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Document and Entity Information - shares	6 Months Ended
Document and Entity Information - shares	Jun. 30, 2018	Aug. 03, 2018
Document and Entity Information
Entity Registrant Name	SUPERNUS PHARMACEUTICALS INC
Entity Central Index Key	0001356576
Document Type	10-Q
Document Period End Date	Jun. 30, 2018
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		52,214,334
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q2

Consolidated Balance Sheets - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Current assets
Cash and cash equivalents	$ 35,205	$ 100,304
Marketable securities	139,208	39,736
Accounts receivable, net	74,842	65,586
Inventories, net	20,680	16,304
Prepaid expenses and other current assets	14,581	6,521
Total current assets	284,516	228,451
Long term marketable securities	503,312	133,638
Property and equipment, net	4,897	5,124
Intangible assets, net	33,794	36,019
Other non-current assets	752	389
Deferred income taxes	25,528	20,843
Total assets	852,799	424,464
Current liabilities
Accounts payable	2,943	6,844
Accrued sales deductions	70,044	68,343
Accrued expenses	29,288	27,305
Income taxes payable		15,938
Non-recourse liability related to sale of future royalties, current portion	1,659	4,283
Deferred licensing revenue		287
Total current liabilities	103,934	123,000
Deferred licensing revenue, net of current portion		1,149
Convertible notes, net	321,920
Non-recourse liability related to sale of future royalties, long term	23,867	22,258
Other non-current liabilities	12,586	10,577
Total liabilities	462,307	156,984
Stockholders' equity
Common stock, $0.001 par value, 130,000,000 shares authorized at June 30, 2018 and December 31, 2017; 52,179,334 and 51,314,850 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively	52	51
Additional paid-in capital	361,971	294,999
Accumulated other comprehensive loss, net of tax	(4,119)	(747)
Retained earnings (accumulated deficit)	32,588	(26,823)
Total stockholders' equity	390,492	267,480
Total liabilities and stockholders' equity	$ 852,799	$ 424,464

Consolidated Balance Sheets (Parenthetical) - $ / shares	Jun. 30, 2018	Dec. 31, 2017
Consolidated Balance Sheets
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized	130,000,000	130,000,000
Common stock, shares issued	52,179,334	51,314,850
Common stock, shares outstanding	52,179,334	51,314,850

Consolidated Statements of Earnings - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Revenue
Total revenue	$ 99,538	$ 75,829	$ 189,967	$ 133,405
Costs and expenses
Cost of product sales	3,683	3,861	6,961	6,809
Research and development	20,038	10,823	38,946	20,425
Selling, general and administrative	40,097	35,078	76,946	63,316
Total costs and expenses	63,818	49,762	122,853	90,550
Operating earnings	35,720	26,067	67,114	42,855
Other income (expense)
Interest income	3,664	656	4,870	1,187
Interest expense	(4,324)	(58)	(5,041)	(147)
Interest expense-nonrecourse liability related to sale of future royalties	(1,204)	(160)	(1,905)	(1,119)
Changes in fair value of derivative liabilities		23		76
Loss on extinguishment of debt		(103)		(204)
Total other income (expense)	(1,864)	358	(2,076)	(207)
Earnings before income taxes	33,856	26,425	65,038	42,648
Income tax expense	3,119	9,057	7,949	14,983
Net earnings	$ 30,737	$ 17,368	$ 57,089	$ 27,665
Earnings per share:
Basic (in dollars per share)	$ 0.59	$ 0.34	$ 1.10	$ 0.55
Diluted (in dollars per share)	$ 0.57	$ 0.32	$ 1.06	$ 0.52
Weighted-average number of common shares outstanding:
Basic (in shares)	51,919,894	50,530,968	51,729,243	50,345,830
Diluted (in shares)	54,203,308	53,223,714	54,021,941	53,026,323
Product
Revenue
Total revenue	$ 97,030	$ 73,328	$ 186,150	$ 129,697
Royalty
Revenue
Total revenue	1,758	1,179	3,067	2,328
Licensing
Revenue
Total revenue	$ 750	$ 1,322	$ 750	$ 1,380

Consolidated Statements of Comprehensive Earnings - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Consolidated Statements of Comprehensive Earnings
Net earnings	$ 30,737	$ 17,368	$ 57,089	$ 27,665
Other comprehensive earnings (loss):
Unrealized (loss) gain on marketable securities, net of tax	(1,828)	184	(3,372)	350
Other comprehensive earnings (loss)	(1,828)	184	(3,372)	350
Comprehensive earnings	$ 28,909	$ 17,552	$ 53,717	$ 28,015

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017
Cash flows from operating activities
Net earnings	$ 57,089	$ 27,665
Adjustments to reconcile net earnings to net cash provided by operating activities:
Loss on extinguishment of debt		204
Change in fair value of derivative liability		(76)
Depreciation and amortization	3,487	2,084
Amortization of deferred financing costs and debt discount	4,307	50
Amortization of premium/discount on marketable securities	(1,835)	(327)
Non-cash interest expense on non-recourse liability related to sale of future royalties	1,905	1,119
Non-cash royalty revenue	(2,780)	(2,328)
Share-based compensation expense	5,703	4,087
Deferred income tax provision (benefit)	(395)	11,672
Changes in operating assets and liabilities:
Accounts receivable	(7,776)	(9,630)
Inventories	(4,376)	178
Prepaid expenses and other current assets	(8,060)	(1,791)
Other non-current assets	(342)
Accounts payable	(3,838)	50
Accrued sales deductions	1,701	5,678
Accrued expenses	2,964	(1,283)
Income taxes payable	(15,938)	1,601
Deferred licensing revenue		(130)
Other non-current liabilities	1,873	477
Net cash provided by operating activities	33,689	39,300
Cash flows from investing activities
Purchases of marketable securities	(491,655)	(48,468)
Sales and maturities of marketable securities	19,466	12,419
Purchases of property, plant and equipment	(557)	(852)
Deferred legal fees	(401)	(9,224)
Net cash used in investing activities	(473,147)	(46,125)
Cash flows from financing activities
Proceeds from issuance of convertible notes	402,500
Convertible notes issuance financing costs	(10,435)
Proceeds from issuance of warrants	65,688
Purchases of convertible note hedges	(92,897)
Proceeds from issuance of common stock	9,503	2,164
Net cash provided by financing activities	374,359	2,164
Net change in cash and cash equivalents	(65,099)	(4,661)
Cash and cash equivalents at beginning of year	100,304	66,398
Cash and cash equivalents at end of period	35,205	61,737
Supplemental cash flow information:
Cash paid for interest		134
Income taxes paid	29,279	1,710
Non-cash financial activity:
Conversion of convertible notes and interest make-whole		2,984
Deferred legal fees included in accounts payable and accrued expenses	$ 480	$ 1,884

Organization and Business	6 Months Ended
Organization and Business	Jun. 30, 2018
Organization and Business
Organization and Business	1. Organization and Business Supernus Pharmaceuticals, Inc. (the Company) was incorporated in Delaware and commenced operations in 2005. The Company is a specialty pharmaceutical company focused on developing and commercializing products for the treatment of central nervous system (CNS) diseases. The Company markets two products, Oxtellar XR for the treatment of epilepsy and Trokendi XR for the prophylaxis of migraine headache and treatment of epilepsy. The Company has several proprietary product candidates in clinical development that address the psychiatry market. The Company launched Oxtellar XR and Trokendi XR in 2013 for the treatment of epilepsy and launched Trokendi XR for the prophylaxis of migraine headache in adolescents and adults in April 2017.

Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2018

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

Basis of Presentation

The Company’s consolidated financial statements include the accounts of Supernus Pharmaceuticals, Inc. and Supernus Europe Ltd., collectively referred to herein as “Supernus” or “the Company.” All significant intercompany transactions and balances have been eliminated in consolidation. The Company’s unaudited consolidated financial statements have been prepared in accordance with the requirements of the U.S. Securities and Exchange Commission (SEC) for interim financial information.

As permitted under Generally Accepted Accounting Principles in the United States (U.S. GAAP), certain notes and other information have been omitted from the interim unaudited consolidated financial statements presented in this Quarterly Report on Form 10-Q. Therefore, these financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, filed with the SEC.

In the opinion of management, the consolidated financial statements reflect all adjustments necessary to fairly present the Company’s financial position, results of earnings, and cash flows for the periods presented. These adjustments are of a normal recurring nature. The Company, which is primarily located in the United States (U.S.), operates in one operating segment.

The results of operations for the three and six months ended June 30, 2018 are not necessarily indicative of the Company’s future financial results.

Use of Estimates

The preparation of the Company’s consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, as well as related disclosure of contingent assets and liabilities. Actual results could differ materially from the Company’s estimates. To the extent that there are material differences between these estimates and actual results, the Company’s financial condition or operating results will be affected. The Company bases its estimates on historical experience or on various forecasts, including information received from its service providers and other assumptions that the Company believes are reasonable under the circumstances. The Company evaluates the methodology employed in its estimates on an ongoing basis.

Cash and Cash Equivalents

The Company considers all investments in highly liquid financial instruments with an original maturity of three months or less to be cash equivalents.

Marketable Securities

Marketable securities consist of investments in U.S. Treasury bills and notes, certificates of deposit, various U.S. governmental agency debt securities, corporate and municipal bonds and other fixed income securities. The Company places all investments with government, industrial or financial institutions whose debt is rated as investment grade. The Company classifies all available-for-sale marketable securities with maturities greater than one year from the balance sheet date as non-current assets.

The Company’s investments are classified as available-for-sale and are carried at estimated fair value. Except for changes in fair value of equity securities which are recognized through net income, any unrealized holding gains or losses are reported, net of any reported tax effects, as accumulated other comprehensive earnings (loss), which is a separate component of stockholders’ equity.

Realized gains and losses, and declines in value judged to be other-than-temporary, if any, are included in consolidated results of operations. A decline in the market value of any available-for-sale security below cost that is deemed to be other-than-temporary results in a reduction in fair value, with that reduction charged to earnings in that period. A new cost basis for the security is then established. Dividend and interest income is recognized when earned. The cost of securities sold is calculated using the specific identification method.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents, accounts receivable and marketable securities. The counterparties are various corporations and financial institutions of high credit standing, as described above.

Substantially all of the Company’s cash and cash equivalents are maintained in U.S. government agency debt and debt of well-known, investment grade, corporations. Deposits held with banks may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and, therefore, management believes they bear minimal default risk.

The majority of our product sales are to wholesalers and distributors who, in turn sell the products to pharmacies, hospitals, and other customers. Three wholesale pharmaceutical distributors collectively accounted for more than 90% of our total revenue for the six months ended June 30, 2018.

Inventories

Inventories, which are recorded at the lower of cost or market, include materials, labor, and other direct and indirect costs and are valued using the first-in, first-out method. The Company capitalizes inventories produced in preparation for commercial launches when it becomes probable that the related product candidates will receive regulatory approval and that the related costs will be recoverable through the commercial sale of the product.

Intangible Assets

Intangible assets consist of patent defense costs, which are deferred legal fees that have been incurred in connection with legal proceedings related to the defense of patents for Oxtellar XR and Trokendi XR. Patent defense costs will be charged to expense in the event of an unsuccessful outcome of the ongoing litigation. Patents are carried at cost less accumulated amortization, which is calculated on a straight line basis over the estimated useful lives of the patents. Amortization commences in the quarter after the costs are incurred. The amortization period is based initially upon the remaining patent life and is adjusted, if necessary, for any subsequent settlements or other changes to the expected useful life of the patent. The carrying value of the patents is assessed for impairment annually during the fourth quarter of each year, or more frequently if impairment indicators exist.

Impairment of Long-Lived Assets

Long-lived assets consist primarily of property and equipment and patent defense costs. The Company assesses the recoverability of its long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If indications of impairment exist, projected future undiscounted cash flows associated with the asset are compared to the carrying value to determine whether the asset’s value is recoverable. Evaluating for impairment requires judgment, including the estimation of future cash flows, future growth rates and profitability, and the expected life over which cash flows will occur. Changes in the Company’s business strategy or adverse changes in market conditions could impact impairment analyses and require the recognition of an impairment charge equal to the excess of the carrying value of the long-lived asset over its estimated fair value.

Deferred Financing Costs

Deferred financing costs consist of costs incurred by the Company in connection with the closing of the Company’s sale of $402.5 million of 0.625% Convertible Senior Notes due 2023 (the 2023 Notes) (see Note 8). The Company amortizes deferred financing costs over the term of the related debt using the effective interest method. When extinguishing debt, the related deferred financing costs are written off.

Preclinical Study and Clinical Trial Accruals

The Company estimates preclinical study and clinical trial expenses based on the services performed pursuant to contracts with research institutions, clinical investigators, clinical research organizations (CROs) and other service providers that conduct activities on its behalf. In recording service fees, the Company estimates the time period over which the related services will be performed and compares the level of effort expended through the end of each period to the cumulative expenses recorded and payments made for such services. As appropriate, the Company accrues additional service fees or defers any non-refundable advance payments until the related services are performed. If the actual timing of the performance of services or the level of effort varies from the estimate, the Company will adjust its accrued expenses or deferred advance payments accordingly. If the Company later determines that it no longer expects the services associated with a nonrefundable advance payment to be rendered, the remaining portion of that advance payment will be charged to expense in the period in which such determination is made.

Revenue Recognition

In May 2014, the Financial Accounting Standards Board (FASB) issued a comprehensive new standard, Accounting Standards Codification (ASC) 606, “Revenue from Contracts with Customers” and its related amendments, which amended revenue recognition principles. The Company adopted the new standard on January 1, 2018. While results for reporting periods beginning after January 1, 2018 are presented under the new guidance, prior period amounts are not adjusted and continue to be reported under the accounting standards in effect for the prior period. The accounting policy for revenue recognition for periods prior to January 1, 2018 is described in Note 2 of the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

	Three Months ended June 30,
	2018		2017
	(unaudited)		(unaudited)
Net Product Sales:
Trokendi XR	$	76,474	$	55,989
Oxtellar XR	20,556		17,339

Total Net Product Sales	97,030		73,328
Royalty Revenues	1,758		1,179
Licensing Revenue	750		1,322

Total Revenues	$	99,538	$	75,829

	Six Months ended June 30,
	2018		2017
	(unaudited)		(unaudited)
Net Product Sales:
Trokendi XR	$	147,029	$	97,998
Oxtellar XR	39,121		31,699

Total Net Product Sales	186,150		129,697
Royalty Revenues	3,067		2,328
Licensing Revenue	750		1,380

Total Revenues	$	189,967	$	133,405

Revenue from Product Sales

Revenue from product sales is recognized when control of the Company’s products is transferred to the customer, which consists of wholesalers and pharmaceutical distributors. Product sales are recorded net of various forms of variable consideration, including estimated rebates paid to managed care plans, chargebacks, allowances, discounts, patient co-pay assistance and other deductions as well as estimated product returns (collectively, “sales deductions”). Variability in the transaction price for its products pursuant to its contracts with customers primarily arises from these amounts. Significant judgment is required in estimating sales deductions, considering historical experience, current contract prices under applicable programs, unbilled claims, processing time lags and inventory levels in the distribution channel. If actual results in the future vary from its estimates, the Company adjusts these estimates, which would affect net product sales and earnings in the period such variances become known.

The Company’s products are distributed through wholesalers and pharmaceutical distributors. Each of these wholesalers and distributors takes control of the product, including title and ownership to the product, upon physical receipt of the product and then distributes the Company’s products to pharmacies.

Sales Deductions

Allowances for estimated sales deductions are provided for the following:

Rebates: Rebates include mandated discounts under the Medicaid Drug Rebate Program, the Medicare coverage gap program, as well as negotiated discounts with commercial healthcare providers. Rebates are amounts owed after the final dispensing of product to a benefit plan participant has occurred and are based upon contractual agreements or legal requirements with the public sector (e.g., Medicaid) and with private sector benefit providers (e.g., commercial managed care providers). The allowance for rebates is based on statutory and contractual discount rates and expected claimed rebates based on a plan provider’s utilization.

Rebates are generally invoiced and paid quarterly in arrears so that the accrual balance consists of an estimate of the amount expected to be incurred for the current quarter’s activity, plus an accrual balance for known or estimated prior quarters’ unpaid rebates. If actual rebates vary from estimates, the Company may need to adjust the balances of such rebates to reflect its actual expenditures with respect to these programs, which would affect net product sales and earnings in the period of adjustment. Allowances for estimated rebates are recorded as current liabilities in Accrued Sales Deductions.

Co-pay assistance: Patients who pay in cash or have commercial healthcare insurance and meet certain eligibility requirements may receive co-pay assistance from the Company. The intent of this program is to reduce the patient’s out of pocket costs when filling a prescription. Liabilities for co-pay assistance are based on actual program participation as well as estimates of program activity using data provided by third-party administrators. Allowances for estimated co-pay are recorded as current liabilities in Accrued Sales Deductions.

Distributor/wholesaler deductions and discounts: U.S. specialty distributors and wholesalers are offered various forms of consideration including allowances, service fees and prompt payment discounts as consideration for distributing our products. Distributor allowances and service fees arise from contractual agreements with distributors and are generally a percentage of the price at which the Company sells product to distributors and wholesalers. Wholesale customers are offered a prompt pay discount for payment within a specified period. Allowances for estimated discounts are recorded as a deduction in Accounts Receivable, net, which is recorded under current assets.

Returns: Sales of the Company’s products are not subject to a general right of return; however, the Company will accept the return of product that is damaged or defective when shipped directly from our warehouse. The Company will also accept expired product six months prior to and up to 12 months subsequent to its expiry date. Product that has been used to fill patient prescriptions is no longer subject to any right of return. Returned product (i.e., damaged, defective or expired) cannot be re-sold, therefore a right of return asset is not recorded. Allowances for estimated returns are recorded as current liabilities in Accrued Sales Deductions.

Chargebacks: Chargebacks are discounts that occur when contracted customers purchase directly from an intermediary distributor or wholesaler. Contracted customers, which currently consist primarily of Public Health Service institutions and federal government entities purchasing via the Federal Supply Schedule, generally purchase the Company’s products at a discounted price. The distributor or wholesaler, in turn, charges back the difference between the price initially paid by the distributor or wholesaler and the discounted price paid to the distributor or wholesaler by the customer. The allowance for distributor/wholesaler chargebacks is based on sales to contracted customers. Allowances for estimated chargebacks are recorded as current liabilities in Accrued Sales Deductions.

Customer orders are generally fulfilled within a few days of receipt, resulting in minimal order backlog. Open purchase orders for products from customers are expected to be fulfilled within the next twelve months. There are no minimum product purchase requirements.

Incremental costs of obtaining a contract include only those costs that the Company would not have incurred if the contract had not been obtained, for example sales commissions. Costs of obtaining a contract that are incremental and recoverable are capitalized and amortized on a straight-line basis over the expected customer relationship period. As a practical expedient, the Company expenses costs to obtain a contract as incurred if the expected amortization period of the asset would have been a year or less or if the amount is immaterial. These costs are recorded in selling, general and administrative expenses in the consolidated statement of earnings. Costs to fulfill a contract are expensed as incurred and recorded in cost of product sales in the consolidated statement of earnings.

As of June 30, 2018, the Company had not capitalized any costs of obtaining any of its contracts and had not incurred any costs to fulfill any contracts.

License Revenue

License and Collaboration Agreements

The Company has entered into collaboration agreements to commercialize both Oxtellar XR and Trokendi XR outside of the United States which involve the right to use the Company’s intellectual property as a functional license. These agreements generally include an up-front license fee and ongoing milestone payments upon the achievement of specific events. These agreements may also require minimum royalty payments based on sales of products developed from the applicable intellectual property.

Up-front license fees are recognized once the license has been delivered to the customer.

Milestones are a form of variable consideration that are recognized when either the underlying events have been achieved (event-based milestone) or the sales-based targets have been met by the collaborative partner (sales-based milestone). Both types of milestone payments are non-refundable. The Company evaluates whether achieving the milestones is considered probable and estimates the amount to be included in the transaction price using the most likely amount method. This can involve management’s judgment that includes assessing factors that are outside of the Company’s influence, such as: likelihood of regulatory success; availability of third party information; and expected duration of time until achievement of event. These factors will be evaluated based on the specific facts and circumstances. If it is probable that a significant revenue reversal would not occur, the value of the associated milestone is included in the transaction price.

Event-based milestones are recognized in the period that the related event, such as regulatory approval, occurs. Sales-based milestones are recognized as revenue when the sales target is achieved. Milestone payments that are not within the control of the Company, such as approval from regulatory authorities or where attainment of the specified event is dependent on the development activities of a third-party, are not considered probable of being achieved until the specified event occurs. Revenue is recognized from the satisfaction of performance obligations in the amount billable to the customer.

The Company recorded $750,000 of milestone revenue for both the three and six months ended June 30, 2018 and $1.3 million of milestone revenue for both the three and six months ended June 30, 2017, respectively. Revenue associated with future milestones will be recognized when the related event occurs or sales-based target is achieved. There are no guaranteed minimum amounts owed to the Company related to license and collaboration agreements.

Royalty Revenue

The Company recognizes non-cash royalty revenue for royalty amounts earned pursuant to a royalty agreement with United Therapeutics that involves the right to use the Company’s intellectual property as a functional license. In 2014, the Company sold certain of these royalty rights to Healthcare Royalty Partners III, L.P. (HC Royalty) (see Note 14). Accordingly, the Company records non-cash royalty revenue based on estimated sales by United Therapeutics that result in payments made from United Therapeutics to HC Royalty in connection with these agreements.

Royalty revenue also includes royalty amounts received from collaboration partners, including from Shire Plc (Shire) based on net product sales of Shire’s product, Mydayis. Royalty revenue is only recognized when the underlying sale occurs. The Shire arrangement also involves the right to use the Company’s intellectual property as a functional license and royalty revenue is recognized based on estimated net product sales by Shire in the current period.

There are no guaranteed minimum amounts owed to the Company related to royalty revenue agreements.

For the three and six months ended June 30, 2018, revenue recognized from performance obligations related to prior periods (for example, due to changes in transaction price) was not material in the aggregate for Net Product Sales, License Revenue and Royalty Revenue.

Accounts Receivable, net

Accounts receivable are reported on the consolidated balance sheets at outstanding amounts due from customers, less an allowance for doubtful accounts and discounts. The Company extends credit without requiring collateral. The Company writes off uncollectible receivables when the likelihood of collection is remote. The Company evaluates the collectability of accounts receivable on a regular basis. An allowance, when needed, is based upon various factors including the financial condition and payment history of customers, an overall review of collections experience on other accounts, and economic factors or events expected to affect future collections experience. All arrangements are payable no later than one year after the transfer of the product. The Company does not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between the transfer of the promised good to the customer and receipt of payment will be one year or less. There are no significant financing components.

The Company recorded no allowance for bad debt as of June 30, 2018 and December 31, 2017. There were no impairment losses on accounts receivable for the three and six months ended June 30, 2018 and June 30, 2017.

The Company recorded an allowance of approximately $9.3 million and $8.9 million for expected sales discounts, related to prompt pay discounts and contractual fee for service arrangements, to wholesalers and distributors as of June 30, 2018 and December 31, 2017, respectively.

There were no contract assets or liabilities recorded as of January 1, 2018 or June 30, 2018.

Cost of Product Sales

The cost of product sales consists primarily of materials, third-party manufacturing costs, freight and distribution costs, allocation of labor, quality control and assurance, and other manufacturing overhead costs.

Research and Development Costs

Research and development costs are expensed as incurred. Research and development costs consist primarily of: employee-related expenses, including salaries and benefits; share-based compensation expense; expenses incurred under agreements with CROs; fees paid to clinical investigators who are participating in our clinical trials; fees paid to consultants and other vendors that conduct the Company’s clinical trials; the cost of acquiring and manufacturing clinical trial materials; the cost of manufacturing materials used in process validation, but only to the extent that those materials are manufactured prior to receiving regulatory approval and are not expected to be sold commercially; facilities costs that do not have an alternative future use; related depreciation and other allocated expenses; license fees for, and milestone payments related to in-licensed products and technologies; and costs associated with animal testing activities and regulatory approvals.

Advertising Expense

Advertising expense includes costs of promotional materials and activities, such as marketing materials, marketing programs and speaker programs. The costs of the Company’s advertising efforts are expensed as incurred. The Company incurred approximately $11.1 million and $19.0 million in advertising costs for the three and six months ended June 30, 2018 and approximately $9.8 million and $16.5 million in advertising costs for the three and six months ended June 30, 2017, respectively. These expenses are recorded in the selling, general and administrative expense line item.

Share-Based Compensation

Employee share-based compensation is measured based on the estimated fair value as of the grant date. The grant date fair value is calculated using the Black-Scholes option-pricing model, which requires the use of subjective assumptions, including stock volatility, expected term, risk-free rate, and the fair value of the underlying common stock. The Company recognizes expense using the straight-line method.

The Company records the expense for stock option grants to non-employees based on the estimated fair value of the stock option using the Black-Scholes option pricing model. The fair value of awards to non-employees is re-measured at each reporting period. As a result, stock compensation expense for non-employee awards with vesting is affected by subsequent changes in the fair value of the Company’s common stock, with those changes recorded in the relevant period.

Income Taxes

The Company utilizes the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax reporting bases of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. When appropriate, valuation allowances are established to reduce deferred tax assets to the amounts expected to be realized.

The Company accounts for uncertain tax positions in its consolidated financial statements when it is more-likely-than-not that the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority, assuming full knowledge of the position and relevant facts. The Company’s policy is to recognize any interest and penalties related to income taxes as income tax expense in the relevant period.

Recently Issued Accounting Pronouncements

Accounting Pronouncements Adopted in 2018

In May 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-09, “Revenue from Contracts with Customers,” and has subsequently issued a number of amendments to ASU 2014-09, which provides a comprehensive model to be used in the accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance, including industry-specific guidance.

On January 1, 2018, the Company adopted ASC 606, “Revenue from Contracts with Customers” and all the related amendments (the New Revenue Standard) using the modified retrospective method applied to those contracts which had not been completed as of January 1, 2018. The Company recognized the cumulative effect of initially applying the New Revenue Standard as an adjustment to the opening balance of retained earnings.

The Company recorded a decrease of $2.3 million to the accumulated deficit of January 1, 2018 due to the cumulative impact of adopting the New Revenue Standard. The decrease resulted from the acceleration of both up-front licensing fees from license and collaboration agreements and the acceleration of royalties from sales of licensed product. Under the New Revenue Standard, up-front licensing fees will be recognized when the license is delivered to the customer and royalties from the sale of licensed product will be recognized as the underlying sales of product occur by the licensee. There were no changes in the timing of revenue recognition related to net product sales.

The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods, in thousands of dollars:

	December 31, 2017		Adjustments			January 1, 2018
	As Reported		(unaudited)			(unaudited)
Accounts receivable, net	$	65,586	$	1,620		$	67,206
Deferred licensing revenue	287		(287		)	—
Deferred licensing revenue, net of current portion	1,149		(1,149		)	—
Deferred income taxes (asset)	20,843		(734		)	20,109
Accumulated deficit	26,823		(2,322		)	24,501

Adoption of the New Revenue Standard had no material impact on the Company’s consolidated balance sheets or statements of earnings and had no impact on cash from or used in total operating, investing or financing activities on the Company’s consolidated statements of cash flows.

In May 2017, the FASB issued ASU 2017-09, “Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting,” which clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. ASU 2017-09 is effective for all annual periods, and interim periods within those annual periods, beginning after December 15, 2017, with early adoption permitted. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15, “Classification of Certain Cash Receipts and Cash Payments.” The standard eliminates diversity in the practice of how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230, Statement of Cash Flows, and other Topics. ASU 2016-15 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2017. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

New Accounting Pronouncements Not Yet Adopted

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” The standard requires a lessee to recognize a right-of-use asset and a lease liability on the balance sheet for leases with lease terms greater than 12 months. ASU 2016-02 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, and early adoption is permitted. The Company is evaluating the impact that adopting this new standard will have on its consolidated financial statements. The Company expects the ASU to have a material impact on its consolidated balance sheet due to the recognition of assets and liabilities, principally for certain leases currently accounted for as operating leases. The Company does not expect the ASU to have a material impact on its cash flows or results of operations.

In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.” ASU 2017-12 provides new guidance about income statement classification and eliminates the requirement to separately measure and report hedge ineffectiveness. The entire change in fair value for qualifying hedge instruments included in the effectiveness measurement will be recorded in other comprehensive income (OCI) and amounts deferred in OCI will be reclassified to earnings in the same income statement line item in which the earnings effect of the hedged item is reported. This standard will be effective for the first annual period beginning after December 15, 2018, including interim periods within those periods. Early adoption is permitted. The Company is currently assessing the impact that this standard will have on its consolidated financial statements, but does not expect it to have a material impact.

The Company has evaluated all other ASUs issued through the date the consolidated financial statements were issued in this Quarterly Report on Form 10-Q and believes that no other ASUs will have a material impact on the Company’s consolidated financial statements.

Fair Value of Financial Instruments

6 Months Ended

Jun. 30, 2018

Fair Value of Financial Instruments

Fair Value of Financial Instruments

3. Fair Value of Financial Instruments

The fair value of an asset or liability represents the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Such transactions to sell an asset or transfer a liability are assumed to occur in the principal or most advantageous market for the asset or liability. Accordingly, fair value is determined based on a hypothetical transaction at the measurement date, considered from the perspective of a market participant rather than from a reporting entity’s perspective.

The Company reports assets and liabilities that are measured at fair value using a three level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy maximizes the use of observable inputs and minimizes the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

Level 1—Inputs are unadjusted quoted prices in active markets for identical assets that the Company has the ability to access at the measurement date.

Level 2—Inputs are quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (interest rates, yield curves, etc.) and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

Level 3—Unobservable inputs that reflect the Company’s own assumptions, based on the best information available, including the Company’s own data.

In accordance with the fair value hierarchy described above, the following tables show the fair value of the Company’s financial assets and liabilities that are required to be measured at fair value, in thousands of dollars:

	Fair Value Measurements at
	June 30, 2018
	(unaudited)
					Significant
	Total Carrying		Quoted Prices		Other		Significant
	Value at		in Active		Observable		Unobservable
	June 30,		Markets		Inputs		Inputs
	2018		(Level 1)		(Level 2)		(Level 3)
Assets:
Cash and cash equivalents	$	35,205	$	35,205	$	—	$	—
Marketable securities	139,208		1,376		137,832		—
Long term marketable securities:
Corporate debt securities	500,173		689		499,484		—
Government debt securities	3,139		—		3,139		—
Other non-current assets:
Marketable securities - restricted (SERP)	356		1		355		—

Total assets at fair value	$	678,081	$	37,271	$	640,810	$	—

	Fair Value Measurements at
	December 31, 2017
					Significant
	Total Carrying		Quoted Prices		Other		Significant
	Value at		in Active		Observable		Unobservable
	December 31,		Markets		Inputs		Inputs
	2017		(Level 1)		(Level 2)		(Level 3)
Assets:
Cash and cash equivalents	$	100,304	$	100,304	$	—	$	—
Marketable securities	39,736		2,118		37,618		—
Long term marketable securities:
Corporate debt securities	132,477		448		132,029		—
Government debt securities	1,161		—		1,161		—
Other non-current assets:
Marketable securities - restricted (SERP)	335		—		335		—

Total assets at fair value	$	274,013	$	102,870	$	171,143	$	—

The fair value of the restricted marketable securities is included within other non-current assets in the consolidated balance sheets.

The Company’s Level 1 assets include cash held with banks, certificates of deposit, and money market funds.

Level 2 assets include the SERP (Supplemental Executive Retirement Plan) assets, commercial paper and investment grade corporate and government debt securities and other fixed income securities. Level 2 securities are valued using third-party pricing sources that apply applicable inputs and other relevant data in their models to estimate fair value.

The carrying value, face value and estimated fair value of the 2023 Notes were approximately $321.9 million, $402.5 million and $491.0 million, respectively, as of June 30, 2018. The fair value was estimated based on actual trade information as well as quoted prices provided by bond traders, which would be characterized within Level 2 of the fair value hierarchy.

The carrying amounts of other financial instruments, including accounts receivable, accounts payable and accrued expenses approximate fair value due to their short-term maturities.

Unrestricted marketable securities held by the Company were as follows, in thousands of dollars:

At June 30, 2018 (unaudited):

Available for Sale		Amortized Cost			Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Corporate and government debt securities		$	647,253		12		(4,745	)	$	642,520

At December 31, 2017:

Available for Sale		Amortized Cost			Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Corporate and government debt securities		$	174,235		48		(909	)	$	173,374

The contractual maturities of the unrestricted available for sale marketable securities held by the Company were as follows, in thousands of dollars:

	June 30,
	2018
	(unaudited)
Less Than 1 Year	$	139,208
1 year to 2 years	165,451
2 year to 3 years	169,167
3 years to 4 years	168,694
Greater Than 4 Years	—

Total	$	642,520

The Company has not experienced any other-than-temporary losses on its marketable securities and restricted marketable securities. The cost of securities sold is calculated using the specific identification method.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details

Inventories

6 Months Ended

Jun. 30, 2018

Inventories

Inventories

4. Inventories

Inventories consist of the following, in thousands of dollars:

	June 30,		December 31,
	2018		2017
	(unaudited)
Raw materials	$	2,914	$	2,995
Work in process	6,142		8,873
Finished goods	11,624		4,436

	$	20,680	$	16,304

Property and Equipment

6 Months Ended

Jun. 30, 2018

Property and Equipment

Property and Equipment

5. Property and Equipment

Property and equipment consist of the following, in thousands of dollars:

	June 30,			December 31,
	2018			2017
	(unaudited)
Lab equipment and furniture	$	8,804		$	8,331
Leasehold improvements	2,848			2,731
Software	2,122			2,004
Computer equipment	1,230			1,226
Construction in progress	140			178

	15,144			14,470
Less accumulated depreciation and amortization	(10,247		)	(9,346		)

	$	4,897		$	5,124

Depreciation and amortization expense on property and equipment was approximately $500,000 and $900,000 for the three and six months ended June 30, 2018, and approximately $300,000 and $600,000 for the three and six months ended June 30, 2017, respectively.

There were no indicators of impairment identified.

Intangible Assets

6 Months Ended

Jun. 30, 2018

Intangible Assets

Intangible Assets

6. Intangible Assets

Intangible assets consist of patent defense costs, which are legal fees incurred in conjunction with defending patents for Oxtellar XR and Trokendi XR.

The following sets forth the gross carrying amount and related accumulated amortization of the intangible assets, in thousands of dollars:

	Weighted-	June 30,			December 31,
	Average Life	2018			2017
		(unaudited)
Capitalized patent defense costs	4.5 -8.75 years	$	44,546		$	44,185
Less accumulated amortization		(10,752		)	(8,166		)

		$	33,794		$	36,019

In March 2017, the Company entered into two settlements with various companies related to Trokendi XR patent litigation. The remaining unamortized aggregate capitalized patent defense costs for Trokendi XR have subsequently been amortized over the remaining useful life of the patents at issue, or January 1, 2023, which is the date the Company is obligated under the settlements to grant a non-exclusive license to the patents at issue.

Amortization expense on intangible assets was approximately $1.3 million and $2.6 million for the three and six months ended June 30, 2018, and approximately $1.0 million and $1.4 million for the three and six months ended June 30, 2017, respectively.

There were no indicators of impairment identified.

Accrued Expenses

6 Months Ended

Jun. 30, 2018

Accrued Expenses

Accrued Expenses

7. Accrued Expenses

Accrued expenses are comprised of the following, in thousands of dollars:

	June 30,		December 31,
	2018		2017
	(unaudited)
Accrued clinical trial and clinical supply costs	$	11,810	$	6,996
Accrued compensation	10,302		10,279
Accrued product costs	1,217		726
Accrued professional fees	1,912		2,890
Accrued interest expense	734		—
Other accrued expenses	3,313		6,414

	$	29,288	$	27,305

Convertible Senior Notes

6 Months Ended

Jun. 30, 2018

Convertible Senior Notes

Convertible Senior Notes

8. Convertible Senior Notes

On March 14, 2018, the Company entered into a Purchase Agreement (the Purchase Agreement) with Jefferies LLC, J.P. Morgan Securities LLC and Cowen and Company, LLC, as the initial purchasers (collectively, the Initial Purchasers), in connection with the offering and sale of $350 million aggregate principal amount of 2023 Notes. The Company also granted the Initial Purchasers an over-allotment option to purchase, within a 30-day period, up to an additional $52.5 million principal amount of additional 2023 Notes on the same terms and conditions, which the Initial Purchasers exercised in full on March 15, 2018.

On March 19, 2018, the sale of the 2023 Notes was settled and the 2023 Notes were issued pursuant to an Indenture, dated as of March 19, 2018 (the Indenture), between the Company and Wilmington Trust, National Association, as trustee. The Indenture includes customary terms and covenants, including certain events of default upon which the 2023 Notes may be due and payable immediately. The Indenture governing the 2023 Notes does not contain any financial or operating covenants or any restrictions on the payment of dividends, the issuance of other indebtedness or the issuance or repurchase of securities by the Company.

The Company will pay interest on the 2023 Notes at an annual rate of 0.625%, payable semi-annually in arrears on April 1 and October 1 of each year, beginning on October 1, 2018. The 2023 Notes will mature on April 1, 2023, unless earlier converted or repurchased by the Company.

Noteholders may convert their 2023 Notes at their option only in the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on June 30, 2018, if the last reported sale price per share of the Company’s common stock for each of at least 20 trading days (whether or not consecutive) during the 30 consecutive trading days ending on, and including the last trading day of the immediately preceding calendar quarter exceeds 130% of the conversion price, or a price of approximately $77.13 per share, on such trading day; (2) during the five consecutive business days immediately after any 10 consecutive trading day period (such 10 consecutive trading day period, the “measurement period”) in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price per share of the Company’s common stock on such trading day and the conversion rate on such trading day; (3) upon the occurrence of certain corporate events or distributions on the Company’s common stock, as specified in the Indenture; and (4) at any time from, and including, October 1, 2022 until the close of business on the second scheduled trading day immediately before the maturity date. The Company will settle conversions by paying or delivering, as applicable, cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at its election, based on the applicable conversion rate. The initial conversion rate is 16.8545 shares per $1,000 principal amount of the 2023 Notes, which represents an initial conversion price of approximately $59.33 per share, and is subject to adjustment as specified in the Indenture.

If a “make-whole fundamental change” (as defined in the Indenture) occurs, then the Company will in certain circumstances increase the conversion rate for a specified period of time. If a “fundamental change” (as defined in the Indenture) occurs, then noteholders may require the Company to repurchase their 2023 Notes at a cash repurchase price equal to the principal amount of the 2023 Notes to be repurchased, plus accrued and unpaid interest, if any.

The Company may not redeem the 2023 Notes at its option before maturity.

In the event of conversion, holders would forgo all future interest payments, any unpaid accrued interest and the possibility of further stock price appreciation. Upon the receipt of conversion requests, the settlement of the 2023 Notes will be paid pursuant to the terms of the Indenture. In the event that all of the 2023 Notes are converted, the Company would be required to repay the $402.5 million in principal value and any conversion premium in cash, shares or any combination of cash and shares of its common stock (at the Company’s option).

The 2023 Notes are the Company’s senior, unsecured obligations and will be equal in right of payment with the Company’s future senior, unsecured indebtedness, senior in right of payment to the Company’s future indebtedness that is expressly subordinated to the 2023 Notes and effectively subordinated to the Company’s future secured indebtedness, to the extent of the value of the collateral securing that indebtedness. The 2023 Notes will be structurally subordinated to all future indebtedness and other liabilities, including trade payables.

Convertible Notes Hedge and Warrant Transactions

In connection with the pricing of the 2023 Notes on March 14, 2018, and in connection with the exercise of the over-allotment option by the Initial Purchasers on March 15, 2018, the Company entered into separate privately negotiated convertible note hedge transactions (collectively, the Convertible Note Hedge Transactions) with each of the call spread counterparties. The Convertible Note Hedge Transactions cover, subject to customary anti-dilution adjustments substantially similar to those applicable to the 2023 Notes, the number of shares of the Company’s common stock underlying the 2023 Notes, as described above. The Company issued 402,500 convertible note hedge options, including options purchased on the exercise of the overallotment option. In the event that shares or cash are deliverable to holders of the 2023 Notes upon conversion at limits defined in the Indenture, counterparties to the convertible note hedges will be required to deliver up to approximately 6.8 million shares of the Company’s common stock or pay cash to the Company in a similar amount as the value that the Company delivers to the holders of the 2023 Notes based on a conversion price of $59.33 per share. The total cost of the convertible note hedge transactions was $92.9 million.

Concurrently with entering into the Convertible Note Hedge Transactions on each such date, the Company also entered into separate privately negotiated warrant transactions (collectively, the Warrant Transactions) with each of the call spread counterparties whereby the Company sold to the call spread counterparties warrants to purchase, subject to customary anti-dilution adjustments, up to the same number of shares of the Company’s common stock.

The Convertible Note Hedge Transactions and the Warrant Transactions are separate contracts entered into by the Company with the Call Spread Counterparties, are not part of the terms of the 2023 Notes and will not affect the noteholders’ rights under the 2023 Notes. Holders of the 2023 Notes will not have any rights with respect to the Convertible Note Hedge Transactions or the Warrant Transactions. The Company issued a total of 6,783,939 warrants. The warrants entitle the holder to one share per warrant at the strike price through 2023. The strike price of the Warrant Transactions will initially be $80.9063 per share of the Company’s common stock (subject to adjustment). The Company received proceeds of approximately $65.7 million from the sale of these warrants.

The Convertible Note Hedge Transactions are expected to reduce generally the potential dilution with respect to the Company’s common stock upon conversion of the 2023 Notes and/or offset any potential cash payments the Company is required to make in excess of the principal amount of converted 2023 Notes, as the case may be, upon any conversion of the 2023 Notes. The Warrant Transactions are intended to partially offset the cost to the Company of the purchased Convertible Note Hedge Transactions; however, the Warrant Transactions could have a dilutive effect with respect to the Company’s common stock to the extent that the market price per share of the Company’s common stock, as measured under the terms of the Warrant Transactions, exceeds the strike price of the warrants. As these transactions meet certain accounting criteria under ASC 815-40-25, the convertible note hedges and warrants are recorded in stockholders’ equity and are not accounted for as derivatives. The net cost incurred in connection with the convertible note hedges and warrant transactions was recorded as a reduction to additional paid-in capital in the consolidated balance sheet as of June 30, 2018.

In accordance with accounting guidance on embedded conversion features, the Company valued and bifurcated the conversion option associated with the 2023 Notes from the respective host debt instrument, which is referred to as debt discount, and initially recorded the conversion option of $76.4 million in additional paid-in capital on the consolidated balance sheet. The resulting debt discount on the 2023 Notes is being amortized to interest expense at an effective interest rate of 5.41% over the contractual term of the 2023 Notes.

The Company incurred approximately $10.4 million of debt financing costs. Approximately $2.0 million of this amount is allocated to the additional paid-in capital and the remaining $8.4 million is recorded as deferred costs and is being amortized to interest expense over the contractual term of the 2023 Notes.

The liability component of the 2023 Notes consisted of the following, in thousands of dollars, unaudited:

	June 30,
	2018
Principal amount of the 2023 Notes	$	402,500
Debt discount	(76,434		)
Deferred financing costs	(8,453		)
Accretion of debt discount and deferred financing costs	4,307

June 30, 2018 carrying value	$	321,920

No 2023 Notes were converted in the six months ended June 30, 2018.

Summary Stockholders' Equity

6 Months Ended

Jun. 30, 2018

Summary Stockholders' Equity

Summary Stockholders' Equity

9. Summary Stockholders’ Equity

The following summary table provides details related to the activity in certain captions within Stockholders’ Equity for the six month period ended June 30, 2018, in thousands of dollars:

	Common Stock		Additional Paid-in Capital			Retained Earnings (Accumulated Deficit)
	(unaudited)

Balance, December 31, 2017	$	51	$	294,999		$	(26,823	)
Cumulative-effect of adoption of ASC 606	—		—			2,322

Balance, January 1, 2018	51		294,999			(24,501		)
Share-based compensation	—		5,703			—
Issuance of ESPP shares	—		1,184			—
Exercise of stock options	1		8,319			—
Equity component of convertible notes issuance, net of tax	—		56,215			—
Purchases of convertible note hedges, net of tax	—		(70,137		)	—
Issuance of warrants	—		65,688			—
Net income	—		—			57,089

Balance, June 30, 2018	$	52	$	361,971		$	32,588

Share-Based Payments

6 Months Ended

Jun. 30, 2018

Share-Based Payments

Share-Based Payments

10. Share-Based Payments

Stock Option Plans

The Company has adopted the Supernus Pharmaceuticals, Inc. 2012 Equity Incentive Plan, as amended (the 2012 Plan), which is stockholder approved, and provides for the grant of stock options and certain other awards, including stock appreciation rights (SAR), restricted and unrestricted stock, stock units, performance awards, cash awards and other awards that are convertible into or otherwise based on the Company’s common stock, to the Company’s key employees, directors, consultants and advisors. The 2012 Plan is administered by the Company’s Board of Directors and the Company’s Compensation Committee and provides for the issuance of up to 8,000,000 shares of the Company’s common stock. Option awards are granted with an exercise price equal to the estimated fair value of the Company’s common stock at the grant date. Option awards granted to employees, consultants and advisors generally vest in four equivalent annual installments, starting on the first anniversary of the date of the grant and have ten-year contractual terms. Option awards granted to the directors generally vest over a one year term and have ten year contractual terms.

Share-based compensation recognized related to the grant of employee and non-employee stock options, SAR, Employee Stock Purchase Plan (ESPP) awards and non-vested stock was as follows, in thousands of dollars:

	Three Months ended June 30,				Six Months ended June 30,
	2018		2017		2018		2017
	(unaudited)				(unaudited)
Research and development	$	534	$	398	$	952	$	715
Selling, general and administrative	2,534		1,862		4,751		3,372

Total	$	3,068	$	2,260	$	5,703	$	4,087

The following table summarizes stock option and SAR activity:

	Number of Options		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (in years)

Outstanding, December 31, 2017	4,280,670		$	14.50	7.37
Granted (unaudited)	734,465		$	39.84
Exercised (unaudited)	(829,518	)	$	10.03
Forfeited (unaudited)	(168,816	)	$	24.26

Outstanding, June 30, 2018 (unaudited)	4,016,801		$	19.65	7.52


As of December 31, 2017:
Vested and expected to vest	4,280,670		$	14.50	7.37
Exercisable	1,952,769		$	9.35	6.16

As of June 30, 2018:
Vested and expected to vest (unaudited)	4,016,801		$	19.65	7.52
Exercisable (unaudited)	1,947,495		$	12.07	6.35

Earnings per Share

6 Months Ended

Jun. 30, 2018

Earnings per Share

Earnings per Share

11. Earnings per Share

Basic earnings per common share is determined by dividing earnings attributable to common stockholders by the weighted-average number of common shares outstanding during the period, without consideration of common stock equivalents. Diluted earnings per share is computed by dividing the earnings attributable to common stockholders by the weighted-average number of common share equivalents outstanding for the period. The treasury stock method is used to determine the dilutive effect of the Company’s stock option grants, SAR, warrants, ESPP awards, and the 2023 Notes.

The following common stock equivalents were excluded in the calculation of diluted earnings per share because their inclusion would be anti-dilutive as applied to the earnings from continuing operations applicable to common stockholders for the three and six months ended June 30, 2018 and 2017:

	Three Months ended June 30,		Six Months ended June 30,
	2018	2017	2018	2017
	(unaudited)		(unaudited)
Warrants to purchase common stock	4,362,485	—	2,816,135	—
Convertible notes	66,961	—	61,104	—
Convertible notes hedges	67	—	61	—
Stock options, stock appreciation rights, and ESPP awards	137,565	122,666	184,760	206,448

The following table sets forth the computation of basic and diluted net earnings per share for the three and six months ended June 30, 2018 and 2017, in thousands of dollars, except share and per share amounts:

	Three Months ended June 30,					Six Months ended June 30,
	2018		2017			2018		2017
	(unaudited)					(unaudited)
Numerator, in thousands:
Net earnings used for calculation of basic EPS	$	30,737	$	17,368		$	57,089	$	27,665

Interest expense on convertible debt	—		58			—		147
Changes in fair value of derivative liabilities	—		(23		)	—		(76		)
Loss on extinguishment of debt	—		103			—		204
Loss on extinguishment of outstanding debt, as if converted	—		(258		)	—		(321		)

Total adjustments	—		(120		)	—		(46		)

Net earnings used for calculation of diluted EPS	$	30,737	$	17,248		$	57,089	$	27,619


Denominator:
Weighted average shares outstanding, basic	51,919,894		50,530,968			51,729,243		50,345,830

Effect of dilutive potential common shares:	—		—			—		—
Shares underlying Convertible Senior Notes	—		421,708			—		551,235
Shares issuable to settle interest make-whole derivatives	—		4,631			—		7,013
Stock options and stock appreciation rights	2,283,414		2,266,407			2,292,698		2,122,245

Total dilutive potential common shares	2,283,414		2,692,746			2,292,698		2,680,493

Weighted average shares outstanding, diluted	54,203,308		53,223,714			54,021,941		53,026,323


Net earnings per share, basic	$	0.59	$	0.34		$	1.10	$	0.55
Net earnings per share, diluted	$	0.57	$	0.32		$	1.06	$	0.52

Income Taxes

6 Months Ended

Jun. 30, 2018

Income Taxes

Income Taxes

12. Income Taxes

The following table provides a comparative summary of the Company’s income tax expense and effective tax rate for the three and six months ended June 30, 2018 and 2017, in thousands of dollars:

	Three Months ended June 30,						Six Months ended June 30,
	2018			2017			2018			2017
	(unaudited)						(unaudited)
Income tax expense	$	3,119		$	9,057		$	7,949		$	14,983
Effective tax rate	9.2		%	34.3		%	12.2		%	35.1		%

The income tax expense for the three and six months ended June 30, 2018, is attributable to U.S. federal and state income taxes. The decrease in the income tax expense and the effective tax rate for the three and six months ended June 30, 2018 as compared to the same periods in the prior year is primarily attributable to the reduction of the U.S. corporate income tax rate, from 35% to 21%, as a result of the Tax Cuts and Jobs Act passed on December 22, 2017.

In addition, for the three and six months ended June 30, 2018, the Company recorded income tax benefits of approximately $4.4 million and $6.4 million, respectively, as a result of the Company recognizing excess tax benefits related to the employee exercise of stock options. These tax benefits caused the effective tax rate to be significantly less than the Company’s statutory annual effective tax rate for the three and six months ended June 30, 2018.

Commitments and Contingencies

6 Months Ended

Jun. 30, 2018

Commitments and Contingencies

Commitments and Contingencies

13. Commitments and Contingencies

The Company has concurrent leases for its current headquarters office and lab space that extend through April 2020. The Company may elect to extend the term of the leases for an additional five-year term. The leases provide for a tenant improvement allowance of approximately $2.1 million in aggregate. During the three and six months ended June 30, 2018, none of the allowance was utilized. During the three and six months ended June 30, 2017, approximately $49,000 and $79,000 of the allowance, respectively, was utilized. These amounts were included in fixed assets and deferred rent. As of June 30, 2018, approximately $400,000 is available for tenant improvements.

The Company has entered into a new lease agreement, effective February 27, 2018, with Rockside-700 LLC, for its new headquarters. The term of the new lease commences upon the Company’s substantial completion of the initial buildout of the premises, but in no event later than July 10, 2019, and shall continue until April 30, 2033, unless earlier terminated in accordance with the terms of the new lease (the Lease Term). Under the new lease, the Company has the option to extend the Lease Term for two additional five-year periods. The new lease provides for a tenant improvement allowance of approximately $8.9 million in aggregate. The Company has the right to terminate the lease if, by September 30, 2018, the landlord fails to obtain certain site approval pre-requisites per the lease agreement. As of June 30, 2018, none of the tenant improvement allowance has been received and the full amount of the allowance is available for tenant improvements.

Rent expense for the leased facilities and leased vehicles was approximately $898,000 and $1.8 million for the three and six months ended June 30, 2018 and approximately $500,000 and $1.2 million for the three and six months ended June 30, 2017, respectively.

Future minimum lease payments under non-cancelable operating leases as of June 30, 2018 are as follows, in thousands of dollars, unaudited:

Year ending December 31:
2018 (remaining)	$	1,715
2019	3,393
2020	2,482
Thereafter	1,014

	$	8,604

The Company has obtained exclusive licenses from third parties for proprietary rights to support the product candidates in the Company’s psychiatry portfolio. Under license agreements with Afecta Pharmaceuticals, Inc. (Afecta), the Company has exclusive worldwide rights to selected product candidates, including an exclusive license to SPN-810. The Company may pay up to $300,000 upon the achievement of certain milestones, none of which was owed as of June 30, 2018. The Company is obligated to pay royalties to Afecta as a low single digit percentage of worldwide net product sales.

The Company has also entered into a purchase and sale agreement with Rune HealthCare Limited (Rune), where the Company obtained the exclusive worldwide rights to a product concept from Rune. There are no future milestone payments due to Rune under this agreement. If the Company receives approval to market and sell any products based on the Rune product concept for SPN-809, the Company is obligated to pay royalties to Rune as a low single digit percentage of worldwide net product sales.

Collaboration Agreements	6 Months Ended
Collaboration Agreements	Jun. 30, 2018
Collaboration Agreements
Collaboration Agreements	14. Collaboration Agreements In the third quarter of 2014, the Company received a $30.0 million payment pursuant to a Royalty Interest Acquisition Agreement related to the purchase by HC Royalty of certain of the Company’s rights under the agreement with United Therapeutics Corporation related to the commercialization of Orenitram (treprostinil) Extended-Release Tablets. The Company will retain full ownership of the royalty rights if and when a certain cumulative payment threshold is reached per the terms of the agreement. The Company has recorded a non-recourse liability related to this transaction and has begun to amortize this amount to recognize non-cash royalty revenue. Revenue recognition is based on estimated net product sales by United Therapeutics that result in payments made from United Therapeutics to HC Royalty in connection with these agreements. The Company also recognized non-cash interest expense related to this liability that accrues at an effective interest rate. That rate is determined based on projections of HC Royalty’s rate of return. The Company recognized non-cash royalty revenue of $1.5 million and $2.8 million for the three and six months ended June 30, 2018 and $1.2 million and $2.3 million for the three and six months ended June 30, 2017, respectively. The Company recognized non-cash interest expense of $1.2 million and $1.9 million for the three and six months ended June 30, 2018 and $0.2 million and $1.1 million for the three and six months ended June 30, 2017.

Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2018

Summary of Significant Accounting Policies

Basis of Presentation

The results of operations for the three and six months ended June 30, 2018 are not necessarily indicative of the Company’s future financial results.

Use of Estimates

Cash and Cash Equivalents

The Company considers all investments in highly liquid financial instruments with an original maturity of three months or less to be cash equivalents.

Marketable Securities

Concentration of Credit Risk

Inventories

Intangible Assets

Impairment of Long-Lived Assets

Deferred Financing Costs

Preclinical Study and Clinical Trial Accruals

Revenue Recognition

	Three Months ended June 30,
	2018		2017
	(unaudited)		(unaudited)
Net Product Sales:
Trokendi XR	$	76,474	$	55,989
Oxtellar XR	20,556		17,339

Total Net Product Sales	97,030		73,328
Royalty Revenues	1,758		1,179
Licensing Revenue	750		1,322

Total Revenues	$	99,538	$	75,829

	Six Months ended June 30,
	2018		2017
	(unaudited)		(unaudited)
Net Product Sales:
Trokendi XR	$	147,029	$	97,998
Oxtellar XR	39,121		31,699

Total Net Product Sales	186,150		129,697
Royalty Revenues	3,067		2,328
Licensing Revenue	750		1,380

Total Revenues	$	189,967	$	133,405

Revenue from Product Sales

Sales Deductions

Allowances for estimated sales deductions are provided for the following:

As of June 30, 2018, the Company had not capitalized any costs of obtaining any of its contracts and had not incurred any costs to fulfill any contracts.

License Revenue

License and Collaboration Agreements

Up-front license fees are recognized once the license has been delivered to the customer.

Royalty Revenue

There are no guaranteed minimum amounts owed to the Company related to royalty revenue agreements.

Accounts Receivable, net

There were no contract assets or liabilities recorded as of January 1, 2018 or June 30, 2018.

Cost of Product Sales

Research and Development Costs

Advertising Expense

Share-Based Compensation

Income Taxes

Recently Issued Accounting Pronouncements

Accounting Pronouncements Adopted in 2018

The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods, in thousands of dollars:

	December 31, 2017		Adjustments			January 1, 2018
	As Reported		(unaudited)			(unaudited)
Accounts receivable, net	$	65,586	$	1,620		$	67,206
Deferred licensing revenue	287		(287		)	—
Deferred licensing revenue, net of current portion	1,149		(1,149		)	—
Deferred income taxes (asset)	20,843		(734		)	20,109
Accumulated deficit	26,823		(2,322		)	24,501

New Accounting Pronouncements Not Yet Adopted

Summary of Significant Accounting Policies (Tables)

6 Months Ended

Jun. 30, 2018

Schedule of revenue recognition

	Three Months ended June 30,
	2018		2017
	(unaudited)		(unaudited)
Net Product Sales:
Trokendi XR	$	76,474	$	55,989
Oxtellar XR	20,556		17,339

Total Net Product Sales	97,030		73,328
Royalty Revenues	1,758		1,179
Licensing Revenue	750		1,322

Total Revenues	$	99,538	$	75,829

	Six Months ended June 30,
	2018		2017
	(unaudited)		(unaudited)
Net Product Sales:
Trokendi XR	$	147,029	$	97,998
Oxtellar XR	39,121		31,699

Total Net Product Sales	186,150		129,697
Royalty Revenues	3,067		2,328
Licensing Revenue	750		1,380

Total Revenues	$	189,967	$	133,405

ASU 2014-09

Schedule of impact on financial statements due to adoption of ASC Topic 606

The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods, in thousands of dollars:

	December 31, 2017		Adjustments			January 1, 2018
	As Reported		(unaudited)			(unaudited)
Accounts receivable, net	$	65,586	$	1,620		$	67,206
Deferred licensing revenue	287		(287		)	—
Deferred licensing revenue, net of current portion	1,149		(1,149		)	—
Deferred income taxes (asset)	20,843		(734		)	20,109
Accumulated deficit	26,823		(2,322		)	24,501

Fair Value of Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2018

Fair Value of Financial Instruments

Schedule of fair value of the financial assets and liabilities

	Fair Value Measurements at
	June 30, 2018
	(unaudited)
					Significant
	Total Carrying		Quoted Prices		Other		Significant
	Value at		in Active		Observable		Unobservable
	June 30,		Markets		Inputs		Inputs
	2018		(Level 1)		(Level 2)		(Level 3)
Assets:
Cash and cash equivalents	$	35,205	$	35,205	$	—	$	—
Marketable securities	139,208		1,376		137,832		—
Long term marketable securities:
Corporate debt securities	500,173		689		499,484		—
Government debt securities	3,139		—		3,139		—
Other non-current assets:
Marketable securities - restricted (SERP)	356		1		355		—

Total assets at fair value	$	678,081	$	37,271	$	640,810	$	—

	Fair Value Measurements at
	December 31, 2017
					Significant
	Total Carrying		Quoted Prices		Other		Significant
	Value at		in Active		Observable		Unobservable
	December 31,		Markets		Inputs		Inputs
	2017		(Level 1)		(Level 2)		(Level 3)
Assets:
Cash and cash equivalents	$	100,304	$	100,304	$	—	$	—
Marketable securities	39,736		2,118		37,618		—
Long term marketable securities:
Corporate debt securities	132,477		448		132,029		—
Government debt securities	1,161		—		1,161		—
Other non-current assets:
Marketable securities - restricted (SERP)	335		—		335		—

Total assets at fair value	$	274,013	$	102,870	$	171,143	$	—

Schedule of unrestricted marketable securities

Unrestricted marketable securities held by the Company were as follows, in thousands of dollars:

At June 30, 2018 (unaudited):

Available for Sale		Amortized Cost			Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Corporate and government debt securities		$	647,253		12		(4,745	)	$	642,520

At December 31, 2017:

Available for Sale		Amortized Cost			Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Corporate and government debt securities		$	174,235		48		(909	)	$	173,374

Schedule of contractual maturities of the unrestricted available for sale marketable securities held

The contractual maturities of the unrestricted available for sale marketable securities held by the Company were as follows, in thousands of dollars:

	June 30,
	2018
	(unaudited)
Less Than 1 Year	$	139,208
1 year to 2 years	165,451
2 year to 3 years	169,167
3 years to 4 years	168,694
Greater Than 4 Years	—

Total	$	642,520

Inventories (Tables)

6 Months Ended

Jun. 30, 2018

Inventories

Schedule of inventories

Inventories consist of the following, in thousands of dollars:

	June 30,		December 31,
	2018		2017
	(unaudited)
Raw materials	$	2,914	$	2,995
Work in process	6,142		8,873
Finished goods	11,624		4,436

	$	20,680	$	16,304

Property and Equipment (Tables)

6 Months Ended

Jun. 30, 2018

Property and Equipment

Schedule of property and equipment

Property and equipment consist of the following, in thousands of dollars:

	June 30,			December 31,
	2018			2017
	(unaudited)
Lab equipment and furniture	$	8,804		$	8,331
Leasehold improvements	2,848			2,731
Software	2,122			2,004
Computer equipment	1,230			1,226
Construction in progress	140			178

	15,144			14,470
Less accumulated depreciation and amortization	(10,247		)	(9,346		)

	$	4,897		$	5,124

Intangible Assets (Tables)

6 Months Ended

Jun. 30, 2018

Intangible Assets

Schedule of gross carrying amount and related accumulated amortization of the intangible assets

The following sets forth the gross carrying amount and related accumulated amortization of the intangible assets, in thousands of dollars:

	Weighted-	June 30,			December 31,
	Average Life	2018			2017
		(unaudited)
Capitalized patent defense costs	4.5 -8.75 years	$	44,546		$	44,185
Less accumulated amortization		(10,752		)	(8,166		)

		$	33,794		$	36,019

Accrued Expenses (Tables)

6 Months Ended

Jun. 30, 2018

Accrued Expenses

Schedule of accrued expenses

Accrued expenses are comprised of the following, in thousands of dollars:

	June 30,		December 31,
	2018		2017
	(unaudited)
Accrued clinical trial and clinical supply costs	$	11,810	$	6,996
Accrued compensation	10,302		10,279
Accrued product costs	1,217		726
Accrued professional fees	1,912		2,890
Accrued interest expense	734		—
Other accrued expenses	3,313		6,414

	$	29,288	$	27,305

Convertible Senior Notes (Tables)

6 Months Ended

Jun. 30, 2018

Convertible Senior Notes

Summary of liability component of 2023 Notes

The liability component of the 2023 Notes consisted of the following, in thousands of dollars, unaudited:

	June 30,
	2018
Principal amount of the 2023 Notes	$	402,500
Debt discount	(76,434		)
Deferred financing costs	(8,453		)
Accretion of debt discount and deferred financing costs	4,307

June 30, 2018 carrying value	$	321,920

Summary Stockholders' Equity (Tables)

6 Months Ended

Jun. 30, 2018

Summary Stockholders' Equity

Schedule of activity in certain captions within Stockholders' Equity

The following summary table provides details related to the activity in certain captions within Stockholders’ Equity for the six month period ended June 30, 2018, in thousands of dollars:

	Common Stock		Additional Paid-in Capital			Retained Earnings (Accumulated Deficit)
	(unaudited)

Balance, December 31, 2017	$	51	$	294,999		$	(26,823	)
Cumulative-effect of adoption of ASC 606	—		—			2,322

Balance, January 1, 2018	51		294,999			(24,501		)
Share-based compensation	—		5,703			—
Issuance of ESPP shares	—		1,184			—
Exercise of stock options	1		8,319			—
Equity component of convertible notes issuance, net of tax	—		56,215			—
Purchases of convertible note hedges, net of tax	—		(70,137		)	—
Issuance of warrants	—		65,688			—
Net income	—		—			57,089

Balance, June 30, 2018	$	52	$	361,971		$	32,588

Share-Based Payments (Tables)

6 Months Ended

Jun. 30, 2018

Share-Based Payments

Schedule of share-based compensation recognized related to the grant of employee and non-employee stock options, SAR, Employee Stock Purchase Plan (ESPP) awards and non-vested stock

	Three Months ended June 30,				Six Months ended June 30,
	2018		2017		2018		2017
	(unaudited)				(unaudited)
Research and development	$	534	$	398	$	952	$	715
Selling, general and administrative	2,534		1,862		4,751		3,372

Total	$	3,068	$	2,260	$	5,703	$	4,087

Summary of stock option and SAR activity

	Number of Options		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (in years)

Outstanding, December 31, 2017	4,280,670		$	14.50	7.37
Granted (unaudited)	734,465		$	39.84
Exercised (unaudited)	(829,518	)	$	10.03
Forfeited (unaudited)	(168,816	)	$	24.26

Outstanding, June 30, 2018 (unaudited)	4,016,801		$	19.65	7.52


As of December 31, 2017:
Vested and expected to vest	4,280,670		$	14.50	7.37
Exercisable	1,952,769		$	9.35	6.16

As of June 30, 2018:
Vested and expected to vest (unaudited)	4,016,801		$	19.65	7.52
Exercisable (unaudited)	1,947,495		$	12.07	6.35

Earnings per Share (Tables)

6 Months Ended

Jun. 30, 2018

Earnings per Share

Schedule of common stock equivalents excluded in the calculation of diluted earnings per share

	Three Months ended June 30,		Six Months ended June 30,
	2018	2017	2018	2017
	(unaudited)		(unaudited)
Warrants to purchase common stock	4,362,485	—	2,816,135	—
Convertible notes	66,961	—	61,104	—
Convertible notes hedges	67	—	61	—
Stock options, stock appreciation rights, and ESPP awards	137,565	122,666	184,760	206,448

Schedule of computation of basic and diluted net earnings per share

	Three Months ended June 30,					Six Months ended June 30,
	2018		2017			2018		2017
	(unaudited)					(unaudited)
Numerator, in thousands:
Net earnings used for calculation of basic EPS	$	30,737	$	17,368		$	57,089	$	27,665

Interest expense on convertible debt	—		58			—		147
Changes in fair value of derivative liabilities	—		(23		)	—		(76		)
Loss on extinguishment of debt	—		103			—		204
Loss on extinguishment of outstanding debt, as if converted	—		(258		)	—		(321		)

Total adjustments	—		(120		)	—		(46		)

Net earnings used for calculation of diluted EPS	$	30,737	$	17,248		$	57,089	$	27,619


Denominator:
Weighted average shares outstanding, basic	51,919,894		50,530,968			51,729,243		50,345,830

Effect of dilutive potential common shares:	—		—			—		—
Shares underlying Convertible Senior Notes	—		421,708			—		551,235
Shares issuable to settle interest make-whole derivatives	—		4,631			—		7,013
Stock options and stock appreciation rights	2,283,414		2,266,407			2,292,698		2,122,245

Total dilutive potential common shares	2,283,414		2,692,746			2,292,698		2,680,493

Weighted average shares outstanding, diluted	54,203,308		53,223,714			54,021,941		53,026,323


Net earnings per share, basic	$	0.59	$	0.34		$	1.10	$	0.55
Net earnings per share, diluted	$	0.57	$	0.32		$	1.06	$	0.52

Income Taxes (Tables)

6 Months Ended

Jun. 30, 2018

Income Taxes

Summary of our income tax expense and effective tax rate

The following table provides a comparative summary of the Company’s income tax expense and effective tax rate for the three and six months ended June 30, 2018 and 2017, in thousands of dollars:

	Three Months ended June 30,						Six Months ended June 30,
	2018			2017			2018			2017
	(unaudited)						(unaudited)
Income tax expense	$	3,119		$	9,057		$	7,949		$	14,983
Effective tax rate	9.2		%	34.3		%	12.2		%	35.1		%

Commitments and Contingencies (Tables)

6 Months Ended

Jun. 30, 2018

Commitments and Contingencies

Schedule of future minimum lease payments under non-cancelable operating leases

Future minimum lease payments under non-cancelable operating leases as of June 30, 2018 are as follows, in thousands of dollars, unaudited:

Year ending December 31:
2018 (remaining)	$	1,715
2019	3,393
2020	2,482
Thereafter	1,014

	$	8,604

Organization and Business (Details)	6 Months Ended
Organization and Business (Details)	Jun. 30, 2018 product
Organization and Business
Number of proprietary commercial products	2

Summary of Significant Accounting Policies - Segments (Details)	6 Months Ended
	Jun. 30, 2018 segment
Basis of Presentation
Number of operating segments	1

Summary of Significant Accounting Policies - Concentration of Credit Risk (Details) - Revenues - Customer Concentration Risk - Wholesale pharmaceutical distributors	6 Months Ended
	Jun. 30, 2018 customer
Concentration of Credit Risk
Number of customers	3
Minimum
Concentration of Credit Risk
Concentration risk percentage	90.00%

Summary of Significant Accounting Policies - Deferred Financing Costs (Details) - 0.625% Convertible Senior Notes due 2023 $ in Millions	Jun. 30, 2018 USD ($)
Deferred Financing Costs
Aggregate principal amount	$ 402.5
Interest rate (as a percent)	0.625%

Summary of Significant Accounting Policies - Revenue Recognition (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Revenues
Revenues	$ 99,538,000	$ 75,829,000	$ 189,967,000	$ 133,405,000
Sales return period prior to expiry date			6 months
Sales return period subsequent to expiry date			12 months
Milestone revenue	750,000	1,300,000	$ 750,000	1,300,000
Practical expedient
Revenue, Practical Expedient, Incremental Cost of Obtaining Contract [true/false]			true
License and collaboration agreements
Revenues
Guaranteed minimum amounts	0		$ 0
Royalty revenue agreements
Revenues
Guaranteed minimum amounts	0		0
Product
Revenues
Revenues	97,030,000	73,328,000	186,150,000	129,697,000
Oxtellar XR
Revenues
Revenues	20,556,000	17,339,000	39,121,000	31,699,000
Trokendi XR
Revenues
Revenues	76,474,000	55,989,000	147,029,000	97,998,000
Royalty
Revenues
Revenues	1,758,000	1,179,000	3,067,000	2,328,000
Licensing
Revenues
Revenues	$ 750,000	$ 1,322,000	$ 750,000	$ 1,380,000

Summary of Significant Accounting Policies - Accounts Receivable, net (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017	Jan. 01, 2018	Dec. 31, 2017
Accounts Receivable, Net
Allowance for bad debt	$ 0.0		$ 0.0			$ 0.0
Impairment losses on Accounts receivable	0.0	$ 0.0	0.0	$ 0.0
Allowance for expected sales discounts, prompt pay discounts and contractual fee arrangements	9.3		9.3			$ 8.9
Contract assets	0.0		0.0		$ 0.0
Contract liabilities	0.0		$ 0.0		$ 0.0
Maximum
Accounts Receivable, Net
Arrangements payable term			1 year
Selling, general and administrative
Advertising Expense
Advertising costs	$ 11.1	$ 9.8	$ 19.0	$ 16.5

Summary of Significant Accounting Policies - Recently Issued Accounting Pronouncements (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Jan. 01, 2018	Dec. 31, 2017
Assets
Accounts receivable, net	$ 74,842	$ 67,206	$ 65,586
Deferred income taxes (asset)	25,528	20,109	20,843
Liabilities
Deferred licensing revenue			287
Deferred licensing revenue, net of current portion			1,149
Equity
Accumulated deficit	$ (32,588)	24,501	$ 26,823
Effect of Change Higher (Lower)
Assets
Accounts receivable, net		1,620
Deferred income taxes (asset)		(734)
Liabilities
Deferred licensing revenue		(287)
Deferred licensing revenue, net of current portion		(1,149)
Equity
Accumulated deficit		$ (2,322)

Fair Value of Financial Instruments - Carrying Value (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Assets:
Marketable securities	$ 139,208	$ 39,736
Other non-current assets:
Carrying value of the convertible notes	321,920
Total Carrying Value \| Recurring
Assets:
Cash and cash equivalents	35,205	100,304
Marketable securities	139,208	39,736
Long term marketable securities:
Corporate debt securities	500,173	132,477
Government debt securities	3,139	1,161
Other non-current assets:
Marketable securities - restricted (SERP)	356	335
Total assets at fair value	678,081	274,013
Quoted Prices in Active Markets (Level 1) \| Recurring
Assets:
Cash and cash equivalents	35,205	100,304
Marketable securities	1,376	2,118
Long term marketable securities:
Corporate debt securities	689	448
Other non-current assets:
Marketable securities - restricted (SERP)	1
Total assets at fair value	37,271	102,870
Significant Other Observable Inputs (Level 2) \| Recurring
Assets:
Marketable securities	137,832	37,618
Long term marketable securities:
Corporate debt securities	499,484	132,029
Government debt securities	3,139	1,161
Other non-current assets:
Marketable securities - restricted (SERP)	355	335
Total assets at fair value	640,810	$ 171,143
0.625% Convertible Senior Notes due 2023
Other non-current assets:
Amount issued	402,500
0.625% Convertible Senior Notes due 2023 \| Significant Other Observable Inputs (Level 2)
Other non-current assets:
Carrying value of the convertible notes	321,900
Amount issued	402,500
Estimated fair value	$ 491,000

Fair Value of Financial Instruments - Unrestricted Marketable Securities (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Fair Value of Financial Instruments
Corporate and government debt securities, Amortized Cost	$ 647,253	$ 174,235
Corporate and government debt securities, Gross Unrealized Gains	12	48
Corporate and government debt securities, Gross Unrealized Losses	(4,745)	(909)
Corporate and government debt securities, Fair Value	642,520	173,374
Contractual maturities of the unrestricted available for sale marketable securities held
Less Than 1 Year	139,208
1 year to 2 years	165,451
2 year to 3 years	169,167
3 years to 4 years	168,694
Corporate debt securities, Fair Value	$ 642,520	$ 173,374

Inventories (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Inventories
Raw materials	$ 2,914	$ 2,995
Work in process	6,142	8,873
Finished goods	11,624	4,436
Total inventories	$ 20,680	$ 16,304

Property and Equipment (Details) - USD ($)	3 Months Ended		6 Months Ended
Property and Equipment (Details) - USD ($)	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017	Dec. 31, 2017
Property and equipment
Property and equipment, gross	$ 15,144,000		$ 15,144,000		$ 14,470,000
Less accumulated depreciation and amortization	(10,247,000)		(10,247,000)		(9,346,000)
Property and equipment, net	4,897,000		4,897,000		5,124,000
Depreciation and amortization expense	500,000	$ 300,000	900,000	$ 600,000
Lab equipment and furniture
Property and equipment
Property and equipment, gross	8,804,000		8,804,000		8,331,000
Leasehold improvements
Property and equipment
Property and equipment, gross	2,848,000		2,848,000		2,731,000
Software
Property and equipment
Property and equipment, gross	2,122,000		2,122,000		2,004,000
Computer equipment
Property and equipment
Property and equipment, gross	1,230,000		1,230,000		1,226,000
Construction in progress
Property and equipment
Property and equipment, gross	$ 140,000		$ 140,000		$ 178,000

Intangible Assets (Details) $ in Thousands	3 Months Ended		6 Months Ended		12 Months Ended
Intangible Assets (Details) $ in Thousands	Jun. 30, 2018 USD ($)	Jun. 30, 2017 USD ($)	Jun. 30, 2018 USD ($)	Jun. 30, 2017 USD ($)	Dec. 31, 2017 USD ($)	Mar. 31, 2017 item
Intangible Assets
Less accumulated amortization	$ (10,752)		$ (10,752)		$ (8,166)
Net book value of intangible assets	33,794		33,794		36,019
Additional disclosures
Amortization expense	1,300	$ 1,000	2,600	$ 1,400
Trokendi XR patent litigation
Additional disclosures
Number of settlements \| item						2
Capitalized patent defense costs
Intangible Assets
Gross carrying amount	$ 44,546		$ 44,546		$ 44,185
Capitalized patent defense costs \| Minimum
Intangible Assets
Weighted-Average Life			4 years 6 months		4 years 6 months
Capitalized patent defense costs \| Maximum
Intangible Assets
Weighted-Average Life			8 years 9 months		8 years 9 months

Accrued Expenses (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Accrued Expenses
Accrued clinical trial and clinical supply costs	$ 11,810	$ 6,996
Accrued compensation	10,302	10,279
Accrued product costs	1,217	726
Accrued professional fees	1,912	2,890
Accrued interest expense	734
Other accrued expenses	3,313	6,414
Total	$ 29,288	$ 27,305

Convertible Senior Notes (Details)			6 Months Ended
Convertible Senior Notes (Details)	Mar. 15, 2018 USD ($) shares	Mar. 14, 2018 USD ($) D $ / shares shares	Jun. 30, 2018 USD ($) $ / shares shares
Notes payable
Total cost of the convertible note hedge transactions			$ 92,897,000
Strike price of the Warrant Transactions (in dollars per share) \| $ / shares			$ 80.9063
Proceeds from sale of warrants			$ 65,688,000
Debt financing costs			10,435,000
Liability component of the 2023 Notes
June 30, 2018 carrying value			321,920,000
2023 Notes
Notes payable
Aggregate principal amount			402,500,000
Threshold trading days (whether or not consecutive) \| D		20
Consecutive trading day period (in days) \| D		30
Minimum percentage of the conversion price on trading day		130.00%
Conversion option stock price trigger \| $ / shares		$ 77.13
Threshold trading days period prior to a conversion date during which principal amount of notes for such trading day was less than 98% of the product of the last reported sale price of common stock \| D		5
Consecutive trading day period prior to a conversion date during which principal amount of notes for such trading day was less than 98% of the product of the last reported sale price of common stock \| D		10
Conversion rate for the Notes (in shares) \| shares		16.8545
Conversion ratio, principal amount		$ 1,000
Conversion price, per share of Common Stock \| $ / shares		$ 59.33
Amount of principal value to be repaid			$ 402,500,000
Warrants issued \| shares			6,783,939
Number of shares per warrant entitled to holder \| shares			1
Effective interest rate (as percent)			5.41%
Conversion option reported as debt discount and APIC			$ 2,000,000
Liability component of the 2023 Notes
Principal amount of the 2023 Notes			402,500,000
Debt discount			(76,434,000)
Deferred financing costs			(8,453,000)
Accretion of debt discount and deferred financing costs			4,307,000
June 30, 2018 carrying value			321,920,000
Shares of common stock issued in conversion of Notes \| shares	6,800,000
Conversion of debt to equity - principal			$ 0
2023 Notes \| Overallotment option
Notes payable
Convertible note hedge options issued (in shares) \| shares	402,500
Convertible Senior Notes due 2023 granted to initial purchasers
Notes payable
Aggregate principal amount		$ 350,000,000
Interest rate (as a percent)		0.625%
Liability component of the 2023 Notes
Principal amount of the 2023 Notes		$ 350,000,000
Convertible Senior Notes due 2023 over-allotment option
Notes payable
Aggregate principal amount	$ 52,500,000
Over-allotment period for additional principal amount	30 days
Liability component of the 2023 Notes
Principal amount of the 2023 Notes	$ 52,500,000

Summary Stockholders' Equity (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017	Jan. 01, 2018
Beginning balance			$ 267,480
Net income	$ 30,737	$ 17,368	57,089	$ 27,665
Ending balance	390,492		390,492
Common Stock
Beginning balance			51
Balance adjusted					$ 51
Exercise of stock options			1
Ending balance	52		52
Additional Paid-in Capital
Beginning balance			294,999
Balance adjusted					294,999
Share-based compensation			5,703
Issuance of ESPP shares			1,184
Exercise of stock options			8,319
Equity component of convertible notes issuance, net of tax			56,215
Purchases of convertible note hedges, net of tax			(70,137)
Issuance of warrants			65,688
Ending balance	361,971		361,971
Retained Earnings (Accumulated Deficit)
Beginning balance			(26,823)
Balance adjusted					(24,501)
Net income			57,089
Ending balance	$ 32,588		$ 32,588
Retained Earnings (Accumulated Deficit) \| Effect of Change Higher (Lower)
Cumulative-effect of adoption of ASC 606					$ 2,322

Share-Based Payments - 2012 Plan (Details) - 2012 Plan	6 Months Ended
Share-Based Payments - 2012 Plan (Details) - 2012 Plan	Jun. 30, 2018 installment shares
Share-based payments
Maximum number of shares of common stock provided for issuance \| shares	8,000,000
Stock Option
Share-based payments
Number of annual installments in which the awards would generally vest starting on the first anniversary of the date of grant \| installment	4
Contractual term	10 years
Stock Option \| Directors
Share-based payments
Contractual term	10 years
Vesting period	1 year

Share-Based Payments - Share-based Compensation Expense (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Share-based Payments
Share-based compensation recognized	$ 3,068	$ 2,260	$ 5,703	$ 4,087
Research and development
Share-based Payments
Share-based compensation recognized	534	398	952	715
Selling, general and administrative
Share-based Payments
Share-based compensation recognized	$ 2,534	$ 1,862	$ 4,751	$ 3,372

Share-Based Payments - Activity (Details) - Stock option and Stock Appreciation Rights - $ / shares	6 Months Ended	12 Months Ended
	Jun. 30, 2018	Dec. 31, 2017
Number of Options and SAR
Outstanding at the beginning of the period (in shares)	4,280,670
Granted (in shares)	734,465
Exercised (in shares)	(829,518)
Forfeited (in shares)	(168,816)
Outstanding at the end of the period (in shares)	4,016,801	4,280,670
Vested and expected to vest (in shares)	4,016,801	4,280,670
Exercisable (in shares)	1,947,495	1,952,769
Weighted-Average Exercise Price
Outstanding at the beginning of the period (in dollars per share)	$ 14.50
Granted (in dollars per share)	39.84
Exercised (in dollars per share)	10.03
Forfeited (in dollars per share)	24.26
Outstanding at the end of the period (in dollars per share)	19.65	$ 14.50
Vested and expected to vest (in dollars per share)	19.65	14.50
Exercisable (in dollars per share)	$ 12.07	$ 9.35
Weighted-Average Remaining Contractual Term (in years)
Outstanding at the end of the period	7 years 6 months 7 days	7 years 4 months 13 days
Vested and expected to vest	7 years 6 months 7 days	7 years 4 months 13 days
Exercisable	6 years 4 months 6 days	6 years 1 month 28 days

Earnings per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Numerator, in thousands:
Net earnings used for calculation of basic EPS	$ 30,737	$ 17,368	$ 57,089	$ 27,665
Interest expense on convertible debt		58		147
Changes in fair value of derivative liabilities		(23)		(76)
Loss on extinguishment of debt		103		204
Loss on extinguishment of outstanding debt, as if converted		(258)		(321)
Total adjustments		(120)		(46)
Net earnings used for calculation of diluted EPS	$ 30,737	$ 17,248	$ 57,089	$ 27,619
Denominator:
Weighted average shares outstanding, basic	51,919,894	50,530,968	51,729,243	50,345,830
Effect of dilutive potential common shares:
Shares underlying Convertible Senior Notes		421,708		551,235
Shares issuable to settle interest make-whole derivatives		4,631		7,013
Stock options and stock appreciation rights	2,283,414	2,266,407	2,292,698	2,122,245
Total dilutive potential common shares	2,283,414	2,692,746	2,292,698	2,680,493
Weighted average shares outstanding, diluted	54,203,308	53,223,714	54,021,941	53,026,323
Net earnings per share, basic	$ 0.59	$ 0.34	$ 1.10	$ 0.55
Net earnings per share, diluted	$ 0.57	$ 0.32	$ 1.06	$ 0.52
Warrants to purchase common stock
Income per share
Common stock equivalents excluded in the calculation of diluted income per share	4,362,485		2,816,135
Convertible notes
Income per share
Common stock equivalents excluded in the calculation of diluted income per share	66,961		61,104
Convertible notes hedges
Income per share
Common stock equivalents excluded in the calculation of diluted income per share	67		61
Stock options, stock appreciation rights, and ESPP awards
Income per share
Common stock equivalents excluded in the calculation of diluted income per share	137,565	122,666	184,760	206,448

Income Taxes (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended		12 Months Ended
Income Taxes (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017	Dec. 31, 2017
Income Taxes
Income tax expense	$ 3,119	$ 9,057	$ 7,949	$ 14,983
Effective tax rate			21.00%		35.00%
Effective tax rate	9.20%	34.30%	12.20%	35.10%
Excess tax benefits related to employee exercise of stock options	$ 4,400		$ 6,400

Commitments and Contingencies (Details)		3 Months Ended		6 Months Ended
Commitments and Contingencies (Details)	Feb. 27, 2018 USD ($) lease	Jun. 30, 2018 USD ($)	Jun. 30, 2017 USD ($)	Jun. 30, 2018 USD ($)	Jun. 30, 2017 USD ($)
Additional period for which the entity may elect to extend the term of the lease				5 years
Additional tenant improvement allowance				$ 2,100,000
Tenant improvement allowance utilized and included in fixed assets and deferred rent		$ 0	$ 49,000	0	$ 79,000
Amount available for tenant improvements				400,000
Rent expense		898,000	$ 500,000	1,800,000	$ 1,200,000
Future minimum lease payments under non-cancelable operating leases
2018 (remaining)		1,715,000		1,715,000
2019		3,393,000		3,393,000
2020		2,482,000		2,482,000
Thereafter		1,014,000		1,014,000
Total		8,604,000		8,604,000
Rockside-700 LLC
Number of additional lease term \| lease	2
Additional period for which the entity may elect to extend the term of the lease	5 years
Additional tenant improvement allowance	$ 8,900,000
Tenant improvement allowance utilized and included in fixed assets and deferred rent				0
Rune HealthCare Limited
Future minimum lease payments under non-cancelable operating leases
Milestone payments due		0		0
Afecta Pharmaceuticals Inc \| Maximum
Future minimum lease payments under non-cancelable operating leases
Potential maximum milestone payments payable		$ 300,000		$ 300,000

Collaboration Agreements (Details) - USD ($) $ in Thousands	3 Months Ended			6 Months Ended
Collaboration Agreements (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Jun. 30, 2017	Sep. 30, 2014	Jun. 30, 2018	Jun. 30, 2017
Collaboration agreement
Revenue from royalty agreement	$ 1,500	$ 1,200		$ 2,780	$ 2,328
Noncash interest expense	$ 1,204	$ 160		$ 1,905	$ 1,119
License and collaboration agreements \| United Therapeutics
Collaboration agreement
Revenue from royalty agreement			$ 30,000