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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                 to              
Commission File Number: 001-35518
SUPERNUS PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
Delaware20-2590184
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
9715 Key West Avenue
Rockville MD20850
(Address of principal executive offices)(Zip Code)
(301838-2500
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes   No
Indicate by check mark whether the registrant has submitted electronically pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer 
Non-accelerated filer Smaller reporting company 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes   No
Securities registered pursuant to Section 12(b) of the Exchange Act
Title of each classOutstanding at November 1, 2021Trading SymbolName of each exchange on which registered
Common Stock, $0.001 par value per share53,180,768SUPNThe Nasdaq Global Market
1

Table of Contents
SUPERNUS PHARMACEUTICALS, INC.
FORM 10-Q — QUARTERLY REPORT
FOR THE QUARTERLY PERIOD ENDED September 30, 2021
Page No.
2

Table of Contents
PART I — FINANCIAL INFORMATION

Supernus Pharmaceuticals, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share data)
September 30,December 31,
20212020
(unaudited)
Assets
Current assets
Cash and cash equivalents$215,281 $288,640 
Marketable securities228,571 133,893 
Accounts receivable, net133,676 140,877 
Inventories, net60,155 48,325 
Prepaid expenses and other current assets30,692 18,682 
Total current assets668,375 630,417 
Long term marketable securities405,479 350,359 
Property and equipment, net16,471 37,824 
Intangible assets, net346,619 364,342 
Goodwill77,963 77,911 
Other assets40,133 43,249 
Total assets$1,555,040 $1,504,102 
Liabilities and stockholders’ equity
Current liabilities
Accounts payable and accrued liabilities$72,286 $78,934 
Accrued product returns and rebates132,048 126,192 
Contingent consideration, current portion23,570 30,900 
Other current liabilities6,807 9,082 
Total current liabilities234,711 245,108 
Convertible notes, net374,788 361,751 
Contingent consideration, long term45,480 45,800 
Operating lease liabilities, long term37,261 28,579 
Deferred income tax liabilities34,146 35,215 
Other liabilities18,186 42,791 
Total liabilities744,572 759,244 
Stockholders’ equity
Common stock, $0.001 par value; 130,000,000 shares authorized; 53,180,643 and 52,868,482 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively
53 53 
Additional paid-in capital428,726 409,332 
Accumulated other comprehensive earnings, net of tax4,209 8,975 
Retained earnings377,480 326,498 
Total stockholders’ equity810,468 744,858 
Total liabilities and stockholders’ equity$1,555,040 $1,504,102 




See accompanying notes.
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Supernus Pharmaceuticals, Inc.
Condensed Consolidated Statements of Earnings
(in thousands, except share and per share data)
Three Months ended
September 30,
Nine Months ended
September 30,
2021202020212020
(unaudited)(unaudited)
Revenues
Net product sales$145,532 $152,133 $412,541 $368,607 
Royalty revenues2,932 3,002 8,184 8,233 
Total revenues148,464 155,135 420,725 376,840 
Costs and expenses
Cost of goods sold (a)
18,085 21,388 58,067 33,926 
Research and development19,654 16,839 69,389 58,023 
Selling, general and administrative72,032 54,460 203,024 144,177 
Amortization of intangible assets6,009 6,108 17,964 9,814 
Contingent consideration expense (gain)80 200 (7,650)200 
Total costs and expenses115,860 98,995 340,794 246,140 
Operating earnings32,604 56,140 79,931 130,700 
Other income (expense)
Interest expense(5,925)(6,088)(17,489)(17,658)
Interest and other income, net2,281 2,659 8,682 15,913 
Total other expense(3,644)(3,429)(8,807)(1,745)
Earnings before income taxes28,960 52,711 71,124 128,955 
Income tax expense7,398 12,714 20,142 32,773 
Net earnings$21,562 $39,997 $50,982 $96,182 
Earnings per share
Basic$0.41 $0.76 $0.96 $1.83 
Diluted$0.40 $0.74 $0.94 $1.79 
Weighted-average shares outstanding
Basic53,187,764 52,658,850 53,053,441 52,583,891 
Diluted54,334,794 53,762,642 54,301,461 53,663,273 
______________________________
(a) Excludes amortization of acquired intangible assets




See accompanying notes.
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Supernus Pharmaceuticals, Inc.
Condensed Consolidated Statements of Comprehensive Earnings
(in thousands)
Three Months ended
September 30,
Nine Months ended
September 30,
2021202020212020
(unaudited)(unaudited)
Net earnings$21,562 $39,997 $50,982 $96,182 
Other comprehensive earnings
Unrealized (loss) gain on marketable securities, net of tax(1,224)(1,659)(4,766)2,283 
Other comprehensive (loss) income(1,224)(1,659)(4,766)2,283 
Comprehensive earnings$20,338 $38,338 $46,216 $98,465 























See accompanying notes.
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Supernus Pharmaceuticals, Inc.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
Nine Months ended September 30, 2021 and 2020
(unaudited, in thousands, except share data)
jCommon StockAdditional 
Paid-in Capital
Accumulated Other
Comprehensive
Earnings (Loss)
Retained
Earnings
Total
Stockholders’
Equity
SharesAmount
Balance, December 31, 202052,868,482 $53 $409,332 $8,975 $326,498 $744,858 
Share-based compensation— — 4,371 — — 4,371 
Issuance of common stock under the Company’s equity award plans125,655 — 2,247 — — 2,247 
Net earnings— — — — 5,694 5,694 
Unrealized loss on marketable securities, net of tax— — — (2,726)— (2,726)
Balance, March 31, 202152,994,137 $53 $415,950 $6,249 $332,192 $754,444 
Share-based compensation— — 5,476 — — 5,476 
Issuance of common stock under the Company’s equity award plans150,622 — 2,749 — — 2,749 
Net earnings— — — — 23,726 23,726 
Unrealized loss on marketable securities, net of tax— — — (816)— (816)
Balance, June 30, 202153,144,759 $53 $424,175 $5,433 $355,918 $785,579 
Share-based compensation— — 4,027 — — 4,027 
Issuance of common stock under the Company’s equity award plans35,884 — 524 — — 524 
Net earnings— — — — 21,56221,562 
Unrealized loss on marketable securities, net of tax — — — (1,224)— (1,224)
Balance, September 30, 202153,180,643 $53 $428,726 $4,209 $377,480 $810,468 
Common StockAdditional 
Paid-in Capital
Accumulated Other
Comprehensive
Earnings (Loss)
Retained
Earnings
Total
Stockholders’
Equity
SharesAmount
Balance, December 31, 201952,533,348 $53 $388,410 $7,417 $199,548 $595,428 
Share-based compensation— — 3,988 — — 3,988 
Issuance of common stock under the Company’s equity award plans3,811 — 32 — — 32 
Net earnings— — — — 21,518 21,518 
Unrealized loss on marketable securities, net of tax— — — (7,583)— (7,583)
Balance, March 31, 202052,537,159 $53 $392,430 $(166)$221,066 $613,383 
Share-based compensation— — 4,962 — — 4,962 
Issuance of common stock under the Company’s equity award plans86,925 — 1,437 — — 1,437 
Net earnings— — — — 34,667 34,667 
Unrealized gain on marketable securities, net of tax— — — 11,525 — 11,525 
Balance, June 30, 202052,624,084 $53 $398,829 $11,359 $255,733 $665,974 
Share-based compensation— — 4,490 — — 4,490 
Issuance of common stock under the Company’s equity award plans46,037 — 77 — — 77 
Net earnings— — — — 39,99739,997 
Unrealized loss on marketable securities, net of tax— — — (1,659)— (1,659)
Balance, September 30, 202052,670,121 $53 $403,396 $9,700 $295,730 $708,879 
See accompanying notes.
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Supernus Pharmaceuticals, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
Nine Months ended September 30,
20212020
(unaudited)
Cash flows from operating activities
Net earnings$50,982 $96,182 
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization19,888 12,621 
Navitor investment R&D expense15,000  
Amortization of deferred financing costs and debt discount13,037 12,351 
Realized gains from sales of marketable securities(221)(3,636)
Amortization of premium/discount on marketable securities(845)(3,217)
Change in fair value of contingent consideration(7,650)200 
Other noncash adjustments, net(22)794 
Share-based compensation expense13,874 13,440 
Deferred income tax provision(479)(280)
Changes in operating assets and liabilities:
Accounts receivable7,352 (26,840)
Inventories(9,331)(5,437)
Prepaid expenses and other assets(13,351)(11,734)
Accrued product returns and rebates5,856 21,166 
Accounts payable and other liabilities(15,726)856 
Net cash provided by operating activities78,364 106,466 
Cash flows from investing activities
Purchases of marketable securities(307,634)(87,890)
Sales and maturities of marketable securities152,546 319,421 
Purchase of property and equipment and deferred legal fees paid(2,005)(3,375)
Acquisition of USWM, net of cash acquired(950)(297,200)
Investment in Navitor Pharmaceuticals, Inc. (15,000)
Net cash used in investing activities(158,043)(84,044)
Cash flows from financing activities
Proceeds from issuance of common stock5,520 1,546 
Proceeds from governmental loan and grant800  
Payments on finance lease liability (1,056)
Net cash provided by financing activities6,320 490 
Net change in cash and cash equivalents(73,359)22,912 
Cash and cash equivalents at beginning of year288,640 181,381 
Cash and cash equivalents at end of period$215,281 $204,293 
Supplemental cash flow information
Cash paid for interest on convertible notes$1,887 $2,516 
Cash paid for income taxes25,111 42,284 
Cash paid for operating leases7,613 5,152 
Noncash investing and financing activities
Contingent consideration liability accrued in USWM Acquisition$ $115,900 
Lease assets and tenant receivable obtained for new leases4,120 25,225 
Deferred legal fees and fixed assets included in accounts payable and accrued expenses186 352 
See accompanying notes.
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Supernus Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)
1.    Business Organization
Supernus Pharmaceuticals, Inc. (the Company) is a biopharmaceutical company focused on developing and commercializing products for the treatment of central nervous system (CNS) diseases. The Company's diverse neuroscience portfolio includes approved treatments for epilepsy, migraine, attention-deficit hyperactivity disorder (ADHD), hypomobility in Parkinson’s Disease (PD), cervical dystonia, and chronic sialorrhea. The Company is also developing a broad range of novel CNS product candidates including new potential treatments for ADHD, hypomobility in PD, epilepsy, depression, and rare CNS disorders.
Commercial Products
Trokendi XR® (topiramate) is the first once-daily extended release topiramate product indicated for the treatment of epilepsy in the United States (U.S.) market. It is also indicated for the prophylaxis of migraine headache.
Oxtellar XR® (oxcarbazepine) is indicated as therapy for partial onset seizures in adults and children 6 years to 17 years of age and is the first once-daily extended-release oxcarbazepine product indicated for the treatment of epilepsy in the U.S.
QelbreeTM (viloxazine extended-release capsules) is a novel non-stimulant product indicated for the treatment of ADHD in pediatric patients 6 to 17 years of age.
APOKYN® (apomorphine hydrochloride injection) is a product indicated for the acute, intermittent treatment of hypomobility or "off" episodes ("end-of-dose wearing off" and unpredictable "on-off" episodes) in patients with advanced PD.
MYOBLOC® (rimabotulinumtoxinB) is a product indicated for the treatment of cervical dystonia and sialorrhea in adults, and it is the only Type B toxin available on the market.
XADAGO® (safinamide) is a once-daily product indicated as adjunctive treatment to levodopa/carbidopa in patients with PD experiencing "off" episodes.
Product Candidates
Qelbree (viloxazine, extended-release capsules; SPN-812) is a novel non-stimulant product candidate for the treatment of ADHD in adult patients. The U.S. Food and Drug Administration (FDA) acknowledged it has received the supplemental new drug application (sNDA) for Qelbree for the treatment of ADHD in adult patients. The sNDA has a user fee goal date (PDUFA date) of April 29, 2022.
SPN-830 (Apomorphine Infusion Pump) is a late-stage drug/device combination product candidate for the continuous prevention of "off" episodes in PD.
SPN-817 is a novel product candidate for the treatment of severe epilepsy.
SPN-820 is a first-in-class product candidate for treatment resistant depression (TRD). It is an orally active small molecule that directly activates brain mechanistic target of rapamycin complex 1 (mTORC1).
On October 10, 2021, the Company entered into an Agreement and Plan of Merger by and among the Company, Adamas Pharmaceuticals, Inc. and Supernus Reef, Inc., a Delaware corporation and a wholly owned subsidiary of the Company. Refer to Note 16, Subsequent Events, for further discussion.
In April 2021, the U.S. Food and Drug Administration (FDA) approved Qelbree (SPN-812) for the treatment of ADHD in pediatric patients 6 to 17 years of age. In May 2021, the Company launched Qelbree in the U.S. On September 2, 2021, the FDA acknowledged receiving the supplemental new drug application (sNDA) for SPN-812 for adult patients with ADHD and assigned a user fee goal date (PDUFA date) of April 29, 2022.
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On April 28, 2020, the Company entered into a Sale and Purchase Agreement with US WorldMeds Partners, LLC to acquire the CNS portfolio of USWM Enterprises, LLC (USWM Enterprises) (USWM Acquisition). With the acquisition, completed on June 9, 2020, the Company added three established commercial products, APOKYN, XADAGO, and MYOBLOC, and a product candidate in late-stage development, SPN-830, to its portfolio. Refer to Note 3, USWM Acquisition, for further discussion on the USWM Acquisition. In the second quarter of 2021 and within one year from the Closing Date, the Company finalized its accounting for the business combination, including the purchase price allocation.
On April 21, 2020, the Company entered into a Development and Option Agreement (Development Agreement) with Navitor Pharmaceuticals, Inc. (Navitor Inc.) and also acquired an ownership position in Navitor Inc. Under the terms of the Development Agreement, the Company and Navitor Inc. will jointly conduct a Phase II clinical program for NV-5138 (SPN-820) in TRD. In March 2021, Navitor Inc. underwent a legal restructuring whereby Navitor Inc. became a wholly owned subsidiary of a newly formed limited liability company, Navitor Pharmaceuticals, LLC (Navitor LLC). Refer to Note 5, Investments, for further discussion on the Development Agreement and equity investment.
COVID-19 Impact
While the impact of the ongoing COVID-19 pandemic did not have a material adverse effect on the Company's financial position or results of operations for the three and nine months ended September 30, 2021. The Company continues to closely monitor the events and circumstances surrounding the COVID-19 pandemic and its impact on all aspects of our business operations. Since the situation surrounding the COVID-19 pandemic remains fluid and the duration uncertain, the long-term nature and extent of the impacts of the pandemic on the Company's business operations and financial position cannot be reasonably estimated at this time.
2.    Summary of Significant Accounting Policies
Basis of Presentation
The Company’s unaudited condensed consolidated financial statements have been prepared in accordance with the requirements of the U.S. Securities and Exchange Commission (SEC) for interim financial information. As permitted under Generally Accepted Accounting Principles in the United States (U.S. GAAP), certain notes and other information have been omitted from the interim unaudited condensed consolidated financial statements presented in this Quarterly Report on Form 10-Q. Therefore, these condensed consolidated financial statements should be read in conjunction with the Company’s most recent Annual Report on Form 10-K, for the year ended December 31, 2020, filed with the SEC.
In management’s opinion, the condensed consolidated financial statements include all normal and recurring adjustments necessary for a fair presentation of the Company’s financial position, results of operations, and cash flows. The results of operations for any interim period are not necessarily indicative of the Company’s future quarterly or annual results.
The Company, which is primarily located in the U.S., operates in one operating segment.
Reclassifications
Certain prior year amounts presented as separate noncash line items in the condensed consolidated statements of cash flows have been reclassified to conform to the current year condensed financial statement presentation. These reclassifications had no effect on operating cash flows or on our other condensed consolidated financial statements for the three and nine months ended September 30, 2021 and 2020.
Consolidation
The Company’s condensed consolidated financial statements include those of the Company's wholly-owned subsidiaries and variable interest entities (VIE) where the Company is the primary beneficiary, if any. All significant intercompany transactions and balances have been eliminated in consolidation.
The Company continuously assesses whether it is the primary beneficiary of a VIE, as changes to existing relationships or future transactions may affect its conclusions.
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Use of Estimates
The Company bases its estimates on: historical experience; forecasts; information received from its service providers; information from other sources, including public and proprietary 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 periodically evaluates the methodologies employed in making its estimates.
The extent to which the COVID-19 pandemic may directly or indirectly impact our business, financial condition and results of operations is highly uncertain and subject to change. As a result, certain of our estimates and assumptions, including the provision for sales deductions, the creditworthiness of customers entering into revenue arrangements, and the fair values of our financial instruments, require increased judgment and carry a higher degree of variability and volatility that could result in material changes to our estimates in future periods.
Advertising Expense
Advertising expense includes the cost of promotional materials and activities, such as printed materials and digital marketing, marketing programs and speaker programs. The cost of the Company's advertising efforts are expensed as incurred.
The Company incurred approximately $22.6 million and $59.7 million in advertising expense for the three and nine months ended September 30, 2021, respectively, and approximately $15.4 million and $37.9 million for the three and nine months ended September 30, 2020, respectively. These expenses are recorded as a component of Selling, general and administrative expenses in the condensed consolidated statements of earnings.
Recently Issued Accounting Pronouncements
Accounting Pronouncements Adopted
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. The Company adopted the guidance on January 1, 2021, on a prospective basis. The adoption of the new standard did not have a material impact to the financial statements.
ASU 2020-01, Investments — Equity Securities (Topic 321), Investments — Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815), Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 - The new standard, issued in January 2020, clarifies the interaction of the equity securities under Topic 321 and investments accounted for under the equity method of accounting in Topic 323 and the accounting for certain contracts and purchased options accounted for under Topic 815. The amendment clarifies that an entity can elect to adopt the measurement alternative, which is if an entity identifies observable price changes in orderly transactions for the identical or a similar investment of the same issuer, it should measure the equity security at fair value as of the date that the observable transaction occurred before applying or upon discontinuing the equity method. The adoption of the new standard as of January 1, 2021 did not have a material impact to the financial statements.
New Accounting Pronouncements Not Yet Adopted
ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity - The new standard, issued in August 2020, simplifies the accounting and disclosures for convertible instruments and contracts. This guidance will be effective on January 1, 2022 on a prospective basis. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.
3. USWM Acquisition
On June 9, 2020 (the Closing Date), the Company completed its acquisition of all of the outstanding equity of USWM Enterprises LLC (USWM Enterprises), a privately-held biopharmaceutical company, pursuant to a Sale and Purchase Agreement with US WorldMeds Partners, LLC (Seller), dated April 28, 2020 (the Agreement). Under the terms of the Agreement, the Company acquired the right to further develop and commercialize APOKYN, XADAGO, and the Apomorphine Infusion Pump (SPN-830; the In Process Research and Development (IPR&D) asset) in the U.S. and MYOBLOC worldwide (the Products) for an upfront cash payment of $297.2 million, subject to working capital adjustments, and the potential for additional contingent consideration payments of up to $230 million. In the second quarter of 2021 and within one year from the Closing Date, the Company finalized its accounting for the business combination, including the purchase price allocation.
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The potential $230 million in contingent consideration payments includes up to $130 million for the achievement of certain SPN-830 regulatory and commercial activities (regulatory and developmental contingent consideration payments) and up to $100 million related to future sales performance of the Products (sales-based contingent consideration payments). The regulatory and developmental contingent consideration payments include a $25 million milestone due upon the FDA's acceptance of the SPN-830 New Drug Application (NDA) for review. The remaining $105 million of the $130 million regulatory and developmental contingent consideration includes payments upon the FDA's regulatory approval and subsequent commercial launch by the Company of SPN-830, if approved. One of the regulatory milestones has a time-based mechanism for full or partial achievement. The $100 million sales-based contingent consideration payments include a $35 million milestone due upon achievement of certain U.S. net product sales of APOKYN during 2021. The remaining $65 million of the $100 million sales-based contingent consideration payments relate to the achievement of certain net product sales of the Products in 2022 and 2023. Refer to “Contingent Consideration” section below for further discussion.
Purchase Price Consideration
The following table summarizes the purchase price consideration (unaudited):
Amount
Cash consideration$306,485 
Fair value of contingent consideration74,800 
Total purchase consideration$381,285 
Cash consideration to Seller - net of cash acquired$299,491 
Contingent Consideration
In addition to the cash paid to the Seller, contingent payments of up to $230 million are also due to the Seller upon the achievement of certain milestones related to the development of SPN-830 and sale of the Products. The possible outcomes for the contingent consideration range from $0, if no milestone is achieved, to $230 million on an undiscounted basis if all milestones are achieved.
The Company initially recorded a contingent consideration liability of $115.7 million as of the Closing Date to reflect the estimated fair value of the contingent consideration based on information available at that time. The estimated fair value of the contingent consideration was determined using a Monte Carlo simulation for the sales-based contingent consideration payments and an income approach for the regulatory and developmental contingent consideration payments. The key assumptions considered in estimating the fair value include the estimated probability and timing of milestone achievement, such as the probability and timing of obtaining regulatory approval, discount rate, the estimated revenue volatility and the estimated amount and timing of projected revenues from the Products. Subsequent to the Closing Date, the Company adjusted the contingent consideration fair value based on new information related to the facts and circumstances that existed as of the acquisition date related to the timing of meeting the conditions of the milestone payments that are contingent upon regulatory approval and commercial launch of the acquired IPR&D asset as well as the estimated timing of projected revenues from the Products. As a result, the Company recorded in the fourth quarter of 2020, a measurement period adjustment of $40.9 million, which decreased the estimated fair value of the contingent consideration liability as of the Closing Date to $74.8 million. Refer to contingent consideration discussion in Note 6, Fair Value of Financial Instruments and Contingent Consideration.
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Fair Value of Net Assets Acquired
The following table presents the total purchase price and the fair value of assets acquired and liabilities assumed as of the Closing Date (unaudited, dollars in thousands):
Fair Value
Cash and cash equivalents$6,994 
Accounts receivable, net18,474 
Inventories, net11,600 
Prepaid expenses and other current assets3,564 
Property and equipment, net454 
Operating lease asset (1)
11,029 
Intangible assets355,000 
Other assets340 
Total fair value of assets acquired407,455 
Accounts payable(2,573)
Accrued expenses and other current liabilities(23,339)
Operating lease liability (1)
(11,029)
Deferred income tax liabilities, net (2)
(67,192)
Total fair value of liabilities assumed(104,133)
Total identifiable net assets$303,322 
Goodwill77,963 
Total purchase price$381,285 
______________________________
(1) Refer to Note 12, Leases, for further discussion of the acquired lease asset and assumed lease liability.
(2) Includes tax attributes that are subject to tax limitations.
Acquired Inventory
The fair value of the inventory was determined using the comparative sales method, which estimated the expected sales price of the product, reduced by all costs expected to be incurred to complete or to dispose of the inventory, as well as a profit on the sale.
Acquired Intangible Assets
The acquired intangible assets include the acquired IPR&D asset and the acquired developed technology and product rights. The Company determined the fair value of the acquired intangible assets as of the Closing Date using the income approach. The fair value measurements of the acquired intangible assets were determined based on significant unobservable inputs and therefore, represent a Level 3 fair value measurement. Some of the more significant inputs and assumptions used in the intangible assets valuation include: the timing and probability of success of clinical and regulatory approvals for the IPR&D asset, the estimated future cash flows from Product sales, the timing and projection of costs and expenses, discount rates and tax rates.
The following table summarizes the purchase price allocation, and the average remaining useful lives for identifiable intangible assets (unaudited, dollars in thousands):
Fair ValueEstimated Useful Lives as of Closing Date
(in years)
Acquired IPR&D$124,000 n/a
Acquired developed technology and product rights231,000 
10.5 - 12.5
Total intangible assets$355,000 
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Acquired intangible assets, excluding the acquired IPR&D asset, are amortized over their estimated useful lives on a straight-line basis. The IPR&D asset is considered indefinite-lived, until the successful completion or abandonment of the associated research and development efforts.
Goodwill
Goodwill was calculated as the excess of the consideration paid consequent to completing the acquisition, compared to the net assets recognized. Goodwill represents the future economic benefits from the other acquired assets, and which could not be individually identified and separately valued. Goodwill is primarily attributable to the additional acquired growth platforms and an expanded revenue base. Goodwill is not deductible for tax purposes.
MDD Enterprises Operations
The operations of MDD US Enterprises, LLC ("MDD Enterprises") (formerly USWM Enterprises, LLC) and its subsidiaries have been included in the Company's condensed consolidated statements of earnings for the period subsequent to the Closing Date. The following table summarizes the total revenues for MDD Enterprises, (dollars in thousands):
Three Months ended
September 30,
Nine Months ended
September 30,
2021202020212020
(unaudited)(unaudited)
Net product sales$32,499 $40,863 $96,205 $51,493 
The Company is unable to provide the results of operations attributable to MDD US Enterprises, LLC and its subsidiaries as those operations were substantially integrated into our business.
4. Disaggregated Revenues
The following table summarizes the disaggregation of revenues by product or source, (dollars in thousands):
Three Months ended
September 30,
Nine Months ended
September 30,
2021202020212020
(unaudited)(unaudited)
Net product sales
Trokendi XR$80,935 $82,906 $231,531 $241,131 
Oxtellar XR29,728 28,364 82,120 75,983 
APOKYN24,627 34,482 73,338 43,082 
MYOBLOC (1)
4,596 4,050 13,477 5,279 
XADAGO3,276 2,331 9,390 3,132 
Qelbree2,370  2,685  
Total net product sales$145,532 $152,133 $412,541 $368,607 
Royalty revenues2,932 3,002 8,184 8,233 
Total revenues$148,464 $155,135 $420,725 $376,840 
______________________________
(1) In April 2021, the Company notified the European Medicines Agency that it will cease the marketing of rimabotulinumtoxinB in European countries where it has been marketed as NeuroBloc.
Trokendi XR accounted for 56% of the Company’s total net product sales for both the three and nine months ended September 30, 2021 and approximately 54% and 65% of the Company's total net product sales for the three and nine months ended September 30, 2020, respectively.
The Company's three major customers, AmerisourceBergen Drug Corporation, Cardinal Health, Inc. and McKesson Corporation, individually accounted for more than 25% of our total net product sales and collectively accounted for more than 85% of our total net product sales in both 2021 and 2020.
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The Company recognized noncash royalty revenue of $2.4 million and $6.8 million, for the three and nine months ended September 30, 2021, respectively. The Company recognized noncash royalty revenue of $2.4 million and $6.3 million, for the three and nine months ended September 30, 2020, respectively. Refer to Note 15, Commitments and Contingencies.
5. Investments
Marketable Securities
Unrestricted available-for-sale marketable securities held by the Company are as follows, (dollars in thousands):
September 30,
2021
December 31,
2020
(unaudited)
Amortized cost$628,461 $472,306 
Gross unrealized gains5,878 11,987 
Gross unrealized losses(289)(41)
Total fair value$634,050 $484,252 
The contractual maturities of the unrestricted available-for-sale marketable securities held by the Company are as follows, (dollars in thousands):
September 30,
2021
(unaudited)
Less than 1 year$228,571 
1 year to 2 years220,770 
2 years to 3 years184,709 
3 years to 4 years 
Greater than 4 years 
Total$634,050 
As of September 30, 2021, there was no impairment due to credit loss on any available-for-sale marketable securities.
Investment in Navitor
Development Agreement
In April 2020, the Company entered into the Development Agreement with Navitor Inc. The Company can terminate the Development Agreement upon 30 days’ notice. Under the terms of the Development Agreement, the Company and Navitor Inc. will jointly conduct a Phase II clinical program for NV-5138 (SPN-820) for TRD. The Company will bear all of the Phase I and Phase II development costs incurred by either party, up to a maximum of $50 million. In addition, the Company will incur certain other research and development support costs. There are certain additional payment amounts which could be incurred by the Company. These costs are contingent upon Navitor Inc. achieving defined development milestones. The Company has an option to acquire or license NV-5138 (SPN-820), for which additional payments would be required. In the second quarter of 2020, the Company paid Navitor Inc. a one time, nonrefundable, and non-creditable fee of $10 million for this option to acquire or license NV-5138 (SPN-820) which was expensed and recorded in Research and development expense in the condensed consolidated statements of earnings.
Equity investment
In addition to entering into the Development Agreement in April 2020, the Company acquired Series D Preferred Shares of Navitor Inc. for $15 million, representing an approximately 13% ownership position in Navitor Inc.
In March 2021, Navitor Inc. underwent a legal restructuring. In the restructuring, Navitor Inc. became a wholly owned subsidiary of a newly formed limited liability company, Navitor LLC, and the outstanding shares of stock in Navitor Inc. were exchanged for units of membership interest in Navitor LLC having equivalent rights and preferences (Navitor Restructuring). As part of the Navitor Restructuring, the Series D Preferred Shares previously held by the Company were exchanged for Series D Preferred Units in Navitor LLC. In addition, certain assets that did not relate to NV-5138 (SPN-820) were transferred from Navitor Inc. to a newly formed entity that became a separate, wholly owned subsidiary of Navitor LLC.
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The Company had determined that Navitor LLC is a VIE. The Company does not consolidate this VIE because the Company lacks the power to direct the activities that most significantly impact the investee’s economic performance.
Prior to the Navitor Restructuring, the investment was accounted for under the practical expedient allowed for equity securities without readily determinable fair value, which is cost minus impairment plus any changes in observable price changes from an orderly transaction of similar investments in Navitor Inc. Following the legal restructuring and exchange of the preferred shares for member equity units of Navitor LLC, the investment was accounted for under the equity method of accounting due to the Company’s ability to exert significant influence under the new Navitor LLC legal structure, but not control the financial and operating decisions of Navitor LLC. The majority of the assets and liabilities recorded in Navitor LLC’s financial statements represent working capital items and cash that are being used for research and development purposes and are significantly lower than the Company’s investment in Navitor LLC. This created a significant basis difference for the Company’s investment in the underlying net assets, requiring the Company to account for the investee as if it were a consolidated subsidiary in a manner consistent with the provisions of ASC 805, Business Combinations, to apply the acquisition method of accounting. The Company has determined that substantially all of the fair value of the investment is attributable to a single IPR&D asset. As a result, the investee is not considered a business as defined in ASC 805. In the first quarter of 2021, the $15 million investment, which was previously recorded in Other assets in the condensed consolidated balance sheets, was expensed and recorded in Research and development expense in the condensed consolidated statements of earnings.
The maximum exposure to losses related to the investee is a maximum of approximately $50 million in expense for Phase I and Phase II development of NV-5138 (SPN-820), and the cost of other development and formulation activities provided by the Company.
The Company has provided no financing to the investee other than amounts required under the Development Agreement.
6.    Fair Value of Financial Instruments and Contingent Consideration
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 unrelated market participants.
The Company reports the fair value of assets and liabilities using a three level measurement hierarchy that prioritizes the inputs used to measure fair value. The fair value hierarchy consists of the following three levels:
Level 1—Valuations based on unadjusted quoted prices in active markets that are accessible at measurement date for identical assets.
Level 2—Valuations based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and model-based valuations in which all significant inputs are observable in the market, either directly or indirectly (e.g., interest rates; yield curves).
Level 3—Valuations using significant inputs that are unobservable in the market and inputs that reflect the Company’s own assumptions. These are based on the best information available, including the Company’s own data.
The fair value of the restricted marketable securities which are classified as Level 2 financial assets are recorded in Other assets on the condensed consolidated balance sheets. There were no Level 3 financial assets as of September 30, 2021 or December 31, 2020. There have been no transfers of assets or liabilities into or out of Level 3 of the fair value hierarchy.
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Financial Assets and Liabilities Recorded at Fair Value on a Recurring Basis
The Company’s financial assets and liabilities that are required to be measured at fair value on a recurring basis are as follows (dollars in thousands):
Fair Value Measurements at September 30, 2021 (unaudited)
Total Fair Value at September 30,
2021
Level 1Level 2Level 3
Assets:
Cash and cash equivalents
Cash$193,947 $193,947 $ $ 
Money market funds21,334 21,334   
Marketable securities
Corporate debt securities211,857 252 211,605  
Municipal debt securities16,714  16,714 
Long term marketable securities
Corporate debt securities405,479  405,479  
Other noncurrent assets
Marketable securities - restricted (SERP)597 5 592  
Total assets at fair value$849,928 $215,538 $634,390 $ 
Liabilities:
Contingent consideration $69,050 $ $ $69,050 
Total liabilities at fair value$69,050 $ $ $69,050 
Fair Value Measurements at December 31, 2020
Total Fair Value at December 31,
2020
Level 1Level 2Level 3
Assets:
Cash and cash equivalents
Cash$218,550 $218,550 $ $ 
Money market funds70,090 70,090   
Marketable securities
Corporate debt securities133,893  133,893  
Long term marketable securities
Corporate debt securities350,359 256 350,103  
Other noncurrent assets
Marketable securities - restricted (SERP)547 3 544  
Total assets at fair value$773,439 $288,899 $484,540 $ 
Liabilities:
Contingent consideration$76,700 $ $ 76,700 
Total liabilities at fair value$76,700 $ $ $76,700 
Other Financial Instruments
The carrying amounts of other financial instruments, including accounts receivable, accounts payable, and accrued expenses, approximate fair value due to their short-term maturities.
The Company records its convertible debt at carrying value. The fair value of the outstanding convertible debt is based on actual trading information as well as quoted prices, both provided by bond traders. Refer to Note 8, Convertible Senior Notes Due 2023.
The Company also had an investment in Navitor LLC, a privately held company, which it classified as Level 3 as it does not have a readily determinable fair value. In the first quarter of 2021, the $15 million investment in Navitor LLC was expensed. Refer to Note 5, Investments.
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Contingent Consideration
The contingent consideration liabilities are measured at fair value on a recurring basis. The changes in fair value are reported on the condensed consolidated statement of earnings in Contingent Consideration expense (gain). In the fourth quarter of 2020, the Company recorded a measurement period adjustment of $40.9 million. Refer to Note 3, USWM Acquisition. The Company recorded $0.1 million loss and $7.7 million gain due to the change in fair value of the contingent consideration liabilities for the three and nine months ended September 30, 2021, respectively. The change in fair value of $7.7 million for the nine months ended September 30, 2021 is primarily due to the write-down of the sales based contingent consideration liabilities offset by an increase in the estimated fair value of regulatory and developmental milestones due to the passage of time. The Company assessed that these sales-based milestones will not be achieved based on the revised net sales projections. The probability of achieving these milestones were significantly lower compared to prior estimates. The Company updated its projected net sales of the Products based on recent historical sales trend experience.
The following table provides a reconciliation of the beginning and ending balances related to the contingent consideration for the USWM Acquisition and composition of the contingent consideration liabilities (dollars in thousands):
Balance
Balance at December 31, 2020$76,700 
Change in fair value recognized in earnings (unaudited) (7,650)
Balance at September 30, 2021 (unaudited) $69,050 
Initial measurement at Closing Date at June 9, 2020$115,700 
Measurement period adjustment (40,900)
Change in fair value recognized in earnings1,900 
Balance at December 31, 2020$76,700 
September 30,
2021
December 31,
2020
(unaudited)
Regulatory and developmental contingent consideration liabilities
$69,050 $68,000 
Sales-based contingent consideration liabilities 8,700 
Total $69,050 $76,700 
7.    Goodwill and Intangible Assets, Net
The following table sets forth the gross carrying amounts and related accumulated amortization of intangibles assets and goodwill (dollars in thousands):
Remaining Weighted-
Average Life (Years)
September 30,
2021
December 31,
2020
(unaudited)
Goodwill$77,963 $77,911 
Intangible assets:
Acquired IPR&D$124,000 $123,000 
Definite-lived intangible assets
Acquired developed technology and product rights
9.25 - 11.25
231,000 232,000 
Capitalized patent defense costs
1.25 - 5.5
43,820 43,579 
398,820 398,579 
Less accumulated amortization(52,201)(34,237)
Total intangible assets, net$346,619 $364,342 
The increase in goodwill represents measurement period adjustments recorded in 2021 related to the finalization of the business combination accounting of the USWM Acquisition. Refer to Note 3, USWM Acquisition.
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Patent defense costs are deferred legal fees incurred in conjunction with defending patents for Oxtellar XR and Trokendi XR. U.S. patents covering Oxtellar XR and Trokendi XR will expire no earlier than 2027. In regard to 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 for intangible assets was approximately $6.0 million and $18.0 million for the three and nine months ended September 30, 2021, respectively, and approximately $6.1 million and $9.8 million for the three and nine months ended September 30, 2020, respectively. The increase in expense is due to amortization of the acquired developed technology and product rights from the USWM Acquisition.
8.    Convertible Senior Notes Due 2023
The 0.625% Convertible Senior Notes Due 2023 (2023 Notes), which were issued in March 2018, bear interest at an annual rate of 0.625%, payable semi-annually in arrears on April 1 and October 1 of each year. The 2023 Notes will mature on April 1, 2023, unless earlier converted or repurchased by the Company. The Company may not redeem the 2023 Notes at its option before maturity. The total principal amount of 2023 Notes is $402.5 million.
The 2023 Notes were issued pursuant to an 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 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.
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.
At its election, 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, 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. In the event of conversion, if converted in cash, the holders would forgo all future interest payments, any unpaid accrued interest, and the possibility of further stock price appreciation.
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.
Contemporaneous with the issuance of the 2023 Notes, the Company also entered into separate privately negotiated convertible note hedge transactions (collectively, the Convertible Note Hedge Transactions) with each of the call spread counterparties. The Company issued 402,500 convertible note hedge options. 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 a similar amount as the value that the Company delivers to the holders of the 2023 Notes, based on a conversion price of $59.33 per share.
Concurrently with entering into the Convertible Note Hedge Transactions, the Company also entered into separate privately negotiated warrant transactions (collectively, the Warrant Transactions) with each of the call spread counterparties. The Company issued a total of 6,783,939 warrants. The warrants entitle the holder to one share per warrant. The strike price of the Warrant Transactions will initially be $80.9063 per share of the Company’s common stock, and is subject to adjustment.
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The Convertible Note Hedge Transactions are expected to reduce the potential dilution of 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 intended to partially offset the cost to the Company of the purchased Convertible Note Hedge Transactions; however, the Warrant Transactions could have a dilutive effect with respect to the Company’s common stock, to the extent that the market price per share of the Company’s common stock, as measured under the terms of the Warrant Transactions, exceeds the strike price of the warrants.
The liability component of the 2023 Notes consists of the following (dollars in thousands):
September 30,
2021
December 31,
2020
(unaudited) 
2023 Notes$402,500 $402,500 
Unamortized debt discount and deferred financing costs(27,712)(40,749)
Total carrying value$374,788 $361,751 
Fair value (Level 2) $397,469 $383,381 
No 2023 Notes were converted as of September 30, 2021 or December 31, 2020.
9.    Share-Based Payments
Share-based compensation expense is as follows (dollars in thousands):
Three Months ended
September 30,
Nine Months ended
September 30,
2021202020212020
(unaudited)(unaudited)
Research and development$