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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 March 31, 2022

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)

Delaware

20-2590184

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

9715 Key West Avenue

Rockville

MD

20850

(Address of principal executive offices)

(Zip Code)

(301) 838-2500

(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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

☒ Yes No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated 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 class

Outstanding at May 2, 2022

Trading Symbol

Name of each exchange on which registered

Common Stock, $0.001 par value per share

53,413,211

SUPN

The Nasdaq Global Market

1

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Table of Contents

SUPERNUS PHARMACEUTICALS, INC.

FORM 10-Q — QUARTERLY REPORT

FOR THE QUARTERLY PERIOD ENDED March 31, 2022

			Page No.
PART I — FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets			3
Condensed Consolidated Statements of Earnings			4
Condensed Consolidated Statements of Comprehensive Earnings			5
Condensed Consolidated Statements of Changes in Stockholders' Equity			6
Condensed Consolidated Statements of Cash Flows			7
Notes to Condensed Consolidated Financial Statements			8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			29
Item 3. Quantitative and Qualitative Disclosures about Market Risk			37
Item 4. Controls and Procedures			37
PART II — OTHER INFORMATION
Item 1. Legal Proceedings			39
Item 1A. Risk Factors			44
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			44
Item 3. Defaults Upon Senior Securities			44
Item 4. Mine Safety Disclosures			44
Item 5. Other Information			44
Item 6. Exhibits			45
SIGNATURES			46

2

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Table of Contents

PART I — FINANCIAL INFORMATION

Supernus Pharmaceuticals, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share data)

			March 31,						December 31,
			2022						2021
			(unaudited)
Assets
Current assets
Cash and cash equivalents			$	115,715					$	203,434
Marketable securities			196,485						136,246
Accounts receivable, net			145,149						148,932
Inventories, net			88,795						85,959
Prepaid expenses and other current assets			22,372						27,019
Total current assets			568,516						601,590
Long-term marketable securities			125,337						119,166
Property and equipment, net			17,215						16,955
Intangible assets, net			764,049						784,693
Goodwill			115,414						117,516
Other assets			48,986						49,232
Total assets			$	1,639,517					$	1,689,152
Liabilities and stockholders’ equity
Current liabilities
Accounts payable and accrued liabilities			$	89,432					$	117,683
Accrued product returns and rebates			140,181						132,724
Contingent consideration, current portion			46,890						44,840
Other current liabilities			8,055						20,132
Total current liabilities			284,558						315,379
Convertible notes, net			400,382						379,252
Contingent consideration, long-term			9,252						35,637
Operating lease liabilities, long-term			39,891						41,298
Deferred income tax liabilities			62,843						85,355
Other liabilities			14,145						16,380
Total liabilities			811,071						873,301
Stockholders’ equity
Common stock, $0.001 par value; 130,000,000 shares authorized; 53,386,305 and 53,256,094 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively			53						53
Additional paid-in capital			383,016						434,337
Accumulated other comprehensive earnings (loss), net of tax			(773)						1,539
Retained earnings			446,150						379,922
Total stockholders’ equity			828,446						815,851
Total liabilities and stockholders’ equity			$	1,639,517					$	1,689,152

See accompanying notes.

3

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Table of Contents

Supernus Pharmaceuticals, Inc.

Condensed Consolidated Statements of Earnings

(in thousands, except share and per share data)

			Three Months ended March 31,
			2022						2021
			(unaudited)
Revenues
Net product sales			$	147,464					$	128,381
Royalty revenues			5,042						2,551
Total revenues			152,506						130,932
Costs and expenses
Cost of goods sold (a)			17,932						14,954
Research and development			20,839						34,280
Selling, general and administrative			90,459						61,457
Amortization of intangible assets			20,644						6,007
Contingent consideration expense			665						1,020
Total costs and expenses			150,539						117,718
Operating earnings			1,967						13,214
Other income (expense)
Interest expense			(1,942)						(6,097)
Interest and other income, net			14,698						3,812
Total other income (expense)			12,756						(2,285)
Earnings before income taxes			14,723						10,929
Income tax (benefit) expense			(10,893)						5,235
Net earnings			$	25,616					$	5,694
Earnings per share
Basic			$	0.48					$	0.11
Diluted			$	0.43					$	0.11
Weighted average shares outstanding
Basic			53,330,837						52,927,467
Diluted			61,406,555						54,196,971

______________________________

(a) Excludes amortization of acquired intangible assets

See accompanying notes.

4

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Table of Contents

Supernus Pharmaceuticals, Inc.

Condensed Consolidated Statements of Comprehensive Earnings

(in thousands)

			Three Months ended March 31,
			2022						2021
			(unaudited)
Net earnings			$	25,616					$	5,694
Other comprehensive loss
Unrealized loss on marketable securities, net of tax			(2,312)						(2,726)
Other comprehensive loss			(2,312)						(2,726)
Comprehensive earnings			$	23,304					$	2,968

See accompanying notes.

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Supernus Pharmaceuticals, Inc.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

Three Months ended March 31, 2022 and 2021

(unaudited, in thousands, except share data)

j			Common Stock												Additional  Paid-in Capital						Accumulated Other Comprehensive Earnings (Loss)						Retained Earnings						Total Stockholders’ Equity
			Shares						Amount
Balance, December 31, 2021			53,256,094						$	53					$	434,337					$	1,539					$	379,922					$	815,851
Cumulative effect of adoption of ASU 2020-06			—						—						(56,212)						—						40,612						(15,600)
Balance, January 1, 2022			53,256,094						53						378,125						1,539						420,534						800,251
Share-based compensation			—						—						4,025						—						—						4,025
Issuance of common stock in connection with the Company’s equity award plans			130,211						—						866						—						—						866
Net earnings			—						—						—						—						25,616						25,616
Unrealized loss on marketable securities, net of tax			—						—						—						(2,312)						—						(2,312)
Balance, March 31, 2022			53,386,305						$	53					$	383,016					$	(773)					$	446,150					$	828,446

			Common Stock												Additional  Paid-in Capital						Accumulated Other Comprehensive Earnings (Loss)						Retained Earnings						Total Stockholders’ Equity
			Shares						Amount
Balance, December 31, 2020			52,868,482						$	53					$	409,332					$	8,975					$	326,498					$	744,858
Share-based compensation			—						—						4,371						—						—						4,371
Issuance of common stock in connection with the Company’s equity award plans			125,655						—						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, 2021			52,994,137						$	53					$	415,950					$	6,249					$	332,192					$	754,444

See accompanying notes.

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Supernus Pharmaceuticals, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

			Three Months ended March 31,
			2022						2021
			(unaudited)
Cash flows from operating activities
Net earnings			$	25,616					$	5,694
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization			21,362						6,592
Navitor investment R&D expense (see Note 5)			—						15,000
Other income from Navitor (see Note 5)			(12,888)						—
Amortization of deferred financing costs and debt discount			526						4,287
Realized gains from sales of marketable securities			—						(216)
Amortization of premium/discount on marketable securities			(360)						(1,706)
Change in fair value of contingent consideration			665						1,020
Other noncash adjustments, net			84						(1,202)
Share-based compensation expense			4,025						4,371
Deferred income tax benefit			(13,011)						(2,565)
Changes in operating assets and liabilities:			—						—
Accounts receivable			3,812						13,805
Inventories			(2,468)						(1,048)
Prepaid expenses and other assets			1,061						(368)
Accrued product returns and rebates			7,457						2,544
Accounts payable and other liabilities			(29,479)						(10,008)
Contingent consideration			(2,100)						—
Net cash provided by operating activities			4,302						36,200
Cash flows from investing activities
Purchases of marketable securities			(98,063)						(119,063)
Sales and maturities of marketable securities			28,927						49,579
Purchases of property and equipment and deferred legal fees paid			(851)						(1,961)
Net cash used in investing activities			(69,987)						(71,445)
Cash flows from financing activities
Payment of contingent consideration			(22,900)						—
Proceeds from issuance of common stock			866						2,247
Net cash (used in) provided by financing activities			(22,034)						2,247
Net change in cash and cash equivalents			(87,719)						(32,998)
Cash and cash equivalents at beginning of year			203,434						288,640
Cash and cash equivalents at end of period			$	115,715					$	255,642
Supplemental cash flow information
Cash paid for interest on convertible notes			$	1,258					$	1,258
Cash paid for income taxes			478						301
Cash paid for operating leases			2,949						1,834
Noncash investing and financing activities
Lease assets and tenant receivable obtained for new operating leases			$	27					$	1,432
Deferred legal fees and fixed assets included in accounts payable and accrued expenses			—						160
Property and equipment additions from utilization of tenant improvement allowance			549						—

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, chronic sialorrhea, dyskinesia in PD patients receiving levodopa-based therapy, and drug-induced extrapyramidal reactions in adult patients. The Company is developing a broad range of novel CNS product candidates including new potential treatments for hypomobility in PD, epilepsy, depression, and other CNS disorders.

Commercial Products

•Trokendi XR® (topiramate) is the first once-daily extended-release topiramate product indicated for the treatment of epilepsy in patients 6 years of age and older in the United States (U.S.) market. It is also indicated for the prophylaxis of migraine headache in adults and adolescents 12 years and older.

•Oxtellar XR® (oxcarbazepine) is indicated as therapy for the treatment of partial onset seizures in patients 6 years of age and older. It is also the first once-daily extended-release oxcarbazepine product indicated for the treatment of epilepsy in the U.S.

•Qelbree® (viloxazine extended-release capsules) is a novel non-stimulant product indicated for the treatment of ADHD in adults and pediatric patients 6 years and older. On April 2, 2021, the U.S. Food and Drug Administration (FDA) approved Qelbree for the treatment of ADHD in pediatric patients 6 to 17 years of age. In May 2021, the Company launched Qelbree for pediatric patients in the U.S. On April 29, 2022, the FDA approved Qelbree for treatment of ADHD in adult patients. The Company is expecting to launch Qelbree for adult patients by the end of May 2022.

•APOKYN® (apomorphine hydrochloride injection) is a product indicated for the acute, intermittent treatment of hypomobility, "off" episodes ("end-of-dose wearing off" and unpredictable "on/off" episodes) in patients with advanced PD.

•MYOBLOC® (rimabotulinumtoxinB injection) is a product indicated for the treatment of cervical dystonia and chronic sialorrhea in adults. It is the only botulinum toxin type B 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.

•GOCOVRI® (amantadine) extended-release capsules is the first and only FDA approved medicine indicated for the treatment of dyskinesia in patients with PD receiving levodopa-based therapy, with or without concomitant dopaminergic medications, and as an adjunctive treatment to levodopa/carbidopa with PD experiencing "off" episodes.

•OSMOLEX ER® (amantadine) extended-release tablets is for the treatment of PD and drug-induced extrapyramidal reactions in adult patients.

Product Candidates

The Company is also developing a pipeline of novel CNS product candidates for the treatment of various CNS conditions. The Company's product candidates in clinical development include the following:

•SPN-830 (apomorphine infusion device) is a late-stage drug/device combination product candidate for the continuous treatment of motor fluctuations ("off" episodes) in PD patients that are not adequately controlled with oral levodopa and one or more adjunct PD medications. In February 2022, the FDA acknowledged that it received the new drug application (NDA) resubmission for SPN-830 (apomorphine infusion device) for the continuous treatment of motor fluctuations ("off" episodes) in PD. The NDA has a PDUFA date of October 7, 2022.

•SPN-820 (NV-5138) is a first-in-class product candidate for treatment-resistant depression, currently in Phase II development. It is an orally active small molecule that directly activates brain mechanistic target of rapamycin complex 1 (mTORC1).

•SPN-817 (huperzine A) is a novel product candidate for treatment-resistant seizures, currently in Phase I development.

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Adamas Acquisition and Reorganization

On October 10, 2021, the Company entered into an Agreement and Plan of Merger by and among the Company, Adamas Pharmaceuticals, Inc. (Adamas) and Supernus Reef, Inc., a Delaware corporation and a wholly owned subsidiary of the Company (Purchaser) (Adamas Agreement). On November 24, 2021, the Purchaser was merged with and into Adamas (Merger), with Adamas continuing as the surviving corporation in the Merger as a wholly owned subsidiary of the Company (Adamas Acquisition). Adamas holds and markets two established commercial products in its portfolio, GOCOVRI and Osmolex ER, and has royalty rights to Namzaric®. Allergan plc markets and sells Namzaric in the U.S.

In the first quarter of 2022 and subsequent to the Adamas Acquisition, the Company completed a reorganization of the Adamas legal entities in an effort to obtain operational, legal and other benefits that also resulted in certain state tax efficiencies. The legal entities reorganization had no effect on the condensed consolidated financial statements other than certain state tax efficiencies. (See Note 12, Income Taxes.)

COVID-19 Impact

The Company is closely monitoring the impact of the COVID-19 pandemic on all aspects of its business operations and has assessed the impact of the COVID-19 pandemic on its condensed consolidated financial statements as of March 31, 2022.

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, 2021, 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.

Consolidation

The Company's condensed consolidated financial statements include the accounts of Supernus Pharmaceuticals, Inc. and its wholly owned subsidiaries. These are collectively referred to herein as "Supernus" or "the Company." All significant intercompany transactions and balances have been eliminated in consolidation.

The consolidated financial statements reflect the consolidation of entities in which the Company has a controlling financial interest. In determining whether there is a controlling financial interest, the Company considers if it has a majority of the voting interests of the entity, or if the entity is a variable interest entity (VIE) and if the Company is the primary beneficiary. In determining the primary beneficiary of a VIE, the Company evaluates whether it has both: the power to direct the activities of the VIE that most significantly impact the VIE's economic performance; and the obligation to absorb losses of, or the right to receive benefits from the VIE that could potentially be significant to that VIE. The Company's judgment with respect to its level of influence or control of an entity involves the consideration of various factors, including the form of an ownership interest; representation in the entity's governance; the size of the investment; estimates of future cash flows; the ability to participate in policymaking decisions; and the rights of the other investors to participate in the decision making process, including the right to liquidate the entity, if applicable. If the Company is not the primary beneficiary of the VIE, and an ownership interest is maintained in the entity, the interest is accounted for under the equity or cost methods of accounting, as appropriate.

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 valuation of the assets acquired and liabilities assumed in the Adamas Acquisition, 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 $23.9 million and $15.3 million in advertising expense for the three months ended March 31, 2022 and 2021, 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

Accounting Standards Update (ASU) 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity - The new standard, issued in August 2020, simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible debt instruments with cash conversion and beneficial conversion features. ASU 2020-06 eliminates requirements to separately account for liability and equity components of such convertible debt instruments and eliminates the ability to use the treasury stock method for calculating diluted earnings per share for convertible instruments whose principal amount may be settled in whole or in part with equity. Instead, ASU 2020-06 requires (i) the entire amount of the security to be presented as a liability on the balance sheet and (ii) application of the “if-converted” method for calculating diluted earnings per share. This new standard also removes certain settlement conditions required for equity contracts to qualify for the derivative scope exception.

The Company adopted the new guidance as of January 1, 2022 using the modified retrospective method of transition which allows for a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. As a result, the cumulative effect of the accounting change increased the carrying amount of the convertible notes, net by $20.6 million, increased retained earnings by $40.6 million, reduced additional paid-in capital by $56.2 million, and decreased deferred tax liabilities by $5.0 million as of January 1, 2022. In addition, the Company had an increase of 6.8 million in dilutive shares included in diluted weighted average shares of common stock outstanding for the purposes of calculating diluted earnings per share under the if-converted method.

ASU 2021-10, Government Assistance (Topic 832) - The new standard, issued in November 2021, requires the disclosure of information about transactions with a government that are accounted for by applying a grant or contribution model by analogy. This could include various forms of government assistance, but excludes transactions in the scope of specific US GAAP, such as tax incentives accounted for under Accounting Standards Codification (ASC) 740, Income Taxes. For transactions in the scope of the new standard, information about the nature of the transaction, including significant terms and conditions, as well as the amounts and specific financial statement line items affected by the transaction are required to be disclosed. This guidance is effective for fiscal years beginning after December 15, 2021 on a prospective basis. The adoption of the new standard as of January 1, 2022 did not have a material impact to the financial statements.

New Accounting Pronouncements Not Yet Adopted

ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers - The new standard, issued in October 2021, amended guidance on accounting for contract assets and contract liabilities from contracts with customers in a business combination. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with ASC 606, Revenue from Contracts with Customers, as if the acquiree had

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initially applied recognition and measurement in their financial statements. This guidance is effective for fiscal years beginning after December 15, 2022 on a prospective basis. Early adoption is permitted.

3. Acquisition

Adamas Acquisition

On November 24, 2021 (the Closing Date), the Company completed its purchase of all of the outstanding equity of Adamas Pharmaceuticals, Inc., a publicly-held pharmaceutical company (Adamas), pursuant to the Adamas Agreement dated October 10, 2021. On the Closing Date, Adamas owned two marketed products: GOCOVRI (amantadine) extended-release capsules, the first and only U.S. FDA approved medicine indicated for the treatment of both "off" episodes and dyskinesia in patients with PD receiving levodopa-based therapy and as an adjunctive treatment to levodopa/carbidopa in patients with PD experiencing "off" episodes; and OSMOLEX ER (amantadine) extended-release tablets, approved for the treatment of PD and drug-induced extrapyramidal reactions in adult patients. Adamas also owns the right to receive royalties from Allergan plc for sales of Namzaric (memantine hydrochloride extended-release and donepezil hydrochloride) in the U.S.

The Company paid the Adamas shareholders $400.8 million and transferred two non-tradable contingent value rights (CVRs). Each CVR represents the contractual right to receive a contingent payment of $0.50 per share in cash, less any applicable withholding taxes and without interest, upon the achievement of the applicable milestone (each such amount, a Milestone Payment) in accordance with the terms of a Contingent Value Rights Agreement entered into between the Company and American Stock Transfer & Trust Company, LLC, as rights agent, (CVR Agreement). One Milestone Payment is payable (subject to certain terms and conditions) upon the first occurrence of the achievement of aggregate worldwide net sales of GOCOVRI in excess of $150 million during any consecutive 12-month period ending on or before December 31, 2024 (Milestone 2024). Another Milestone Payment is payable (subject to certain terms and conditions) upon the first occurrence of the achievement of aggregate worldwide net sales of GOCOVRI in excess of $225 million during any consecutive 12-month period ending on or before December 31, 2025 (Milestone 2025 and, together with Milestone 2024, the Milestones). Each Milestone may only be achieved once.

In connection with the two CVRs, the Company recorded contingent consideration liabilities of $10.3 million as of the date of the acquisition, to reflect the estimated fair value of the contingent consideration. The estimated fair value of the liabilities were determined using Monte Carlo simulations. The fair value measurement of the contingent consideration liabilities were determined based on significant unobservable inputs and thus represents a Level 3 fair value measurement. The key assumptions considered include the estimated amount and timing of projected cash flows, volatility, estimated discount rates and risk-free interest rate. In each reporting period after the acquisition, the Company will revalue the contingent consideration liabilities and will record increases or decreases in the fair value of the liabilities in its consolidated statements of earnings. Changes in fair value will result from changes in actual and projected milestone achievement, as well as changes to forecasts. The inputs and assumptions may not be observable in the market, but they reflect the assumptions the Company believes would be made by a market participant. The possible outcomes for the contingent consideration range from $0 to $50.9 million on an undiscounted basis.

The acquisition was accounted for as a business combination under the acquisition method of accounting, in accordance with ASC 805, Business Combinations. The excess of the purchase price over the fair value of the net assets acquired was recorded as goodwill. The estimated fair values of the assets acquired and liabilities assumed, including goodwill, have been included in the Company's consolidated financial statements since the acquisition Closing Date.

The Company's accounting for the Adamas Acquisition is preliminary and fair value estimates for the assets acquired and liabilities assumed and the Company's estimates and assumptions are subject to change as the Company obtains additional information for its estimates during the measurement period. During the measurement period, if the Company obtains new information regarding facts and circumstances that existed as of the Closing Date that, if known, would have resulted in revised estimated values of those assets or liabilities, the Company will accordingly revise its estimates of fair values and purchase price allocation. The effect of measurement period adjustments on the estimated fair value elements will be reflected as if the adjustments had been made as of the Closing Date. The impact of all changes that do not qualify as measurement period adjustments will be included in current period earnings.

The Company expects to finalize its purchase price allocation within one year of the Closing Date. In addition, the Company continues to analyze and assess relevant information necessary to determine, recognize and record at fair value the assets acquired and liabilities assumed in the following areas: intangible assets, lease assets and liabilities, tax assets and liabilities, and certain existing or potential reserves, including those for legal or contract-related matters. The activities the Company is currently undertaking include, but are not limited to, the following: review of acquired contracts and other contract-related and legal matters; review and evaluation of the accounting policies, tax positions, and other tax-related matters. Further,

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the Company continues to obtain input from third party valuation firms with respect to the fair value of the acquired tangible and intangible assets, and other information necessary to record and measure the assets acquired and liabilities assumed. Accordingly, the preliminary recognition and measurement of assets acquired and liabilities assumed as of the Closing Date are subject to change.

The following table presents the Company's preliminary estimates of the fair value of assets acquired and liabilities assumed as of the Closing Date and subsequent measurement period adjustments recorded (dollars in thousands):

			As Initially Reported						Measurement Period Adjustments (1)						As Adjusted
Cash and cash equivalents			$	90,064					$	—					$	90,064
Accounts receivable			11,156						—						11,156
Inventories			20,200						—						20,200
Prepaid expenses and other current assets			5,077						—						5,077
Property and equipment			1,254						—						1,254
Intangibles			450,100						—						450,100
Other assets (2)			6,442						(1,620)						4,822
Total fair value of assets acquired			584,293						(1,620)						582,673
Accounts payable			(4,592)						—						(4,592)
Accrued expenses and other current liabilities			(8,014)						—						(8,014)
Current debt			(138,315)						—						(138,315)
Operating lease liabilities, long-term			(5,224)						—						(5,224)
Deferred income tax liabilities (3)			(56,588)						3,722						(52,866)
Total fair value of liabilities assumed			(212,733)						3,722						(209,011)
Total identifiable net assets			371,560						2,102						373,662
Goodwill			39,553						(2,102)						37,451
Total purchase price			411,113						—						411,113
Cash consideration paid			400,806						—						400,806
Fair value of contingent consideration			10,307						—						10,307
Total purchase price			$	411,113					$	—					$	411,113

______________________________

(1) Measurement period adjustments reflect changes based on information related to the facts and circumstances that existed as of the acquisition date.

(2) Refinement of the estimate of fair value of the right of use asset associated with the acquired Adamas headquarters lease. Refer to Note 13, Leases.

(3) Represents tax impact of the changes in the initial estimate of the fair value of the right of use asset and changes made to update certain state tax attributes which existed at the opening balance sheet date.

Acquired Inventory

The estimated 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 dispose of the inventory, as well as a profit on the sale.

Acquired Intangible Assets

The acquired intangible assets include the acquired developed technology and product rights to GOCOVRI and OSMOLEX ER, as well as the right to receive royalties from Allergan plc for sales of Namzaric. The Company determined the estimated fair values for the acquired intangible assets as of the Closing Date using the income approach. This is a valuation technique that provides an estimate of fair value of the assets, based on the market participant's expectations of the cash flows that the assets are forecasted to generate. The cash flows were discounted at a rate commensurate with the level of risk associated with

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its projected cash flows. The Company believes the assumptions are representative of those a market participant would use in estimating fair value.

The fair value measurements of the acquired intangible assets were determined based on significant unobservable inputs and thus represent Level 3 fair value measurement. Some of the more significant inputs and assumptions used in the intangible assets valuation includes: the estimated future cash flows from product sales, the timing and projection of costs and expenses, discount rates and tax rates.

Acquired intangible assets consist of developed technology and product rights and are amortized over their estimated useful lives on a straight-line basis. The following table summarizes the preliminary purchase price allocation, and the average remaining useful lives for identifiable intangible assets (dollars in thousands):

			Estimated Fair Value						Estimated Useful Life as of Closing Date (in years)
Acquired developed technology and product rights			$	450,100					3.1 - 8.1

Goodwill

Goodwill was calculated as the excess of the consideration transferred over the net assets recognized and represents the future economic benefits arising from the other assets acquired that could not be individually identified and separately recognized. Goodwill is primarily attributable to the anticipated cost synergies, additional growth platforms, and an expanded revenue base with the addition of the assets from the Adamas Acquisition. The goodwill is not expected to be deductible for tax purposes.

Acquired Deferred Income Tax Liabilities, net

The deferred income tax liabilities, net relates to the difference between the financial statement carrying amount and the tax basis of acquired intangible assets and inventory, partially offset by acquired net operating loss carryforwards and other temporary differences. The acquired federal and state net operating loss carryforwards is reduced by a valuation allowance for amounts that are not expected to be realizable in the future.

Revenue and Net Earnings of Adamas

The operations of Adamas and its subsidiaries have been included in the Company's consolidated statements of earnings for the period subsequent to the Closing Date.

Pro Forma Information

The following table presents the unaudited pro forma combined financial information for each of the periods presented, as if the Adamas Acquisition had occurred on January 1, 2020 (dollars in thousands):

			Three Months ended March 31, 2021
Pro forma total revenues			$	150,243
Pro forma net loss			(20,484)

The unaudited pro forma combined financial information is based on historical financial information and the Company's preliminary allocation of purchase price; therefore, it is subject to subsequent adjustment upon finalization of the purchase price allocation. In order to reflect the occurrence of the acquisition on January 1, 2020, the unaudited pro forma combined financial information reflects the recognition of additional amortization expense on intangible assets and estimated additional cost of products sold related to the inventory step-up adjustment; the estimated reduction in the Company's interest income generated from marketable securities that were liquidated to fund the purchase price of the Adamas Acquisition, and the estimated tax impact of the pro forma adjustments.

The unaudited pro forma combined financial information should not necessarily be considered indicative of the results that would have occurred if the acquisition had been consummated on the assumed completion date, nor are they indicative of future results.

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4. Disaggregated Revenues

The following table summarizes the disaggregation of revenues by product or source, (dollars in thousands):

			Three Months ended March 31,
			2022						2021
			(unaudited)
Net product sales
Trokendi XR			$	62,832					$	71,819
Oxtellar XR			27,521						27,370
GOCOVRI			22,601						—
APOKYN			18,448						21,730
Qelbree			8,283						—
Other(1)			7,779						7,462
Total net product sales			$	147,464					$	128,381
Royalty revenues			5,042						2,551
Total revenues			$	152,506					$	130,932

___________________________________________

(1) Includes net product sales of MYOBLOC, XADAGO and OSMOLEX ER.

Trokendi XR accounted for 43% and 56% of the Company’s total net product sales for the three months ended March 31, 2022 and 2021, respectively.

Each of our three major customers, AmerisourceBergen Drug Corporation, Cardinal Health, Inc. and McKesson Corporation, individually accounted for more than 20% and 25% of our total net product sales and collectively accounted for more than 75% and 85% of our total net product sales in 2022 and 2021, respectively.

The Company recognized noncash royalty revenue of $2.2 million for both the three months ended March 31, 2022 and 2021. Refer to Note 16, Commitments and Contingencies.

5. Investments

Marketable Securities

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

			March 31, 2022						December 31, 2021
			(unaudited)
Corporate and U.S. government agency and municipal debt securities
Amortized cost			$	322,797					$	253,301
Gross unrealized gains			497						2,349
Gross unrealized losses			(1,472)						(238)
Total fair value			$	321,822					$	255,412

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

			March 31, 2022
			(unaudited)
Less than 1 year			$	196,485
1 year to 2 years			111,584
2 years to 3 years			13,753
3 years to 4 years			—
Greater than 4 years			—
Total			$	321,822

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As of March 31, 2022, 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 a development agreement (the Development Agreement) with Navitor Pharmaceuticals, Inc. (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 treatment-resistant depression. 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.

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 Pharmaceuticals LLC (Navitor LLC), and the outstanding shares of stock in Navitor Inc. were exchanged for units of membership 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 Shares 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.

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 Navitor’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 over but not control the financial and operating decisions of Navitor LLC. As a result of the change from a cost method investment to an equity method investment, the Company was required to measure its investment initially in accordance with the guidance in ASC 805. 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, which created a significant basis difference for the Company's investment in the underlying net assets. The Company determined that substantially all of the fair value of the investment was attributable to a single in-process research and development (IPR&D) asset. As a result, Navitor LLC was 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 Company records its share of the results of Navitor LLC, a private company, on a quarter lag as the financial information of Navitor LLC is not available on a sufficiently timely basis for the Company to apply the equity method of accounting. In December 2021, Navitor LLC sold one of its subsidiaries and distributed cash to its members in accordance with each member's share of the proceeds from the sale. The Company received $12.9 million in December 2021 from Navitor LLC in connection with this sale. As the Company's policy is to record its share of the results in its equity method investment on a quarter lag as previously indicated, the Company recorded the cash amount received in Other current liabilities in the consolidated balance sheets as of December 31, 2021. In the first quarter of 2022, the Company determined its estimated share of Navitor LLC's year-end 2021 earnings and recorded a gain of $12.9 million in Interest and other income, net in the condensed consolidated statement of earnings.

The maximum exposure to losses related to Navitor LLC 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.

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The Company has not provided financing to Navitor LLC. Further, no additional equity investment has been made to Navitor LLC.

6.    Fair Value of Financial Measurements

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. 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 is recorded in Other assets on the condensed consolidated balance sheets. There were no Level 3 financial assets as of March 31, 2022 or December 31, 2021. There have been no transfers of assets or liabilities into or out of Level 3 of the fair value hierarchy.

Financial Assets and Liabilities Recorded at Fair Value

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 March 31, 2022 (unaudited)
			Total Fair Value as of March 31, 2022						Level 1						Level 2						Level 3
Assets:
Cash and cash equivalents
Cash			$	84,218					$	84,218					$	—					$	—
Money market securities and funds			31,497						1,502						29,995						—
Marketable securities
Corporate and municipal debt securities			196,485						—						196,485						—
Long-term marketable securities
Corporate and municipal debt securities			125,337						—						125,337						—
Other assets
Marketable securities - restricted (SERP)			570						8						562						—
Total assets at fair value			$	438,107					$	85,728					$	352,379					$	—
Liabilities:
Contingent consideration			$	56,142					$	—					$	—					$	56,142
Total liabilities at fair value			$	56,142					$	—					$	—					$	56,142

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									Fair Value Measurements as of December 31, 2021
			Total Fair Value as of December 31, 2021						Level 1						Level 2						Level 3
Assets:
Cash and cash equivalents
Cash			$	148,863					$	148,863					$	—					$	—
Money market securities and funds			54,571						54,571						—						—
Marketable securities
Corporate and municipal debt securities			136,246						251						135,995						—
Long-term marketable securities
Corporate and municipal debt securities			119,166						—						119,166						—
Other assets
Marketable securities - restricted (SERP)			630						7						623						—
Total assets at fair value			$	459,476					$	203,692					$	255,784					$	—
Liabilities:
Contingent consideration			$	80,477					$	—					$	—					$	80,477
Total liabilities at fair value			$	80,477					$	—					$	—					$	80,477

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.

Financial Liabilities Recorded at Carrying Value

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

			March 31, 2022												December 31, 2021
			Carrying Value						Fair Value (Level 2)						Carrying Value						Fair Value (Level 2)
Convertible notes, net			$	400,382					$	395,456					$	379,252					$	400,236

The fair value has been estimated based on actual trading information, and quoted prices, both provided by bond traders. As discussed in Note 2, the Company adopted ASU 2020-06 on January 1, 2022 using the modified retrospective method of transition resulting in an increase in the carrying amount of the debt by $20.6 million as of the adoption date. Refer to Note 2, Summary of Significant Accounting Policies, for further discussion of the accounting standard adoption.

7. Contingent Consideration

The Company's contingent consideration liabilities are related to the USWM Acquisition and the Adamas Acquisition.

On June 9, 2020 (the USWM Closing Date), the Company completed its acquisition of all the outstanding equity of USWM Enterprises, LLC (USWM Enterprises) (USWM Acquisition). The USWM Acquisition included potential additional contingent consideration payments of up to $230 million, comprising of $130 million for the achievement of certain SPN-830 regulatory and commercial milestones (regulatory and developmental contingent consideration payments) and up to $100 million related to the future sales performance of the acquired USWM products (sales-based contingent consideration payments). The regulatory and developmental contingent consideration payments include a $25 million milestone due upon the FDA acceptance of the SPN-830 NDA for review. The remaining $105 million are due upon the FDA's regulatory approval and commercial launch of SPN-830. Based on timing of the PDUFA date of SPN-830 NDA, one of the regulatory and developmental milestones which has a time-based mechanism for full or partial achievement will not be achieved. Of the $100 million sales-based contingent consideration, a $35 million milestone due upon achievement of certain U.S. net product sales of APOKYN in 2021 was not achieved. The remaining $65 million relates to the achievement of certain net product sales of the acquired USWM products in 2022 and 2023.

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As mentioned in Note 1, the Company received a notice from the FDA in February 2022 of its acceptance for review of the NDA for SPN-830. As such, the Company made a $25 million regulatory and developmental contingent consideration payment in the first quarter of 2022. This milestone payment is reflected in the condensed consolidated statements of cash flows as a $22.9 million under cash flows from financing activities related to the acquisition date fair value of the contingent consideration liability and a $2.1 million under cash flows from operating activities related to excess of the acquisition date fair value.

As discussed in Note 3, Acquisition, the Adamas Acquisition included payment of two non-tradable contingent value rights (CVRs) each of which represents the contractual right to receive a contingent payment upon the achievement of the applicable aggregate worldwide net product sales of GOCOVRI.

The Company's contingent consideration liabilities are measured at fair value on a recurring basis; i.e., the Monte Carlo simulation for the sales-based milestones, and the income approach for the other milestones. The Company classifies its contingent consideration liabilities as Level 3 fair value measurements based on the significant unobservable inputs used to estimate fair value. These reflect the inputs and assumptions the Company believes would be made by market participants. Changes in any of those inputs together or in isolation may result in significantly lower or higher fair value measurement.

During the measurement period, changes in the fair value of contingent consideration related to the Adamas Acquisition are recorded against goodwill if such changes are related to facts and circumstances that existed at the acquisition date. In each reporting period after the acquisition, the Company remeasures the fair value of contingent consideration liabilities and records in its consolidated statements of earnings the increases or decreases in the fair value of the liabilities. The Company recorded a net expense of $0.7 million due to the change in fair value of the contingent consideration liabilities in the first quarter of 2022. The change in fair value is reported on the condensed consolidated statement of earnings in Contingent consideration expense.

The change in the fair value of contingent consideration was primarily driven by the increase in estimated fair value of regulatory and developmental USWM milestones due to the accretion to the payout amount related to the milestone achieved in the first quarter of 2022. The increase is partially offset by a decrease in the estimated fair value of sales-based Adamas milestones due to changes in market data. The key assumptions considered in estimating the fair value of regulatory and developmental milestones include the estimated probability and timing of milestone achievement, such as the probability and timing of obtaining regulatory approval. The key assumptions considered in estimating the fair value of the Adamas sales-based milestones include the estimated amount and timing of projected cash flows, volatility, estimated discount rates and risk-free interest rate. Refer to Note 3, Acquisition, for further discussion of significant inputs and assumptions used in the valuation of the contingent consideration for the Adamas Acquisition.

The following table provides a reconciliation of the beginning and ending balances related to the contingent consideration for the USWM Acquisition and Adamas Acquisition (dollars in thousands):

			USWM Acquisition						Adamas Acquisition						Total
Balance at December 31, 2021			$	70,170					$	10,307					$	80,477
Milestone payments			(25,000)						—						(25,000)
Change in fair value recognized in earnings			1,720						(1,055)						665
Balance at March 31, 2022 (unaudited)			$	46,890					$	9,252					$	56,142
Regulatory and developmental contingent consideration liabilities			46,890						—						46,890
Sales-based contingent consideration liabilities			—						9,252						9,252
Balance at March 31, 2022 (unaudited)			$	46,890					$	9,252					$	56,142

The following table provides the current and long-term portions related to the contingent consideration for the USWM Acquisition and Adamas Acquisition (dollars in thousands):

			March 31, 2022						December 31, 2021
Reported under the following captions in the condensed consolidated balance sheets:			(unaudited)
Contingent consideration, current portion			$	46,890					$	44,840
Contingent consideration, long-term			9,252						35,637
Total			$	56,142					$	80,477

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8.    Goodwill and Intangibles Assets, Net

Goodwill

The following table summarizes the changes in the carrying amount of goodwill (dollars in thousands):

Balance as of December 31, 2021			$	117,516
Measurement period adjustments related to the acquisition of Adamas (see Note 3).			(2,102)
Balance as of March 31, 2022 (unaudited)			$	115,414

Intangible Assets, Net

The following table sets forth the gross carrying amounts and related accumulated amortization of intangibles assets (dollars in thousands):

									March 31, 2022																		December 31, 2021
									(unaudited)
			Remaining Weighted Average Life (Years)						Carrying Amount, Gross						Accumulated Amortization						Carrying Amount, Net						Carrying Amount, Gross						Accumulated Amortization						Carrying Amount, Net
Acquired in-process research and development									$	124,000					$	—					$	124,000					$	124,000					$	—					$	124,000
Intangible assets subject to amortization:
Acquired developed technology and product rights			8.49						681,100						(54,913)						626,187						681,100						(35,550)						645,550
Capitalized patent defense costs			4.37						43,820						(29,958)						13,862						43,820						(28,677)						15,143
Total intangible assets			8.40						848,920						(84,871)						764,049						848,920						(64,227)						784,693

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 regards 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 $20.6 million and $6.0 million, for the three month periods ended March 31, 2022 and 2021, respectively. The increase in expense is primarily due to amortization of the acquired developed technology and product rights from the Adamas Acquisition.

Anticipated annual amortization expense for intangible assets is estimated at $79.8 million in 2023 and 2024, $75.0 million in 2025 and 2026, and $73.2 million in 2027.

9.    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

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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 $80.91 per share of the Company’s common stock, and is subject to adjustment.

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):

			March 31, 2022						December 31, 2021
			(unaudited)
2023 Notes			$	402,500					$	402,500
Unamortized debt discount and deferred financing costs			(2,118)						(23,248)
Total carrying value			$	400,382					$	379,252

As discussed in Note 2, the Company adopted ASU 2020-06 on January 1, 2022 using the modified retrospective method of transition resulting in an increase in the carrying amount of the debt by $20.6 million as of the adoption date. Refer to Note 2, Summary of Significant Accounting Policies, for further discussion of the accounting standard adoption. No 2023 Notes were converted as of March 31, 2022 or December 31, 2021.

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10.    Share-Based Payments

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

			Three Months ended March 31,
			2022						2021
			(unaudited)
Research and development			$	651					$	588
Selling, general and administrative			3,374						3,783
Total			$	4,025					$	4,371

Stock Option and Stock Appreciation Rights

The following table summarizes stock option and stock appreciation rights (SAR) activities:

			Number of Options						Weighted Average Exercise Price						Weighted Average Remaining Contractual Term (in years)
Outstanding, December 31, 2021			5,774,076						$	24.15					5.95
Granted			929,785						$	32.20
Exercised			(47,601)						$	18.21
Forfeited			(48,036)						$	30.84
Outstanding, March 31, 2022 (unaudited)			6,608,224						$	25.28					6.25
As of December 31, 2021:
Vested and expected to vest			5,774,076						$	24.15					5.95
Exercisable			3,651,824						$	21.29					4.53
As of March 31, 2022:
Vested and expected to vest			6,608,224						$	25.28					6.25
Exercisable			4,280,012						$	22.87					4.79

Restricted Stock Units

The following table summarizes restricted stock unit (RSU) activities:

			Number of RSUs						Weighted Average Grant Date Fair Value per Share
Nonvested, December 31, 2021			21,110						$	29.61
Granted			131,210						$	32.20
Vested			(21,110)						$	29.61
Forfeited			—						$	—
Nonvested, March 31, 2022			131,210						$	32.20

There were no forfeited RSU awards during the three months ended March 31, 2022.

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Performance Share Units

The following table summarizes performance share unit (PSU) activities:

			Performance-Based Units												Market-Based Units												Total PSUs
			Number of PSUs						Weighted Average Grant Date Fair Value per Share						Number of PSUs						Weighted Average Grant Date Fair Value per Share						Number of PSUs						Weighted Average Grant Date Fair Value per Share
Nonvested, December 31, 2021			53,500						$	29.82					35,625						$	26.34					89,125						$	28.43
Vested			(21,500)						$	29.67					—												(21,500)						$	29.67
Nonvested, March 31, 2022			32,000						$	29.92					35,625						$	26.34					67,625						$	28.04

There were no forfeited PSU awards during the three months ended March 31, 2022.

11.