43,058  
Cash equivalents:
Money market funds11,527  —  —  11,527  
Commercial paper7,485  —  —  7,485  
Total cash and cash equivalents62,070  —  —  62,070  
Marketable securities:
Commercial paper73,366  —  —  73,366  
Corporate debt securities74,038  381  (2) 74,417  
Certificate of deposits41,302  —  —  41,302  
Total marketable securities188,706  381  (2) 189,085  
Total cash, cash equivalents and marketable securities$250,776  $381  $(2) $251,155  

2020:
Zogenix, Inc.ZOGENIX, INC. | Q1 20202021 Form 10-Q | 109


The following table summarizes the cost and fair value of marketable securities based on stated effective maturities as
March 31, 2021
(In thousands)Amortized CostGross Unrealized GainsGross Unrealized LossesEstimated Fair Value
Current assets:
Cash$26,847 $— $— $26,847 
Cash equivalents:
Money market funds38,974 — — 38,974 
Certificate of deposits1,500 — — 1,500 
Commercial paper18,996 — — 18,996 
Total cash and cash equivalents86,317 — — 86,317 
Marketable securities:
U.S. Treasuries26,924 26,930 
Certificate of deposits55,283 55,283 
Commercial paper233,419 233,419 
Corporate debt securities27,002 59 (2)27,059 
U.S. Government-sponsored enterprises debt securities6,200 14 6,214 
Total marketable securities348,828 79 (2)348,905 
Total cash, cash equivalents and marketable securities$435,145 $79 $(2)$435,222 


December 31, 2020
(In thousands)Amortized CostGross Unrealized GainsGross Unrealized LossesEstimated Fair Value
Current assets:
Cash$23,887 $— $— $23,887 
Cash equivalents:
Money market funds80,986 — — 80,986 
Commercial paper61,043 — — 61,043 
Certificate of deposits1,000 — — 1,000 
Total cash equivalents143,029 — — 143,029 
Total cash and cash equivalents166,916 — — 166,916 
Marketable securities:
U.S. Treasuries43,050 (1)43,050 
Commercial paper210,986 210,986 
Certificate of deposits44,480 44,480 
U.S. Government-sponsored enterprises debt securities6,200 17 6,217 
Corporate debt securities33,288 172 33,460 
Total marketable securities338,004 190 (1)338,193 
Total cash, cash equivalents and marketable securities$504,920 $190 $(1)$505,109 
As of March 31, 2020 (in thousands):
Amortized CostFair Value
Due within one year$127,968  $128,147  
Due between one and two years22,043  22,071  
Total$150,011  $150,218  
2021, all marketable securities held have maturity dates within one year or less. We regularly review our available-for-sale marketable securities in an unrealized loss position and evaluate the current expected credit loss by considering factors such as historical experience, market data, issuer-specific factors, and current economic conditions. For all marketable securities that have been in a continuous loss position asAs of March 31, 2020, we have2021, the abilityaggregate difference between the amortized cost and intentfair value of each security in an unrealized loss position was de minimis. Since any provision for expected credit losses for a security held is limited to hold until maturity or recovery. We determined the gross unrealized losses were caused by market fluctuations. There have been no specific facts or circumstances that have arisen to indicate that there has been any significant deterioration inamount the creditworthiness of the issuers of these securities. As such, we determinedfair value is less than its amortized cost, no allowance for expected credit lossesloss was deemed necessary.
Accrued interest receivable is recorded in “Prepaid expenses and other current assets” on our condensed consolidated balance sheets and was $0.7 million and $0.6 million as ofnecessary at March 31, 2020 and December 31, 2019, respectively.2021.
See Note 57 for further information regarding the fair value of our financial instruments.
Zogenix, Inc.ZOGENIX, INC. | Q1 20202021 Form 10-Q | 1110


Note 57 – Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. A three-level valuation hierarchy has been established under GAAP for disclosure of fair value measurements. The valuation hierarchy is based on the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:
Level 1:Observable inputs such as quoted prices in active markets;
Level 2:Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
Level 3:Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
Observable inputs such as quoted prices in active markets;
Level 2:Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
Level 3:Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
Our financial instruments consist primarily of cash and cash equivalents, marketable securities, notes receivable and other current assets, accounts payable and accrued liabilities, convertible senior notes and contingent consideration liabilitiesliability, and our outstanding common stock warrant liabilities. Certain cash equivalents, marketable securities, contingent consideration liabilities and common stock warrant liabilities are reported at their respective fair values on our condensed consolidated balance sheets. The remaining financial instruments are carried at cost which approximates their respective fair values because of the short-term nature of these financial instruments. See Note 46 for further information regarding the amortized cost of our financial assets.
The following tables summarize assets and liabilities recognized or disclosed at fair value on a recurring basis as of March 31, 20202021 and December 31, 2019 (in thousands):2020:

March 31, 2020March 31, 2021
Level 1Level 2Level 3Total
(In thousands)(In thousands)Level 1Level 2Level 3Total
Assets:Assets:Assets:
Cash equivalents:Cash equivalents:Cash equivalents:
Money market fundsMoney market funds$38,974 $$$38,974 
Certificate of depositsCertificate of deposits1,500 1,500 
Commercial paperCommercial paper$—  $34,634  $—  $34,634  Commercial paper18,996 $18,996 
Money market funds224,070  —  224,070  
Marketable securities:Marketable securities:Marketable securities:
U.S. Treasury securitiesU.S. Treasury securities26,930 26,930 
Certificate of depositsCertificate of deposits55,283 55,283 
Commercial debt securitiesCommercial debt securities233,419 233,419 
Commercial paperCommercial paper—  39,528  —  39,528  Commercial paper27,059 27,059 
Corporate debt securities—  70,750  —  70,750  
Certificate of deposits—  39,940  —  39,940  
Total assets (1)$224,070  $184,852  $—  $408,922  
U.S. Government-sponsored enterprises debt securitiesU.S. Government-sponsored enterprises debt securities6,214 6,214 
Total(1)
Total(1)
$38,974 $369,401 $$408,375 
Liabilities:Liabilities:Liabilities:
Common stock warrant liabilities$—  $—  $36  $36  
Contingent consideration liabilities—  —  55,900  55,900  
Total liabilities$—  $—  $55,936  $55,936  
Contingent considerationContingent consideration$$$43,000 $43,000 
December 31, 2019
Level 1Level 2Level 3Total
Assets:
Cash equivalents:
Money market funds$11,527  $—  $—  $11,527  
Commercial paper—  7,485  —  $7,485  
Marketable securities:
Commercial paper—  73,366  —  73,366  
Corporate debt securities—  74,417  —  74,417  
Certificate of deposits—  41,302  —  41,302  
Total assets (1)$11,527  $196,570  $—  $208,097  
Liabilities:
Common stock warrant liabilities$—  $—  $198  $198  
Contingent consideration liabilities—  —  63,800  63,800  
Total liabilities$—  $—  $63,998  $63,998  
ZOGENIX, INC. | Q1 2021 Form 10-Q | 11


December 31, 2020
(In thousands)Level 1Level 2Level 3Total
Assets:
Cash equivalents:
U.S. Treasuries$$13,799 $$13,799 
Money market funds39,536 39,536 
Certificate of deposits3,008 3,008 
Commercial paper21,648 21,648 
Marketable securities:
U.S. Treasuries27,896 27,896 
Commercial paper101,951 101,951 
U.S. Government-sponsored enterprises debt securities6,219 6,219 
Corporate debt securities50,357 50,357 
Certificate of deposits41,284 41,284 
Total(1)
$39,536 $266,162 $$305,698 
Liabilities:
Contingent consideration$$$42,400 $42,400 

————————————
(1)Fair value is determined by taking into consideration valuations obtained from third-party pricing services. The third-party pricing services utilize industry standard valuation models, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include reported trades of and broker/dealer quotes on the same or similar securities; issuer credit spreads; benchmark securities; and other observable inputs.
Contingent Consideration Liability
Pursuant to the termsAs of the Brabant purchase agreement inMarch 31, 2021, our contingent consideration liability consisted of sales-based milestones for Fintepla, which resulted from our 2014 in which we acquired worldwide development and commercialization rights to Fintepla, we are obligated to make future milestone payments that are contingent upon the successful achievementacquisition of certain regulatory and sales-based milestone events related to Fintepla.Brabant. The potentialmaximum amount of future paymentscontingent consideration (undiscounted) that we maycould be required to make is between 0, if none of the remaining milestones are achieved, to a maximum of $75.0pay was $45.0 million.
The following table provides a reconciliation of our contingent consideration liability measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended March 31, 20202021 and 20192020 (in thousands):
Three Months Ended March 31,Three Months Ended March 31,
2020201920212020
Balance at beginning of periodBalance at beginning of period$63,800  $78,200  Balance at beginning of period$42,400 $63,800 
Change in fair valueChange in fair value(7,900) 3,000  Change in fair value600 (7,900)
Settlements—  (10,000) 
Balance at end of periodBalance at end of period$55,900  $71,200  Balance at end of period$43,000 $55,900 
The decrease in fair value of our contingent consideration forFor the three months ended March 31, 2021, the $0.6 million increase to the estimated fair value of the contingent consideration liability reflects the interest component of contingent consideration related to the passage of time. For the three months ended March 31, 2020, the $7.9 million was primarily due to changes to our probability-weighted estimates for achieving regulatory/commercial milestones and the use of a higher discount rate to reflect an increase in credit-adjusted interest rates. The increase in fair value of our contingent consideration for the three months ended March 31, 2019 was primarily due to the inclusion of sales in Japan in our forecast associated with the execution of the Shinyaku Agreement, which accelerated the estimated timing of when certain sales milestones will be reached, and a market driven decrease in the discount rate.
The following table summarizes the significant unobservable inputs used in the fair value measurement of our contingent consideration liabilities as of March 31, 2020.2021.
Fair Value
as of
March 31, 2020
(in thousands)
Valuation TechniqueUnobservable InputRangeWeighted
Average (1)
$55,900Discounted cash flowDiscount rate6.5% — 14.8%9.8%
Probability of payment0% — 85.1%85.1%
Projected year of payment2020 — 20302022
ZOGENIX, INC. | Q1 2021 Form 10-Q | 12


Fair Value as of
March 31, 2021
(in thousands)
Valuation TechniqueUnobservable InputRange
Weighted
Average(1)
$43,000Discounted cash flowDiscount rate1.9% — 3.0%2.5%
Probability of payment100%100%
Projected year of payment2021 — 20302022
————————————
(1)Unobservable inputs were weighted by the relative fair value of the contingent consideration liability. For projected year of payment, the amount represents the median of the inputs and is not a weighted average.each sales-based milestone payment.
The weighted average discount rate was calculated based onConvertible Senior Notes
As of March 31, 2021 and December 31, 2020, the relativeestimated fair value of our contingent consideration obligations. Significant increases or decreases in projected revenues, probabilities of payment, discount rates orconvertible senior notes due 2027 was approximately $259.8 million and $260.5 million, respectively, and was determined based on a binomial lattice model with Level 2 inputs. When determining the time until payment is made would have resulted in a significantly lower or higherestimated fair value measurementof our Notes, we utilize a binomial lattice model which incorporates the terms and conditions of our convertible senior notes and market-based risk measurements that are indirectly observable, such as credit risk. The lattice model produces an estimated fair value based on changes in the price of the underlying common stock price over successive periods of time. An estimated yield based on comparable non-convertible debt instruments in the market is used to discount the cash flows.
Note 8 – Intangible Asset
Our intangible asset consists of worldwide development, commercialization and related intellectual property rights including patents and licenses for Fintepla, our first rare disease therapy approved for marketing in the U.S. and Europe.
The following table provides details of the carrying amount of our finite-lived intangible asset:
(In thousands)March 31, 2021December 31, 2020
Finite-lived intangible asset$102,500 $102,500 
Accumulated amortization(5,913)(3,942)
Total intangible asset, net$96,587 $98,558 
As of March 31, 2020.2021 and December 31, 2020, the carrying value of the intangible asset will be amortized over its estimated remaining useful life of 12.3 years and 12.5 years, respectively. At March 31, 2021, the estimated amortization expense for each of the five succeeding years was approximately $7.9 million per year.
Note 69Balance Sheet Details
Inventory
The following table provides details of our inventory balance:
(In thousands)March 31, 2021December 31, 2020
Raw materials$659 $391 
Work in process755 243 
Finished goods910 392 
Total$2,324 $1,026 
ZOGENIX, INC. | Q1 2021 Form 10-Q | 13


Accrued and Other Current Liabilities
The following table provides details of accrued and other current liabilities (in thousands):liabilities:

March 31, 2020December 31, 2019
Accrued clinical trial expenses$14,215  $18,666  
Accrued compensation4,930  7,179  
Other accrued liabilities6,622  4,074  
Common stock warrant liabilities36  198  
Total accrued and other current liabilities$25,803  $30,117  

(In thousands)March 31, 2021December 31, 2020
Accrued clinical trial expenses$14,405 $16,477 
Accrued compensation7,135 10,917 
Accrued milestone payment15,000 
Other accrued liabilities9,209 12,570 
Total$30,749 $54,964 
Note 710LeasesConvertible Senior Notes
We have operating leases consistingIn September and October 2020, we issued $230.0 million aggregate principal amount of office space for2.75% convertible senior notes due 2027 (the Notes) and realized net proceeds of $222.5 million. The Notes are governed by an indenture (Indenture), dated as of September 28, 2020, between Zogenix and U.S. Bank National Association, as trustee. Under the Indenture, the Notes are senior, unsecured obligations of Zogenix, are equal in right of payment with its future senior, unsecured indebtedness of Zogenix, and structurally subordinated to all indebtedness and liabilities of its subsidiaries. Interest is payable semi-annually in arrears on April 1 and October 1 of each year, beginning on April 1, 2021 at a rate of 2.75% per year. The Notes mature on October 1, 2027, unless earlier repurchased, redeemed or converted. The Indenture contains customary terms and covenants and may become due and payable upon the occurrence of an event of default, but does not contain any financial covenants. As of March 31, 2021, we were in compliance with all covenants under the Indenture.
The Notes are convertible, subject to certain conditions described below, into shares of our Emeryville, California headquarters and for our various subsidiaries. In March 2020, our operating lease for our former headquarters in San Diego, California and the co-terminus sublease arrangement with our sublessee expired in accordance with the termscommon stock at an initial conversion rate of 41.1794 shares per $1,000 principal amount of the leases. In February 2020, we entered into a lease for office space in Maidenhead, United Kingdom, for a five-year term with aggregate lease paymentsNotes, which represents an initial conversion price of approximately $1.5 million. Operating lease assets represent$24.28 per share, subject to adjustments upon the occurrence of certain events. Certain corporate events described in the Indenture may increase the conversion rate for holders who elect to convert their Notes in connection with such corporate event should they occur. We also may choose to repurchase outstanding Notes through open-market transactions, including through Rule 10b5-1 trading plan to facilitate open-market repurchases, or otherwise, from time to time.
Holders may convert the Notes in multiples of $1,000 principal amount at any time prior to October 1, 2027, but only in the following circumstances:
during any calendar quarter ending after December 31, 2020, if our right to use an underlying assetclosing stock price exceeds 130% of the conversion price on each of at least 20 trading days of the last 30 consecutive trading days of the immediately preceding calendar quarter;
during the 5 consecutive business day period after any 10 consecutive trading day period in which the Notes’ trading price is less than 98% of the product of our closing stock price times the conversion rate; or
the occurrence of certain corporate events, such as a change of control, merger, default or liquidation.
In addition, holders may also convert their Notes at their option at any time beginning on July 1, 2027 until the close of business on the second scheduled trading day immediately before the maturity date for the lease term. Operating lease liabilities representNotes, without regard to the present value of lease payments overforegoing circumstances.
Upon conversion, we will pay or deliver, as the lease term, discounted using an estimatecase may be, cash, shares of our secured incremental borrowing rate.common stock or a combination thereof at our election.
The componentsWe may not redeem the Notes prior to October 7, 2024. On or after October 7, 2024, the Notes are redeemable for cash, in whole or in part (subject to minimum redemption amounts), at our option at any time, and from time to time, before the 40th scheduled trading day immediately before October 1, 2027, at a cash redemption price equal to 100% of lease costs, which were included inthe principal amount of the Notes to be redeemed, plus accrued and unpaid interest, if any, but only if our condensed consolidated statementsclosing stock price exceeds 130% of operations, were as follows (in thousands):
Three Months Ended March 31,
20202019
Lease costs
Operating lease cost$567  $499  
Short-term lease cost (1)157  328  
Sublease income(115) (145) 
Total$609  $682  
the conversion price on (1)Short-term lease cost included $0.2 million each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the trading day immediately before the date we send the related toredemption notice; and (2) the trading day immediately before the date we send such notice. In addition, calling any Note for redemption will constitute a short-term lease that expired in March 2019.
Cash paid for amounts includedmake-whole fundamental change (as defined in the measurementIndenture) with respect to that Note, in which case the conversion rate applicable to the conversion of lease liabilitiesthat Note will be increased in certain circumstances if it is converted after it is called for the three months ended March 31, 2020 and 2019 was $0.6 million and $0.3 million, respectively. The amounts were included in net cash used in operating activities in our condensed consolidated statements of cash flows. Right-of-use assets obtained in exchange for new operating lease liabilities were $1.2 million for the three months ended March 31, 2020.redemption.
Zogenix, Inc.ZOGENIX, INC. | Q1 20202021 Form 10-Q | 14


MaturitiesIn accounting for the issuance of operating lease liabilitiesthe Notes, we separated the Notes between a liability component and an equity component utilizing applicable guidance for convertible instruments that may be settled with a combination of cash and shares, at our election. This resulted in the recognition of $152.1 million as the liability component of the Notes. The carrying amount of the equity component of approximately $77.9 million, representing the conversion option, was determined by deducting the fair value of the liability component from the principal amount of the Notes. The difference between the principal amount of the Notes and the liability component (the debt discount) is amortized to interest expense using the effective interest method over the expected term of the Notes. The equity component of the Notes is included in additional paid-in capital in the condensed consolidated balance sheets. In accounting for debt issuance costs, we allocated the total amount incurred of $7.5 million to the liability and equity components using the same proportions as the principal amount of the Notes. Debt issuance costs attributable to the liability component of $4.9 million were recorded as debt discount and are being amortized to interest expense over the expected term of the Notes. Debt issuance costs attributable to the equity component of approximately $2.6 million were netted with the equity component within our condensed consolidated stockholders' equity.
The equity component balance of $75.3 million, net of allocated issuance costs, is not remeasured as long as the conversion option of the Notes continues to meet the conditions for equity classification. As of March 31, 2021, there have been no changes to the net carrying value of the equity component balance since the date of issuance of the Notes.
The following table provides additional details on the carrying amounts of our:
(in thousands)March 31, 2021December 31, 2020
Liability component:
Principal amount of Notes$230,000 $230,000 
Less: unamortized debt discount and issuance costs(78,549)(80,647)
Net carrying amount of Notes$151,451 $149,353 
Equity component — net carrying amount$75,333 $75,333 
For the three months ended March 31, 2021, total interest expense recognized related to our Notes consists of the following:
(in thousands)Three Months Ended
March 31, 2021
Contractual coupon interest1,615 
Amortization of debt discount and issuance costs2,098 
Total interest expense$3,713 
For the three months ended March 31, 2021, the effective interest rate on the liability component of the Notes was 9.9%, which remained unchanged from the date of issuance. The unamortized debt discount and issuance costs of $78.5 million as of March 31, 2021 will be amortized over the remaining term of approximately 6.5 years. We had 0 interest expense for the same period in 2020 and December 31, 2019 were as follows (in thousands):we had 0 borrowings.
March 31, 2020December 31, 2019
2020 (remaining 9 months and 12 months, respectively)$1,533  $1,986  
20212,292  1,957  
20222,230  1,894  
20232,287  1,951  
20242,300  2,010  
Thereafter5,103  5,101  
Total lease payments15,745  14,899  
Less imputed interest(2,908) (2,825) 
Total operating lease liabilities$12,837  $12,074  

March 31, 2020December 31, 2019
Current portion of operating lease liabilities$1,383  $1,322  
Operating lease liabilities, net of current portion11,454  10,752  
Total lease liabilities$12,837  $12,074  
As ofDuring the three months ended March 31, 2020,2021, the weighted average remaining lease term was 6.8 years and the weighted average discount rate, weighted based on the remaining balance of lease payments, was 6.2%.
Note 8 – Stockholders’ Equity and Stock-Based Compensation
Sale of Common Stock
In March 2020, we completed an underwritten public offering of 9,798,000 sharesclosing price of our common stock at an offeringdid not exceed 130% of the applicable conversion price of $23.50our Notes on at least 20 of the last 30 consecutive trading days of the quarter; furthermore, no other conditions allowing holders of the Notes to convert have been met as of March 31, 2021. Therefore, the Notes are not convertible for the three months ending June 30, 2021 and are classified as long-term debt. Should the closing price conditions be met in a future quarter, the Notes will be convertible at the holders’ option during the immediately following quarter. Based on the closing price of our common stock of $19.52 per share including 1,278,000 shares sold pursuant toon March 31, 2021, the underwriters’ full exerciseif-converted value of their option to purchase additional shares. Net proceeds realized from the offering amounted to approximately $221.7 million, after deducting commissions and other offering expenses.Notes was less than the outstanding principal balance.
Equity Incentive Plans
We have issued stock-based awards from various equity incentive and stock purchase plans, as more fully described in Note 12, 11 – Stock-Based Compensation to the consolidated financial statements in our 2019 Form 10-K.
Stock Options
The following is a summary of stock option activity for the three months ended March 31, 2020 (in thousands, except per share data):
Shares
Weighted-
Average
Exercise
Price per Share
Outstanding at December 31, 20194,253  $29.59  
Granted841  30.11  
Exercised(230) 16.87  
Canceled(65) 37.07  
Outstanding at March 31, 20204,799  $30.19  

Restricted Stock Units
The following is a summary of restricted stock unit activity for the three months ended March 31, 20202021 (in thousands, except per share data):
Zogenix, Inc.ZOGENIX, INC. | Q1 20202021 Form 10-Q | 15


SharesWeighted- Average Fair Value per Share at Grant Date
Outstanding at December 31, 2019439  $36.97  
Granted216  27.36  
Vested(66) 48.41  
Canceled(8) 37.56  
Outstanding at March 31, 2020581  $32.11  
Shares
Weighted-
Average
Exercise
Price per Share
Outstanding at December 31, 20205,311 $29.12 
Granted946 18.96 
Exercised(1)10.33 
Canceled(75)33.73 
Outstanding at March 31, 20216,181 $27.51 

Stock-BasedRestricted Stock Units
Time-based restricted stock units (RSUs) and performance-based restricted stock units (PSUs) will be settled with our common stock on a one-to-one basis upon vesting. The following is a summary of our stock award activity for the three months ended March 31, 2021 (in thousands, except per share data):
RSUsPSUsTotal
December 31, 2020393 393 
Granted(1)
450 482 932 
Vested(119)(119)
Canceled(6)(3)(9)
Outstanding at March 31, 2021718 479 1,197 
(1) Weighted-average grant date fair value$18.76 $19.60 $19.20 
For the three months ended March 31, 2021, we granted 0.5 million PSUs to employees and executive officers. The PSUs are subject to vesting based on various performance conditions including achievement of certain regulatory milestones, net product revenue targets and the number of patients with reimbursed therapy, subject to continued service by the employee. Compensation Expense Allocationexpense related to equity-based awards with performance conditions and terms that provide for a graded vesting schedule is recognized over the requisite service period on a straight-line basis for each separately vesting tranche of the award, and is based on the expected satisfaction of the performance conditions at each reporting date. For performance conditions associated with regulatory milestones, we determined the outcome is not probable of being achieved unless and until the occurrence of the event. As a result, compensation expense will only be recognized, at a point in time, when regulatory approval occurs. We expect stock-based compensation will fluctuate from period to period based on the timing of achievement of regulatory milestones and such fluctuations may be material. For performance conditions associated with the net product revenue and the number of patients receiving reimbursed therapy, we determined the outcome is probable of being achieved and stock-based compensation expense is recognized commencing at the grant date over the implicit service period.
The following table summarizes the components of total stock-based compensation expense included in theour condensed consolidated statements of operations (in thousands):operations:
Three Months Ended March 31,Three Months Ended March 31,
20202019
(In thousands)(In thousands)20212020
Research and developmentResearch and development$2,729  $1,435  Research and development$3,299 $2,729 
Selling, general and administrativeSelling, general and administrative3,665  2,788  Selling, general and administrative4,799 3,665 
TotalTotal$6,394  $4,223  Total$8,098 $6,394 
The following table summarizes stock-based compensation expense by award type included in our condensed consolidated statements of operations:
ZOGENIX, INC. | Q1 2021 Form 10-Q | 16


Three Months Ended March 31,
(In thousands)20212020
Time-based stock options and restricted stock units$7,475 $6,242 
Performance-based stock units427 
Employee stock purchase plan (ESPP)196 152 
Total$8,098 $6,394 
Shares reserved and available for future issuance under all employee equity plans as of March 31, 2021 and December 31, 2020 were 2.1 million shares and 3.9 million shares, respectively.
Note 912 – Net Loss Per Share
Basic net loss per share is calculated by dividing net loss by the weighted average number of shares outstanding for the period. Diluted net loss per share is calculated by dividing net loss by the weighted average number of shares of common stock and potential dilutive common stock equivalents outstanding during the period if the effect is dilutive. Our potentially dilutive shares of common stock include outstanding stock options, restricted stock units, and warrants to purchase common stock.stock and rights under our Notes.
A reconciliation of the numerators and denominators used in computing net loss per share is as follows (in thousands, except per share amounts):
Three Months Ended March 31,Three Months Ended March 31,
2020201920212020
Numerator:Numerator:Numerator:
Net lossNet loss$(25,800) $(35,202) Net loss$(55,630)$(25,800)
Denominator:Denominator:Denominator:
Shares used in per share calculationShares used in per share calculation48,185  42,236  Shares used in per share calculation55,750 48,185 
Net loss per share, basic and dilutedNet loss per share, basic and diluted$(0.54) $(0.83) Net loss per share, basic and diluted$(1.00)$(0.54)
The following table presents the potential shares of common stock outstanding that were excluded from the calculation of diluted net loss per share for the periods presented because including them would have been anti-dilutive (in thousands):
Three Months Ended March 31,Three Months Ended March 31,
2020201920212020
Shares subject to outstanding stock optionsShares subject to outstanding stock options4,450  3,716  Shares subject to outstanding stock options5,476 4,450 
Shares subject to outstanding restricted stock unitsShares subject to outstanding restricted stock units485  295  Shares subject to outstanding restricted stock units738 485 
Shares subject to outstanding warrants to purchase common stockShares subject to outstanding warrants to purchase common stock28  28  Shares subject to outstanding warrants to purchase common stock28 28 
Shares issuable upon conversion of NotesShares issuable upon conversion of Notes9,430 
TotalTotal4,963  4,039  Total15,672 4,963 

Zogenix, Inc. | Q1 2020 Form 10-Q | 16


Note 1013 – United Kingdom (U.K.) Research and Development (R&D) Tax Relief Scheme
We conduct extensive research and development activities that benefit from U.K.’s small and medium-sized enterprises (SMEs) R&D tax relief scheme. Under this tax relief scheme, a SME hascan make an optionelection (i) to receive an enhanced U.K. tax deduction on its eligible R&D activities or, when an SME entity is in a net operating loss position, can elector (ii) to surrender net operating losses that arise from its eligible R&D activities in exchange for a cash payment from the U.K. tax authorities. As the tax incentives may be received without regard to an entity’s actual tax liability, they are not subject to accounting for income taxes. Amounts recognized by us for cash payment claims under the SME R&D tax relief scheme are recorded as a component of other income after an election for tax relief has been made by submitting a claim for a discrete tax year and collectability is deemed probable and reasonably assured.
ZOGENIX, INC. | Q1 2021 Form 10-Q | 17

As of
In December 31, 2019, we submittedelected to surrender net operating losses by submitting claims as an SME for a total amount of $19.7 million, consisting of tax creditto receive cash rebatespayments of $9.9 million and $9.8 million forrelated to our 2017 and 2018 tax years, respectively. In April 2020, we received correspondence fromUpon approval of our submitted claims by the U.K. tax authorities informing usin the claim has been approved. As a result, the amountfirst quarter of the claim was2020, we recorded as other receivable on the condensed consolidated balance sheet at March 31, 2020 and recognizedincome of $19.7 million as a component of other income on the condensed consolidated statement of operations for the three months ended March 31, 2020.operations. For our 2019 tax year, we have not yet decided whether to seek tax relief by surrendering some of our losses for a tax credit cash rebate claim or electing to receive enhanced U.K. tax deductions on our eligible research and development activities. Under the U.K’sU.K.’s tax legislation, there is a two-yeartwo-year window after the end of a tax year to seek relief under this tax relief scheme.
Zogenix, Inc.ZOGENIX, INC. | Q1 20202021 Form 10-Q | 1718


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. These forward-looking statements include, but are not limited to, statements about:
our ability to commercialize Fintepla;
the progress and timing of clinical trials of our product candidates Fintepla and MT1621;
the safety and efficacy of our product candidates;
the impact of COVID-19 pandemic;
the timing of submissions to, and decisions made by the U.S. Food and Drug Administration (FDA), the European Medicines Agency (EMA) and other regulatory agencies, including foreign regulatory agencies, with regards to the demonstration of the safety and efficacy of our product candidates and adequacy of the manufacturing processes related to our product candidates to the satisfaction of the FDA and such other regulatory agencies;
our ability to obtain, maintain and successfully enforce adequate patent and other intellectual property or regulatory exclusivity protection of our product candidates and the ability to operate our business without infringing the intellectual property rights of others;
the goals of our development activities and estimates of the potential markets for our product candidates, and our ability to compete within those markets;
our ability to obtain and maintain adequate levels of coverage and reimbursement from third-party payors for any of our product candidates that may be approved for sale, the extent of such coverage and reimbursement and the willingness of third-party payors to pay for our products versus less expensive therapies;
the impact of healthcare reform laws; and
projected cash needs and our expected future revenues, operations and expenditures.
The forward-looking statements are contained principally in the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” In some cases, you can identify forward-looking statements by the following words: “may,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue,” “ongoing” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. These statements relate to future events or our future financial performance or condition and involve known and unknown risks, uncertainties and other factors that could cause our actual results, levels of activity, performance or achievement to differ materially from those expressed or implied by these forward-looking statements. We discuss many of these risks, uncertainties and other factors in this Quarterly Report on Form 10-Q in greater detail under the heading “Item 1A – Risk Factors.”
Given these risks, uncertainties and other factors, we urge you not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. You should read this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. For all forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. We undertake no obligation to revise or update publicly any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law.
Fintepla® and Zogenix™ are our trademarks. All other trademarks, trade names and service marks appearing in this Quarterly Report on Form 10-Q are the property of their respective owners. Use or display by us of other parties’ trademarks, trade dress or products is not intended to and does not imply a relationship with, or endorsements or sponsorship of, us by the trademark or trade dress owner.
Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to “Zogenix,” “we,” “us” and “our” refer to Zogenix, Inc., a Delaware corporation, and its consolidated subsidiaries.
The condensed consolidated financial statements and this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 20192020 and the related Management’s Discussion and
ZOGENIX, INC. | Q1 2021 Form 10-Q | 19


Analysis of Financial Condition and Results of Operations, both of which are contained in our 20192020 Annual Report on Form 10-K, which was filed with the SEC on March 2, 2020 (2019 Form 10-K).1, 2021.
Zogenix, Inc.ZOGENIX, INC. | Q1 20202021 Form 10-Q | 1820


Overview
We are a global pharmaceuticalbiopharmaceutical company committed to developing and commercializing transformative therapies with the potential to improvetransform the lives of patients and their families living with rare diseases. We are primarily focused on developing and commercializing two therapeutic product candidates:Our first rare disease therapy, Fintepla a low-dose fenfluramine investigational therapy for two pediatric epilepsy disorders, Dravet syndrome and Lennox-Gastaut syndrome (LGS); and MT1621, an investigational deoxynucleoside substrate enhancement therapy for(fenfluramine) oral solution has been approved by the treatment of thymidine kinase 2 deficiency (TK2d), an inherited mitochondrial DNA depletion disorder.
Fintepla for Patients with Rare Epilepsy Disorders
We own and control worldwide development and commercialization rights to Fintepla, our lead product candidate, for which we have submitted a new drug application (NDA) to the United StatesU.S. Food and Drug Administration (FDA) and a Marketing Authorization Application (MAA) to the European Medicines Agency (EMA) seeking approval to market and sell the product for the treatment of seizures associated with Dravet syndrome, a rare, severe lifelong epilepsy. We have two additional late-stage development programs underway: Fintepla for the treatment of seizures associated with Lennox-Gastaut syndrome (LGS), another rare epilepsy and devastating pediatric epilepsy disorder.MT1621, an investigational therapy for the treatment of TK2 deficiency (TK2d), a rare genetic disease.
Fintepla for Patients with Rare Epilepsy Disorders
Dravet Syndrome
On June 25, 2020, the FDA granted approval of Fintepla for the treatment of seizures associated with Dravet syndrome in patients 2 years of age and older. During the third quarter of 2020, we commercially launched Fintepla through a restricted distribution program, called the Fintepla Risk Evaluation and Mitigation Strategy (REMS) Program. On December 18, 2020, the EMA granted marketing authorization for Fintepla for the treatment of seizures associated with Dravet syndrome as an add-on therapy to other anti-epileptic medicines for patients two years of age and older. Fintepla is available in Europe under a controlled access program requested by the EMA to prevent off-label use for weight management and to confirm that prescribing physicians have been informed of the need for periodic cardiac monitoring in patients taking Fintepla. We launched Fintepla for sale in Germany in February 2021 and expect to expand into other European markets thereafter. The approval for marketing of Fintepla in the U.S. and Europe was based on positive safety and efficacy results from two randomized, international, multi-center, placebo-controlled Phase 3 trials (Study 1 and Study 2), as well as data from an interim analysis of a long-term, open-label extension study in 330 Dravet syndrome patients treated up to three years.
In September 2020, we reported positive top-line results from our third Phase 3 trial (Study 3) of Fintepla for the treatment of seizures associated with Dravet syndrome. Study 3 corroborates the substantial impact of Fintepla on convulsive seizure reduction in patients with Dravet syndrome as previously demonstrated in Studies 1 and 2. Study 3 expands the countries where Fintepla has been evaluated to include Japan. In March 2019, we entered into an exclusive distribution agreement (Shinyaku Agreement) with Nippon Shinyaku Co., Ltd. to support(Shinyaku) for the sales and distributionpotential commercialization of the productFintepla in Japan, if approved.
Dravet Syndrome
In February 2019, following theJapan. We retained responsibility for clinical development programs for Fintepla, including completion of Study 1 and Study 1504, our two global pivotalan additional Phase 3 clinical trials of Fintepla, we completed our rolling submission of an NDA withtrial (Study 3) to expand the FDA and submitted a MAAcountries to the EMA forinclude Japan, amongst others, where Fintepla for the treatment of seizures associated with Dravet syndrome. In March 2019,syndrome has been evaluated. We expect to include Study 3 as the EMA accepted the MAA and initiated its review and we currently anticipatepivotal study in our planned submission of a decision on the MAAJapanese New Drug Application (J-NDA) in the fourth quartersecond half of 2020. In April 2019, we received a Refusal to File (RTF) letter from the FDA regarding our NDA for Fintepla for the treatment of seizures associated with Dravet syndrome. In September 2019, following a Type A meeting with the FDA in May 2019 to review the issues identified in the RTF letter, we resubmitted the NDA and in November 2019, the FDA accepted the NDA for filing. The FDA granted priority review for the NDA for Fintepla, which established a target action date of six months from the date of receipt, with an assigned Prescription Drug User Fee Act, (PDUFA) date of March 25, 2020. As part of their review, the FDA requested additional information from us including, but not limited to, additional data to conduct additional efficacy analyses from our two pivotal studies in Dravet syndrome. On February 27, 2020, we announced that the FDA extended the PDUFA target action date to June 25, 2020, which provides the FDA additional time to review the NDA.2021.
Lennox-Gastaut Syndrome
Fintepla is also under late-stage development for the treatment of seizures associated with LGS, another rare and devastating form of childhood-onset epilepsy. In November 2017, we announced the initiation of Study 1601, our double-blind, placebo-controlled, multicenter global Phase 3 clinical trial of Fintepla as an adjunctive treatment for seizures in patients with LGS. In February 2020, we announcedreported positive top-line results from our Phase 3 multicenter, global LGS trial (Study 1601), a double-blind, placebo-controlled study to assess the safety, tolerability and efficacy of Fintepla when added to a patient’s current anti-epileptic regimen. Study 1601 whichincluded a total of 263 patients between the ages of 2 and 35 years whose seizures were uncontrolled while on one or more anti-epileptic drugs. The trial met its primary objective of demonstrating that Fintepla at a dose of 0.7 mg/kg/day was superior to placebo in reducing the frequency of drop seizures based on the change between baseline and the titration and maintenance treatment period (p=0.0012). The same dose of Fintepla (0.7 mg/kg/day) also demonstrated statistically significant improvements versus placebo in key secondary efficacy measures, including a significant reduction in the proportion of patients with a clinically meaningful reduction (≥50%) in drop seizure frequency (p=0.0150). A decrease in the frequency of drop seizures between baseline and the treatment period was observed for a lower dose of Fintepla (0.2 mg/kg/day) compared to placebo, but this change did not reach statistical significance (p=0.0915). In Study 1601, Fintepla was generally well-tolerated, with the adverse events consistent with those observed in our two prior Phase 3frequency. We have completed all required studies in Dravet syndrome. The most common adverse events (≥10%) in the Fintepla-treated groups were decreased appetite, somnolence, fatigue, vomiting, diarrhea, seizure and pyrexia. The incidence of serious treatment emergent adverse events was 11.5% (n=10) in the 0.7 mg/kg/day group, 4.5% (n=4) in the 0.2 mg/kg/day group, and 4.6% (n=4) in the placebo group. Patients who completed the double-blind phase of Study 1601 and were eligible could enter a 12-month open label extension study to evaluate the long-term safety, tolerability and effectiveness of Fintepla. We are now focused on finalizing the studies and data required to support a supplemental NDANew Drug Application (sNDA) and intend to meet with the FDA in the second halfU.S., and compilation of 2020 to discuss andata package is ongoing with anticipated filing of sNDA planned submission.in the third quarter of 2021. In Europe, we anticipate submitting a Marketing Authorization Application with European Medicines Agency in the fourth quarter of 2021.
Other Potential Indications
In addition to Dravet syndrome and LGS, we are evaluating the treatment potential of Fintepla in other rareserious, treatment-resistant epileptic syndromes, and diseases, including CDKL5 Deficiency Disorder (CDD), an ongoinginfantile-onset genetic seizure disorder. New data presented from an investigator-initiated study being conducted in Sunflower Syndrome. Sunflower Syndrome is a rare, drug-resistant epileptic disorder with photo-induced seizures characterized by episodes of hand-waving while looking towards bright light, as well as absence and generalized tonic-clonic seizures.
The investigator-initiated open-label, Phase 2 study evaluatedCDD at the efficacy and tolerabilityAmerican Epilepsy Society Annual Meeting in December 2020 suggests potential of Fintepla as an adjunctive antiepilepticfor the treatment of seizures associated with CDD. We anticipate initiating a Phase 3 study of Fintepla for patients with Sunflower Syndrome. On April 22, 2020, we held a conference call with investors tothe treatment of CDD in the second half of 2021.
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discuss investigator-reported interim data of this study. Following a four-week baseline period, during which patients observed a baseline median convulsive seizure frequency (MCSF) of 121 seizures per day (range 11-240), patients received 0.2 mg/kg/day Fintepla which was added to their current treatment regimen, and were dose titrated over a two month period to determine maximum tolerability (maximum dose of 26 mg/day), with an overall treatment period of three months (2 month titration period, one month full dose). Of the ten patients enrolled in the trial, nine patients completed the trial. Following treatment with Fintepla, MCSF was reduced by 84% compared to the pre-treatment baseline (p < 0.001). Fintepla was generally well-tolerated and the most common adverse events were minor loss of appetite and fatigue (n=2).
MT1621 for Patients with TK2 Deficiency
InAs a result of our acquisition of Modis in September 2019, we acquired allbecame a party to the outstanding equity interests ofExclusive License Agreement, by and between Modis Therapeutics, Inc. (Modis), a privately-held biopharmaceutical company based in Oakland, California. Modis holds an exclusive worldwide license fromand Columbia University, in New York Citydated as of September 26, 2016 (the Columbia Agreement), related to certain intellectual property rights owned or controlled by Columbia University to develop and commercialize MT1621. MT1621 is an investigational deoxynucleoside-combination substrate enhancement therapy in development for the treatment of TK2d, a rare, debilitating, and often fatal genetic mitochondrial DNA depletion disorderdisease that primarily affects infants and children and for which there are currently no approved therapies. Modis previously completed the RETRO study, a potentially pivotal Phase 2 global retrospective study of MT1621 in 38 pediatric and adult patients with TK2d (median age of disease onset, 2.5 years) treated at eight clinical sites in the United States, Spain and Israel. Subjects received MT1621 for a median of 71 weeks (range 92 days – 7 years). In October 2019, we announced positive top-line results from the RETRO study in which 94.7% of treated patients had either improved (68%) or stabilized (26%) overall responses in major functional domains. A survival analysis using a time-dependent Cox regression model showed that the difference in probability of survival between treated patients and untreated natural history control patients was statistically significant (p<0.0006). Among clinical responders, a subset demonstrated profound responses, in some cases reacquiring previously lost motor milestones such as ambulation, respiratory function and feeding. Safety data from RETRO indicated that MT1621 was generally well-tolerated. Most reported adverse events were considered not related to study drug (199 of 292), with mild or moderate diarrhea being the most common treatment-related adverse event (AE), occurring in 63% of patients. Serious AEs (SAEs) were reported in 14 subjects (37%). The majority of SAEs were deemed related to TK2d; two patients experienced three adverse events related to study drug alone (kidney stone, kidney stone removal, diarrhea). Two adult-onset patients stopped treatment due to asymptomatic increases in aminotransferase liver enzymes (no increase in bilirubin levels), which resolved upon discontinuation of treatment.
In April 2020, we held an End of PhaseEnd-of-Phase 2 meeting with the FDA and are scheduled to meetin June 2020, we met with the FDA in June 2020 to receive feedback with respect todiscuss chemistry, manufacturing, and controls (CMC). for MT1621. In the meetings, the FDA outlined the additional clinical and non-clinical information needed for an NDA submission. Based on the feedback, we expect availability of all required data by end of 2021 to support an NDA submission and anticipate submission of an NDA in the first half of 2022. In addition, we are conducting a Phase 1 pharmacokinetic (PK) study in renal impairment, as recommended by the FDA, to provide dosing recommendations in the setting of impaired renal function and include the results in the NDA submission. The FDA also concurred with our proposed CMC plan for the prospective NDA submission.
Preclinical Pipeline

Tevard Gene Therapy Collaboration for Genetic Epilepsies
In December 2020, we entered into a collaboration with Tevard Biosciences, Inc. (Tevard) for the research, development and commercialization of gene therapies for the treatment of Dravet syndrome and other epilepsy disorders. The collaboration is at the research and discovery stage and will leverage Tevard’s novel t-RNA-based technology to seek feedback from regulatory authorities in Europe during the third quartertreat genetic disorders not amenable to traditional types of 2020 to determine the path forward to a potential submission of an MAA.gene therapies, such as Dravet Syndrome.
Business Update Regarding the COVID-19 Pandemic
The current COVID-19 worldwide pandemic has presented substantial public health and economic challenges and is affecting our employees, patients and their families and caregivers, communities and business operations, as well as the U.S. and global economies and financial markets. International and U.S. governmental authorities in impacted regions are taking actions in an effort to slow the spread of COVID-19, including issuing varying forms of “stay-at-home” orders, and restricting business functions outside of one’s home. In response, we closed our offices for all but the most essential activities and have implemented a policy allowing all employees to work from home policy for all employees across all facilities,locations, following the guidelines or directives issued by federal, state and local government agencies in the U.S. as well as the U.K. government.
We commenced the commercial launch of Fintepla in the United States in July 2020 and in Germany in February 2021. Our commercialization efforts will need to navigate through the operational restrictions imposed on our sales force from quarantines, travel restrictions and bans and other governmental and healthcare restrictions related to COVID-19. As a result of these restrictions, until very recently, our sales force has not been able to conduct in-person interactions with physicians and healthcare providers and are largely restricted to primarily conducting educational and promotional activities for Fintepla virtually, which may impact our ability to market Fintepla. In addition, Fintepla is being launched through our Fintepla REMS program in the U.S. and a controlled access program in Europe, with each program requiring patients to obtain echocardiograms during this pandemic.
To date, we have been able to continue to supply Fintepla and MT1621 to our patients currently enrolled in our clinical trials and do not currently anticipate any interruptions in supply. While we are currently continuing the clinical trials we have underway in sites across the globe, we expect that COVID-19 precautions may directly or indirectly impact the timeline for some of our clinical trials. For example, due to the challenges of enrolling new patients posed by the COVID-19 pandemic, we have paused the initiation of our exploratory Phase 2 study (the “basket study”), which is a study designed to understand the characteristics of rare epilepsy disorders other than Dravet syndrome and LGS in separate cohorts and evaluate whether Fintepla is safe and effective versus placebo in these patient populations. Any delays in the completion of our clinical trials and any disruption in our supply chain could have a material adverse effect on our business, results of operations and financial condition. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain it or treat COVID-19, as well as the economic impact on local, regional, national and international markets.
Critical Accounting Policies and Estimates
Our management’s discussion and analysisThe preparation of our financial condition and results of operations is based on ourunaudited condensed consolidated financial statements which have been prepared in conformityaccordance with GAAP. The preparation of these consolidated
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financial statementsGAAP requires us tothat we make estimates and assumptions that affect the reported amounts of assets, liabilities, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based
ZOGENIX, INC. | Q1 2021 Form 10-Q | 22


on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ from those estimates.
We consider an accounting estimate to be critical if: (1) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (2) changes in the estimate that are reasonably likely to occur from period to period, or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations. Our critical accounting policies and estimates are describeddiscussed in the Management’sPart II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of OperationsOperations” section of our 20192020 Form 10-K. There werehave been no material changes to our critical accounting policies during the three months ended March 31, 2020, as compared2021 to the critical accounting policies and estimatespreviously disclosed in our 2019 Form 10-K.that report.
Recent Accounting Pronouncements
For information with respect to recent accounting pronouncements that are of significance or potential significance to us, see Note 2, Summary of Significant Accounting Policiesto the condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Results of Operations
Comparison of Three Months Ended March 31, 2021 and 2020
The following table summarizes our total revenues for the periods indicated:
Revenues
Three Months Ended March 31,
(in thousands)20212020Change
Net product sales$12,349 $— $12,349 
Collaboration revenue1,335 1,249 86 
Total revenues$13,684 $1,249 $12,435 
Net Product Sales
For the three months ended March 31, 2021, total net product sales generated from Fintepla was $12.3 million, and consisted of $11.3 million derived in the United States and $1.0 million derived in Germany. Fintepla was approved by the FDA in June 2020 and 2019marketing authorization was granted by the EMA in December 2020.
Collaboration Revenue
Three Months Ended March 31,
(in thousands)20202019Change
Collaboration revenue$1,249  $—  $1,249  
We currently do not have an approved product for sale. Collaboration revenue increased from priorwas flat for the three months ended March 31, 2021 as compared to the same period in 2020 as we conducted Study 3 to expand the countries where Fintepla has been evaluated to include Japan in fulfillment of our performance obligations under the collaboration arrangement. We anticipate Study 3 will be the pivotal study included in our planned submission of a J-NDA, expected to occur in the second half of 2021.
Cost of Product Sales (Excluding Amortization of Intangible Asset)
Cost of product sales (excluding amortization of intangible asset) includes the cost of producing and distributing inventories that are related to product revenues during the respective period (including salary-related and stock-based compensation expenses for employees involved with production and distribution, freight and indirect overhead costs) and third-party royalties payable on our net product revenues. Cost of product sales may also include costs related to excess or obsolete inventory adjustment charges, abnormal costs, unabsorbed manufacturing and overhead costs, and manufacturing variances.
During the three months ended March 31, 2021, cost of product sales primarily consisted of royalties payable on net product sales of Fintepla under a license agreement and labeling and packaging costs. Substantially all the cost of product sold during the three months ended March 31, 2021 had a zero-cost basis. Prior to receiving FDA approval for Fintepla, we recorded all manufacturing product costs as research and development expense. We expect our inventory with zero-cost basis will be depleted by the end of 2021 and expect cost of product sales to increase as a percentage of net sales in future periods as a resultwe produce and then sell inventory that reflects the full cost of our Shinyaku Agreement entered into in March 2019 and related performance of such collaboration activities under the agreement. We may also be entitled to receive additional milestone payments pursuant to the Shinyaku Agreement upon the occurrence of specific events. As the recognition of this collaboration revenue is based on costs incurred to date relative to total estimated costs at completion when measuring progress and the uncertainty of when the events underlying various milestones are resolved, we expect our collaboration revenue will fluctuate from period to period.manufacturing.
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Research and Development Expenses
Three Months Ended March 31,
(in thousands)20202019Change
Research and development$33,240  $24,352  $8,888  
Three Months Ended March 31,
(in thousands)20212020Change
Research and development$30,969 $33,240 $(2,271)
Research and development (R&D) expenses consist of expenses incurred in developing, testing and seeking marketing approval of our product candidates, including: payments made to third-party clinical research organizations (CROs) and investigational sites, which conduct our clinical trials on our behalf, and consultants; expenses associated with regulatory submissions, pre-clinical development and clinical trials; payments to third-party manufacturers, which produce our active pharmaceutical ingredient and finished product; pre-launch inventory, personnel related expenses, such as salaries, benefits, travel and other related expenses, including stock-based compensation; and facility, maintenance, depreciation and other related expenses.
For each of our research and developmentR&D programs, we incur both external and internal costs. External costs include clinical and non-clinical activities performed by CROs, lab services, purchases of product candidate materials and manufacturing development costs. We track external research and developmentR&D expenses for each of our key development programs. We have not tracked internal costs on a program-by-program basis because our research and developmentR&D employees and infrastructure resources are utilized across our product candidate development programs.
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The table below sets forth components of our research and developmentR&D expenses for the periods presented.
Three Months Ended March 31,Three Months Ended March 31,
(in thousands)(in thousands)20202019Change(in thousands)20212020Change
Fintepla for Dravet syndromeFintepla for Dravet syndrome$7,311  $9,620  $(2,309) Fintepla for Dravet syndrome$4,515 $7,311 $(2,796)
Fintepla for LGSFintepla for LGS7,943  6,003  1,940  Fintepla for LGS7,834 7,943 (109)
MT1621MT16211,652  —  1,652  MT16215,997 1,652 4,345 
Tevard gene-therapy program for Dravet syndromeTevard gene-therapy program for Dravet syndrome786 — 786 
Other (1)Other (1)797  466  331  
Other(1)
177 797 (620)
Total external costsTotal external costs17,703  16,089  1,614  Total external costs19,309 17,703 1,606 
Internal costsInternal costs15,537  8,263  7,274  Internal costs11,660 15,537 (3,877)
TotalTotal$33,240  $24,352  $8,888  Total$30,969 $33,240 $(2,271)
————————————
(1)Other external costs include early-phase exploratory research programs.
In October 2014, we acquired worldwide development and commercialization rights to Fintepla through anfrom the acquisition of a businessBrabant and have since incurred significant expenditures related to conducting clinical trials of Fintepla. Research and developmentR&D expenses related to Fintepla for Dravet syndrome decreased by $2.3$2.8 million for the three months ended March 31, 20202021 compared to the same period in 20192020 primarily due to the wind-down of clinical activities related to our Phase 3 trials Study 15011 and Study 1504. Research and development spend1504, partially offset by costs incurred to conduct a Phase 3 clinical trial (Study 3) to support a J-NDA submission in Japan. R&D expenses related to Fintepla for LGSMT1621 increased by $1.9$4.3 million in the same year-over-year period reflecting the progression and expansion of our clinical trial activities within Study 1601. External costs increased by $1.7 million dueperiods as we continue to our spend onadvance the MT1621 development program, which we acquired through our acquisition of Modis in September 2019.including work related to chemistry, manufacturing, and controls process requirements. Internal costs for research and development activities increaseddecreased by $7.3$3.9 million for the three months ended March 31, 20202021 compared to the same period in 2019 primarily driven by additions2020 as our medical affairs function subsequent to headcount, including, in part, former Modis employees who continued their employment with us.regulatory approval of Fintepla is classified as selling, general and administrative expenses.
Selling, General and Administrative Expenses
Three Months Ended March 31,
(in thousands)20202019Change
Selling$10,352  $3,915  $6,437  
General and administrative10,966  7,003  3,963  
Total selling, general and administrative$21,318  $10,918  $10,400  
Three Months Ended March 31,
(in thousands)20212020Change
Selling, general and administrative$31,272 $21,318 $9,954 
Selling, expense consists primarily of salaries and benefits of sales and marketing personnel and market research expenses for product candidates that are in development. Generalgeneral and administrative expenses consist primarily of salaries and related costs for our personnel, including stock-based compensation, market research expenses for our product and product candidates that are in development and marketing expenses to support our commercial launch efforts, executive, finance, accounting,
ZOGENIX, INC. | Q1 2021 Form 10-Q | 24


business development and internal support functions. In addition,functions, facility-related costs and consulting fees, in each case not otherwise included in R&D expenses.
Selling, general and administrative expenses include professional fees for legal, consulting and accounting services.
Selling expense increased by $6.4$10.0 million for the three months ended March 31, 20202021 compared to the same period in 20192020 and was primarily attributable to increasedincreases in personnel-related costs as a resultwe build out our specialized and focused commercial teams in support of our Fintepla product launches in the U.S. and Europe and headcount additions in preparation for the potential approval and commercialization of Fintepla for Dravet syndrome.
Generalgeneral and administrative expense increased by $4.0 millionto support our commercial team. In addition, commercial spending related to market research, strategic and logistic planning for the three months ended March 31, 2020 comparedour product launch also contributed to the same period in 2019 andincrease. The remainder of the increase was primarily attributable to increased personnel-relatedhigher insurance premium costs and an increase in utilization of professional services, as well as infrastructure and facilities-related costs.
Amortization of Intangible Asset
Three Months Ended March 31,
(in thousands)20212020Change
Amortization of intangible asset$1,971 $— $1,971 
Our intangible asset consists of worldwide development, commercialization and related intellectual property rights including stock-based compensationpatents and professional services.licenses for our product, Fintepla, which we began to amortize after receipt of FDA approval over its estimated useful life of 13 years on a straight-line basis.
Acquired In-Process Research and Development ExpenseCosts (IPR&D)
Acquired in-process research and development (IPR&D) expense consists of a transaction accounted for as an IPR&D asset acquisition.
Three Months Ended March 31,
(in thousands)20212020Change
Acquired IPR&D$— $1,500 $(1,500)
For the three months ended March 31, 2020, we incurred $1.5 million in aggregate monthly option maintenance fees for the right to license an IPR&D asset.a preclinical development program to identify and develop potential next-generation gene therapies for Dravet syndrome from Tevard. We exercised the option to opt-in the Dravet syndrome program by entering into a collaboration, option and license agreement with Tevard in December 2020. Costs related to funding this program subsequent to the exercise of our option are recorded within research and development expense.

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Change in Fair Value of Contingent Consideration
Three Months Ended March 31,
(in thousands)20202019
Change in fair value of contingent consideration$(7,900) $3,000  
Three Months Ended March 31,
(in thousands)20212020
Change in fair value of contingent consideration$600 $(7,900)
The contingent consideration liability relates to milestone payments under an existing agreement in connection with our prior acquisition of Fintepla. At each reporting period, the estimated fair value of the liability is determined by applying the income approach which utilizes variable inputs, such as the probability of success for achieving regulatory/commercialregulatory and sales-based milestones, anticipated future cash flows, risk-free adjusted discount rates, and nonperformance risk. Any change in the fair value is recorded as contingent consideration (income) expense.
TheFor the three months ended March 31, 2021, the $0.6 million increase to the estimated fair value of our contingent consideration liability reflects the interest component of contingent consideration related to the passage of time.
For the three months ended March 31, 2020, the $7.9 million decrease in fair value of our contingent consideration for the three months ended March 31, 2020 was primarily due to changes to our probability-weighted estimates for achieving regulatory/commercial milestones and the use of a higher discount rate to reflect an increase in credit-adjusted interest rates. The increase in fair value of our contingent consideration for the three months ended March 31, 2019 was primarily due to the inclusion of sales in Japan in our forecast associated with the execution of the Shinyaku Agreement, which accelerated the estimated timing of when certain sales milestones will be reached, and a market driven decrease in the discount rate.
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Other Income (Expense)
Three Months Ended March 31,Three Months Ended March 31,
(in thousands)(in thousands)20202019(in thousands)20212020
Other income (expense):Other income (expense):Other income (expense):
Interest incomeInterest income$1,088  $3,156  Interest income308 1,088 
Interest expenseInterest expense(3,737)— 
Other income, netOther income, net20,021  (88) Other income, net(397)20,021 
Total other income$21,109  $3,068  
TotalTotal$(3,826)$21,109 
The decrease in interest income forFor the three months ended March 31, 2020, compared to the same period in 2019 was attributable to lower average cash and investment balances as we funded our acquisition of Modis in September 2019 with cash on hand.
The increase in other income net for the three months ended March 31, 2020 compared to the same period in 2019 was primarily due toincluded a $19.7 million of other income recognized for a cash rebate claim submitted under the U.K.’s small and medium-sized enterprise and research and development tax relief schemeUK’s R&D Tax Relief Scheme for qualifyingeligible R&D expenditures incurred in tax years 2017 and 2018. For our 2019 tax year, we have not yet decided whether to seek tax relief by surrendering some of our losses for a tax credit cash rebate claim or electing to receive enhanced U.K. tax deductions on our eligible research and development activities. Under the U.K’s tax legislation, there is a two-year window after the end of a tax year to seek relief under this tax relief scheme.
Liquidity and Capital Resources
Excluding gains from two discrete business divestitures, we have incurred significant net losses and negative cash flows from operating activities since inception. We had anAs of March 31, 2021, our accumulated deficit of $1.1 billion at March 31, 2020.was $1.4 billion. We expect to continue to incur significant operating losses and negative cash flows from operations to support the marketing and commercialization of Fintepla for Dravet syndrome as well as continuing to advance our product candidates through development and commercialization.clinical programs. Additionally, we are obligated to make future milestone payments that are contingent upon the successful achievement of certain substantive development, regulatory and sales-based milestone events related to Fintepla and MT1621. As of March 31, 2020, we deriveWe recently launched Fintepla in the U.S. and Europe and generate revenue from product sales. We also generate collaboration revenue from our collaborative arrangement with Nippon Shinyaku Agreement related to development and commercialization activities for Fintepla in Japan.Co., Ltd. We do not know when, or if, we will generate any revenue from product sales and do not expect to generatecontinue to incur significant revenueoperating losses and negative cash flows from product sales unlessoperations as we begin to commercialize Fintepla and until we obtain regulatory approval of and commercializeadvance our product candidates. To date,candidates through development in the short-term. Historically, we have relied primarily on the proceeds from equity and convertible debt offerings to finance our operations.
We are party to an at-the-market sales agreement (ATM Sales Agreement) with Cantor Fitzgerald & Co. (Cantor), pursuant to which Cantor has agreed to act as sales agent in connection with the issuance and sale of up to $200.0 million in gross aggregate proceeds of our common stock from time to time pursuant to the ATM Sales Agreement and our automatic “shelf” registration statement on Form S-3 registering the offering filed in June 2020. For the three months ended March 31, 2021, there were no sales of common stock under the ATM Sales Agreement and as of March 31, 2021, we have remaining capacity to sell up to approximately $195.0 million of common stock under the ATM Sales Agreement.
In MarchSeptember and October 2020, we completedissued $230.0 million aggregate principal amount of 2.75% convertible senior Notes due 2027 (Notes) and realized net proceeds of $222.5 million. The Notes are governed by an underwritten public offeringindenture (Indenture), dated as of 9,798,000September 28, 2020, between Zogenix and U.S. Bank National Association, as trustee. Under the Indenture, the Notes are senior, unsecured obligations of Zogenix, are equal in right of payment with its future senior, unsecured indebtedness of Zogenix, and structurally subordinated to all indebtedness and liabilities of its subsidiaries. Interest is payable semi-annually in arrears on April 1 and October 1 of each year, beginning on April 1, 2021 at a rate of 2.75% per year. The Notes mature on October 1, 2027, unless earlier repurchased, redeemed or converted. The Indenture contains customary terms and covenants and may become due and payable upon the occurrence of an event of default, but does not contain any financial covenants. As of March 31, 2021, we were in compliance with all covenants under the Indenture.
The Notes are convertible, subject to certain conditions described below, into shares of our common stock at an offeringinitial conversion rate of 41.1794 shares per $1,000 principal amount of the Notes, which represents an initial conversion price of $23.50approximately $24.28 per share, subject to adjustments upon the occurrence of certain events. Certain corporate events described in the Indenture may increase the conversion rate for holders who elect to convert their Notes in connection with such corporate event should they occur. We may also choose to repurchase outstanding Notes through open-market transactions, including 1,278,000 shares sold pursuantthrough Rule 10b5-1 trading plan to facilitate open-market repurchases, or otherwise, from time to time.
Holders may convert the underwriters’ full exerciseNotes in multiples of their option$1,000 principal amount at any time prior to purchase additional shares. Net proceeds realized fromOctober 1, 2027, but only in the offering amountedfollowing circumstances:
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during any calendar quarter ending after December 31, 2020, if our closing stock price exceeds 130% of the conversion price on each of at least 20 trading days of the last 30 consecutive trading days of the immediately preceding calendar quarter;
during the five consecutive business day period after any 10 consecutive trading day period in which the Notes’ trading price is less than 98% of the product of our closing stock price times the conversion rate; or
the occurrence of certain corporate events, such as a change of control, merger, default or liquidation.
During the three months ended March 31, 2021, the closing price of our common stock did not exceed 130% of the applicable conversion price of our Notes on at least 20 of the last 30 consecutive trading days of the quarter. Furthermore, no other conditions allowing holders of the Notes to approximately $221.7 million, after deducting commissions and other offering expenses. convert have been met as of March 31, 2021. Therefore, the Notes are not convertible for the three months ending June 30, 2021.
As of March 31, 2020,2021, our cash, cash equivalents and marketable securities totaled $420.2$435.2 million. We believe our existing capital resources are sufficient to meet our projected operating requirements for at least the next 12 months.
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Our principal uses of cash are research and development expenses, selling, general and administrative expenses and other working capital requirements. Our future funding requirements will depend on many factors, including, but not limited to:
our ability to generate sales of Fintepla for the treatment of seizures associated with Dravet syndrome;
the costs of establishing or outsourcing sales, marketing and distribution capabilities for Fintepla for the treatment of Dravet syndrome and, should we elect to do so, for any of our other product candidates;
the rate of progress and cost of our clinical trials and other product development programs for Fintepla, MT1621 and our other product candidates and any other product candidates that we may develop, in-license or acquire;
the timing of regulatory approval of our product candidates and the commercial success of Fintepla and any other approved products;
the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights associated with Fintepla, MT1621 and any of our other product candidates;
the timing and amounts of the milestone or other payments we must make related to Fintepla and MT1621;
the costs of establishing or outsourcing sales, marketing and distribution capabilities, should we elect to do so;
the costs, terms and timing of completion of outsourced commercial manufacturing supply arrangements for any product candidate;
the effect of competing technological and market developments; and
any delays and cost increases that result from the COVID-19 pandemic.
Until we can generate a sufficient amount of revenue to finance our cash requirements, if ever, we may need to continue to rely on additional financing to achieve our business objectives. However, we may not be able to secure such financing in a timely manner or on favorable terms, if at all, and this risk could be exacerbated by the impact of COVID-19 on global economic conditions. If future funds are raised through issuance of equity or debt securities, these securities may have rights, preferences and privileges senior to those of our existing stockholders. If we raise additional funds through collaboration, licensing or other similar arrangements, it may be necessary to relinquish valuable rights to our potential products or proprietary technologies, or grant licenses on terms that are not favorable to us. Without additional funds at the time we need such funding, we may be forced to delay, scale back or eliminate some of our research and development activities, our commercialization efforts, or other operations and potentially delay product development in an effort to provide sufficient funds to continue our operations. If any of these events occurs, our ability to achieve the development and commercialization goals could be adversely affected.
ZOGENIX, INC. | Q1 2021 Form 10-Q | 27


The following table presents selected information from our statements of cash flows (in thousands):
Three Months Ended March 31,
20202019
Cash and cash equivalents, beginning of the period$62,070  $68,454  
Net cash used in operating activities(52,491) (24,827) 
Net cash provided by investing activities37,217  20,864  
Net cash provided by (used in) financing activities223,179  (6,203) 
Net decrease in cash and cash equivalents207,905  (10,166) 
Cash and cash equivalents, end of the period$269,975  $58,288  
Three Months Ended March 31,
20212020
Cash and cash equivalents, beginning of the period$166,916 $62,070 
Net cash used in operating activities(53,858)(52,491)
Net (used in) provided by investing activities(10,851)37,217 
Net (used in) provided by financing activities(15,890)223,179 
Net (decrease) increase in cash and cash equivalents(80,599)207,905 
Cash and cash equivalents, end of the period$86,317 $269,975 
Operating Activities
For the three months ended March 31, 2021, net cash used in operating activities of $53.9 million was primarily attributable to a net loss of $55.6 million and net changes in operating assets and liabilities of $11.6 million, offset by an aggregate of $13.4 million of non-cash charges, net. Non-cash items included stock-based compensation expense of $8.1 million, amortization of debt discount and issuance costs of $2.1 million related to our convertible senior notes and intangible asset amortization of $2.0 million. Net changes in operating assets and liabilities totaled an outflow of $11.6 million, principally due to decreases in accrued liabilities including annual bonus payout and increases in accounts receivable and inventory related to Fintepla commercial sales. This cash outflow was partially offset by cash received of $3.0 million for the final installments due under the Shinyaku Agreement wherein $20.0 million in fixed consideration was scheduled to be paid within the first two years of the date of the agreement.
For the three months ended March 31, 2020, net cash used in operating activities of $52.5 million was primarily attributable to researcha net loss of $25.8 million and development spend relateda $19.7 million increase to ongoing open-label clinical trials for Fintepla and manufacturing process development for Fintepla and MT1621, commercial preparedness and planning expenses including additions in headcountother receivable to build out our sales force of key account managers and general and administrative costs to support our business objectives.record approved claims under the U.K R&D Tax Credit Relief Scheme.
Investing Activities
For the three months ended March 31, 2019,2021, net cash used in operatinginvesting activities of $24.8$10.9 million was primarily attributable to a net loss of $35.2 million, plus the net effect of non-cash items of $6.0 million, primarily from stock-based compensation and changes in the estimated fair value of contingent consideration, and a net cash inflow from changes in operating assets and liabilities of $4.4 million.
Zogenix, Inc. | Q1 2020 Form 10-Q | 24


Investing Activitiesmarketable securities purchases.
For the three months ended March 31, 2020, net cash provided by investing activities of $37.2 million was primarily attributable to the net purchase and maturities of our available-for-sale marketable securities maturities of $38.9 million.
Financing Activities
For the three months ended March 31, 2019,2021, net cash provided by investingused in financing activities of $20.9$15.9 million was attributableconsisted of a $15.0 million contingent consideration payment related to maturitiesregulatory approval of marketable securities. TheseFintepla in Europe and cash inflows were offset by purchasesused to remit withholding taxes of marketable securities and property and equipment, the majority of which was attributable$0.9 million related to the build-outvesting of our headquarters, which we beganrestricted stock units that were net share-settled by us to occupy in early March 2019.
Financing Activitiescover the required withholding taxes.
For the three months ended March 31, 2020, net cash provided by financing activities of $223.2 million primarily consisted of net proceeds realized from the issuance of 9,798,0009.8 million shares of our common stock in a public offering and $1.5 million in net proceeds received from the issuance of common stock pursuant to our equity incentive plans.
For the three months ended March 31, 2019, net cash used in financing activities of $6.2 million consisted of a $10.0 million payment of contingent consideration related to a prior acquisition and cash used to remit withholding taxes of $0.6 million related to the vesting of restricted stock units that were net share-settled by us to cover the required withholding tax. These cash outflows were offset by $4.4 million of proceeds from common stock issuances pursuant to our equity incentive plans.
Contractual Obligations
There were no material changes outside the ordinary course of our business during the three months ended March 31, 20202021 to the information regarding our contractual obligations that was disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 20192020 Form 10-K.
Off-Balance Sheet Arrangements
As of March 31, 2020,2021, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.
Zogenix, Inc.ZOGENIX, INC. | Q1 20202021 Form 10-Q | 2528


Item 3. Quantitative and Qualitative Disclosures About Market Risk
For quantitative and qualitative disclosures about market risk, see Item 7A, Quantitative and Qualitative Disclosures About Market Risk, of our 20192020 Form 10-K. Our exposures to market risk have not changed materially since December 31, 2019.2020.
Item 4. Controls and Procedures
Conclusions Regarding the Effectiveness of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the timelines specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives, and in reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As required by SEC Rule 13a-15(b), we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 20202021 at the reasonable assurance level.
Changes in Disclosure Controls and Procedures
There were no changes in our internal control over financial reporting during the three months ended March 31, 20202021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Zogenix, Inc.ZOGENIX, INC. | Q1 20202021 Form 10-Q | 2629


PART II – OTHER INFORMATION
Item 1. Legal Proceedings
On April 12, 2019, a plaintiff stockholder filed a class action lawsuit against us and certain of our executive officers alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act in the United States District Court for the Northern District of California captioned Lake v. Zogenix, Case No. 3:19-cv-01975-RS. The plaintiff soughtFrom time to represent a class of investors who purchased our stock between February 6, 2019 and April 8, 2019, and alleged that certain statements made during this period regarding the prospects for our NDA for Fintepla were false or misleading. On October 4, 2019,time, we filed a motion to dismiss the complaint in the action. On January 27, 2020, the court entered an order dismissing the complaint without prejudice. Rather than amend the complaint, the plaintiffs opted to voluntarily dismiss their claims. A final judgment in favor of Zogenix and our executive officers was filed on February 13, 2020.
On January 17, 2020, a plaintiff stockholder filed a shareholder derivative lawsuit against our directors and officers alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act, breach of fiduciary duties, unjust enrichment, and waste of corporate assets, in the United States District Court for the Northern District of California captioned Lui v. Farr, Case No. 3:20-cv-00390. The plaintiff alleged that certain statements regarding the prospects for our NDA for Fintepla were false or misleading, and that we failed to maintain adequate internal controls in connection with its FDA submission process. Following dismissal of the Lake v. Zogenix securities class action, the plaintiff stockholder opted to voluntarily dismiss his suit. On April 2, 2020, the Court entered an order dismissing the action without prejudice pursuant to the parties’ stipulation.
We may become involved in various legal proceedings and claims that arise in the ordinary course of business. We are not currently involved in any material legal proceedings. Such matters are subject to uncertainty and there can be no assurance that such legal proceedings will not have a material adverse effect on our business, results of operations, financial position or cash flows.
Item 1A. Risk Factors
There have been no material changes in our risk factors from those disclosed in Part I, Item 1A of our 2019 Form 10-K, other than as set forth below.
Our business is subject to risks arising from epidemic diseases, such as the recent COVID-19 pandemic.
The current COVID-19 worldwide pandemic has presented substantial public health and economic challenges and is affecting our employees, patients, communities and business operations, as well as the U.S. and global economy and financial markets. International and U.S. governmental authorities in impacted regions are taking actions in an effort to slow the spread of COVID-19, including issuing varying forms of “stay-at-home” orders, and restricting business functions outside of one’s home. In response, we have implemented a work from home policy for all employees across all facilities, following the guidelines or directives issued by federal, state and local government agencies in the U.S. as well as the U.K. government. To date, we have been able to continue to supply Fintepla and MT1621 to our patients currently enrolled in our clinical trials and do not currently anticipate any interruptions in supply. In addition, while we are continuing the clinical trials we have underway in sites across the globe, we expect that COVID-19 precautions may directly or indirectly impact the timeline for some of our clinical trials. For example, due to the challenges of enrolling new patients posed by the COVID-19 pandemic, we have paused the initiation of our exploratory Phase 2 basket study, which is designed to understand the characteristics of rare epilepsy disorders other than Dravet syndrome and Lennox-Gastaut syndrome in separate cohorts and evaluate whether Fintepla is safe and effective versus placebo in these patient populations. As the COVID-19 pandemic continues to spread around the globe, we may experience disruptions that could severely impact our business, clinical trials and manufacturing and supply chains, including:
interruption or delays in the operations of the FDA, EMA or other regulatory authorities, which may impact review and approval timelines of our NDA and MAA for Fintepla for the treatment of seizures associated with Dravet syndrome;
further delays or difficulties in enrolling patients in our clinical trials;
delays or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators and clinical site staff;
diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our clinical trials;
Zogenix, Inc. | Q1 2020 Form 10-Q | 27


interruption of key clinical trial activities, such as clinical trial site monitoring, due to limitations on travel imposed or recommended by federal or state governments, employers and others or interruption of clinical trial subject visits and study procedures, which may impact the integrity of subject data and clinical study endpoints;
interruption of, or delays in receiving, supplies of our product candidates from our contract manufacturing organizations due to staffing shortages, production slowdowns or stoppages and disruptions in delivery systems, including interruption of supply if Fintepla is approved for marketing;
delays in clinical sites receiving the supplies and materials needed to conduct our clinical trials and interruption in global shipping that may affect the transport of clinical trial materials;
limitations on employee resources that would otherwise be focused on the conduct of our clinical trials, including because of sickness of employees or their families or the desire of employees to avoid contact with large groups of people;
delays in receiving feedback or approvals from the FDA, EMA or other regulatory authorities with respect to future clinical trials or regulatory submissions, including for MT1621;
changes in local regulations as part of a response to COVID-19 which may require us to change the ways in which our clinical trials are conducted, which may result in unexpected costs, or to discontinue the clinical trials altogether;
delays in necessary interactions with local regulators, ethics committees and other important agencies and contractors due to limitations in employee resources or forced furlough of government employees;
refusal of the FDA or EMA to accept data from clinical trials in affected geographies; and
difficulties launching or commercializing products, including due to reduced access to doctors as a result of social distancing protocols.
In addition, the spread of COVID-19 has had and may continue to severely impact the trading price of shares of our common stock and could further severely impact our ability to raise additional capital on a timely basis or at all.
The COVID-19 pandemic continues to rapidly evolve. The extent to which the COVID-19 may impact our business, including our clinical trials, manufacturing and supply chains and financial condition will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the geographic spread of the disease, the duration of the pandemic, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease.
To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this section and in the “Risk Factors” section of our 2019 Form 10-K.
Disruptions at the FDA and other government agencies caused by funding shortages or global health concerns could hinder their ability to hire, retain or deploy key leadership and other personnel, or otherwise prevent new or modified products from being developed, approved or commercialized in a timely manner or at all, which could negatively impact our business.
The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, statutory, regulatory, and policy changes, the FDA’s ability to hire and retain key personnel and accept the payment of user fees, and other events that may otherwise affect the FDA’s ability to perform routine functions. Average review times at the agency have fluctuated in recent years as a result. In addition, government funding of other government agencies that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable. Disruptions at the FDA and other agencies may also slow the time necessary for new drugs or modifications to approved drugs to be reviewed and/or approved by necessary government agencies, which would adversely affect our business. For example, over the last several years, including for 35 days beginning on December 22, 2018, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA, have had to furlough critical FDA employees and stop critical activities.
Separately, in response to the COVID-19 pandemic, on March 10, 2020 the FDA announced its intention to postpone most foreign inspections of manufacturing facilities and products through April 2020, and subsequently, on March 18, 2020, the FDA announced its intention to temporarily postpone routine surveillance inspections of domestic manufacturing facilities. Regulatory authorities outside the United States may adopt similar restrictions or other policy measures in response to the COVID-19 pandemic. If a prolonged government shutdown occurs, or if global health concerns continue to prevent the FDA or other regulatory authorities from conducting their regular inspections, reviews, or other regulatory activities, it could significantly impact the ability of the FDA or other regulatory authorities to timely review and process our regulatory
Zogenix, Inc. | Q1 2020 Form 10-Q | 28


submissions, including FDA’s ability to make a decision by the June 25, 2020 PDUFA target action date, which could have a material adverse effect on our business.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity Securities
None.
Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Zogenix, Inc.ZOGENIX, INC. | Q1 20202021 Form 10-Q | 2930


Item 6. Exhibits
EXHIBIT INDEX
Exhibit
Number
Exhibit Description
3.1(1)
3.2(2)
3.3(3)
3.4(4)
3.5(1)
4.1(5)
4.2(6)
4.3(7)
4.4(7)
31.1*
31.2*
32.1**
32.2**
101*Inline XBRL Document Set for the condensed consolidated financial statements and accompanying notes in Part I, Item 1, “Financial Statements” of this Quarterly Report on Form 10-Q.
104*Inline XBRL for the cover page of this Quarterly Report on Form 10-Q, included in the Exhibit 101 Inline XBRL Document Set.
____________________
(1)Incorporated by reference to Amendment No. 2 to the Registrant’s Registration Statement on Form S-1 filed on October 27, 2010.
(2)Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q filed on November 8, 2012.
(3)Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q filed on August 10, 2015.
(4)Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q filed on August 6, 2019.
(5)Incorporated by reference to Amendment No. 3 to the Registrant’s Registration Statement on Form S-1 filed on November 4, 2010.
(6)Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q filed on August 12, 2011.
Indicates management contract or compensatory plan.
*Filed herewith.
**These certifications are being furnished solely to accompany this quarterly report pursuant to 18 U.S.C. Section 1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934 and are not subject to the liability of that section. These certifications are not to be incorporated by reference into any filing of Zogenix, Inc., whether made before or after the date hereof, regardless of any general incorporation language in such filing herewith.
Zogenix, Inc.ZOGENIX, INC. | Q1 20202021 Form 10-Q | 3031


SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ZOGENIX, INC.
Date:May 5, 20206, 2021By:/s/ Stephen J. Farr
President and Chief Executive Officer
(Principal Executive Officer)
Date:May 5, 20206, 2021By:/s/ Michael P. Smith
Executive Vice President, Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)