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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, 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)
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 October 31, 2022Trading SymbolName of each exchange on which registered
Common Stock, $0.001 par value per share54,058,138SUPNThe Nasdaq Global Market
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SUPERNUS PHARMACEUTICALS, INC.
FORM 10-Q — QUARTERLY REPORT
FOR THE QUARTERLY PERIOD ENDED September 30, 2022
Page No.
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PART I — FINANCIAL INFORMATION

Supernus Pharmaceuticals, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share data)
September 30,December 31,
20222021
(unaudited)
Assets
Current assets
Cash and cash equivalents$111,492 $203,434 
Marketable securities280,297 136,246 
Accounts receivable, net164,086 148,932 
Inventories, net83,165 85,959 
Prepaid expenses and other current assets24,846 27,019 
Total current assets663,886 601,590 
Long-term marketable securities131,937 119,166 
Property and equipment, net15,872 16,955 
Intangible assets, net722,761 784,693 
Goodwill117,383 117,516 
Other assets41,290 49,232 
Total assets$1,693,129 $1,689,152 
Liabilities and stockholders’ equity
Current liabilities
Accounts payable and accrued liabilities$110,302 $117,683 
Accrued product returns and rebates158,470 132,724 
Contingent consideration, current portion47,590 44,840 
Convertible notes, net401,438  
Other current liabilities8,187 20,132 
Total current liabilities725,987 315,379 
Convertible notes, net 379,252 
Contingent consideration, long-term9,781 35,637 
Operating lease liabilities, long-term36,028 41,298 
Deferred income tax liabilities58,164 85,355 
Other liabilities10,371 16,380 
Total liabilities840,331 873,301 
Stockholders’ equity
Common stock, $0.001 par value; 130,000,000 shares authorized; 54,053,513 and 53,256,094 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively
54 53 
Additional paid-in capital401,026 434,337 
Accumulated other comprehensive earnings (loss), net of tax(4,046)1,539 
Retained earnings455,764 379,922 
Total stockholders’ equity852,798 815,851 
Total liabilities and stockholders’ equity$1,693,129 $1,689,152 



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,
2022202120222021
(unaudited)(unaudited)
Revenues
Net product sales$172,724 $145,532 $485,647 $412,541 
Royalty revenues4,629 2,932 14,263 8,184 
Total revenues177,353 148,464 499,910 420,725 
Costs and expenses
Cost of goods sold (a)
25,878 18,085 64,267 58,067 
Research and development19,554 19,654 56,778 69,389 
Selling, general and administrative112,314 72,032 303,249 203,024 
Amortization of intangible assets20,644 6,009 61,932 17,964 
Contingent consideration expense (gain)486 80 1,894 (7,650)
Total costs and expenses178,876 115,860 488,120 340,794 
Operating earnings (loss)(1,523)32,604 11,790 79,931 
Other income (expense)
Interest expense(1,724)(5,925)(5,476)(17,489)
Interest and other income, net2,803 2,281 19,289 8,682 
Total other income (expense)1,079 (3,644)13,813 (8,807)
Earnings (Loss) before income taxes(444)28,960 25,603 71,124 
Income tax (benefit) expense(2,193)7,398 (9,627)20,142 
Net earnings$1,749 $21,562 $35,230 $50,982 
Earnings per share
Basic$0.03 $0.41 $0.66 $0.96 
Diluted$0.03 $0.40 $0.62 $0.94 
Weighted average shares outstanding
Basic53,789,674 53,187,764 53,517,838 53,053,441 
Diluted55,034,838 54,334,794 61,543,121 54,301,461 
______________________________
(a) Excludes amortization of acquired intangible assets




See accompanying notes.
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Supernus Pharmaceuticals, Inc.
Condensed Consolidated Statements of Comprehensive Earnings (Loss)
(in thousands)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022202120222021
(unaudited)(unaudited)
Net earnings$1,749 $21,562 $35,230 $50,982 
Other comprehensive loss:
Unrealized loss on marketable securities, net of tax(1,826)(1,224)(5,585)(4,766)
Other comprehensive loss(1,826)(1,224)(5,585)(4,766)
Comprehensive earnings (loss)$(77)$20,338 $29,645 $46,216 























See accompanying notes.
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Supernus Pharmaceuticals, Inc.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(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, 202153,256,094 $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, 202253,256,094 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 plans130,211 — 866 — — 866 
Net earnings— — — — 25,616 25,616 
Unrealized loss on marketable securities, net of tax— — — (2,312)— (2,312)
Balance, March 31, 202253,386,305 53 383,016 (773)446,150 828,446 
Share-based compensation— — 4,297 — — 4,297 
Issuance of common stock in connection with the Company’s equity award plans106,081 — 2,273 — — 2,273 
Net earnings— — — — 7,865 7,865 
Unrealized loss on marketable securities, net of tax— — — (1,447)— (1,447)
Balance, June 30, 202253,492,386 $53 $389,586 $(2,220)$454,015 $841,434 
Share-based compensation— — 4,985 — — 4,985 
Issuance of common stock in connection with the Company’s equity award plans561,127 1 6,455 — — 6,456 
Net earnings— — — — 1,749 1,749 
Unrealized loss on marketable securities, net of tax — — — (1,826)— (1,826)
Balance, September 30, 202254,053,513 $54 $401,026 $(4,046)$455,764 $852,798 























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Supernus Pharmaceuticals, Inc.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(unaudited, in thousands, except share data)
Common 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 in connection with 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 in connection with 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 in connection with the Company’s equity award plans35,884 $— $524 $— $— $524 
Net earnings— $— $— $— $21,562 $21,562 
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 













See accompanying notes.
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Supernus Pharmaceuticals, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
Nine Months Ended September 30,
20222021
(unaudited)
Cash flows from operating activities
Net earnings$35,230 $50,982 
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization64,694 19,888 
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 discount1,582 13,037 
Realized gains from sales of marketable securities(14)(221)
Amortization of premium/discount on marketable securities3,215 (845)
Change in fair value of contingent consideration1,894 (7,650)
Other noncash adjustments, net7,983 (22)
Share-based compensation expense13,307 13,874 
Deferred income tax provision(18,564)(479)
Changes in operating assets and liabilities:
Accounts receivable(14,958)7,352 
Inventories(6,304)(9,331)
Prepaid expenses and other assets3,098 (13,351)
Accrued product returns and rebates25,746 5,856 
Accounts payable and other liabilities(12,659)(15,726)
Contingent consideration(2,100) 
Net cash provided by operating activities89,262 78,364 
Cash flows from investing activities
Purchases of marketable securities(340,665)(307,634)
Sales and maturities of marketable securities173,189 152,546 
Purchase of property and equipment and deferred legal fees paid(422)(2,005)
Acquisition of USWM, net of cash acquired (950)
Net cash used in investing activities(167,898)(158,043)
Cash flows from financing activities
Payment of contingent consideration(22,900) 
Proceeds from issuance of common stock9,594 5,520 
Proceeds from governmental loan and grant 800 
Net cash (used in) provided by financing activities(13,306)6,320 
Net change in cash and cash equivalents(91,942)(73,359)
Cash and cash equivalents at beginning of year203,434 288,640 
Cash and cash equivalents at end of period$111,492 $215,281 
Supplemental cash flow information
Cash paid for interest on convertible notes$2,516 $1,887 
Cash paid for income taxes14,558 25,111 
Cash paid for operating leases9,547 7,613 
Noncash investing and financing activities
Lease assets obtained for new operating leases$973 $4,120 
Deferred legal fees and fixed assets included in accounts payable and accrued expenses144 186 
Property and equipment additions from utilization of tenant improvement allowance580  
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 launched Qelbree for adult patients in May 2022.
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.
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.
XADAGO® (safinamide) is a once-daily product indicated as adjunctive treatment to levodopa/carbidopa in patients with PD experiencing "off" episodes.
Osmolex ER® (amantadine) extended-release is a once-daily product for the treatment of PD and drug-induced extrapyramidal reactions in adult patients.
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.
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 October 2022, the FDA issued a Complete Response Letter (CRL) regarding the NDA for SPN-830. Refer to Note 17, Subsequent Events.
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 Closing Date), the Company completed its purchase of all of the outstanding equity of Adamas, pursuant to the Adamas Agreement dated October 10, 2021, and the Purchaser was merged with and into Adamas (the Merger), with Adamas continuing as the surviving corporation in the Merger as a wholly owned subsidiary of the Company (Adamas Acquisition). On the Closing Date, Adamas owned two marketed products: GOCOVRI (amantadine) extended-release capsules, the first and only 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.
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 reorganization had no effect on the condensed consolidated financial statements other than certain state tax efficiencies. (See Note 12, Income Tax (Benefit) Expense.)
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 September 30, 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
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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.
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 fair values of financial instruments and the recoverability of intangible assets, 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 television, print media, digital marketing, marketing programs and speaker programs. The cost of the Company's advertising efforts are expensed as incurred.
The Company incurred approximately $52.0 million and $112.8 million in advertising expense for the three and nine months ended September 30, 2022, respectively, and approximately $22.6 million and $59.7 million for the three and nine months ended September 30, 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 U.S. 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.
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3. Acquisition
Adamas Acquisition
In connection with the Adamas Acquisition (see Note 1), 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 values of the contingent consideration liabilities were determined using Monte Carlo simulations. The fair value measurements of the contingent consideration liabilities were determined based on significant unobservable inputs and thus represent Level 3 fair value measurements. The key assumptions considered include the estimated amount and timing of projected revenues, volatility, estimated discount rates and the 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 actual 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 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. The activities the Company is currently undertaking include review and evaluation of the tax positions, and other tax-related matters. Accordingly, the preliminary recognition and measurement of assets acquired and liabilities assumed as of the Closing Date are subject to change.
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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
(unaudited)(unaudited)
Cash and cash equivalents$90,064 $— $90,064 
Accounts receivable11,156 — 11,156 
Inventories20,200 — 20,200 
Prepaid expenses and other current assets5,077 — 5,077 
Property and equipment1,254 — 1,254 
Intangibles450,100 — 450,100 
Other assets(2)
6,442 (1,620)4,822 
Total fair value of assets acquired584,293 (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(2)(3)
(56,588)1,753 (54,835)
Total fair value of liabilities assumed(212,733)1,753 (210,980)
Total identifiable net assets371,560 133 371,693 
Goodwill39,553 (133)39,420 
Total purchase price$411,113 $— $411,113 
Cash consideration paid$400,806 $— $400,806 
Fair value of contingent consideration10,307 — 10,307 
Total purchase price$411,113 $— $411,113 
______________________________
(1) Measurement period adjustments reflect changes for the nine months ended September 30, 2022 based on information related to the facts and circumstances that existed as of the Closing Date.
(2) Refinement of the estimate of fair value of the right of use asset associated with the acquired Adamas headquarters lease recorded in the first quarter of 2022. Refer to Note 13, Leases.
(3) Represents tax impact for the changes in fair value estimate of the right of use asset and changes made to finalize the accounting of 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 its projected cash flows. The Company believes the assumptions are representative of those a market participant would use in estimating fair value.
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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 ValueEstimated 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 are reduced by a valuation allowance for amounts that are not expected to be realizable in the future. The reported measurement period adjustment of $1.8 million for the nine months ended September 30, 2022 consisted of a reduction to deferred tax liabilities of $3.7 million recorded in the first quarter of 2022 and an increase to deferred tax liabilities of $1.9 million recorded in the third quarter of 2022.
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 periods 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
September 30,
Nine Months Ended
September 30,
20212021
Pro forma total revenues$174,360 $487,904 
Pro forma net loss(10,405)(30,905)
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
September 30,
Nine Months Ended September 30,
2022202120222021
(unaudited)(unaudited)
Net product sales
Trokendi XR$69,599 $80,935 $204,033 $231,531 
Oxtellar XR30,528 29,728 88,007 82,120 
GOCOVRI27,878  75,179  
Qelbree18,326 2,370 37,708 2,685 
APOKYN$18,261 $24,627 $57,156 $73,338 
Other(1)
8,132 7,872 23,564 22,867 
Total net product sales$172,724 $145,532 $485,647 $412,541 
Royalty revenues4,629 2,932 14,263 8,184 
Total revenues$177,353 $148,464 $499,910 $420,725 
______________________________
(1) Includes net product sales of MYOBLOC, XADAGO and Osmolex ER.
Trokendi XR accounted for more than 40% of the Company’s total net product sales for both the three and nine months ended September 30, 2022, and 56% of the Company's total net product sales for both the three and nine months ended September 30, 2021, respectively.
Each of our three major customers, AmerisourceBergen Drug Corporation, Cardinal Health, Inc. and McKesson Corporation, individually accounted for more than 25% of our total net product sales for both the nine months ended September 30, 2022 and 2021, and collectively accounted for more than 80% and 85% of our total net product sales for the nine months ended September 30, 2022 and 2021, respectively.
Royalty revenues include noncash royalty revenues. The Company recognized noncash royalty revenue of $2.5 million and $7.2 million, for the three and nine months ended September 30, 2022, respectively. 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. 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):
September 30,
2022
December 31,
2021
(unaudited)
Corporate and U.S. government agency and municipal debt securities
Amortized cost$417,576 $253,301 
Gross unrealized gains 2,349 
Gross unrealized losses(5,342)(238)
Total fair value$412,234 $255,412 
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The contractual maturities of the unrestricted available-for-sale marketable securities held by the Company are as follows, (dollars in thousands):
September 30,
2022
(unaudited)
Less than 1 year$280,297 
1 year to 2 years104,346 
2 years to 3 years27,591 
3 years to 4 years 
Greater than 4 years 
Total$412,234 
As of September 30, 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 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.
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.
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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 approximately $50 million 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.
Subsequent to the Development Agreement entered into in 2020, no additional equity investment has been made or financing has been provided to Navitor LLC.
6.    Fair Value of Financial Instruments
The fair value of an asset or liability represents the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between 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 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, 2022 (unaudited)
Total Fair Value at September 30,
2022
Level 1Level 2Level 3
Assets:(unaudited)
Cash and cash equivalents
Cash$111,087 $111,087 $ $ 
Money market funds405 405   
Marketable securities
Corporate and municipal debt securities280,297  280,297  
Long term marketable securities
Corporate and municipal debt securities131,937  131,937  
Other noncurrent assets
Marketable securities - restricted (SERP)464 9 455  
Total assets at fair value$524,190 $111,501 $412,689 $ 
Liabilities:
Contingent consideration $57,371 $ $ $57,371 
Total liabilities at fair value$57,371 $ $ $57,371 
Fair Value Measurements at December 31, 2021
Total Fair Value at December 31,
2021
Level 1Level 2Level 3
Assets:
Cash and cash equivalents
Cash$148,863 $148,863 $ $ 
Money market funds54,571 54,571   
Marketable securities
Corporate and municipal debt securities136,246 251 135,995  
Long term marketable securities
Corporate and municipal debt securities119,166  119,166  
Other noncurrent 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 $ $ $