0001356576-20-000010 | 10-K | XBRL Viewer | Supernus Pharmaceuticals INC

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Cover - USD ($)	12 Months Ended
Cover - USD ($)	Dec. 31, 2019	Feb. 13, 2020	Jun. 30, 2019
Cover page.
Document Type	10-K
Document Annual Report	true
Document Period End Date	Dec. 31, 2019
Entity File Number	001-35518
Document Transition Report	false
Entity Registrant Name	SUPERNUS PHARMACEUTICALS, INC.
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	20-2590184
Entity Address, Address Line One	9715 Key West Avenue
Entity Address, City or Town	Rockville
Entity Address, State or Province	MD
Entity Address, Postal Zip Code	20850
City Area Code	(301)
Local Phone Number	838-2500
Title of 12(b) Security	Common Stock, $0.001 Par Value
Entity Common Stock, Shares Outstanding		52,533,973
Trading Symbol	SUPN
Security Exchange Name	NASDAQ
Entity Well-known Seasoned Issuer	Yes
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Public Float			$ 1,677,874,611
Documents Incorporated by Reference	Certain portions of the registrant's definitive Proxy Statement for its 2020 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission not later than 120 days after the end of the registrant's 2019 fiscal year end, are incorporated by reference into Part III of this Annual Report on Form 10-K.
Entity Central Index Key	0001356576
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	FY

Consolidated Balance Sheets - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
Current assets
Cash and cash equivalents	$ 181,381	$ 192,248
Marketable securities	165,692	163,770
Accounts receivable, net	87,332	102,922
Inventories, net	26,628	25,659
Prepaid expenses and other current assets	11,611	8,888
Total current assets	472,644	493,487
Long term marketable securities	591,773	418,798
Property and equipment, net	17,068	4,095
Intangible assets, net	24,840	31,368
Lease assets	21,279
Deferred income taxes	32,063	29,683
Other assets	615	380
Total assets	1,160,282	977,811
Current liabilities
Accounts payable	10,141	3,195
Accrued product returns and rebates	107,629	107,063
Accrued expenses and other current liabilities	37,130	36,535
Income taxes payable	2,443	12,377
Nonrecourse liability related to sale of future royalties; current portion	3,244	2,183
Total current liabilities	160,587	161,353
Convertible notes, net	345,170	329,462
Nonrecourse liability related to sale of future royalties; long term	19,248	22,575
Lease liabilities, long term	30,440
Other liabilities	9,409	11,398
Total liabilities	564,854	524,788
Stockholders’ equity
Common stock, $0.001 par value; 130,000,000 shares authorized; 52,533,348 and 52,316,583 shares issued and outstanding as of December 31, 2019 and December 31, 2018, respectively	53	52
Additional paid-in capital	388,410	369,637
Accumulated other comprehensive earnings (loss), net of tax	7,417	(3,158)
Retained earnings	199,548	86,492
Total stockholders’ equity	595,428	453,023
Total liabilities and stockholders’ equity	$ 1,160,282	$ 977,811

Consolidated Balance Sheets (Parenthetical) - $ / shares	Dec. 31, 2019	Dec. 31, 2018
Statement of Financial Position [Abstract]
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized (in shares)	130,000,000	130,000,000
Common stock, shares issued (in shares)	52,533,348	52,316,583
Common stock, shares outstanding (in shares)	52,533,348	52,316,583

Consolidated Statements of Earnings - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Revenue
Total revenues	$ 392,755	$ 408,897	$ 302,238
Costs and expenses
Cost of goods sold	16,660	15,356	15,215
Research and development	69,099	89,209	49,577
Selling, general and administrative	158,425	159,888	137,905
Total costs and expenses	244,184	264,453	202,697
Operating earnings	148,571	144,444	99,541
Other (expense) income
Interest expense	(22,707)	(18,111)	(1,568)
Interest income, net	21,623	13,843	2,645
Total	(1,084)	(4,268)	1,077
Earnings before income taxes	147,487	140,176	100,618
Income tax expense	34,431	29,183	43,334
Net earnings	$ 113,056	$ 110,993	$ 57,284
Earnings per share:
Basic (in dollars per share)	$ 2.16	$ 2.13	$ 1.13
Diluted (in dollars per share)	$ 2.10	$ 2.05	$ 1.08
Weighted-average shares outstanding
Basic (in shares)	52,412,181	51,989,824	50,756,603
Diluted (in shares)	53,816,754	54,098,872	53,301,150
Net product sales
Revenue
Total revenues	$ 383,400	$ 399,871	$ 294,097
Royalty revenue
Revenue
Total revenues	9,355	8,276	6,367
Licensing revenue
Revenue
Total revenues	$ 0	$ 750	$ 1,774

Consolidated Statements of Comprehensive Earnings - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Statement of Comprehensive Income [Abstract]
Net earnings	$ 113,056	$ 110,993	$ 57,284
Other comprehensive earnings (loss)
Unrealized gain (loss) on marketable securities, net of tax	10,575	(2,411)	(613)
Other comprehensive earnings (loss)	10,575	(2,411)	(613)
Comprehensive earnings	$ 123,631	$ 108,582	$ 56,671

- Definition

The portion of profit or loss for the period, net of income taxes, which is attributable to the parent.

+ References + Details

Consolidated Statements of Changes in Stockholders' Equity - USD ($) $ in Thousands	Total	Common Stock	Additional Paid-in Capital	Accumulated Other Comprehensive Earnings (Loss)	Retained Earnings (Accumulated Deficit)
Balance (in shares) at Dec. 31, 2016		49,971,267
Balance at Dec. 31, 2016	$ 191,755	$ 50	$ 276,127	$ (134)	$ (84,288)
Increase (Decrease) in Stockholders' Equity
Share-based compensation	8,433		8,433
Issuance of employee stock purchase plan shares (in shares)		71,256
Issuance of employee stock purchase plan shares	1,888		1,888
Exercise of stock options (in shares)		407,477
Exercise of stock options	3,793		3,793
Equity issued on conversion of convertible notes (in shares)		864,850
Equity issued on conversion of convertible notes	4,548	$ 1	4,547
Net earnings	57,284				57,284
Unrealized gain (loss) on marketable securities, net of tax	(613)			(613)
Balance (in shares) at Dec. 31, 2017		51,314,850
Balance at Dec. 31, 2017	267,480	$ 51	294,999	(747)	(26,823)
Increase (Decrease) in Stockholders' Equity
Share-based compensation	11,291		11,291
Issuance of employee stock purchase plan shares (in shares)		71,250
Issuance of employee stock purchase plan shares	2,209		2,209
Exercise of stock options (in shares)		930,483
Exercise of stock options	9,373	$ 1	9,372
Equity issued on conversion of convertible notes	56,215		56,215
Purchase of convertible note hedges, net of tax	(70,137)		(70,137)
Issuance of warrants	65,688		65,688
Net earnings	110,993				110,993
Unrealized gain (loss) on marketable securities, net of tax	(2,411)			(2,411)
Balance (in shares) at Dec. 31, 2018		52,316,583
Balance at Dec. 31, 2018	453,023	$ 52	369,637	(3,158)	86,492
Increase (Decrease) in Stockholders' Equity
Share-based compensation	14,846		14,846
Issuance of employee stock purchase plan shares (in shares)		102,012
Issuance of employee stock purchase plan shares	2,448	$ 1	2,447
Exercise of stock options (in shares)		114,753
Exercise of stock options	1,480		1,480
Net earnings	113,056				113,056
Unrealized gain (loss) on marketable securities, net of tax	10,575			10,575
Balance (in shares) at Dec. 31, 2019		52,533,348
Balance at Dec. 31, 2019	$ 595,428	$ 53	$ 388,410	$ 7,417	$ 199,548

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Cash flows from operating activities
Net earnings	$ 113,056	$ 110,993	$ 57,284
Adjustments to reconcile net earnings to net cash provided by operating activities:
Loss on extinguishment of debt	0	0	295
Change in fair value of derivative liability	0	0	(76)
Depreciation and amortization	6,659	7,063	8,132
Noncash operating lease cost	3,566	0	0
Amortization of deferred financing costs and debt discount	15,708	11,848	50
Amortization of premium/discount on marketable securities	(4,335)	(1,665)	(563)
Noncash interest expense	5,775	4,271	1,434
Noncash royalty revenue	(6,927)	(5,914)	(5,283)
Share-based compensation expense	14,846	11,291	8,433
Deferred income tax (benefit) provision	(5,832)	(4,167)	21,224
Changes in operating assets and liabilities:
Accounts receivable	15,751	(35,856)	(24,059)
Inventories	(969)	(9,355)	497
Prepaid expenses and other current assets	(2,723)	(2,367)	(3,566)
Other noncurrent assets	(141)	0	0
Accounts payable	6,962	(3,578)	(620)
Accrued product returns and rebates	566	38,720	26,400
Accrued expenses and other current liabilities	(3,811)	10,432	2,888
Income taxes payable	(9,934)	(3,561)	15,931
Deferred licensing revenue	0	0	(274)
Other liabilities	(5,088)	831	6,513
Net cash provided by operating activities	143,129	128,986	114,640
Cash flows from investing activities
Purchases of marketable securities	(409,707)	(491,654)	(101,889)
Sales and maturities of marketable securities	253,170	79,827	28,657
Purchases of property and equipment	(2,736)	(844)	(2,029)
Deferred legal fees	1,349
Deferred legal fees		(809)	(11,154)
Net cash used in investing activities	(157,924)	(413,480)	(86,415)
Cash flows from financing activities
Proceeds from issuance of convertible notes	0	402,500	0
Convertible notes issuance financing costs	0	(10,435)	0
Proceeds from issuance of warrants	0	65,688	0
Purchases of convertible note hedges	0	(92,897)	0
Proceeds from issuance of common stock	3,928	11,582	5,681
Net cash provided by financing activities	3,928	376,438	5,681
Net change in cash and cash equivalents	(10,867)	91,944	33,906
Cash and cash equivalents at beginning of year	192,248	100,304	66,398
Cash and cash equivalents at end of period	181,381	192,248	100,304
Supplemental cash flow information:
Cash paid for interest on convertible notes	2,516	1,342	134
Income taxes paid	51,540	34,772	1,588
Noncash investing and financing activity:
Conversion of convertible notes and interest make-whole	0	0	4,548
Deferred legal fees and fixed assets included in accounts payable and accrued expenses	1,832	250	521
Unsettled purchase of marketable securities included in accrued expenses	0	0	1,004
Property and equipment additions from utilization of tenant improvement allowance	10,151	0	0
Acquisition of Biscayne Neurotherapeutics, Inc.
Supplemental cash flow information:
Cash paid for Biscayne acquisition	$ 0	$ 15,000	$ 0

Organization and Nature of Operations	12 Months Ended
Organization and Nature of Operations	Dec. 31, 2019
Organization and Nature of Operations
Organization and Nature of Operations	Organization and Nature of Operations 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 the treatment of epilepsy. The Company is also developing multiple proprietary CNS product candidates to address significant unmet medical needs and market opportunities. The Company launched Oxtellar XR and Trokendi XR for the treatment of epilepsy in 2013, followed by the launch of Trokendi XR for the prophylaxis of migraine headache in adolescents and adults in April 2017. The Company launched Oxtellar XR with an expanded indication to include monotherapy for partial seizures in January 2019.

Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2019

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

Basis of Presentation

The Company's consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (U.S. GAAP).

The Company’s consolidated financial statements include the accounts of: Supernus Pharmaceuticals, Inc.; Supernus Europe Ltd.; Biscayne Neurotherapeutics, Inc. and Biscayne Neurotherapeutics Australia Pty Ltd. These are collectively referred to herein as “Supernus” or “the Company.” All significant intercompany transactions and balances have been eliminated in consolidation.

The Company, which is primarily located in the United States (U.S.), operates in one operating segment.

Use of Estimates

The Company bases its estimates on: historical experience; various forecasts; information received from its service providers and from other sources; and other assumptions that the Company believes are reasonable under the circumstances. Actual results could differ materially from the Company’s estimates. The Company evaluates the methodologies employed in making 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 governmental, 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 furthermore classified as available-for-sale and are carried at fair value.

Any unrealized holding gains or losses on debt securities are reported net of any tax effects as a component of other comprehensive earnings (loss) in the consolidated statement of comprehensive earnings. Realized gains and losses are included in interest income and are determined using the specific identification method for determining the cost of securities sold.

Declines in value judged to be other-than-temporary, if any, are included in the consolidated statement of earnings. 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 at the time the reduction is recognized.

Dividend and interest income is recognized when earned. Premiums and discounts on marketable securities are amortized and accreted, respectively, to maturity and included in interest income in the consolidated statement of earnings.

Accounts Receivable, Net

Accounts receivable are reported on the consolidated balance sheets at outstanding amounts due from customers, less an allowance for doubtful accounts, sales discounts and sales allowances. 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. Payment terms for receivables are based on customary commercial terms and are predominantly less than one year.

The Company recorded zero, $0.1 million and zero for doubtful accounts for the years ended December 31, 2019, 2018 and 2017, respectively. No receivable was written-off for the years ended December 31, 2019, 2018 and 2017.

Concentration of Credit Risk

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

Substantially all of the Company's cash and cash equivalents and marketable securities 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 governmental insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and, therefore, these bear minimal default risk.

The following table shows the percentage of the Company's sales made to and percentage of accounts receivables from wholesalers and distributors representing more than 10% of the Company's total net product sales and more than 10% of the Company's accounts receivables, net:



	Percentage to Net Product Sales						Percentage to Accounts Receivable, net
	2019		2018		2017		2019		2018
Customer A	32	%	33	%	30	%	45	%	46	%
Customer B	32	%	33	%	30	%	21	%	24	%
Customer C	34	%	32	%	37	%	30	%	27	%
	98	%	98	%	97	%	96	%	97	%

Refer to Note 16 for concentration of net product sales.

Inventories

Inventories, which are recorded at the lower of cost or net realizable value, include materials, labor, direct costs and indirect costs and are valued using the first-in, first-out method. The Company writes down inventory that has become obsolete or has a cost basis in excess of its expected net realizable value. Expired inventory is disposed of and the related costs are recognized as Cost of goods sold in the consolidated statement of earnings.

Inventories Produced in Preparation for Product Launches

The Company capitalizes inventories produced in preparation for product launches sufficient to support estimated initial market demand when future commercialization of a product is probable and future economic benefit is expected to be realized. The determination to capitalize is based on the particular facts and circumstances relating to the product. Capitalization of such inventory begins when the Company determines that (i) positive results have been obtained for the clinical trials that are necessary to support regulatory approval; (ii) uncertainties regarding regulatory approval have been significantly reduced; and (iii) it is probable that these capitalized costs will provide some future economic benefit in excess of capitalized costs.

In evaluating whether these conditions are met, the Company considers the following: the product’s current status in the regulatory approval process; results from the related pivotal clinical trials; results from meetings with relevant regulatory agencies prior to the filing of regulatory applications; compilation of the regulatory application and consequent acceptance by the regulatory body; potential impediments to the approval process such as product safety or efficacy concerns, potential labeling restrictions and other impediments: historical experience with manufacturing and commercializing similar products and the relevant product candidate; and the Company’s manufacturing environment including its supply chain in determining logistical constraints that could hamper approval or commercialization. In assessing the economic benefit that the Company is likely to realize, the Company considers the shelf life of the product in relation to the expected timeline for approval and patent related or contract issues that may prevent or delay commercialization and product stability data of all pre-approval production to date to determine whether there is adequate expected shelf life; viability of commercialization taking into account trends in the marketplace and market acceptance; and anticipated future sales and anticipated reimbursement strategies that may prevail with respect to the product.

In applying the lower of cost or net realizable value to pre-launch inventory, the Company estimates a range of likely commercial prices based on comparable commercial products and sales deductions.

The Company could be required to write down previously capitalized costs related to pre-launch inventories upon a change in such judgment, due to, among other potential factors, a denial or significant delay of approval by regulatory bodies, a delay in commercialization or other potential factors.

As of December 31, 2019 and 2018, there was no pre-launch inventory recognized on the consolidated balance sheets.

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 are charged to expense in the event of an unsuccessful outcome of the litigation.

Patent defense costs 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. Carrying value 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 of the asset to determine whether the asset's value is recoverable. Evaluating for impairment requires judgment, including estimating 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 adversely affect impairment analyses, requiring recognition of an impairment charge equal to the excess of the carrying value of the long-lived asset over its estimated fair value at the time at which that determination is made.

Deferred Financing Costs

Deferred financing costs were incurred by the Company in connection with the issuance of $402.5 million of 0.625% Convertible Senior Notes due 2023 (2023 Notes), (see Note 9). The Company amortizes deferred financing costs over the term of the debt, using the effective interest method.

Revenue Recognition

The Company recognizes revenue when physical control of goods or provision of services are transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to receive in exchange for those goods or services. The Company does not adjust revenue for any financing effects in transactions where the Company expects the period between the transfer of the goods or services and collection to be less than one year.

No contract assets or liabilities were recorded as of or December 31, 2019 or 2018.

Revenue from Product Sales

The Company’s customers, who are primarily pharmaceutical wholesalers and distributors, purchase product to fulfill orders from retail pharmacy chains and independent pharmacies of varying size and purchasing power. The Company recognizes gross revenue when its products are physically received by its customers, after shipment from a third party fulfillment center. Customers take control of the products, including title and ownership, upon physical receipt of the products at the customers' facilities.

Product sales are recorded net of various forms of variable consideration, including: estimated liability for rebates; estimated liability for future product returns; and estimated allowance for discounts. These are collectively considered "sales deductions."

As described below, variability in the net transaction price for the Company’s products arises primarily from the aforementioned sales deductions. Variable consideration is only recognized when it is probable that a significant reversal will not occur. Significant judgment is required in estimating certain sales deductions. In making these estimates, the Company considers: historical experience; product price increases; current contract prices under applicable payor programs; unbilled claims; processing time lags; and inventory levels in the distribution channel. The Company adjusts its estimates of revenue either 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 the estimates, the Company adjusts these estimates. These adjustments could materially affect net product sales and earnings in the period that such adjustments are recorded.

Sales Deductions

The Company records product sales, net of the following sales deductions:

•

Rebates: Rebates are discounts which the Company pays under either public sector or private sector health care programs. Public sector rebate programs encompass: various Medicaid drug rebate programs; Medicare coverage gap programs; and programs covering public health service institutions and government entities. All federal employees and agencies 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 be obligated to 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. Both types of rebates vary over time.

Rebates are owed upon dispensing our product to a patient; i.e., filling a prescription. The accrual balance for rebates consists of the following three components. First, 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 prescriptions dispensed in the current quarter. Second, the accrual balance also includes an estimate for known or estimated prior quarters’ unpaid rebates, to cover prescriptions dispensed in past quarters, but for which no invoice has yet been received. Third, the accrual balance includes an estimate for rebates that will be prospectively owed, for prescriptions filled in future quarters. This pertains to product that has been sold to wholesalers or distributors, and which resides either as wholesaler/distributor inventory, or as inventory held at pharmacies, but as of the end of the reporting period, has not been sold to a patient.

The Company’s estimates of expected rebate claims vary by program and by type of customer, because the period from the date at which the prescription is filled to the date at which the Company receives and pays the invoice varies substantially. For each of its products, the Company bases its estimates of expected rebate claims on 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 contracts; prospective changes in co-pay assistance programs; and anticipated changes in program utilization rates (i.e., patient participation rates under each specific program). 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 to wholesalers/distributors), and records this liability as a reduction to gross product sales, and an increase in Accrued product returns and rebates, in current liabilities on its consolidated balance sheets.

The sensitivity of the Company’s estimates varies by program and by type of customer. If actual rebates vary from estimated amounts, the Company will adjust the balances of such accrued rebates to reflect actual experience with respect to these programs. These adjustments could materially affect the estimated liability balance, net product sales and earnings in the period in which the adjustment is made.


•	Returns: Sale 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 return of product that is damaged or defective when shipped from its third party fulfillment center.

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 and is therefore destroyed.

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 product returns and rebates, in current liabilities on the consolidated balance sheets. The Company estimates the liability for returns primarily based on the actual returns experience for its two commercial products.

Because the Company's products have a shelf life of up to 48 months from date of manufacture, and because the Company accepts return of product up to 12 months post expiry, there is a time lag of several years between the time at which the product is sold and the time when the Company issues credit on expired product. Because the Company’s returns policy generally permits product returns to be processed at current wholesaler price rather than historical acquisition price, the Company’s estimated liability for product returns is affected by price increases taken subsequent to the date of sale.

When the Company adjusts its estimates for product returns, the adjustment affects the estimated liability, product sales and earnings in the period of adjustment. Those adjustments may be material to our financial results.

•

Sales discounts: Distributors and wholesalers of the Company's pharmaceutical products are generally offered various forms of consideration, including allowances, service fees and prompt payment discounts for distributing our products. Distributor and wholesaler allowances and service fees arise from contractual agreements, and are estimated as a percentage of the price at which the Company sells product to them. In addition, distributors and wholesalers 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 records these amounts as a valuation allowance against Accounts receivable on the consolidated balance sheets.

Customer orders are generally fulfilled within a few days of receipt, resulting in minimal order backlog. There are no minimum product purchase requirements.

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. Those agreements include the right to use the Company’s intellectual property as a functional license, and generally include an up-front license fee and ongoing milestone payments upon the achievement of certain specific events. These agreements may also require minimum royalty payments, based on sales of products which use the applicable intellectual property.

Up-front license fees are recognized once the license has been executed between the Company and its licensee.

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

Event-based milestones are recognized in the period that the related event, such as regulatory approval, occurs. Milestones 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 success of a third-party, are not considered probable until the specified event occurs.

Sales-based milestones are recognized as revenue only when the 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 noncash royalty revenue for amounts earned pursuant to our royalty agreement with United Therapeutics Corporation (United Therapeutics). This agreement includes 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 17, Commitments and Contingencies). Sales by United Therapeutics results in payments made by United Therapeutics to HC Royalty, in accordance with these agreements. As a result, the Company recorded a nonrecourse liability related to this transaction, and amortizes this amount as noncash royalty revenue. The Company records noncash royalty revenue based on estimated product sales by United Therapeutics (see Note 16). The Company also recognizes noncash interest expense related to this liability and accrues interest expense at an effective interest rate (see Note 10). The interest rate is determined based on projections of HC Royalty’s rate of return.

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

No guaranteed minimum amounts are owed to the Company related to any of these royalty revenue agreements.

Cost of Goods Sold

The cost of goods sold consists primarily of: materials; third-party manufacturing costs; freight and distribution costs; direct labor; and manufacturing overhead costs, including quality control and assurance.

Research and Development Expenses and Related Accrued Research and Development Expenses

Research and development expenditures are expensed as incurred. These expenses include: salaries, benefits and share-based compensation; contract research and development services provided by third parties; costs for preclinical and clinical studies; cost of acquiring or manufacturing clinical trial material; regulatory costs; facilities costs; depreciation expense and other allocated expenses; and license fees and milestone payments related to in-licensed products and technologies. Assets acquired that are used for research and development and that have no future alternative use are expensed as in-process research and development.

The Company estimates preclinical 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 perform services on the Company’s behalf. In recording service fees, the Company estimates the cost of those services which have been performed on behalf of the Company during the current period, and compares those costs with the cumulative expenses recorded and payments made for such services. As appropriate, the Company accrues additional service fees, or defers any nonrefundable 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 adjusts its accrued expenses, or its deferred advance payments, accordingly. If the Company subsequently determines that it no longer expects the services associated with a nonrefundable advance payment to be rendered, the remaining portion of that advance payment is charged to expense in the period in which such determination is made.

Share-Based Compensation

The Company recognizes share-based compensation expense over the service period using the straight-line method. Employee share-based compensation is measured based on estimated fair value as of the grant date, using the Black-Scholes option-pricing model in calculating the fair value of option grants as of the grant date. The Company uses the following assumptions for estimating fair value of option grants:

Fair Value of Common Stock—The fair value of the common stock underlying the option grants is determined based on observable market prices of the Company’s common stock.

Expected Volatility—Volatility is a measure of the amount by which the Company’s share price has historically fluctuated or is expected to fluctuate (i.e., expected volatility) during a period. Beginning in the first quarter of 2019, the Company began using the historical volatility of its common stock to measure expected volatility. Prior to the first quarter of 2019, volatility was estimated using the observed volatility of the common stock of several public entities of similar size, complexity, and stage of development, as well as taking into consideration the Company’s actual volatility since the Company’s IPO in 2012.

Dividend Yield—The Company has never declared or paid dividends, and has no plans to do so in the foreseeable future.

Expected Term—This is the period of time during which options are expected to remain unexercised. Options have a maximum contractual term of ten years. Beginning in the first quarter of 2019, the Company began estimating the average expected life of stock options using its historical experience. Prior to the first quarter of 2019, the Company determined the average expected life of stock options according to the “simplified method”, as described in Staff Accounting Bulletin 110, which is the mid-point between the vesting date and the end of the contractual term.

Risk-Free Interest Rate—This is the observed U.S. Treasury Note rate as of the week each option grant is issued, with a term that most closely resembles the expected term of the option.

Expected Forfeiture Rate—Forfeitures are accounted for as they occur.

Self-Insurance Liabilities

As of January 1, 2019, the Company self-insures its employee medical insurance liability. The self-insurance liability is undiscounted and is determined actuarially, is based on claims filed, historical and industry claims experience, and an estimate of claims incurred but not yet paid. The Company has established stop-loss amounts that limit the Company’s further exposure after any individual claim reaches the designated stop-loss threshold, which effectively transfers any additional liability to a third party. The stop-loss limit for self-insured employee medical claims is $150,000 per employee per year.

The Company recorded a self-insurance liability of approximately $600,000 as of December 31, 2019 in Accrued expenses and other current liabilities on the consolidated balance sheets.

Leases

On January 1, 2019, the Company adopted Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842) (New Lease Standard) using the modified retrospective transition approach. We applied the new standard to all leases existing at the date of initial application. Results and disclosure requirements for reporting periods beginning after January 1, 2019 are presented consistent with Topic 842, while prior period amounts have not been adjusted and continue to be reported in accordance with our historical accounting under Topic 840.

The Company elected the package of practical expedients permitted under the transition guidance, which, among other things, allowed the Company to carryforward the historical lease classification, the assessment on whether a contract was or contains a lease, and the initial direct costs for any leases that existed prior to January 1, 2019. The Company also elected to combine the lease and non-lease components, and to keep leases with an initial term of 12 months or less off the balance sheet. We recognize the associated lease payments in the consolidated statements of earnings on a straight-line basis over the lease term. Additionally, for certain equipment leases, we apply a portfolio approach to effectively account for the operating lease right-of-use (ROU) assets and lease liabilities.

The adoption of the New Lease Standard resulted in the recognition of lease assets and lease liabilities as of January 1, 2019 of approximately $4.0 million. The adoption did not impact the beginning retained earnings, or the prior year consolidated statements of earnings and statements of cash flows (see Note 14, Leases).

Under Topic 842, the Company determines if an arrangement is a lease at inception. ROU assets and lease liabilities are recognized at commencement date based on the present value of remaining lease payments over the lease term. For this purpose, the Company considers only payments that are fixed and determinable at the time of commencement. The Company calculates the present value of future payments by using an estimated incremental borrowing rate which approximates the rate at which the Company would borrow, on a secured basis and over a similar term. This rate is estimated based on information available at commencement date of the lease, and may differ for individual leases or for portfolios of leased assets.

Some of the Company’s leases include options to terminate prior to the end of the lease term, or to extend the lease for one or more years. These options are included in the lease term when it is reasonably certain that the option will be exercised. When determining the probability of exercising such options, the Company considers contract-based, asset-based, entity-based, and market-based factors.

The Company’s lease agreements may contain variable costs such as common area maintenance, insurance, real estate taxes or other costs. Variable lease costs are expensed as incurred on the consolidated statements of earnings. The Company’s lease agreements generally do not contain any material residual value guarantees or material restrictive covenants.

Leases with an initial term of 12 months or less are not recorded on the balance sheet.

Operating leases are included in Lease assets, Accrued expenses and other current liabilities, and Lease liabilities, long term on the consolidated balance sheets. Lease expense for operating leases is recognized as an operating cost.

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 $40.8 million, $43.3 million and $33.8 million in advertising costs for the years ended December 31, 2019, 2018 and 2017, respectively. These expenses are recorded in Selling, general and administrative expenses in the consolidated statement of earnings.

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 estimated 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

On January 1, 2018, the Company adopted Accounting Standards Update (ASU) No. 2014-9, "Revenue from Contracts with Customers," and has subsequently issued a number of amendments to ASU 2014-9. ASU 2014-9 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.

The Company adopted the new guidance using the New Revenue Standard using the modified retrospective method and applied this method to those contracts which had not been completed as of January 1, 2018. While results for reporting periods beginning after January 1, 2018 are presented under the new guidance, prior period amounts were not adjusted and continue to be reported under the accounting standards in effect for the prior periods. The Company recognized the cumulative effect of initially applying the New Revenue Standard as an adjustment to the opening balance of retained earnings.

The impact of the adoption of the New Revenue standard was as follows:



	December 31, 2018 As Reported		Adjustments			January 1, 2018
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

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 adoption of the New Revenue Standard resulted to 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. Adoption of the New Revenue Standard had no material impact on the Company's consolidated financial statements.

On January 1, 2019, the Company adopted Topic 842, as amended, which supersedes the lease accounting guidance under Topic 840, which generally requires lessees to recognize operating and financing lease liabilities and corresponding ROU assets on the balance sheet, and to provide enhanced disclosures surrounding the amount, timing and uncertainty of cash flows arising from leasing arrangements. The Company adopted the new guidance using the modified retrospective transition approach by applying the new standard to all leases existing at the date of initial application and not restating comparative periods. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases. For information regarding the impact of the New Lease Standard adoption, see Significant Accounting Policies - Leases above and Note 14 - Leases.

The adoption of the New Lease Standard resulted in the recognition of lease assets and lease liabilities for operating leases as of January 1, 2019 of approximately $4.0 million. Financial reporting for periods on or after January 1, 2019 are presented under the new guidance. Prior period amounts have not been adjusted and continue to be reported in accordance with previous guidance. The standard did not materially impact the Company’s consolidated net earnings and had no impact on cash flows (see Note 14, Leases).

New Accounting Pronouncements Not Yet Adopted

ASU 2016-13, Financial Instruments—Credit Losses (Topic 326) - The new standard, issued in July 2016, requires credit losses on financial assets to be measured as the net amount expected to be collected, rather than based on incurred losses. Further, credit losses on available-for-sale debt securities should be recorded through an allowance for credit losses, limited to the amount by which fair value is below amortized cost. The new standard also requires enhanced disclosure of credit risk associated with respective assets. The Company will adopt the new standard effective January 1, 2020, and expects the adoption will not have a material impact on its consolidated financial statements.

ASU 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract - The new standard, issued in August 2018, aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or to obtain internal-use software. This includes hosting arrangements that include an internal-use software license. This ASU also requires the implementation costs of a hosting arrangement that is a service contract to be expensed over the term of the hosting arrangement, which includes reasonably certain renewals. The Company will adopt the new standard effective January 1, 2020, and expects the adoption will not have a material impact on its consolidated financial statements.

ASU 2018-18, Clarifying the Interaction Between Topic 808 and Topic 606 - The new standard, issued in November 2018, clarifies when transactions between participants in a collaborative arrangement are within the scope of the FASB’s revenue standard, Topic 606. The Company will adopt the new standard effective January 1, 2020, and expects the adoption will not have a material impact on its consolidated financial statements.

ASU 2018-13, Changes to Disclosure Requirements for Fair Value Measurements (Topic 820) - The new standard, issued in August 2018, improved the effectiveness of disclosure requirements for recurring and nonrecurring fair value measurements. The standard removes, modifies, and adds certain disclosure requirements. The Company will adopt the new standard effective January 1, 2020, and expects the adoption will not have a material impact on its consolidated financial statements.

ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes - The new standard, issued in December 2019, simplifies the accounting for income taxes. This guidance will be effective on January 1, 2021 on a prospective basis, with early adoption permitted. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements and will adopt the new standard effective January 1, 2021.

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

Fair Value of Financial Instruments

12 Months Ended

Dec. 31, 2019

Fair Value Disclosures [Abstract]

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.

The Company reports assets and liabilities measured at fair value using a three level hierarchy that prioritizes the inputs used to measure fair value. 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. The Company has the ability to access these prices as of the measurement date.

•

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


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

Financial Assets

The Company’s financial assets that are required to be measured at fair value on a recurring basis are as follows (dollars in thousands):



			Fair Value Measurements as of December 31, 2019
	Total Fair value at December 31, 2019		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
Assets:
Cash and cash equivalents
Cash	$	78,912	$	78,912	$	—
Money market funds	102,469		102,469		—
Marketable securities
Corporate debt securities	165,527		—		165,527
Municipal debt securities	165		—		165
Long term marketable securities
Corporate debt securities	571,828		254		571,574
U.S. government agency debt securities	19,945		—		19,945
Other noncurrent assets
Marketable securities - restricted (SERP)	418		3		415
Total assets at fair value	$	939,264	$	181,638	$	757,626



			Fair Value Measurements as of December 31, 2018
	Total Fair Value at December 31, 2018		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
Assets:
Cash and cash equivalents
Cash	$	106,918	$	106,918	$	—
Money market funds	85,330		85,330		—
Marketable securities
Corporate debt securities	163,770		245		163,525
Long term marketable securities
Corporate debt securities	415,650		445		415,205
U.S. government agency debt securities	2,983		—		2,983
Municipal debt securities	165		—		165
Other noncurrent assets
Marketable securities - restricted (SERP)	326		1		325
Total assets at fair value	$	775,142	$	192,939	$	582,203

Level 1 assets include: cash held at banks; certificates of deposit; money market funds; and investment grade corporate debt securities.

Level 2 assets include: commercial paper; investment grade corporate, U.S. government agency, state and municipal debt securities; other fixed income securities and SERP (Supplemental Executive Retirement Plan) assets. The fair value of the restricted marketable securities is recorded in Other assets on the consolidated balance sheets.

There were no level 3 assets as of December 31, 2019 or 2018.

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 available-for-sale marketable securities held by the Company are as follows (dollars in thousands):



	December 31, 2019			December 31, 2018

Corporate and U.S. government agency and municipal debt securities
Amortized cost	$	747,598		$	586,726
Gross unrealized gains	10,031			55
Gross unrealized losses	(164		)	(4,213		)
Total fair value	$	757,465		$	582,568

The contractual maturities of the unrestricted available-for-sale marketable securities held by the Company are as follows (dollars in thousands):



	December 31, 2019
Less Than 1 Year	$	165,692
1 year to 2 years	188,378
2 year to 3 years	201,491
3 years to 4 years	201,904
Greater Than 4 Years	—
Total	$	757,465

The Company has not experienced any other-than-temporary losses on its marketable securities.

Financial Liabilities

The following table sets forth the Company’s financial liabilities that are not carried at fair value (dollars in thousands):



	December 31, 2019				December 31, 2018

	Carrying Value		Fair Value (Level 2)		Carrying Value		Fair Value (Level 2)
2023 Notes	$	345,170	$	366,023	$	329,462	$	375,834

The fair value is estimated based on actual trade information, as well as quoted prices provided by bond traders.

- 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

12 Months Ended

Dec. 31, 2019

Inventory Disclosure [Abstract]

Inventories

Inventories consist of the following (dollars in thousands):



	December 31, 2019		December 31, 2018
Raw materials	$	4,582	$	5,742
Work in process	11,428		7,275
Finished goods	10,618		12,642
	$	26,628	$	25,659

Property and Equipment

12 Months Ended

Dec. 31, 2019

Property, Plant and Equipment [Abstract]

Property and Equipment

Property and equipment consist of the following (dollars in thousands):



	December 31, 2019			December 31, 2018
Lab equipment and furniture	$	11,053		$	8,995
Leasehold improvements	14,217			2,731
Software	2,225			2,181
Computer equipment	1,839			1,313
Construction-in-progress	433			94
	29,767			15,314
Less accumulated depreciation and amortization	(12,699		)	(11,219		)
Total	$	17,068		$	4,095

Depreciation and amortization expense on property and equipment was approximately $1.5 million, $1.9 million, and $1.2 million for the years ended December 31, 2019, 2018 and 2017, respectively.

The Company annually performs an impairment assessment of its property and equipment in the fourth quarter of each year, or earlier if impairment indicators exist. As of December 31, 2019, there were no identified indicators of impairment.

Intangible Assets

12 Months Ended

Dec. 31, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

Intangible Assets

Intangible assets consist of patent defense costs, which are deferred legal fees incurred in conjunction with defending patents for Oxtellar XR and Trokendi XR. The Company amortizes these costs over the useful life of the respective patents.

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



	Weighted- Average Life	December 31, 2019			December 31, 2018
Capitalized patent defense costs	3.01 - 7.25 years	$	43,375		$	44,724
Less accumulated amortization		(18,535		)	(13,356		)
Total		$	24,840		$	31,368

U.S. patents covering Oxtellar XR and Trokendi XR will expire no earlier than 2027. As regards Trokendi XR, the Company entered into settlement agreements that allow third parties to enter the market by January 1, 2023, or earlier under certain circumstances.

Amortization expense on intangible assets was approximately $5.2 million, $5.2 million and $6.9 million for the years ended December 31, 2019, 2018 and 2017, respectively.

Anticipated annual amortization expense for intangible assets from 2020 to 2022 is estimated at $5.0 million per year. Anticipated annual amortization expense for intangible assets in 2023 and 2024 is estimated at $2.3 million per year.

The Company annually performs an impairment assessment of its intangible assets in the fourth quarter of each year, or earlier, if impairment indicators exist. As of December 31, 2019, there were no identified indicators of impairment.

Accrued Expenses and Other Current Liabilities

12 Months Ended

Dec. 31, 2019

Payables and Accruals [Abstract]

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following (dollars in thousands):



	December 31, 2019		December 31, 2018

Accrued clinical trial costs ⁽¹⁾	$	13,285	$	14,034
Accrued compensation	11,223		13,546
Accrued professional fees	3,936		3,706
Lease liabilities, current	2,825		—
Other accrued expenses	5,861		5,249
Total	$	37,130	$	36,535

___________________________________

⁽¹⁾ Includes preclinical and all clinical trial-related costs.

Accrued Product Returns and Rebates

12 Months Ended

Dec. 31, 2019

Accrued Product Returns and Rebates

Accrued Product Returns and Rebates

Accrued product returns and rebates consist of the following (dollars in thousands):



	December 31, 2019		December 31, 2018
Accrued rebates	$	88,811	$	85,003
Accrued product returns	18,818		22,060
Total	$	107,629	$	107,063

Convertible Senior Notes Due 2023

12 Months Ended

Dec. 31, 2019

Debt Disclosure [Abstract]

Convertible Senior Notes Due 2023

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 2023 Notes, on the same terms and conditions which the Initial Purchasers exercised in full on March 15, 2018. The total principal amount of 2023 Notes was $402.5 million.

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.

Interest on the 2023 Notes is 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, if the last reported sale price per share of the Company's common stock for 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, if converted in cash, 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. The 2023 Notes are senior in right of payment to the Company's future indebtedness that is expressly subordinated to the 2023 Notes. The 2023 Notes are effectively subordinated to the Company's future secured indebtedness, to the extent of the value of the collateral securing that indebtedness, and 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 to pay cash to the Company in an amount approximately equivalent to 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. These contracts 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 an initial strike price of $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 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. The Warrant Transactions were entered into 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 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. The resulting debt discount of $76.4 million 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. The remainder, $8.4 million, is recorded as deferred costs and is being amortized to interest expense over the contractual term of the 2023 Notes.

The long term debt consists of the following (dollars in thousands):



	December 31, 2019			December 31, 2018
2023 Notes	$	402,500		$	402,500
Unamortized debt discount and deferred financing costs	(57,330		)	(73,038		)
Total carrying value	$	345,170		$	329,462

No 2023 Notes were converted as of December 31, 2019.

Other (Expense) Income

12 Months Ended

Dec. 31, 2019

Other Income and Expenses [Abstract]

Other (Expense) Income

Other (expense) income consist of the following (dollars in thousands):



	Years Ended December 31,
	2019			2018			2017

Interest income	$	21,623		$	13,843		$	2,864
Interest expense	(18,207		)	(13,840		)	(134		)
Interest expense on nonrecourse liability related to sale of future royalties	(4,500		)	(4,271		)	(1,434		)
Changes in fair value of derivative liabilities	—			—			76
Loss on extinguishment of debt	—			—			(295		)
Total	$	(1,084	)	$	(4,268	)	$	1,077

Interest expense includes noncash interest expense related to amortization of deferred financing costs, and amortization of the debt discount on the 2023 Notes, in the amount of $15.7 million and $11.8 million for the years ended December 31, 2019, and 2018, respectively (see Note 9).

Stockholders' Equity

12 Months Ended

Dec. 31, 2019

Share-based Payment Arrangement [Abstract]

Stockholders' Equity

Common Stock

The holders of the Company's common stock are entitled to one vote for each share of common stock held.

Stock Option Plan

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 (SARs); 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 million shares of the Company's common stock. Option awards are granted with an exercise price equal to the closing price of the Company's common stock as of 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. Awards have ten year contractual terms. Option awards granted to the directors generally vest over a one year term, and have a ten year contractual term.

Employee Stock Purchase Plan

The Company has adopted the Supernus Pharmaceuticals, Inc. 2012 Employee Stock Purchase Plan, as amended (the ESPP). The ESPP allows eligible employees the opportunity to acquire shares of the Company's common stock at periodic intervals through accumulated payroll deductions. These deductions are applied at the semi-annual purchase dates of June 30 and December 31, to purchase shares of common stock at a discount. Eligible employees may purchase shares at the lower of 85% of the fair market value at either the first day of the purchase period or the fair market value at the end of the purchase period. The ESPP provides for issuance of up to 700,000 shares of the Company's common stock. The Company records compensation expense related to its ESPP.

Share-based Compensation

Share-based compensation expense is as follows (dollars in thousands):



	Years Ended December 31,
	2019		2018		2017
Research and development	$	2,599	$	1,943	$	1,387
Selling, general and administrative	12,247		9,348		7,046
Total	$	14,846	$	11,291	$	8,433

The fair value of each option award is estimated on the date of the grant, using the Black-Scholes option-pricing model and the assumptions in the following table:



	Years Ended December 31,
	2019	2018	2017
Fair value of common stock	$22.99 - $37.78	$37.20 - $58.15	$25.30 - $41.00
Expected volatility	61.36% - 63.28%	57.95% - 60.56%	53.61% - 60.60%
Dividend yield	0%	0%	0%
Expected term	5.53 years - 6.18 years	6.25 years	6.25 years
Risk-free interest rate	1.69% - 2.55%	2.69% - 2.85%	1.90% - 2.18%
Expected forfeiture rate	0%	0%	0%

As of December 31, 2019 and 2018, total unrecognized compensation expense was approximately $26.3 million and $22.4 million, respectively. The Company expects to prospectively recognize these expenses over a weighted-average period of 2.52 years and 2.65 years, respectively.

The following table summarizes stock option and SAR activity:



	Number of Options		Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)
Outstanding , December 31, 2017	4,280,670		$	14.50	7.37	$	108,520
Granted	762,915		$	39.91
Exercised	(930,483	)	$	10.07		$	36,317
Forfeited	(196,139	)	$	25.01
Outstanding, December 31, 2018	3,916,963		$	19.98	7.10	$	57,220
Granted	880,235		$	36.43
Exercised	(114,753	)	$	12.90		$	2,423
Forfeited	(75,886	)	$	34.80
Outstanding, December 31, 2019	4,606,559		$	23.05	6.66	$	27,716
As of December 31, 2019
Vested and expected to vest	4,606,559		$	23.05	6.66	$	27,716
Exercisable	2,598,112		$	15.68	5.48	$	25,594

The weighted-average grant date fair value of options granted for the years ended December 31, 2019, 2018 and 2017 was $21.50, $23.43 and $14.35 per share, respectively.

The total fair value of the underlying common stock related to shares that vested during the years ended December 31, 2019, 2018, and 2017 was approximately $10.8 million, $8.3 million and $5.4 million, respectively.

Earnings per Share

12 Months Ended

Dec. 31, 2019

Earnings Per Share [Abstract]

Earnings per Share

Basic earnings per share (EPS) is calculated using the weighted-average number of common shares outstanding. Diluted EPS is calculated using the weighted-average number of common shares outstanding, including the dilutive effect of the Company’s: stock option grants; SARs; warrants; ESPP awards; and the 2023 Notes, as determined per the treasury stock method.

Effect of Convertible Notes and Related Convertible Note Hedges and Warrants

In connection with the issuance of the 2023 Notes, the Company entered into Convertible Note Hedge and Warrant Transactions as described further in Note 9, Convertible Senior Notes Due 2023. The expected collective impact of the Convertible Note Hedge and Warrant Transactions is to reduce the potential dilution that may occur between the conversion price of $59.33 per share and the strike price of the warrants of $80.9063 per share.

The 2023 Notes and related Convertible Note Hedge and Warrant Transactions are excluded in the calculation of diluted EPS because their inclusion would be anti-dilutive. Specifically, the denominator of the diluted EPS calculation excludes the additional shares related to the 2023 Notes and warrants, because the average price of the Company's common stock was less than the conversion price of the 2023 Notes of $59.33 per share and the strike price of the warrants of $80.9063 per share. Prior to actual conversion, the Convertible Note Hedge Transactions are not considered in calculating diluted earnings per share, as their impact would be anti-dilutive.

In addition to the above described effect of the 2023 Notes and the related Convertible Note Hedge and Warrant Transactions, the Company also excluded the common stock equivalents for outstanding stock-based awards in the calculation of diluted EPS, because their inclusion would be anti-dilutive.



	Years Ended December 31,
	2019	2018	2017
Stock options	1,145,446	199,982	40,009

The following table sets forth the computation of basic and diluted net earnings per share for the years ended December 31, 2019, 2018 and 2017:



	Years Ended December 31,
	2019		2018		2017
Numerator, dollars in thousands:
Net earnings	$	113,056	$	110,993	$	57,284
Adjustments:
Interest expense on Convertible Senior Secured Notes due 2019	—		—		134
Changes in fair value of derivative liabilities	—		—		(76		)
Loss on extinguishment of debt	—		—		295
Loss on extinguishment of outstanding debt, as if converted	—		—		(321		)
Total adjustments	—		—		32
Net earnings used for calculation of diluted EPS	$	113,056	$	110,993	$	57,316

Denominator:
Weighted average shares outstanding, basic	52,412,181		51,989,824		50,756,603
Effect of dilutive securities:
Shares underlying Convertible Senior Secured Notes due 2019	—		—		285,257
Shares issuable to settle interest make-whole derivatives	—		—		7,012
Stock options and SAR	1,404,573		2,109,048		2,252,278
Total dilutive potential common shares	1,404,573		2,109,048		2,544,547
Weighted average shares outstanding, diluted	53,816,754		54,098,872		53,301,150

Earnings per share, basic	$	2.16	$	2.13	1.13
Earnings per share, diluted	$	2.10	$	2.05	1.08

Income Taxes

12 Months Ended

Dec. 31, 2019

Income Tax Disclosure [Abstract]

Income Taxes

The significant components of income tax are as follows (dollars in thousands):



	Years Ended December 31,
	2019			2018			2017
Current
Federal	$	29,333		$	26,772		$	18,288
State	10,930			5,621			3,822
Deferred
Federal	(4,551		)	(2,450		)	21,493
State	(1,281		)	(760		)	(269		)
Total income tax expense	$	34,431		$	29,183		$	43,334

A reconciliation of income tax expense at the U.S. federal statutory income tax rate to annual income tax expense at the Company's effective tax rate is as follows (dollars in thousands):



	Years Ended December 31,
	2019			2018			2017
Income tax expense computed at U.S. federal statutory income tax rate	$	30,972		$	29,437		$	35,217
State income taxes	7,543			3,674			2,714
Permanent items	1,332			(2,196		)	(2,311		)
Research and development credits	(2,071		)	(3,199		)	(2,196		)
Uncertain income tax position	(2,992		)	716			(1,137		)
Effect of U.S. tax law change⁽¹⁾	—			—			9,694
Other	(353		)	751			1,353
Income tax expense	$	34,431		$	29,183		$	43,334

⁽¹⁾Due to the 2017 Tax Cuts and Job Act, which lowered the U.S. Corporate income tax rate from 35% to 21% effective January 1, 2018. As a result, existing deferred taxes were remeasured.

The significant components of the Company's deferred income tax assets (liabilities) are as follow (dollars in thousands):



	As of December 31,
	2019			2018
Deferred tax assets:
Convertible bond hedge	$	17,197		$	21,412
Accrued product returns and rebates	15,123			13,205
Accrued compensation and stock based compensation	10,349			8,218
Non-recourse liability related to sale of future royalties	5,320			5,571
Research and development credit carryforwards	3,817			3,817
Amortization of intangibles	4,617			3,289
Net operating loss carryforwards	2,245			2,900
Operating lease liability	8,187			—
Inventory	1,385			499
Alternative Minimum Tax (AMT) credit	926			978
Other	199			1,268
Total deferred tax assets	69,365			61,157
Less: valuation allowance	(11		)	(9		)
Total deferred tax asset, net of valuation allowance	69,354			61,148
Deferred tax liability:
Debt discount on 2023 Notes	(14,109		)	(17,568		)
Patent infringement legal costs	(10,613		)	(10,697		)
Operating lease assets	(5,237		)	—
Depreciation	(2,778		)	(236		)
IRC Section 481(a) liability	(2,126		)	(2,964		)
Unrealized gain on marketable securities	(2,428		)	—
Total deferred tax liabilities	(37,291		)	(31,465		)
Net deferred tax assets	$	32,063		$	29,683

In assessing the realizability of deferred income tax assets, management considers whether it is more-likely-than-not that some or all of the deferred income tax assets will not be realized. The ultimate realization of the deferred income tax assets is dependent upon the generation of future taxable income during the periods in which the net operating loss (NOL) and tax credit carryforwards are available. Management considers projected future taxable income, the scheduled reversal of deferred income tax liabilities, and available tax planning strategies that can be implemented by the Company in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the NOL and credit carryforwards are available to reduce income taxes payable, management had determined it is more-likely-than-not to realize such net deferred tax assets.

The Company has NOL and other tax credit carryforwards in several jurisdictions. Due to changes in the Company's ownership, the utilization of net operating loss carryforwards and research and development credit carryforwards, that can be used to offset future taxable income, are subject to annual limits in accordance with Internal Revenue Code (IRC) provisions, as well as similar state provisions. In addition, states may also impose other future limitations through state legislation or similar measures. Despite the NOL carryforwards, the Company may incur higher state income tax expense in the future.

As of December 31, 2019, the U.S. federal and state NOL carryforwards amounted to $10.8 million and $9.9 million, respectively, and will expire in various years beginning in 2033. For the year ended December 31, 2019, the Company utilized NOLs of $10.2 million and expects the remaining federal and state NOL carryforwards to become available in the future years.

As of December 31, 2019, the Company has available research and development credit carryforwards of $4.2 million, which will become available in 2020 and will expire, if unused, starting in 2026.

The Company is no longer subject to U.S. Federal income tax examinations for years prior to 2016, with the exception that operating loss or tax credit carryforwards generated prior to 2016 may be subject to tax audit adjustment.

The Company accounts for uncertain income tax positions pursuant to the guidance in ASC Topic 740, Income Taxes. The Company recognizes interest and penalties related to uncertain tax positions, if any, in income tax expense. Some uncertain income tax position liabilities have been recorded against the Company's deferred income tax assets to offset such tax attribute carryforwards and other positions that cannot be offset by tax attributes until a liability has been booked.

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows (dollars in thousands):



	Years Ended December 31,
	2019			2018			2017
Balance as of January 1	$	8,848		$	8,859		$	9,299
Gross increases related to current year tax positions	208			1,108			1,178
Gross increases related to prior year tax positions	—			—			947
Gross decreases related to prior year tax positions	(49		)	(484		)	—
Lapse of statute of limitations	(3,029		)	(635		)	—
Change in tax rates	—			—			(2,565		)
Balance as of December 31	$	5,978		$	8,848		$	8,859

The Company recorded $3.0 million and $0.6 million of tax benefit in 2019 and 2018, respectively, as a result of the expiration of statutes of limitation. The Company also recorded $0.2 million and $0.3 million for uncertain tax positions related to research and development tax credits in 2019 and 2018, respectively. The Company does not anticipate a material impact to the financial statements in the next 12 months as a result of uncertain tax positions and expiring statutes of limitation.

Leases

12 Months Ended

Dec. 31, 2019

Leases [Abstract]

Leases

The Company has operating leases for its former headquarters office and lab space at 1550 East Gude Drive in Rockville, MD and for its fleet vehicles. The Company’s existing leases for its former headquarters office and lab space run through April 2020. With respect to the fleet vehicle leases, given the volume of individual leases involved in the overall arrangement, the Company applies a portfolio approach to effectively account for the operating lease assets and liabilities.

New Headquarters Lease

The Company entered into a new lease agreement, effective January 31, 2019, with Advent Key West, LLC (Landlord), for its new headquarters in Rockville, MD (Premises). The term of the new headquarters lease commenced on February 1, 2019 (the Commencement Date) and will continue until April 30, 2034, unless earlier terminated in accordance with the terms of the lease. The lease includes options to extend the lease for up to 10 years. Fixed rent with respect to the Premises began on the Commencement Date; however, the Landlord agreed to a rent abatement from the Commencement Date through April 30, 2020.

The initial fixed rental rate is approximately $195,000 per month for the first 12 months, and will automatically increase by 2% on each anniversary of the Commencement Date. Under the terms of the Lease, the Company provided a security deposit of approximately $195,000, and will be required to pay all utility charges for the Premises in addition to its pro rata share of any operating expenses and real estate taxes. The Company will occupy the Premises upon completion of the build-out of the Premises, which is anticipated to occur in the first half of 2020.

The lease also provides for a tenant improvement allowance of approximately $10.2 million, in aggregate. All tenant improvement allowance have been utilized as of December 31, 2019 (see Note 5). The full amount of the tenant improvement allowance was initially recorded in Prepaid expenses and other current assets on the consolidated balance sheets.

Operating lease assets, lease-related assets and lease liabilities as reported on the consolidated balance sheets are as follows (dollars in thousands):



	December 31, 2019

Assets
Lease assets	$	21,279

Liabilities
Accrued expenses and other current liabilities
Lease liabilities, current	$	2,825
Noncurrent
Lease liabilities, long term	30,440
Total lease liabilities	$	33,265

Operating lease costs are as follows (dollars in thousands):



	December 31,
	2019
Fixed lease cost	$	4,990
Variable lease cost	1,887
Total operating leases cost	$	6,877

Supplemental cash flow information related to leases is as follows (dollars in thousands):



	December 31,
	2019		2018
Cash paid for operating leases	$	5,337	$	5,196
Lease assets and tenant receivables obtained for new operating leases	35,594		—

Weighted average lease term, and weighted average discount rate for operating leases as of December 31, 2019, are as follows:



Weighted-average remaining lease term (years)	12.48
Weighted-average discount rate	4.39	%

Future minimum lease payments under noncancellable operating leases as of December 31, 2019 are as follows (dollars in thousands):



Year ending December 31:
2020	$	4,212
2021	4,130
2022	3,597
2023	2,537
Thereafter	29,372
Total future minimum lease payments	$	43,848
Less: Imputed interest ⁽¹⁾	(10,583		)
Present value of lease liabilities	$	33,265

________________________________________________________________

⁽¹⁾ Calculated using the interest rate for each lease.

Disclosure Related to Periods Prior to Adoption of the New Lease Standard

Rent expense for the leased facilities and leased vehicles for the years ended 2018 and 2017 was approximately $3.6 million and $2.7 million, respectively.

Future minimum lease payments under noncancelable operating leases as of December 31, 2018 were as follows (dollars in thousands):



Year ending December 31:
2019	$	3,400
2020	2,287
Thereafter	1,840
Total	$	7,527

Accounts Receivable	12 Months Ended
Accounts Receivable	Dec. 31, 2019
Receivables [Abstract]
Accounts Receivable	Accounts ReceivableAs of December 31, 2019 and December 31, 2018, the Company recorded allowances of approximately $11.0 million and $11.5 million, respectively, for prompt pay discounts and contractual service fees paid to the Company’s customers, who are primarily pharmaceutical wholesalers/distributors.

Disaggregated Revenues

12 Months Ended

Dec. 31, 2019

Disaggregation of Revenue [Abstract]

Disaggregated Revenues

The following tables summarize the disaggregation of revenue by nature (dollars in thousands):



	Years Ended December 31,
	2019		2018		2017

Net product sales
Trokendi XR	$	295,214	$	315,295	$	226,518
Oxtellar XR	88,186		84,576		67,579
Total net product sales	383,400		399,871		294,097
Royalty revenues	9,355		8,276		6,367
Licensing revenues	—		750		1,774
Total revenues	$	392,755	$	408,897	$	302,238

Trokendi XR accounted for more than 70% of the Company’s total net product sales in 2019, 2018 and 2017.

The Company recognized noncash royalty revenue of $6.9 million, $5.9 million and $5.3 million for the years ended December 31, 2019, 2018 and 2017, respectively, consequent to the Company's agreement with HC Royalty (see Note 2).

For the year ended December 31, 2019, revenues recognized from performance obligations related to prior periods (for example, due to changes in transaction price) were not material in the aggregate, to either Net Product Sales or to Royalty Revenue.

Commitments and Contingencies	12 Months Ended
Commitments and Contingencies	Dec. 31, 2019
Commitments and Contingencies Disclosure [Abstract]
Commitments and Contingencies	Commitments and Contingencies Product Licenses The Company has obtained exclusive licenses from third parties for proprietary rights to support the product candidates in the Company’s neurology and psychiatry portfolio. Under these license agreements, the Company may be required to pay certain amounts upon the achievement of defined milestones. If these products are ultimately commercialized, the Company is also obligated to pay royalties to third parties, as percentage of net product sales, for each respective product under a license agreement. Royalty Agreement 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. Full ownership of the royalty rights will revert to the Company if and when a certain cumulative payment threshold is reached, per the terms of the agreement (see Note 2, Note 10 and Note 16).

Employee Benefit Plan	12 Months Ended
Employee Benefit Plan	Dec. 31, 2019
Retirement Benefits [Abstract]
Employee Benefit Plan	Employee Benefit Plan On January 2, 2006, the Company established the Supernus Pharmaceuticals, Inc. 401(k) Profit Sharing Plan (the 401(k) Plan) for its employees under Section 401(k) of the Internal Revenue Code (Code). Under the 401(k) Plan, all full-time employees who are at least 18 years old are eligible to participate in the 401(k) Plan. Employees may participate starting on the first day of the month following employment. Employees may contribute up to the lesser of 90% of eligible compensation, or the applicable limit, as established by the Code. The Company matches 100% of a participant's contribution for the first 3% of their salary deferral, and matches 50% of the next 2% of their salary deferral. As determined by the Board, the Company may elect to make a discretionary contribution not exceeding 60% of the annual compensation paid to all participating employees. The Company's contributions to the 401(k) Plan were approximately $2.3 million, $2.1 million, and $1.8 million for the years ended December 31, 2019, 2018 and 2017, respectively.

Quarterly Financial Information (unaudited)

12 Months Ended

Dec. 31, 2019

Quarterly Financial Information Disclosure [Abstract]

Quarterly Financial Information (unaudited)

Quarterly Financial Information (unaudited), see accompanying accountants' report

Quarterly financial information for fiscal years 2019 and 2018 are presented in the following table (dollars in thousands), except per share data:

1^st Quarter

2^nd Quarter

3^rd Quarter

4^th Quarter

2019

Revenues

85,474