SEC Filing - Supernus Pharmaceuticals

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supn-20230331

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, 2023


☐			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

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 3, 2023

Trading Symbol

Name of each exchange on which registered

Common Stock, $0.001 par value per share

54,476,409

SUPN

The Nasdaq Global Market

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SUPERNUS PHARMACEUTICALS, INC.

FORM 10-Q — QUARTERLY REPORT

FOR THE QUARTERLY PERIOD ENDED March 31, 2023


			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			26
Item 3. Quantitative and Qualitative Disclosures about Market Risk			34
Item 4. Controls and Procedures			35
PART II — OTHER INFORMATION
Item 1. Legal Proceedings			36
Item 1A. Risk Factors			42
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			42
Item 3. Defaults Upon Senior Securities			42
Item 4. Mine Safety Disclosures			42
Item 5. Other Information			42
Item 6. Exhibits			43
SIGNATURES			44

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PART I — FINANCIAL INFORMATION

Supernus Pharmaceuticals, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share data)


	March 31,		December 31,
	2023		2022
	(unaudited)
Assets
Current assets
Cash and cash equivalents	$	58,442	$	93,120
Restricted cash	403,758		—
Marketable securities	170,126		368,214
Accounts receivable, net	143,568		165,497
Inventories, net	91,147		91,541
Prepaid expenses and other current assets	16,299		15,779
Total current assets	883,340		734,151
Long-term marketable securities	54,157		93,896
Property and equipment, net	14,611		15,173
Intangible assets, net	682,497		702,463
Goodwill	117,019		117,019
Other assets	40,184		39,806
Total assets	$	1,791,808	$	1,702,508

Liabilities and stockholders’ equity
Current liabilities
Accounts payable and accrued liabilities	$	95,345	$	96,342
Accrued product returns and rebates	147,852		151,665
Convertible notes, net	402,500		401,968
Line of credit	78,363		—
Contingent consideration, current portion	—		21,120
Other current liabilities	7,485		16,863
Total current liabilities	731,545		687,958
Contingent consideration, long-term	53,320		33,847
Operating lease liabilities, long-term	36,511		35,998
Deferred income tax liabilities, net	49,668		49,809
Other liabilities	8,614		8,692
Total liabilities	879,658		816,304

Stockholders’ equity
Common stock, $0.001 par value; 130,000,000 shares authorized; 54,470,622 and 54,253,796 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively	54		54
Additional paid-in capital	416,232		408,115
Accumulated other comprehensive loss, net of tax	(2,329)		(3,210)
Retained earnings	498,193		481,245
Total stockholders’ equity	912,150		886,204

Total liabilities and stockholders’ equity	$	1,791,808	$	1,702,508

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 March 31,
	2023		2022
	(unaudited)
Revenues
Net product sales	$	140,575	$	147,464
Royalty revenues	13,189		5,042
Total revenues	153,764		152,506

Costs and expenses
Cost of goods sold (a)	23,460		17,932
Research and development	21,212		20,839
Selling, general and administrative	85,597		90,459
Amortization of intangible assets	19,966		20,644
Contingent consideration (gain) expense	(1,647)		665
Total costs and expenses	148,588		150,539

Operating earnings	5,176		1,967

Other income (expense)
Interest expense	(1,505)		(1,942)
Interest and other income, net	5,346		14,698
Total other income (expense)	3,841		12,756

Earnings before income taxes	9,017		14,723

Income tax benefit	(7,931)		(10,893)
Net earnings	$	16,948	$	25,616

Earnings per share
Basic	$	0.31	$	0.48
Diluted	$	0.29	$	0.43

Weighted average shares outstanding
Basic	54,380,947		53,330,837
Diluted	62,454,204		61,406,555

______________________________

(a) Excludes amortization of acquired intangible assets

See accompanying notes.

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Supernus Pharmaceuticals, Inc.

Condensed Consolidated Statements of Comprehensive Earnings

(in thousands)


	Three Months Ended March 31,
	2023		2022
	(unaudited)
Net earnings	$	16,948	$	25,616
Other comprehensive gain (loss)
Unrealized gain (loss) on marketable securities, net of tax	881		(2,312)
Other comprehensive gain (loss)	881		(2,312)
Comprehensive earnings	$	17,829	$	23,304

See accompanying notes.

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Supernus Pharmaceuticals, Inc.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

Three Months Ended March 31, 2023 and 2022

(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, 2022	54,253,796	$	54	$	408,115	$	(3,210)	$	481,245	$	886,204
Share-based compensation	—	—		6,306		—		—		6,306
Issuance of common stock in connection with the Company’s equity award plans	216,826	—		1,811		—		—		1,811
Net earnings	—	—		—		—		16,948		16,948
Unrealized gain on marketable securities, net of tax	—	—		—		881		—		881
Balance, March 31, 2023	54,470,622	$	54	$	416,232	$	(2,329)	$	498,193	$	912,150


	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

See accompanying notes.

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Supernus Pharmaceuticals, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)


	Three Months Ended March 31,
	2023		2022
	(unaudited)
Cash flows from operating activities
Net earnings	$	16,948	$	25,616
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	20,601		21,362
Other income from Navitor (see Note 4)	—		(12,888)
Amortization of deferred financing costs and debt discount	532		526
Amortization of premium/discount on marketable securities	(1,056)		(360)
Change in fair value of contingent consideration	(1,647)		665
Other noncash adjustments, net	2,459		84
Share-based compensation expense	6,306		4,025
Deferred income tax benefit	(435)		(13,011)
Changes in operating assets and liabilities:
Accounts receivable	21,971		3,812
Inventories	(1,851)		(2,468)
Prepaid expenses and other assets	(341)		1,061
Accrued product returns and rebates	(3,813)		7,457
Accounts payable and other liabilities	(10,548)		(29,479)
Contingent consideration	—		(2,100)
Net cash provided by operating activities	49,126		4,302

Cash flows from investing activities
Purchases of marketable securities	—		(98,063)
Sales and maturities of marketable securities	240,058		28,927
Purchases of property and equipment	(278)		(851)
Net cash provided by (used in) investing activities	239,780		(69,987)

Cash flows from financing activities
Proceeds from Line of Credit	93,000		—
Payments on Line of Credit	(14,637)		—
Payment of contingent consideration	—		(22,900)
Proceeds from issuance of common stock	1,811		866
Net cash provided by (used in) financing activities	80,174		(22,034)

Net change in cash, cash equivalents, and restricted cash	369,080		(87,719)
Cash and cash equivalents at beginning of year	93,120		203,434
Cash, cash equivalents, and restricted cash at end of period	$	462,200	$	115,715

Supplemental cash flow information
Cash paid for interest on convertible notes	$	—	$	1,258
Cash paid for income taxes	203		478
Cash paid for operating leases	3,457		2,949

Noncash investing and financing activities
Lease assets obtained for new operating leases	$	2,601	$	27
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", see Note 2, Consolidation) 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.

The Company has eight commercial products that it markets: Qelbree®, Trokendi XR®, Oxtellar XR®, GOCOVRI®, APOKYN®, XADAGO®, Osmolex ER®, and MYOBLOC®. In addition, 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.

Adamas Reorganization

In the first quarter of 2022, the Company completed a reorganization of the Adamas Pharmaceuticals, Inc. (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 11, Income Tax Benefit.)

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, 2022, 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." Supernus Pharmaceuticals, Inc. and each of its subsidiaries are distinct legal entities. All significant intercompany transactions and balances have been eliminated in consolidation.

The condensed 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.

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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 and the fair values of our 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 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 $25.9 million and $23.9 million in advertising expense for the three months ended March 31, 2023 and 2022, respectively. These expenses are recorded as a component of Selling, general and administrative expenses in the condensed consolidated statements of earnings.

Restricted Cash

The Company has a restricted cash balance of $403.8 million as of March 31, 2023 which was held in an escrow account with Wilmington Trust, Trustee, in connection with the 2023 Notes payoff which occurred on April 1, 2023. Refer to Note 8, Debt, and Note 16, Subsequent Events.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the

condensed consolidated balance sheets that sum to the total of the same amounts shown in the condensed consolidated statements of cash flows:


	Three Months Ended March 31, 2023
	End of period		Beginning of period
	(unaudited)
Cash and cash equivalents	$	58,442	$	93,120
Restricted cash	403,758		—
Total cash, cash equivalents, and restricted cash per statements of cash flows	$	462,200	$	93,120

Line of Credit

Line of credit includes borrowings under the uncommitted demand secured line of credit. On February 8, 2023, the Company entered into a credit line agreement (the “Credit Line”) with UBS Bank USA (“UBS”). The Credit Line provides for a revolving line of credit of up to $150 million, which can be drawn at any time.

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-

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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.

3. Disaggregated Revenues

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


	Three Months Ended March 31,
	2023		2022
	(unaudited)
Net product sales
Trokendi XR	$	34,790	$	62,832
Oxtellar XR	28,915		27,521
GOCOVRI	26,010		22,601
Qelbree	25,782		8,283
APOKYN	17,209		18,448
Other(1)	7,869		7,779
Total net product sales	$	140,575	$	147,464
Royalty revenues	13,189		5,042
Total revenues	$	153,764	$	152,506

___________________________________________

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

Trokendi XR accounted for 25% and 43% of the Company’s total net product sales for the three months ended March 31, 2023 and 2022, respectively.

Each of our three major customers, AmerisourceBergen Drug Corporation, Cardinal Health, Inc. and McKesson Corporation, individually accounted for more than 20% of our total net product sales and collectively accounted for more than 75% of our total net product sales in 2023 and 2022.

The Company recognized noncash royalty revenue of $2.3 million and $2.2 million for the three months ended March 31, 2023 and 2022, respectively. Refer to Note 15, Commitments and Contingencies.

4. Investments

Marketable Securities

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


	March 31, 2023		December 31, 2022
	(unaudited)
Corporate and U.S. government agency and municipal debt securities
Amortized cost	$	227,331	$	466,333
Gross unrealized gains	—		14
Gross unrealized losses	(3,048)		(4,237)
Total fair value	$	224,283	$	462,110

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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):


	March 31, 2023
	(unaudited)
Less than 1 year	$	170,126
1 year to 2 years	42,713
2 years to 3 years	11,444
3 years to 4 years	—
Greater than 4 years	—
Total	$	224,283

As of March 31, 2023, 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.

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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 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.

Subsequent to the Development Agreement entered into in 2020, no additional equity investment has been made or financing has been provided to Navitor LLC.

5. 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 is 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

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, 2023 (unaudited)
	Total Fair Value as of March 31, 2023		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents
Cash	$	58,442	$	58,442	$	—	$	—

Restricted cash	403,758		403,758		—		—
Marketable securities
Corporate and municipal debt securities	170,126		—		170,126		—

Long-term marketable securities
Corporate and municipal debt securities	54,157		—		54,157		—

Other assets
Marketable securities - restricted (SERP)	514		12		502		—
Total assets at fair value	$	686,997	$	462,212	$	224,785	$	—
Liabilities:
Contingent consideration	$	53,320	$	—	$	—	$	53,320
Total liabilities at fair value	$	53,320	$	—	$	—	$	53,320


			Fair Value Measurements as of December 31, 2022
	Total Fair Value as of December 31, 2022		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents
Cash	$	52,181	$	52,181	$	—	$	—
Money market securities and funds	40,939		40,939		—		—
Marketable securities
Corporate and municipal debt securities	368,214		—		368,214		—

Long-term marketable securities
Corporate and municipal debt securities	93,896		—		93,896		—

Other assets
Marketable securities - restricted (SERP)	496		11		485		—
Total assets at fair value	$	555,726	$	93,131	$	462,595	$	—
Liabilities:
Contingent consideration	$	54,967	$	—	$	—	$	54,967
Total liabilities at fair value	$	54,967	$	—	$	—	$	54,967

Other Financial Instruments

The carrying amounts of other financial instruments, including accounts receivable, accounts payable, accrued expenses, and line of credit approximate fair value due to their short-term maturities.

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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, 2023				December 31, 2022
	Carrying Value		Fair Value (Level 2)		Carrying Value		Fair Value (Level 2)
	(unaudited)
Convertible notes, net	$	402,500	$	401,494	$	401,968	$	395,959

The fair value has been estimated based on actual trading information, and quoted prices, both provided by bond traders.

6. Contingent Consideration

The Company's contingent consideration liabilities are related to the USWM Acquisition in 2020 and the Adamas Acquisition in 2021 (each acquisition as defined below). The contingent consideration liabilities are measured at fair value using either a Monte Carlo simulation or the income approach. 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. The change in fair value is reported on the consolidated statement of earnings in Contingent consideration (gain) expense.

USWM Contingent Consideration

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 for regulatory and development milestones and sales-based milestones. As of March 31, 2023, the potential contingent consideration payments are up to $85 million, which is comprised of the potential $55 million in regulatory and development milestones and $30 million in sales-based milestones.

•Regulatory and development milestones:

The potential $55 million in regulatory and development milestones is comprised of (1) $25 million related to the FDA's approval of the SPN-830 NDA and (2) $30 million related to the subsequent commercial product launch.

•Sales-based milestones:

The potential $30 million sales-based milestone relates to the achievement of certain net product sales of the acquired USWM products in 2023. As of March 31, 2023, the Company assessed that this remaining $30 million sales-based milestone will not be achieved based on net sales projections.

The key assumptions considered in estimating the fair value include the estimated probability and timing of milestone achievement, such as the probability and timing of obtaining regulatory approval, discount rate, the estimated revenue volatility and the estimated amount and timing of projected revenues from the acquired USWM products.

The Company recorded a $1.7 million gain due to the change in the fair value of the contingent consideration liabilities for the USWM milestones for the three months ended March 31, 2023. The change in the fair value of contingent consideration for USWM milestones was primarily driven by the change in estimated fair value of regulatory and developmental milestones due to the change in timing of milestone achievement and estimated discount rates.

The Company recorded a $1.7 million expense due to the change in the fair value of the contingent consideration liabilities for the USWM milestones for the three months ended March 31, 2022. The change in the fair value was primarily due to the accretion to the payout amount related to the milestone achieved in the first quarter of 2022.

Adamas Contingent Consideration

On November 24, 2021 (the Adamas Closing Date), the Company completed its acquisition of all the outstanding equity of Adamas (Adamas 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

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aggregate worldwide net product sales of GOCOVRI.

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, as further defined in the 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. The possible outcomes for the contingent consideration range from $0 to $50.9 million on an undiscounted basis.

The key assumptions considered in estimating the fair value of the Adamas sales-based milestones include the estimated revenue projections, volatility, estimated discount rates and risk-free interest rate.

The Company recorded a $0.1 million expense due to the change in fair value of the contingent consideration liabilities for the CVRs for the three months ended March 31, 2023. The change in fair value of contingent consideration for the sales-based Adamas milestones was primarily due to passage of time and estimated discount rates.

The Company recorded a $1.1 million gain due to the change in fair value of the contingent consideration liabilities for the CVRs for the three months ended March 31, 2022. The change in fair value was primarily due to changes in market data.

The following tables provide 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, 2022	$	46,270	$	8,697	$	54,967

Change in fair value recognized in earnings	(1,710)		63		(1,647)
Balance at March 31, 2023 (unaudited)	$	44,560	$	8,760	$	53,320


	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

The Company paid $25 million in the first quarter of 2022 of which $22.9 million represents the acquisition date fair value of the contingent consideration liability and was reported under cash flows from financing activities. The remaining $2.1 million represents the excess of the acquisition date fair value and was reported under cash flows from operating activities. The amount paid was for the milestone that was due upon the FDA acceptance of the SPN-830 NDA for review, which was achieved in the first quarter of 2022.

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, 2023		December 31, 2022
Reported under the following captions in the condensed consolidated balance sheets:	(unaudited)
Contingent consideration, current portion	$	—	$	21,120
Contingent consideration, long-term	53,320		33,847
Total	$	53,320	$	54,967

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7. Intangibles Assets, Net

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


		March 31, 2023						December 31, 2022
		(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	7.55	681,500		(132,438)		549,062		681,500		(113,061)		568,439
Capitalized patent defense costs	4.00	43,820		(34,385)		9,435		43,820		(33,796)		10,024
Total intangible assets	7.49	$	849,320	$	(166,823)	$	682,497	$	849,320	$	(146,857)	$	702,463

Amortization expense for intangible assets was $20.0 million and $20.6 million, for the three month periods ended March 31, 2023 and 2022, respectively.

8. Debt

Convertible Senior Notes Due 2023

The 0.625% Convertible Senior Notes Due 2023 (2023 Notes), which were issued in March 2018, bore interest at an annual rate of 0.625%, payable semi-annually in arrears on April 1 and October 1 of each year. The total principal amount of 2023 Notes is $402.5 million.

The 2023 Notes matured on April 1, 2023. On March 30, 2023, the Company transferred funds to Wilmington Trust related to the repayment of the 2023 Notes which is presented as Restricted cash on the condensed consolidated balance sheet as of March 31, 2023. On April 1, 2023, the Company paid the total principal amount due of $402.5 million under the 2023 Notes and the remaining outstanding interest due of $1.3 million.

The 2023 Notes were issued pursuant to an Indenture between the Company and Wilmington Trust. 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 did not contain any financial or operating covenants, or any restrictions on the payment of dividends, the issuance of other indebtedness, or the issuance or repurchase of securities by the Company. The noteholders also had the option in certain circumstances to convert their 2023 Notes, as further defined in the Indenture, 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. As of March 31, 2023, no 2023 Notes conversions occurred.

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. As of March 31, 2023, the Convertible Note Hedges have expired.

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 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 warrants expire in tranches, if unexercised, on or before November 22, 2023.

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The liability component of the 2023 Notes consists of the following, (dollars in thousands):


	March 31, 2023		December 31, 2022
	(unaudited)
2023 Notes	$	402,500	$	402,500
Unamortized debt discount and deferred financing costs	—		(532)
Total carrying value	$	402,500	$	401,968

Uncommitted Demand Secured Line of Credit

On February 8, 2023, the Company entered into a credit line agreement with UBS. The Credit Line provides for a revolving line of credit of up to $150 million, which can be drawn at any time. Any fixed rate borrowing will bear interest at a fixed interest rate, equal to the sum of (i) the UBS Fixed Funding Rate (as defined in the Credit Line) plus (ii) the applicable Percentage Spread established in the Credit Line. Any variable rate borrowing will bear interest at a variable interest rate, equal to the sum of (i) the UBS Variable Rate (as defined in the Credit Line) plus (ii) the applicable Percentage Spread established in the Credit Line.

The Credit Line is secured by a first priority lien and security interest in certain of the Company’s assets, including each account of the Company at UBS Financial Services Inc. (the “Collateral Account”), and other such collateral (collectively, the Collateral), as further defined in the Credit Line. The Company may be required to post additional collateral if the value of the Collateral declines below the required collateral maintenance requirements.

Upon certain customary events of default, all amounts due under the Credit Line will become immediately due and payable without demand, and UBS has the right, in its discretion, to liquidate, transfer, withdraw or sell all or any part of the Collateral and apply the proceeds to repay any borrowings pursuant to the Credit Line.

The Company has the right to repay any variable rate advance under the Credit Line at any time, in whole or in part, without penalty. The Company may repay any fixed rate advance in whole, but may not repay any fixed rate advance in part. In its discretion and without cause, UBS has the right at any time to demand full or partial payment of amounts borrowed pursuant to the Credit Line and terminate the Credit Line and therefore, the outstanding debt under the Credit Line is classified as a current liability on our condensed consolidated balance sheet as of March 31, 2023.

On March 30, 2023, the Company borrowed $93.0 million under the Credit Line, which bears a variable interest rate. The funds to repay outstanding indebtedness under the 2023 Notes as discussed above under Convertible Senior Notes Due 2023. On March 31, 2023, the Company repaid $14.6 million of the loan under the Credit Line. As of March 31, 2023, the outstanding aggregate principal balance under the Credit Line was $78.4 million and the interest rate was 5.69%.

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9. Share-Based Payments

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


	Three Months Ended March 31,
	2023		2022
	(unaudited)
Research and development	$	958	$	651
Selling, general and administrative	5,348		3,374
Total	$	6,306	$	4,025

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, 2022	5,797,569	$	26.99	6.11
Granted	1,069,640	$	38.60
Exercised	(151,562)	$	14.82
Forfeited	(24,700)	$	30.32
Outstanding, March 31, 2023 (unaudited)	6,690,947	$	29.10	6.59

As of March 31, 2023 (unaudited):
Vested and expected to vest	6,690,947	$	29.10	6.59
Exercisable	4,126,641	$	26.40	5.09

As of December 31, 2022:
Vested and expected to vest	5,797,569	$	26.99	6.11
Exercisable	3,541,395	$	25.08	4.68

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, 2022	131,960	$	32.17
Granted	227,980	$	38.60
Vested	(46,361)	$	32.20
Forfeited	(4,625)	$	32.10
Nonvested, March 31, 2023	308,954	$	36.91

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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, 2022	181,750	$	29.07	20,000	$	28.63	201,750	$	29.03
Vested	(30,020)	$	29.76	—			(30,020)	$	29.76
Nonvested, March 31, 2023	151,730	$	28.94	20,000	$	28.63	171,730	$	28.90

There were no forfeited PSU awards during the three months ended March 31, 2023.

10. Earnings per Share

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

Effect of Convertible Notes and Related Convertible Note Hedges and Warrants

In connection with the issuance of the 2023 Notes, the Company entered into Convertible Note Hedge and Warrant Transactions as described further in Note 8, Debt. The expected collective impact of the Convertible Note Hedge and Warrant Transactions is to reduce the potential dilution that would occur if the price of the Company's common stock was between the conversion price of $59.33 per share and the strike price of the warrants of $80.91 per share.

Diluted EPS related to the 2023 Notes is calculated using the if-converted method. The number of dilutive shares is based on the initial conversion rate associated with the 2023 Notes. The Convertible Note Hedge and Warrant Transactions are excluded in the calculation of diluted EPS because inclusion would be anti-dilutive. Specifically, the denominator of the diluted EPS calculation excludes the additional shares related to the warrants because the average price of the Company's common stock was less than the strike price of the warrants of $80.91 per share. Prior to actual conversion, the Convertible Note Hedge Transactions are not considered in calculating diluted earnings per share, as their impact would be anti-dilutive.

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


	Three Months Ended March 31,
	2023	2022
	(unaudited)



Stock options, RSUs, PSUs	240,398	1,067,231

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The following table sets forth the computation of basic and diluted net earnings per share for the three months ended March 31, 2023 and 2022 under the if-converted method (dollars in thousands, except share and per share amounts):


	Three Months Ended March 31,
	2023		2022
	(unaudited)
Numerator:
Net earnings	$	16,948	$	25,616
After-tax interest expense for 2023 Notes	892		887
Numerator for dilutive earnings per share	$	17,840	$	26,503
Denominator:
Weighted average shares outstanding, basic	54,380,947		53,330,837
Effect of dilutive securities:
Stock options, RSUs and SARs	1,289,321		1,291,782
Convertible notes	6,783,936		6,783,936
Weighted average shares outstanding, diluted	62,454,204		61,406,555

Earnings per share, basic	$	0.31	$	0.48
Earnings per share, diluted	$	0.29	$	0.43

11. Income Tax Benefit

The following table provides information regarding the Company’s income tax benefit for the three months ended March 31, 2023 and 2022 (dollars in thousands):


	Three Months Ended March 31,
	2023			2022
	(unaudited)
Income tax benefit	$	(7,931)		$	(10,893)
Effective tax rate	(88.0)		%	(74.0)		%

Income tax benefit of $7.9 million for the three months ended March 31, 2023, as compared to $10.9 million for the three months ended March 31, 2022, decreased mainly due to the tax benefits from Adamas legal entity restructuring in the first quarter of 2022. ASC 740, Income Taxes (ASC 740), requires an estimate of the annual effective income tax rate for the full year and apply it to pre-tax income (loss) for each interim period, taking into account year-to-date amounts and projected results for the full year. The effective tax rate decrease was mainly due to lower pretax earnings forecasted for 2023. The annual forecasted earnings represents the Company's best estimate as of March 31, 2023 and is subject to changes, which could have a material impact on the effective tax rate in subsequent periods.

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12. Leases

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


	Balance Sheet Classification	March 31, 2023		December 31, 2022
		(unaudited)
Assets
Operating lease assets	Other assets	$	30,022	$	28,904
Total lease assets		$	30,022	$	28,904

Liabilities
Operating lease liabilities, current portion	Accounts payable and accrued liabilities	$	7,576	$	6,791
Operating lease liabilities, long-term	Operating lease liabilities, long-term	36,511		35,998
Total lease liabilities		$	44,087	$	42,789

13. Composition of Other Balance Sheet Items

The following details the composition of other balance sheet items (dollars in thousands for amounts in tables):

Accounts Receivables, Net

As of March 31, 2023 and December 31, 2022, the Company has reduced accounts receivable by approximately $12.2 million and $13.0 million, respectively. Prompt pay discount and contractual service fees, which were originally recorded as a reduction to revenues, represents estimated amounts not expected to be paid by our customers. The Company's customers are primarily pharmaceutical wholesalers and distributors and specialty pharmacies.

Inventories, Net


	March 31, 2023		December 31, 2022
	(unaudited)
Raw materials	$	22,917	$	24,820
Work in process	33,975		31,710
Finished goods	34,255		35,011
Total	$	91,147	$	91,541

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Property and Equipment, Net


	March 31, 2023		December 31, 2022
	(unaudited)
Lab equipment and furniture	$	12,406	$	12,127
Leasehold improvements	14,023		14,023
Software	883		883
Computer equipment	983		983
Construction-in-progress	—		206
	28,295		28,222
Less accumulated depreciation and amortization	(13,684)		(13,049)
Property and equipment, net	$	14,611