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Document and Entity Information - shares	9 Months Ended
Document and Entity Information - shares	Sep. 30, 2018	Nov. 01, 2018
Document and Entity Information
Entity Registrant Name	SUPERNUS PHARMACEUTICALS INC
Entity Central Index Key	0001356576
Document Type	10-Q
Document Period End Date	Sep. 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		52,257,013
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q3

Consolidated Balance Sheets - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Current assets
Cash and cash equivalents	$ 123,818	$ 100,304
Marketable securities	156,407	39,736
Accounts receivable, net	77,753	65,586
Inventories, net	23,280	16,304
Prepaid expenses and other current assets	9,299	6,521
Total current assets	390,557	228,451
Long term marketable securities	460,304	133,638
Property and equipment, net	6,930	5,124
Intangible assets, net	32,572	36,019
Deferred income taxes	31,367	20,843
Other non-current assets	782	389
Total assets	922,512	424,464
Current liabilities
Accounts payable	9,838	6,844
Accrued sales deductions	85,970	68,343
Accrued expenses	32,098	27,305
Income taxes payable	8,548	15,938
Non-recourse liability related to sale of future royalties, current portion	1,892	4,283
Deferred licensing revenue		287
Total current liabilities	138,346	123,000
Deferred licensing revenue, net of current portion		1,149
Convertible notes, net	325,666
Non-recourse liability related to sale of future royalties, long term	23,305	22,258
Other non-current liabilities	13,259	10,577
Total liabilities	500,576	156,984
Stockholders' equity
Common stock, $0.001 par value, 130,000,000 shares authorized at September 30, 2018 and December 31, 2017; 52,257,013 and 51,314,850 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively	52	51
Additional paid-in capital	365,396	294,999
Accumulated other comprehensive loss, net of tax	(4,111)	(747)
Retained earnings (accumulated deficit)	60,599	(26,823)
Total stockholders' equity	421,936	267,480
Total liabilities and stockholders' equity	$ 922,512	$ 424,464

Consolidated Balance Sheets (Parenthetical) - $ / shares	Sep. 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	52,257,013	51,314,850
Common stock, shares outstanding	52,257,013	51,314,850

Consolidated Statements of Earnings - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Revenue
Total revenue	$ 102,996	$ 80,398	$ 292,963	$ 213,803
Costs and expenses
Cost of product sales	4,207	4,251	11,168	11,060
Research and development	20,422	12,980	59,368	33,405
Selling, general and administrative	40,892	40,825	117,838	104,141
Total costs and expenses	65,521	58,056	188,374	148,606
Operating earnings	37,475	22,342	104,589	65,197
Other income (expense)
Interest income	4,461	814	9,331	2,002
Interest expense	(4,374)		(9,415)	(148)
Interest expense-nonrecourse liability related to sale of future royalties	(1,191)	(155)	(3,096)	(1,274)
Changes in fair value of derivative liabilities				76
Loss on extinguishment of debt		(91)		(295)
Total other income (expense)	(1,104)	568	(3,180)	361
Earnings before income taxes	36,371	22,910	101,409	65,558
Income tax expense	8,360	6,949	16,309	21,932
Net earnings	$ 28,011	$ 15,961	$ 85,100	$ 43,626
Earnings per share:
Basic (in dollars per share)	$ 0.54	$ 0.31	$ 1.64	$ 0.86
Diluted (in dollars per share)	$ 0.52	$ 0.29	$ 1.57	$ 0.82
Weighted-average number of common shares outstanding:
Basic (in shares)	52,227,630	51,046,375	51,897,240	50,583,726
Diluted (in shares)	54,239,847	53,628,389	54,098,330	53,227,433
Product
Revenue
Total revenue	$ 100,227	$ 78,066	$ 286,377	$ 207,763
Royalty
Revenue
Total revenue	$ 2,769	2,010	5,836	4,338
Licensing
Revenue
Total revenue		$ 322	$ 750	$ 1,702

Consolidated Statements of Comprehensive Earnings - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Consolidated Statements of Comprehensive Earnings
Net earnings	$ 28,011	$ 15,961	$ 85,100	$ 43,626
Other comprehensive earnings (loss):
Unrealized (loss) gain on marketable securities, net of tax	8	36	(3,364)	386
Other comprehensive earnings (loss)	8	36	(3,364)	386
Comprehensive earnings	$ 28,019	$ 15,997	$ 81,736	$ 44,012

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017
Cash flows from operating activities
Net earnings	$ 85,100	$ 43,626
Adjustments to reconcile net earnings to net cash provided by operating activities:
Loss on extinguishment of debt		295
Change in fair value of derivative liability		(76)
Depreciation and amortization	5,371	6,462
Amortization of deferred financing costs and debt discount	8,052	50
Amortization of premium/discount on marketable securities	(1,825)	(342)
Non-cash interest expense on non-recourse liability related to sale of future royalties	3,096	1,274
Non-cash royalty revenue	(4,300)	(3,708)
Share-based compensation expense	8,300	6,447
Deferred income tax provision (benefit)	(6,233)	13,314
Changes in operating assets and liabilities:
Accounts receivable	(10,687)	(14,639)
Inventories	(6,976)	1,854
Prepaid expenses and other current assets	(2,778)	(2,712)
Other non-current assets	(342)
Accounts payable	3,066	(1,312)
Accrued sales deductions	17,627	17,829
Accrued expenses	5,966	2,769
Income taxes payable	(7,390)	6,482
Deferred licensing revenue		(202)
Other non-current liabilities	90	894
Net cash provided by operating activities	96,137	78,305
Cash flows from investing activities
Purchases of marketable securities	(491,654)	(78,938)
Sales and maturities of marketable securities	45,271	23,052
Purchases of property and equipment	(748)	(1,273)
Deferred legal fees	(679)	(10,130)
Net cash used in investing activities	(447,810)	(67,289)
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	10,331	4,510
Net cash provided by financing activities	375,187	4,510
Net change in cash and cash equivalents	23,514	15,526
Cash and cash equivalents at beginning of year	100,304	66,398
Cash and cash equivalents at end of period	123,818	81,924
Supplemental cash flow information:
Cash paid for interest		134
Income taxes paid	29,930	2,136
Non-cash investing and financing activity:
Conversion of convertible notes and interest make-whole		4,546
Deferred legal fees included in accounts payable and accrued expenses	280	$ 1,337
Property and equipment acquired under build-to-suit lease transaction	2,304
Interest capitalized during construction period for build-to-suit lease transaction	44
Facility lease financing obligation	$ 2,347

Organization and Business	9 Months Ended
Organization and Business	Sep. 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 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 CNS 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. On September 12, 2018, the Company entered into an Agreement and Plan of Merger (the Merger Agreement) with Supernus Merger Sub, Inc., a Delaware corporation, which is an acquisition subsidiary formed and wholly owned by the Company (the Merger Sub), Biscayne Neurotherapeutics, Inc., a Florida corporation (which, as a condition to closing, converted to a Delaware corporation) (Biscayne), and Reich Consulting Group, Inc., as the security holder representative (the Merger). Pursuant to the terms of the Merger Agreement, the Company completed the Merger effective October 4, 2018, and the Merger Sub merged with and into Biscayne, the separate existence of the Merger Sub ceased and Biscayne continued as the surviving corporation and a wholly owned subsidiary of the Company (see Note 16).

Summary of Significant Accounting Policies

9 Months Ended

Sep. 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., Supernus Merger Sub, 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 nine months ended September 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; various forecasts; 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 pharmaceutical wholesalers and distributors who, in turn, sell the products to chain and independent pharmacies, hospitals and other customers. Three wholesale pharmaceutical distributors collectively accounted for more than 90% of our total revenue for the nine months ended September 30, 2018.

Inventories

Inventories, which are recorded at the lower of cost or net realizable value, include materials, labor and other direct and indirect costs and are valued using the first-in, first-out method. The Company typically capitalizes inventories produced in preparation for commercial launches when the related product candidates have received regulatory approval and 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 recognition of an impairment charge equal to the excess of the carrying value of the long-lived asset over its estimated fair value.

Build-to-Suit Lease

The Company accounts for the lease agreement for its new headquarters building under the provisions of Accounting Standards Codification (ASC) 840, “Leases.” Because the Company has concluded that it retains substantively all of the risks of ownership during the construction of the leased property, the Company is considered the owner of the property for accounting purposes. The Company has capitalized the estimated fair value of the building shell and the construction costs incurred to date as a construction-in- progress asset and the related financing obligation as Other Non-current Liabilities in the accompanying consolidated balance sheet (see Note 14).

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 9). 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, 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 September 30,
	2018		2017
	(unaudited, in thousands)
Net Product Sales:
Trokendi XR	$	79,834	$	59,339
Oxtellar XR		20,393		18,727
Total Net Product Sales		100,227		78,066
Royalty Revenues		2,769		2,010
Licensing Revenue		—		322
Total Revenues	$	102,996	$	80,398


	Nine Months ended September 30,
	2018		2017
	(unaudited, in thousands)
Net Product Sales:
Trokendi XR	$	226,863	$	157,337
Oxtellar XR		59,514		50,426
Total Net Product Sales		286,377		207,763
Royalty Revenues		5,836		4,338
Licensing Revenue		750		1,702
Total Revenues	$	292,963	$	213,803

Revenue from Product Sales

The Company’s products are distributed through a third party fulfillment center. The Company recognizes revenue when its products are shipped from this center to its customers, who are pharmaceutical wholesalers and distributors. The Company’s customers purchase product to fulfill orders from retail pharmacy chains and independent pharmacies of varying size and buying power. The Company’s customers take control of the products, including title and ownership to the products, upon physical receipt of these products at their facilities.

Product sales are recorded net of various forms of variable consideration, including estimated rebates, discounts, allowances, and an estimated liability for product returns (collectively, “sales deductions”).

Variability in the net transaction price for the Company’s products primarily arises from sales deductions. Significant judgment is required in estimating sales deductions. The Company considers: historical experience; current contract prices under applicable programs; unbilled claims; processing time lags; and inventory levels in the distribution channel in arriving at these estimates. The Company adjusts its estimates of revenue at the earlier of when the most likely amount of consideration it expects to receive changes or when the consideration becomes fixed. If actual results in the future vary from estimates, the Company adjusts these estimates. These adjustments could materially affect net product sales and earnings in the period that such variances become known.

Sales Deductions

Sales deductions are primarily comprised of rebates, product returns and sales discounts/allowances. The Company records product sales net of the following sales deductions:

Rebates: Rebates are discounts which the Company pays under either private sector or public sector health care programs. Public sector rebate programs encompass: Medicaid Drug Rebate Programs; Medicare Coverage Gap Programs; and programs covering public health service institutions and government entities that purchase drugs under the Federal Supply Schedule. Private sector rebate programs include: contractual agreements with managed care providers, under which the Company pays fees to gain access to that provider’s patient drug formulary and Company sponsored programs under which the Company defrays or eliminates patient co-payment charges that the patient would otherwise pay to their managed care provider. Rebates paid under public sector programs are generally mandated under law, whereas private sector rebates are generally contractually negotiated by the Company with managed care providers.

Rebates are owed upon dispensing product to a patient; i.e., filling a prescription. Because rebates are generally invoiced and paid quarterly in arrears, 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. The period from the date on which the prescription is filled to the date the Company receives and pays the invoice varies, depending on the rebate program. Consequently, the Company’s estimates of expected rebate claims vary by program and by type of customer. For each of its products, the Company bases its estimates of expected rebate claims using multiple factors including historical levels of deductions; contractual terms with managed care providers; actual and anticipated changes in product price; prospective changes in managed care fee for service contractual agreements; prospective changes in co-pay assistance programs; and anticipated changes in program utilization rates (i.e., patient participation rates).

The sensitivity of the Company’s estimates can vary by program and type of customer. If actual rebates vary from estimated amounts, the Company may need to adjust the balances of such rebates to reflect actual expenditures with respect to these programs. This could materially affect net product sales and earnings in the period of adjustment. The Company records an estimated liability for rebates at the time the customer takes title to the product (i.e., at the time of sale) as a reduction to gross product sales and an increase in Accrued Sales Deductions in current liabilities.

Returns: Sales of the Company’s products are not subject to a general right of return. Product that has been used to fill patient prescriptions is no longer subject to any right of return. However, the Company will accept the return of product that is damaged or defective when shipped from its warehouse. In addition, the Company will accept return of expired product six months prior to and up to 12 months subsequent to the product’s expiry date. Expired or defective returned product cannot be re-sold; therefore, a right of return asset is not recorded.

The Company estimates liability for returns based on the actual returns experience for its two commercial products, in conjunction with industry return experience for similar products (i.e., ambient temperature storage for oral formulations.) Because the Company’s products have not reached maturity, the return rate of its products has and is expected to continue to vary. The Company records an estimated liability for product returns at the time the customer takes title to the product (i.e., at time of sale) as a reduction to gross product sales and an increase in Accrued Sales Deductions in current liabilities.

The Company’s estimated liability for product returns is also affected by price increases. Its products have a shelf life of 36 to 48 months from date of manufacture. Because of the extended shelf life and its return policy, there typically is a significant time lag between the time at which the product is sold and when the Company issues credit on an expired product. The Company’s policy permits product returns to be processed at current wholesaler price rather than historical price. Any price increase(s) taken during the current period increases the provision from product returns and therefore affects its estimated liability for product returns for both sales made in the current period as well as sales made in prior periods. Accordingly, the Company may have to adjust its estimates, favorably or unfavorably, which could have an effect on product sales and earnings in the period of adjustment.

Sales discounts and allowances: Distributors and wholesalers of pharmaceutical products are generally offered various forms of consideration, including allowances, service fees and prompt payment discounts, as consideration for distributing products. Distributor and wholesaler allowances and service fees arise from contractual agreements and are generally a percentage of the price at which the Company sells product to them. In addition, they are offered a prompt pay discount for payment within a specified period.

The Company accounts for these discounts at the time of sale as a reduction to gross product sales and are recorded as a reduction to Accounts Receivable. The Company estimates discounts to wholesalers based on contractual terms of agreements and historical experience.

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 for obtaining a contract with a distributor or wholesaler include only those costs that the Company would not have incurred if the contract had not been obtained; e.g., sales commissions. Incremental costs for obtaining a contract are capitalized and amortized on a straight-line basis over the expected customer relationship period. As a practical expedient, the Company expenses incremental costs in obtaining a contract if the expected amortization period of the contract 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. There were no contract assets or liabilities recorded as of January 1, 2018 or September 30, 2018.

License Revenue

License and Collaboration Agreements

The Company has entered into collaboration agreements to commercialize both Oxtellar XR and Trokendi XR outside of the U.S. 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 are 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 no milestone revenue and $300,000 of milestone revenue for the three months ended September 30, 2018 and 2017, respectively. The Company recorded $750,000 and $1.5 million of milestone revenue for the nine months ended September 30, 2018 and 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 Corporation (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 15). Accordingly, the Company records non-cash royalty revenue based on estimated product 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 product sale by Shire occurs. The Shire arrangement also involves the right to use the Company’s intellectual property as a functional license. 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 nine months ended September 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 to 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 sales 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 currently no significant financing components.

The Company recorded no allowance for doubtful accounts as of September 30, 2018 and December 31, 2017. There was no provision or write-off recorded for the three and nine months ended September 30, 2018 and September 30, 2017.

The Company recorded an allowance of approximately $11.2 million and $8.9 million for expected sales discounts, related to prompt pay discounts and contractual fee for service arrangements, to pharmaceutical wholesalers and distributors as of September 30, 2018 and December 31, 2017, respectively.

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 clinical research organizations (CROs); fees paid to clinical investigators who are participating in our clinical trials; fees paid to consultants and other vendors that assist in the conduct of 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. Assets acquired that are used for research and development and have no future alternative use are expensed as in-process research and development.

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 $11.6 million and $30.5 million in advertising costs for the three and nine months ended September 30, 2018 and approximately $9.6 million and $26.1 million in advertising costs for the three and nine months ended September 30, 2017, respectively. These expenses are recorded in Selling, general and administrative expenses in the consolidated statement of earnings.

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 remeasured at each reporting period. As a result, stock compensation expense for non-employee awards can be 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 authorities, 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. ASU 2014-09 and all the related amendments are codified in ASC 606, “Revenue from Contracts with Customers” (the New Revenue Standard). The New Revenue Standard 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 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 as 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 are recognized when the license is delivered to the customer. 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 operating, investing or financing activities as reported 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. 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.

In January 2017, the FASB issued Accounting Standards Update No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business,” which clarifies the definition of a business and provides new guidance in evaluating when a set of transferred assets and activities is a business. This guidance requires that if substantially all of the fair value of gross assets acquired or disposed of is concentrated in a single asset or group of similar identifiable assets, the assets would not represent a business. The Company adopted the new standard on January 1, 2018 and will apply the new guidance prospectively to transactions occurring after adoption, including the Biscayne acquisition.

New Accounting Pronouncements Not Yet Adopted

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” and its related amendments (the New Lease Standard). The New Lease 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. The New Lease Standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. Early adoption is permitted. The Company is evaluating the impact of adopting the New Lease Standard on its consolidated financial statements and expects that it will 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 New Lease Standard is also expected to result in enhanced quantitative and qualitative lease-related disclosures. The Company does not expect the New Lease Standard 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). 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 adopting 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

9 Months Ended

Sep. 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
	September 30, 2018
	(unaudited)
					Significant
	Total Carrying		Quoted Prices		Other		Significant
	Value at		in Active		Observable		Unobservable
	September 30,		Markets		Inputs		Inputs
	2018		(Level 1)		(Level 2)		(Level 3)
Assets:
Cash and cash equivalents	$	123,818	$	123,818	$	—	$	—
Marketable securities		156,407		263		156,144		—
Long term marketable securities:
Corporate debt securities		457,183		690		456,493		—
Government debt securities		3,121		—		3,121		—
Other non-current assets:
Marketable securities - restricted (SERP)		386		1		385		—
Total assets at fair value	$	740,915	$	124,772	$	616,143	$	—


	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, money market funds and investment grade corporate and government debt securities.

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 $325.7 million, $402.5 million and $450.7 million, respectively, as of September 30, 2018. The fair value was estimated based on actual trade information as well as quoted prices provided by bond traders and are 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 September 30, 2018 (unaudited):
			Gross	Gross
	Amortized		Unrealized	Unrealized
Available for Sale	Cost		Gains	Losses	Fair Value
Corporate and government debt securities	$	621,436	6	(4,731)	$	616,711


At December 31, 2017:
			Gross	Gross
	Amortized		Unrealized	Unrealized
Available for Sale	Cost		Gains	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:


	September 30,
	2018
	(unaudited)
Less Than 1 Year	$	156,407
1 year to 2 years		169,074
2 year to 3 years		161,614
3 years to 4 years		129,616
Greater Than 4 Years		—
Total	$	616,711

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

9 Months Ended

Sep. 30, 2018

Inventories

Inventories

4. Inventories

Inventories consist of the following, in thousands of dollars:


	September 30,		December 31,
	2018		2017
	(unaudited)
Raw materials	$	3,925	$	2,995
Work in process		9,321		8,873
Finished goods		10,034		4,436
	$	23,280	$	16,304

Property and Equipment, net

9 Months Ended

Sep. 30, 2018

Property and Equipment, net

Property and Equipment, net

5. Property and Equipment, net

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


	September 30,		December 31,
	2018		2017
	(unaudited)
Lab equipment and furniture	$	8,957	$	8,331
Leasehold improvements		2,970		2,731
Software		2,157		2,004
Computer equipment		1,309		1,226
Construction-in-progress		2,367		178
		17,760		14,470
Less accumulated depreciation and amortization		(10,830)		(9,346)
	$	6,930	$	5,124

Construction-in-progress includes capitalized construction costs related to the build-to-suit lease of the Company’s new headquarters (see Note 14). No accumulated depreciation for this asset has been recorded as of September 30, 2018.

Depreciation and amortization expense on property and equipment was approximately $600,000 and $1.5 million for the three and nine months ended September 30, 2018, and approximately $300,000 and $900,000 for the three and nine months ended September 30, 2017, respectively.

No indicators of impairment were identified.

Intangible Assets

9 Months Ended

Sep. 30, 2018

Intangible Assets

Intangible Assets

6. Intangible Assets

Intangible assets consist of patent defense costs, primarily 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-				September 30,		December 31,
	Average Life				2018		2017
					(unaudited)
Capitalized patent defense costs	4.25	-	8.50	years	$	44,625	$	44,185
Less accumulated amortization						(12,053)		(8,166)
					$	32,572	$	36,019

In March 2017, the Company entered into two settlements with several companies related to Trokendi XR patent litigation. The remaining unamortized aggregate capitalized patent defense costs for Trokendi XR have subsequently been amortized over the reduced remaining useful life of the patents at issue, or January 1, 2023. This 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 $3.9 million for the three and nine months ended September 30, 2018, and approximately $4.1 million and $5.5 million for the three and nine months ended September 30, 2017, respectively.

No indicators of impairment were identified.

Accrued Expenses

9 Months Ended

Sep. 30, 2018

Accrued Expenses

Accrued Expenses

7. Accrued Expenses

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


	September 30,		December 31,
	2018		2017
	(unaudited)
Accrued clinical trial and clinical supply costs	$	12,059	$	6,996
Accrued compensation		11,763		10,279
Accrued product costs		2,640		726
Accrued interest expense		1,363		—
Accrued professional fees		850		2,890
Other accrued expenses		3,423		6,414
	$	32,098	$	27,305

Accrued Sales Deductions

9 Months Ended

Sep. 30, 2018

Accrued Sales Deductions

Accrued Sales Deductions

8. Accrued Sales Deductions

Accrued sales deductions are comprised of the following, in thousands of dollars:


	September 30,		December 31,
	2018		2017
	(unaudited)
Accrued rebates	$	66,742	$	49,460
Accrued product returns		19,228		18,883
	$	85,970	$	68,343

Convertible Senior Notes

9 Months Ended

Sep. 30, 2018

Convertible Senior Notes

Convertible Senior Notes

9. 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

Contemporaneously 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, and 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 September 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. The Company 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:


	September 30,
	2018
	(unaudited)
Principal amount of the 2023 Notes	$	402,500
Debt discount		(76,434)
Deferred financing costs		(8,452)
Accretion of debt discount and deferred financing costs		8,052
September 30, 2018 carrying value	$	325,666

No 2023 Notes were converted in the nine months ended September 30, 2018.

Summary Stockholders' Equity

9 Months Ended

Sep. 30, 2018

Summary Stockholders' Equity

Summary Stockholders' Equity

10. Summary Stockholders’ Equity

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


			Additional Paid-in		Retained Earnings
	Common Stock		Capital		(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		—		8,300		—
Issuance of ESPP shares		—		1,184		—
Exercise of stock options		1		9,147		—
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 earnings		—		—		85,100
Balance, September 30, 2018	$	52	$	365,396	$	60,599

Share-Based Payments

9 Months Ended

Sep. 30, 2018

Share-Based Payments

Share-Based Payments

11. 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. This plan provides for the grant of stock options and certain other equity 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 of the Board 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 as related to the grant of employee and non-employee stock options, SAR, Employee Stock Purchase Plan (ESPP) awards and non-vested stock options was as follows, in thousands of dollars:


	Three Months ended September 30,				Nine Months ended September 30,
	2018		2017		2018		2017
	(unaudited)				(unaudited)
Research and development	$	469	$	356	$	1,421	$	1,071
Selling, general and administrative		2,128		2,004		6,879		5,376
Total	$	2,597	$	2,360	$	8,300	$	6,447

The following table summarizes stock option and SAR activity:


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

Outstanding, December 31, 2017	4,280,670	$	14.50	7.37
Granted (unaudited)	742,815	$	39.98
Exercised (unaudited)	(907,197)	$	10.08
Forfeited (unaudited)	(186,627)	$	25.04
Outstanding, September 30, 2018 (unaudited)	3,929,661	$	19.84	7.30

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 September 30, 2018:
Vested and expected to vest (unaudited)	3,929,661	$	19.84	7.30
Exercisable (unaudited)	1,891,006	$	12.24	6.13

Earnings per Share

9 Months Ended

Sep. 30, 2018

Earnings per Share

Earnings per Share

12. 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 nine months ended September 30, 2018 and 2017:


	Three Months ended September 30,		Nine Months ended September 30,
	2018	2017	2018	2017
	(unaudited)		(unaudited)
Warrants to purchase common stock	4,293,022	—	3,382,253	—
Convertible notes	79,444	—	70,204	—
Convertible notes hedges	80	—	70	—
Stock options, SAR and ESPP awards	165,675	15,170	180,100	105,699

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


	Three Months ended September 30,				Nine Months ended September 30,
	2018		2017		2018		2017
	(unaudited)				(unaudited)
Numerator, in thousands:
Net earnings used for calculation of basic EPS	$	28,011	$	15,961	$	85,100	$	43,626

Interest expense on convertible debt		—		(14)		—		134
Changes in fair value of derivative liabilities		—		—		—		(76)
Loss on extinguishment of debt		—		91		—		295
Loss on extinguishment of outstanding debt, as if converted		—		(273)		—		(321)
Total adjustments		—		(196)		—		32
Net earnings used for calculation of diluted EPS	$	28,011	$	15,765	$	85,100	$	43,658

Denominator:
Weighted average shares outstanding, basic		52,227,630		51,046,375		51,897,240		50,583,726

Effect of dilutive potential common shares:
Shares underlying Convertible Senior Notes		—		56,484		—		382,230
Shares issuable to settle interest make-whole derivatives		—		—		—		7,013
Stock options and SAR		2,012,217		2,525,530		2,201,090		2,254,464
Total dilutive potential common shares		2,012,217		2,582,014		2,201,090		2,643,707
Weighted average shares outstanding, diluted		54,239,847		53,628,389		54,098,330		53,227,433

Net earings per share, basic	$	0.54	$	0.31	$	1.64	$	0.86
Net earnings per share, diluted	$	0.52	$	0.29	$	1.57	$	0.82

Income Taxes

9 Months Ended

Sep. 30, 2018

Income Taxes

Income Taxes

13. Income Taxes

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


		Three Months ended September 30,						Nine Months ended September 30,
		2018			2017			2018			2017
	(unaudited)							(unaudited)
Income tax expense		$	8,360		$	6,949		$	16,309		$	21,932
Effective tax rate			23.0	%		30.3	%		16.1	%		33.5	%

The income tax expense for the three and nine months ended September 30, 2018 is attributable to U.S. federal and state income taxes.

For the three months ended September 30, 2018, the Company recorded $8.4 million of income tax expense, an increase from $6.9 million compared to the three months ended September 30, 2017. The increase in income tax expense is primarily due to the increase in taxable earnings.

For the nine months ended September 30, 2018, the Company recorded $16.3 million of income tax expense, a decrease from $21.9 million compared to the nine months ended September 30, 2017. The decrease in income tax expense is primarily due to the reduction of the U.S. statutory corporate income tax rate, from 35% to 21%, as a result of the Tax Cuts and Jobs Act passed on December 22, 2017 coupled with excess tax benefits related to exercises of employee stock options.

The decrease in the effective tax rate for the three and nine months ended September 30, 2018 as compared to the same periods in the prior year is primarily attributable to the income tax rate reduction and excess tax benefits related to exercises of employee stock options. For the three and nine months ended September 30, 2018, the Company recorded income tax benefits of approximately $700,000 and $7.0 million, respectively, as a result of the Company recognizing excess tax benefits related to the exercises of employee stock options. These tax benefits caused the effective tax rate to be less than the Company’s statutory annual effective tax rate for the three and nine months ended September 30, 2018.

Commitments and Contingencies

9 Months Ended

Sep. 30, 2018

Commitments and Contingencies

Commitments and Contingencies

14. Commitments and Contingencies

Operating Leases

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. As of September 30, 2018, approximately $400,000 is available for tenant improvements. During the three and nine months ended September 30, 2018, none of the allowance was utilized. During the three months ended September 30, 2017, none of the allowance was utilized, and during the nine months ended September 30, 2017, approximately $79,000 of the allowance, was utilized. These amounts were included in fixed assets and deferred rent.

Rent expense for the leased facilities and leased vehicles for the Company’s sales force was approximately $900,000 and $2.7 million for the three and nine months ended September 30, 2018 and approximately $800,000 and $1.9 million for the three and nine months ended September 30, 2017, respectively.

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


Year ending December 31:
2018 (remaining)	$	856
2019		3,390
2020		2,468
Thereafter		1,511
	$	8,225

New Headquarters Lease

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. The lease continues 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 Company had the right to terminate the lease without recourse if, by September 30, 2018, the landlord failed to obtain certain site approval pre-requisites, which approvals were received on September 30, 2018. The new lease provides for a tenant improvement allowance of approximately $8.9 million in aggregate. As of September 30, 2018, approximately $400,000 of the tenant improvement allowance has been utilized and $8.5 million of the allowance is available for future tenant improvements.

Because the Company has concluded that it retains substantively all of the risks of ownership during the construction of the leased property, the Company is considered the owner of the property for accounting purposes. The Company has capitalized the estimated fair value of the building shell and the construction costs of approximately $2.3 million incurred to date and recorded these as a construction-in-progress asset. The Company recognized the asset and the related financing obligation as Property and Equipment, net and Other Non-current Liabilities, respectively, in the accompanying consolidated balance sheet (see Note 5).

Future minimum lease payments due under the new headquarters lease as of September 30, 2018 are as follows, in thousands of dollars, unaudited:


Year ending December 31:
2020	$	1,367
2021		2,077
2022		2,119
2023		2,161
Thereafter		25,021
Total minimum lease payments		32,745

Product Licenses

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 September 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. This product candidate is not currently under active development.

Collaboration Agreements	9 Months Ended
Collaboration Agreements	Sep. 30, 2018
Collaboration Agreements
Collaboration Agreements	15. 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 Company’s agreement with United Therapeutics 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. 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 $4.3 million for the three and nine months ended September 30, 2018, respectively, and $1.4 million and $3.7 million for the three and nine months ended September 30, 2017, respectively. The Company recognized non-cash interest expense of $1.2 million and $3.1 million for the three and nine months ended September 30, 2018, respectively, and $200,000 and $1.3 million for the three and nine months ended September 30, 2017, respectively.

Subsequent Event	9 Months Ended
Subsequent Event	Sep. 30, 2018
Subsequent Event
Subsequent Event	16. Subsequent Event On October 4, 2018, the Company acquired Biscayne Neurotherapeutics, Inc., a privately-held company developing a novel treatment for epilepsy. The Company obtained worldwide rights (excluding certain markets in Asia where rights have been out-licensed) to Biscayne’s product candidate, huperzine A. Huperzine A is in clinical development and has received an Orphan Drug designation from the U.S. Food and Drug Administration for the treatment of Dravet Syndrome, a severe form of childhood epilepsy. In connection with the closing of this Merger, the Company made an upfront cash payment of $15 million as of the acquisition date. After the closing of the Merger and upon the achievement of certain specified development and sales milestones, the Company may be required to make additional cash payments to the former Biscayne security holders. These additional payments include: (i) payments of up to approximately $73 million contingent on the Company achieving certain development milestones utilizing the acquired pharmaceutical intellectual property assets and (ii) payments of up to approximately $95 million contingent on the Company achieving certain sales milestones with respect to the marketing of products developed from such assets. The Company will also pay a low single digit royalty on net sales to the former security holders of Biscayne and any applicable royalties to third parties for the use of in-licensed intellectual property. The maximum combined royalty the Company will pay to all parties is approximately 12%, depending on the intellectual property covering the marketed product and applicable tiered net product sales levels. As a result of the acquisition, the Company added SPN-817 to its product development pipeline. The Company plans on studying SPN-817 initially in severe pediatric epilepsy disorders such as Dravet Syndrome.

Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2018

Summary of Significant Accounting Policies

Basis of Presentation

The results of operations for the three and nine months ended September 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

Dividend and interest income is recognized when earned. The cost of securities sold is calculated using the specific identification method.

Concentration of Credit Risk

Inventories

Intangible Assets

Impairment of Long-Lived Assets

Build-to-Suit Lease

Deferred Financing Costs

Preclinical Study and Clinical Trial Accruals

Revenue Recognition


	Three Months ended September 30,
	2018		2017
	(unaudited, in thousands)
Net Product Sales:
Trokendi XR	$	79,834	$	59,339
Oxtellar XR		20,393		18,727
Total Net Product Sales		100,227		78,066
Royalty Revenues		2,769		2,010
Licensing Revenue		—		322
Total Revenues	$	102,996	$	80,398


	Nine Months ended September 30,
	2018		2017
	(unaudited, in thousands)
Net Product Sales:
Trokendi XR	$	226,863	$	157,337
Oxtellar XR		59,514		50,426
Total Net Product Sales		286,377		207,763
Royalty Revenues		5,836		4,338
Licensing Revenue		750		1,702
Total Revenues	$	292,963	$	213,803

Revenue from Product Sales

Sales Deductions

Sales deductions are primarily comprised of rebates, product returns and sales discounts/allowances. The Company records product sales net of the following sales deductions:

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

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)

9 Months Ended

Sep. 30, 2018

Schedule of revenue recognition


	Three Months ended September 30,
	2018		2017
	(unaudited, in thousands)
Net Product Sales:
Trokendi XR	$	79,834	$	59,339
Oxtellar XR		20,393		18,727
Total Net Product Sales		100,227		78,066
Royalty Revenues		2,769		2,010
Licensing Revenue		—		322
Total Revenues	$	102,996	$	80,398


	Nine Months ended September 30,
	2018		2017
	(unaudited, in thousands)
Net Product Sales:
Trokendi XR	$	226,863	$	157,337
Oxtellar XR		59,514		50,426
Total Net Product Sales		286,377		207,763
Royalty Revenues		5,836		4,338
Licensing Revenue		750		1,702
Total Revenues	$	292,963	$	213,803

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)

9 Months Ended

Sep. 30, 2018

Fair Value of Financial Instruments

Schedule of fair value of the financial assets and liabilities


	Fair Value Measurements at
	September 30, 2018
	(unaudited)
					Significant
	Total Carrying		Quoted Prices		Other		Significant
	Value at		in Active		Observable		Unobservable
	September 30,		Markets		Inputs		Inputs
	2018		(Level 1)		(Level 2)		(Level 3)
Assets:
Cash and cash equivalents	$	123,818	$	123,818	$	—	$	—
Marketable securities		156,407		263		156,144		—
Long term marketable securities:
Corporate debt securities		457,183		690		456,493		—
Government debt securities		3,121		—		3,121		—
Other non-current assets:
Marketable securities - restricted (SERP)		386		1		385		—
Total assets at fair value	$	740,915	$	124,772	$	616,143	$	—


	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 September 30, 2018 (unaudited):
			Gross	Gross
	Amortized		Unrealized	Unrealized
Available for Sale	Cost		Gains	Losses	Fair Value
Corporate and government debt securities	$	621,436	6	(4,731)	$	616,711


At December 31, 2017:
			Gross	Gross
	Amortized		Unrealized	Unrealized
Available for Sale	Cost		Gains	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:


	September 30,
	2018
	(unaudited)
Less Than 1 Year	$	156,407
1 year to 2 years		169,074
2 year to 3 years		161,614
3 years to 4 years		129,616
Greater Than 4 Years		—
Total	$	616,711

Inventories (Tables)

9 Months Ended

Sep. 30, 2018

Inventories

Schedule of inventories

Inventories consist of the following, in thousands of dollars:


	September 30,		December 31,
	2018		2017
	(unaudited)
Raw materials	$	3,925	$	2,995
Work in process		9,321		8,873
Finished goods		10,034		4,436
	$	23,280	$	16,304

Property and Equipment, net (Tables)

9 Months Ended

Sep. 30, 2018

Property and Equipment, net

Schedule of property and equipment, net

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


	September 30,		December 31,
	2018		2017
	(unaudited)
Lab equipment and furniture	$	8,957	$	8,331
Leasehold improvements		2,970		2,731
Software		2,157		2,004
Computer equipment		1,309		1,226
Construction-in-progress		2,367		178
		17,760		14,470
Less accumulated depreciation and amortization		(10,830)		(9,346)
	$	6,930	$	5,124

Intangible Assets (Tables)

9 Months Ended

Sep. 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-				September 30,		December 31,
	Average Life				2018		2017
					(unaudited)
Capitalized patent defense costs	4.25	-	8.50	years	$	44,625	$	44,185
Less accumulated amortization						(12,053)		(8,166)
					$	32,572	$	36,019

Accrued Expenses (Tables)

9 Months Ended

Sep. 30, 2018

Accrued Expenses

Schedule of accrued expenses

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


	September 30,		December 31,
	2018		2017
	(unaudited)
Accrued clinical trial and clinical supply costs	$	12,059	$	6,996
Accrued compensation		11,763		10,279
Accrued product costs		2,640		726
Accrued interest expense		1,363		—
Accrued professional fees		850		2,890
Other accrued expenses		3,423		6,414
	$	32,098	$	27,305

Accrued Sales Deductions (Tables)

9 Months Ended

Sep. 30, 2018

Accrued Sales Deductions

Schedule of accrued sales deductions

Accrued sales deductions are comprised of the following, in thousands of dollars:


	September 30,		December 31,
	2018		2017
	(unaudited)
Accrued rebates	$	66,742	$	49,460
Accrued product returns		19,228		18,883
	$	85,970	$	68,343

Convertible Senior Notes (Tables)

9 Months Ended

Sep. 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:


	September 30,
	2018
	(unaudited)
Principal amount of the 2023 Notes	$	402,500
Debt discount		(76,434)
Deferred financing costs		(8,452)
Accretion of debt discount and deferred financing costs		8,052
September 30, 2018 carrying value	$	325,666

Summary Stockholders' Equity (Tables)

9 Months Ended

Sep. 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 nine month period ended September 30, 2018, in thousands of dollars:


			Additional Paid-in		Retained Earnings
	Common Stock		Capital		(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		—		8,300		—
Issuance of ESPP shares		—		1,184		—
Exercise of stock options		1		9,147		—
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 earnings		—		—		85,100
Balance, September 30, 2018	$	52	$	365,396	$	60,599

Share-Based Payments (Tables)

9 Months Ended

Sep. 30, 2018

Share-Based Payments

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


	Three Months ended September 30,				Nine Months ended September 30,
	2018		2017		2018		2017
	(unaudited)				(unaudited)
Research and development	$	469	$	356	$	1,421	$	1,071
Selling, general and administrative		2,128		2,004		6,879		5,376
Total	$	2,597	$	2,360	$	8,300	$	6,447

Summary of stock option and SAR activity


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

Outstanding, December 31, 2017	4,280,670	$	14.50	7.37
Granted (unaudited)	742,815	$	39.98
Exercised (unaudited)	(907,197)	$	10.08
Forfeited (unaudited)	(186,627)	$	25.04
Outstanding, September 30, 2018 (unaudited)	3,929,661	$	19.84	7.30

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 September 30, 2018:
Vested and expected to vest (unaudited)	3,929,661	$	19.84	7.30
Exercisable (unaudited)	1,891,006	$	12.24	6.13

Earnings per Share (Tables)

9 Months Ended

Sep. 30, 2018

Earnings per Share

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


	Three Months ended September 30,		Nine Months ended September 30,
	2018	2017	2018	2017
	(unaudited)		(unaudited)
Warrants to purchase common stock	4,293,022	—	3,382,253	—
Convertible notes	79,444	—	70,204	—
Convertible notes hedges	80	—	70	—
Stock options, SAR and ESPP awards	165,675	15,170	180,100	105,699

Schedule of computation of basic and diluted net earnings per share


	Three Months ended September 30,				Nine Months ended September 30,
	2018		2017		2018		2017
	(unaudited)				(unaudited)
Numerator, in thousands:
Net earnings used for calculation of basic EPS	$	28,011	$	15,961	$	85,100	$	43,626

Interest expense on convertible debt		—		(14)		—		134
Changes in fair value of derivative liabilities		—		—		—		(76)
Loss on extinguishment of debt		—		91		—		295
Loss on extinguishment of outstanding debt, as if converted		—		(273)		—		(321)
Total adjustments		—		(196)		—		32
Net earnings used for calculation of diluted EPS	$	28,011	$	15,765	$	85,100	$	43,658

Denominator:
Weighted average shares outstanding, basic		52,227,630		51,046,375		51,897,240		50,583,726

Effect of dilutive potential common shares:
Shares underlying Convertible Senior Notes		—		56,484		—		382,230
Shares issuable to settle interest make-whole derivatives		—		—		—		7,013
Stock options and SAR		2,012,217		2,525,530		2,201,090		2,254,464
Total dilutive potential common shares		2,012,217		2,582,014		2,201,090		2,643,707
Weighted average shares outstanding, diluted		54,239,847		53,628,389		54,098,330		53,227,433

Net earings per share, basic	$	0.54	$	0.31	$	1.64	$	0.86
Net earnings per share, diluted	$	0.52	$	0.29	$	1.57	$	0.82

Income Taxes (Tables)

9 Months Ended

Sep. 30, 2018

Income Taxes

Summary of our income tax expense and effective tax rate


		Three Months ended September 30,						Nine Months ended September 30,
		2018			2017			2018			2017
	(unaudited)							(unaudited)
Income tax expense		$	8,360		$	6,949		$	16,309		$	21,932
Effective tax rate			23.0	%		30.3	%		16.1	%		33.5	%

Commitments and Contingencies (Tables)

9 Months Ended

Sep. 30, 2018

Commitments and Contingencies

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

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


Year ending December 31:
2018 (remaining)	$	856
2019		3,390
2020		2,468
Thereafter		1,511
	$	8,225

Schedule of future minimum lease payments due under the new headquarters lease

Future minimum lease payments due under the new headquarters lease as of September 30, 2018 are as follows, in thousands of dollars, unaudited:


Year ending December 31:
2020	$	1,367
2021		2,077
2022		2,119
2023		2,161
Thereafter		25,021
Total minimum lease payments		32,745

Organization and Business (Details)	9 Months Ended
Organization and Business (Details)	Sep. 30, 2018 product
Organization and Business
Number of proprietary commercial products	2

Summary of Significant Accounting Policies - Segments (Details)	9 Months Ended
	Sep. 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	9 Months Ended
	Sep. 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	Sep. 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)	3 Months Ended		9 Months Ended
	Sep. 30, 2018 USD ($)	Sep. 30, 2017 USD ($)	Sep. 30, 2018 USD ($) product	Sep. 30, 2017 USD ($)	Jan. 01, 2018 USD ($)
Revenues
Revenues	$ 102,996,000	$ 80,398,000	$ 292,963,000	$ 213,803,000
Sales return period prior to expiry date			6 months
Sales return period subsequent to expiry date			12 months
Number of commercial products \| product			2
Contract assets	0		$ 0		$ 0
Contract liabilities	0		$ 0		$ 0
Practical expedient
Revenue, Practical expedient, Incremental cost in obtaining contract [true/false]			true
Milestone revenue	0	300,000	$ 750,000	1,500,000
Minimum
Revenues
Product shelf life			36 months
Maximum
Revenues
Product shelf life			48 months
License and collaboration agreements
Practical expedient
Guaranteed minimum amounts	0		$ 0
Royalty revenue agreements
Practical expedient
Guaranteed minimum amounts	0		0
Product
Revenues
Revenues	100,227,000	78,066,000	286,377,000	207,763,000
Oxtellar XR
Revenues
Revenues	20,393,000	18,727,000	59,514,000	50,426,000
Trokendi XR
Revenues
Revenues	79,834,000	59,339,000	226,863,000	157,337,000
Royalty
Revenues
Revenues	$ 2,769,000	2,010,000	5,836,000	4,338,000
Licensing
Revenues
Revenues		$ 322,000	$ 750,000	$ 1,702,000

Summary of Significant Accounting Policies - Accounts Receivable, net (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Dec. 31, 2017
Accounts Receivable, Net
Allowance for doubtful accounts	$ 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	11.2		$ 11.2		$ 8.9
Maximum
Accounts Receivable, Net
Arrangements payable term			1 year
Selling, general and administrative
Advertising Expense
Advertising costs	$ 11.6	$ 9.6	$ 30.5	$ 26.1

Summary of Significant Accounting Policies - Recently Issued Accounting Pronouncements (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Jan. 01, 2018	Dec. 31, 2017
Assets
Accounts receivable, net	$ 77,753	$ 67,206	$ 65,586
Deferred income taxes (asset)	31,367	20,109	20,843
Liabilities
Deferred licensing revenue			287
Deferred licensing revenue, net of current portion			1,149
Equity
Accumulated deficit/(Retained earnings)	$ (60,599)	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/(Retained earnings)		$ (2,322)

Fair Value of Financial Instruments - Carrying Value (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Assets:
Marketable securities	$ 156,407	$ 39,736
Other non-current assets:
Carrying value of the convertible notes	325,666
Total Carrying Value \| Recurring
Assets:
Cash and cash equivalents	123,818	100,304
Marketable securities	156,407	39,736
Long term marketable securities:
Corporate debt securities	457,183	132,477
Government debt securities	3,121	1,161
Other non-current assets:
Marketable securities - restricted (SERP)	386	335
Total assets at fair value	740,915	274,013
Quoted Prices in Active Markets (Level 1) \| Recurring
Assets:
Cash and cash equivalents	123,818	100,304
Marketable securities	263	2,118
Long term marketable securities:
Corporate debt securities	690	448
Other non-current assets:
Marketable securities - restricted (SERP)	1
Total assets at fair value	124,772	102,870
Significant Other Observable Inputs (Level 2) \| Recurring
Assets:
Marketable securities	156,144	37,618
Long term marketable securities:
Corporate debt securities	456,493	132,029
Government debt securities	3,121	1,161
Other non-current assets:
Marketable securities - restricted (SERP)	385	335
Total assets at fair value	616,143	$ 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	325,700
Amount issued	402,500
Estimated fair value	$ 450,700

Fair Value of Financial Instruments - Unrestricted Marketable Securities (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Fair Value of Financial Instruments
Corporate and government debt securities, Amortized Cost	$ 621,436	$ 174,235
Corporate and government debt securities, Gross Unrealized Gains	6	48
Corporate and government debt securities, Gross Unrealized Losses	(4,731)	(909)
Corporate and government debt securities, Fair Value	616,711	173,374
Contractual maturities of the unrestricted available for sale marketable securities held
Less Than 1 Year	156,407
1 year to 2 years	169,074
2 year to 3 years	161,614
3 years to 4 years	129,616
Corporate debt securities, Fair Value	$ 616,711	$ 173,374

Inventories (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Inventories
Raw materials	$ 3,925	$ 2,995
Work in process	9,321	8,873
Finished goods	10,034	4,436
Total inventories	$ 23,280	$ 16,304

Property and Equipment, net (Details) - USD ($)	3 Months Ended		9 Months Ended
Property and Equipment, net (Details) - USD ($)	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Dec. 31, 2017
Property and equipment, net
Property and equipment, gross	$ 17,760,000		$ 17,760,000		$ 14,470,000
Less accumulated depreciation and amortization	(10,830,000)		(10,830,000)		(9,346,000)
Property and equipment, net	6,930,000		6,930,000		5,124,000
Depreciation and amortization expense	600,000	$ 300,000	1,500,000	$ 900,000
Lab equipment and furniture
Property and equipment, net
Property and equipment, gross	8,957,000		8,957,000		8,331,000
Leasehold improvements
Property and equipment, net
Property and equipment, gross	2,970,000		2,970,000		2,731,000
Software
Property and equipment, net
Property and equipment, gross	2,157,000		2,157,000		2,004,000
Computer equipment
Property and equipment, net
Property and equipment, gross	1,309,000		1,309,000		1,226,000
Construction-in-progress
Property and equipment, net
Property and equipment, gross	2,367,000		2,367,000		$ 178,000
Less accumulated depreciation and amortization	$ 0		$ 0

Intangible Assets (Details) $ in Thousands	3 Months Ended		9 Months Ended		12 Months Ended
Intangible Assets (Details) $ in Thousands	Sep. 30, 2018 USD ($)	Sep. 30, 2017 USD ($)	Sep. 30, 2018 USD ($)	Sep. 30, 2017 USD ($)	Dec. 31, 2017 USD ($)	Mar. 31, 2017 item
Intangible Assets
Less accumulated amortization	$ (12,053)		$ (12,053)		$ (8,166)
Net book value of intangible assets	32,572		32,572		36,019
Additional disclosures
Amortization expense	1,300	$ 4,100	3,900	$ 5,500
Trokendi XR patent litigation
Additional disclosures
Number of settlements \| item						2
Capitalized patent defense costs
Intangible Assets
Gross carrying amount	$ 44,625		$ 44,625		$ 44,185
Capitalized patent defense costs \| Minimum
Intangible Assets
Weighted-Average Life			4 years 3 months		4 years 3 months
Capitalized patent defense costs \| Maximum
Intangible Assets
Weighted-Average Life			8 years 6 months		8 years 6 months

Accrued Expenses (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Accrued Expenses
Accrued clinical trial and clinical supply costs	$ 12,059	$ 6,996
Accrued compensation	11,763	10,279
Accrued product costs	2,640	726
Accrued interest expense	1,363
Accrued professional fees	850	2,890
Other accrued expenses	3,423	6,414
Total	$ 32,098	$ 27,305

Accrued Sales Deductions (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Accrued Sales Deductions
Accrued rebates	$ 66,742	$ 49,460
Accrued product returns	19,228	18,883
Accrued sales deductions, net	$ 85,970	$ 68,343

Convertible Senior Notes (Details)			9 Months Ended
Convertible Senior Notes (Details)	Mar. 15, 2018 USD ($) shares	Mar. 14, 2018 USD ($) D $ / shares shares	Sep. 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
September 30, 2018 carrying value			325,666,000
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			(8,452,000)
Accretion of debt discount and deferred financing costs			8,052,000
September 30, 2018 carrying value			325,666,000
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		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Jan. 01, 2018
Beginning balance			$ 267,480
Net earnings	$ 28,011	$ 15,961	85,100	$ 43,626
Ending balance	421,936		421,936
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			8,300
Issuance of ESPP shares			1,184
Exercise of stock options			9,147
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	365,396		365,396
Retained Earnings (Accumulated Deficit)
Beginning balance			(26,823)
Balance adjusted					(24,501)
Net earnings			85,100
Ending balance	$ 60,599		$ 60,599
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	9 Months Ended
Share-Based Payments - 2012 Plan (Details) - 2012 Plan	Sep. 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		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Share-based Payments
Share-based compensation recognized	$ 2,597	$ 2,360	$ 8,300	$ 6,447
Research and development
Share-based Payments
Share-based compensation recognized	469	356	1,421	1,071
Selling, general and administrative
Share-based Payments
Share-based compensation recognized	$ 2,128	$ 2,004	$ 6,879	$ 5,376

Share-Based Payments - Activity (Details) - Stock option and Stock Appreciation Rights - $ / shares	9 Months Ended	12 Months Ended
	Sep. 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)	742,815
Exercised (in shares)	(907,197)
Forfeited (in shares)	(186,627)
Outstanding at the end of the period (in shares)	3,929,661	4,280,670
Vested and expected to vest (in shares)	3,929,661	4,280,670
Exercisable (in shares)	1,891,006	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)	39.98
Exercised (in dollars per share)	10.08
Forfeited (in dollars per share)	25.04
Outstanding at the end of the period (in dollars per share)	19.84	$ 14.50
Vested and expected to vest (in dollars per share)	19.84	14.50
Exercisable (in dollars per share)	$ 12.24	$ 9.35
Weighted-Average Remaining Contractual Term (in years)
Outstanding at the end of the period	7 years 3 months 18 days	7 years 4 months 13 days
Vested and expected to vest	7 years 3 months 18 days	7 years 4 months 13 days
Exercisable	6 years 1 month 17 days	6 years 1 month 28 days

Earnings per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Numerator, in thousands:
Net earnings used for calculation of basic EPS	$ 28,011	$ 15,961	$ 85,100	$ 43,626
Interest expense on convertible debt		(14)		134
Changes in fair value of derivative liabilities				(76)
Loss on extinguishment of debt		91		295
Loss on extinguishment of outstanding debt, as if converted		(273)		(321)
Total adjustments		(196)		32
Net earnings used for calculation of diluted EPS	$ 28,011	$ 15,765	$ 85,100	$ 43,658
Denominator:
Weighted average shares outstanding, basic	52,227,630	51,046,375	51,897,240	50,583,726
Effect of dilutive potential common shares:
Shares underlying Convertible Senior Notes		56,484		382,230
Shares issuable to settle interest make-whole derivatives				7,013
Stock options and SAR	2,012,217	2,525,530	2,201,090	2,254,464
Total dilutive potential common shares	2,012,217	2,582,014	2,201,090	2,643,707
Weighted average shares outstanding, diluted	54,239,847	53,628,389	54,098,330	53,227,433
Net earnings per share, basic	$ 0.54	$ 0.31	$ 1.64	$ 0.86
Net earnings per share, diluted	$ 0.52	$ 0.29	$ 1.57	$ 0.82
Warrants to purchase common stock
Income per share
Common stock equivalents excluded in the calculation of diluted income per share	4,293,022		3,382,253
Convertible notes
Income per share
Common stock equivalents excluded in the calculation of diluted income per share	79,444		70,204
Convertible notes hedges
Income per share
Common stock equivalents excluded in the calculation of diluted income per share	80		70
Stock options, SAR, and ESPP awards
Income per share
Common stock equivalents excluded in the calculation of diluted income per share	165,675	15,170	180,100	105,699

Income Taxes (Details) - USD ($)	3 Months Ended		9 Months Ended		12 Months Ended
Income Taxes (Details) - USD ($)	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Dec. 31, 2017
Income Taxes
Income tax expense	$ 8,360,000	$ 6,949,000	$ 16,309,000	$ 21,932,000
U.S. corporate income tax rate (as a percent)			21.00%		35.00%
Effective tax rate	23.00%	30.30%	16.10%	33.50%
Excess tax benefits related to employee exercise of stock options	$ 700,000		$ 7,000,000

Commitments and Contingencies - Operating Lease (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Commitments and Contingencies
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	$ 0	0	$ 79,000
Amount available for tenant improvements			400,000
Rent expense	900,000	$ 800,000	2,700,000	$ 1,900,000
Future minimum lease payments under non-cancelable operating leases
2018 (remaining)	856,000		856,000
2019	3,390,000		3,390,000
2020	2,468,000		2,468,000
Thereafter	1,511,000		1,511,000
Total	$ 8,225,000		$ 8,225,000

Commitments and Contingencies - New Headquarters Lease (Details)		9 Months Ended
	Feb. 27, 2018 USD ($) lease	Sep. 30, 2018 USD ($)
Capitalized construction costs		$ 2,300,000
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
Tenant improvement allowance	$ 8,900,000
Tenant improvement allowance utilized		400,000
Amount available for tenant improvements		8,500,000
Future minimum lease payments due under the new headquarters lease
2020		1,367,000
2021		2,077,000
2022		2,119,000
2023		2,161,000
Thereafter		25,021,000
Total minimum lease payments		32,745,000
Afecta Pharmaceuticals Inc \| Maximum
Future minimum lease payments due under the new headquarters lease
Potential maximum milestone payments payable		300,000
Rune HealthCare Limited
Future minimum lease payments due under the new headquarters lease
Milestone payments due		$ 0

Collaboration Agreements (Details) - USD ($) $ in Thousands	3 Months Ended			9 Months Ended
Collaboration Agreements (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2014	Sep. 30, 2018	Sep. 30, 2017
Collaboration agreement
Revenue from royalty agreement	$ 1,500	$ 1,400		$ 4,300	$ 3,708
Noncash interest expense	$ 1,191	$ 155		$ 3,096	$ 1,274
License and collaboration agreements \| United Therapeutics
Collaboration agreement
Revenue from royalty agreement			$ 30,000

Subsequent Event (Details) - Subsequent Event - Merger with Biscayne Neurotherapeutics, Inc. $ in Millions	Oct. 04, 2018 USD ($)
Subsequent Event
Business combination, consideration	$ 15
Maximum combined royalty (as a percent)	12.00%
Developmental milestones related to intellectual property \| Maximum
Subsequent Event
Contingent consideration based on milestones	$ 73
Sales milestones related to marketing products developed from intellectual property assets \| Maximum
Subsequent Event
Contingent consideration based on milestones	$ 95