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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, 2023
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 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 classOutstanding at November 1, 2023Trading SymbolName of each exchange on which registered
Common Stock, $0.001 par value per share54,632,847SUPNThe Nasdaq Global Market
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SUPERNUS PHARMACEUTICALS, INC.
FORM 10-Q — QUARTERLY REPORT
FOR THE QUARTERLY PERIOD ENDED September 30, 2023
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,
20232022
(unaudited)
Assets
Current assets
Cash and cash equivalents$94,985 $93,120 
Marketable securities105,204 368,214 
Accounts receivable, net141,764 165,497 
Inventories, net83,480 91,541 
Prepaid expenses and other current assets23,927 15,779 
Total current assets449,360 734,151 
Long-term marketable securities25,125 93,896 
Property and equipment, net13,688 15,173 
Intangible assets, net641,147 702,463 
Goodwill117,019 117,019 
Other assets38,821 39,806 
Total assets$1,285,160 $1,702,508 
Liabilities and stockholders’ equity
Current liabilities
Accounts payable and accrued liabilities$78,471 $96,342 
Accrued product returns and rebates162,473 151,665 
Convertible notes, net 401,968 
Contingent consideration, current portion45,880 21,120 
Other current liabilities710 16,863 
Total current liabilities287,534 687,958 
Contingent consideration, long-term7,774 33,847 
Operating lease liabilities, long-term33,841 35,998 
Deferred income tax liabilities, net35,224 49,809 
Other liabilities8,596 8,692 
Total liabilities372,969 816,304 
Stockholders’ equity
Common stock, $0.001 par value; 130,000,000 shares authorized; 54,630,758 and 54,253,796 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively
55 54 
Additional paid-in capital431,956 408,115 
Accumulated other comprehensive loss, net of tax(1,206)(3,210)
Retained earnings481,386 481,245 
Total stockholders’ equity912,191 886,204 
Total liabilities and stockholders’ equity$1,285,160 $1,702,508 

See accompanying notes.
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Supernus Pharmaceuticals, Inc.
Condensed Consolidated Statements of Earnings (Loss)
(in thousands, except share and per share data)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
(unaudited)(unaudited)
Revenues
Net product sales$149,004 $172,724 $417,915 $485,647 
Royalty revenues4,876 4,629 25,292 14,263 
Total revenues153,880 177,353 443,207 499,910 
Costs and expenses
Cost of goods sold19,601 25,878 64,152 64,267 
Research and development22,655 19,554 68,246 56,778 
Selling, general and administrative82,700 112,314 255,079 303,249 
Amortization of intangible assets21,242 20,644 61,316 61,932 
Contingent consideration expense (gain)(456)486 (1,313)1,894 
Total costs and expenses145,742 178,876 447,480 488,120 
Operating earnings (loss)8,138 (1,523)(4,273)11,790 
Other income (expense)
Interest expense (1,724)(2,415)(5,476)
Interest and other income, net1,751 2,803 8,467 19,289 
Total other income (expense)1,751 1,079 6,052 13,813 
Earnings (loss) before income taxes9,889 (444)1,779 25,603 
Income tax expense (benefit) 25,865 (2,193)1,638 (9,627)
Net earnings (loss)$(15,976)$1,749 $141 $35,230 
Earnings (loss) per share
Basic$(0.29)$0.03 $0.00 $0.66 
Diluted$(0.29)$0.03 $0.00 $0.62 
Weighted average shares outstanding
Basic54,608,963 53,789,674 54,498,687 53,517,838 
Diluted54,608,963 55,034,838 55,574,922 61,543,121 






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,
2023202220232022
(unaudited)(unaudited)
Net earnings (loss)$(15,976)$1,749 $141 $35,230 
Other comprehensive gain (loss)
Unrealized gain (loss) on marketable securities, net of tax569 (1,826)2,004 (5,585)
Other comprehensive gain (loss)569 (1,826)2,004 (5,585)
Comprehensive earnings (loss)$(15,407)$(77)$2,145 $29,645 







































See accompanying notes.
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Supernus Pharmaceuticals, Inc.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
Nine Months Ended September 30, 2023 and 2022
(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, 202254,253,796 $54 $408,115 $(3,210)$481,245 $886,204 
Share-based compensation— — 6,306 — — 6,306 
Issuance of common stock under the equity award plans, net of shares withheld for employee taxes216,826 — 1,811 — — 1,811 
Net earnings— — — — 16,948 16,948 
Unrealized gain on marketable securities, net of tax— — — 881 — 881 
Balance, March 31, 202354,470,622 $54 $416,232 $(2,329)$498,193 $912,150 
Share-based compensation— — 6,088 — — 6,088 
Issuance of common stock under the equity award plans, net of shares withheld for employee taxes122,279 1 1,946 — — 1,947 
Net loss— — — — (831)(831)
Unrealized gain on marketable securities, net of tax— — — 554 — 554 
Balance, June 30, 202354,592,901 $55 $424,266 $(1,775)$497,362 $919,908 
Share-based compensation— — 7,920 — — 7,920 
Issuance of common stock under the equity award plans, net of shares withheld for employee taxes37,857 — (230)— — (230)
Net loss— — — — (15,976)(15,976)
Unrealized loss on marketable securities, net of tax — — — 569 — 569 
Balance, September 30, 202354,630,758 $55 $431,956 $(1,206)$481,386 $912,191 








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Supernus Pharmaceuticals, Inc.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
Nine Months Ended September 30, 2023 and 2022
(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, 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 









See accompanying notes.
7

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Supernus Pharmaceuticals, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
Nine Months Ended
September 30,
20232022
(unaudited)
Cash flows from operating activities
Net earnings$141 $35,230 
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
Depreciation and amortization63,183 64,694 
Other income from Navitor (see Note 4) (12,888)
Amortization of deferred financing costs and debt discount532 1,582 
Realized gains from sales of marketable securities (14)
Amortization of premium/discount on marketable securities(849)3,215 
Change in fair value of contingent consideration(1,313)1,894 
Other noncash adjustments, net10,485 7,983 
Share-based compensation expense20,314 13,307 
Deferred income tax benefit(15,255)(18,564)
Changes in operating assets and liabilities:
Accounts receivable21,155 (14,958)
Inventories1,082 (6,304)
Prepaid expenses and other assets(8,138)3,098 
Accrued product returns and rebates10,808 25,746 
Accounts payable and other liabilities(36,018)(12,659)
Contingent consideration (2,100)
Net cash provided by operating activities66,127 89,262 
Cash flows from investing activities
Purchases of marketable securities (340,665)
Sales and maturities of marketable securities335,297 173,189 
Purchases of property and equipment(587)(422)
Net cash provided by (used in) investing activities334,710 (167,898)
Cash flows from financing activities
Proceeds from Line of Credit93,000  
Payments on Line of Credit(93,000) 
Payment on convertible notes(402,500) 
Payment of contingent consideration (22,900)
Proceeds from issuance of common stock3,528 9,594 
Net cash used in financing activities(398,972)(13,306)
Net change in cash and cash equivalents1,865 (91,942)
Cash and cash equivalents at beginning of year93,120 203,434 
Cash and cash equivalents at end of period$94,985 $111,492 
Supplemental cash flow information
Cash paid for interest on debt$1,946 $2,516 
Cash paid for income taxes27,055 14,558 
Cash paid for operating leases13,242 9,547 
Noncash investing and financing activities
Lease assets obtained for new operating leases$5,903 $973 
Deferred legal fees and fixed assets included in accounts payable and accrued expenses 144 
Property and equipment additions from utilization of tenant improvement allowance 580 
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®, GOCOVRI®, Trokendi XR®, Oxtellar XR®, 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.
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 unaudited 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 unaudited 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 unaudited 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 unaudited 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.
The Company continuously assesses whether it is the primary beneficiary of a VIE as changes to existing relationships or future transactions may affect its conclusions.
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Use of Estimates
The Company bases its estimates on: historical experience; forecasts; information received from its service providers; information from other sources, including public and proprietary sources; and other assumptions that the Company believes are reasonable under the circumstances. Actual results could differ materially from the Company’s estimates. The Company periodically evaluates the methodologies employed in making its estimates.
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 costs of the Company's advertising efforts are expensed as incurred.
The Company incurred approximately $25.1 million and $76.9 million in advertising expense for the three and nine months ended September 30, 2023, respectively, and approximately $52.0 million and $112.8 million for the three and nine months ended September 30, 2022. These expenses are recorded as a component of Selling, general and administrative expenses in the unaudited condensed consolidated statements of earnings (loss).
Restricted Cash
On March 30, 2023, the Company transferred funds totaling $403.8 million, which was reported as restricted cash in the first quarter of 2023, to the Trustee (Wilmington Trust) related to the repayment of the 2023 Notes. 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 with the restricted cash. Refer to Note 8, Debt.
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. Refer to Note 8, Debt.
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. Upon adoption, the Company began calculating diluted earnings per share under the if-converted method.
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3. 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,
2023202220232022
(unaudited)(unaudited)
Net product sales
Qelbree$37,081 $18,326 $93,840 $37,708 
GOCOVRI32,889 27,878 87,650 75,179 
Oxtellar XR29,644 30,528 82,359 88,007 
Trokendi XR20,625 69,599 74,734 204,033 
APOKYN21,510 18,261 56,324 57,156 
Other(1)
7,255 8,132 23,008 23,564 
Total net product sales$149,004 $172,724 $417,915 $485,647 
Royalty revenues4,876 4,629 25,292 14,263 
Total revenues$153,880 $177,353 $443,207 $499,910 
___________________________________________
(1) Includes net product sales of MYOBLOC, XADAGO and Osmolex ER.
The decrease in Trokendi XR net product sales for the three and nine months ended September 30, 2023, compared to the same period in 2022 was primarily attributable to the loss of exclusivity with generic entrants in January 2023.
The following table shows the percentage of net product sales to total net product sales:
Percentage of Net Product Sales
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
Qelbree25%11%22%8%
GOCOVRI22%16%21%15%
Oxtellar XR20%18%20%18%
Trokendi XR14%40%18%42%
APOKYN14%10%13%12%
Other(1)
5%5%6%5%
Total100%100%100%100%
___________________________________________
(1) Includes net product sales of MYOBLOC, XADAGO and Osmolex ER.
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 70% of our total net product sales for the three and nine months ended September 30, 2023 and 2022.
The Company recognized noncash royalty revenue of $4.0 million for the nine months ended September 30, 2023. 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. Refer to Note 15, Commitments and Contingencies.





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4. Investments
Marketable Securities
Unrestricted available-for-sale marketable securities held by the Company are as follows, (dollars in thousands):
September 30, 2023December 31, 2022
(unaudited)
Corporate and municipal debt securities
Amortized cost$131,891 $466,333 
Gross unrealized gains1 14 
Gross unrealized losses(1,563)(4,237)
Total fair value$130,329 $462,110 
The contractual maturities of the unrestricted available-for-sale marketable securities held by the Company are as follows, (dollars in thousands):
September 30,
2023
(unaudited)
Less than 1 year$105,204 
1 year to 2 years25,125 
Total$130,329 
As of September 30, 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
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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 unaudited condensed consolidated balance sheets, was expensed and recorded in Research and development expense.
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 unaudited condensed consolidated statement of earnings (loss).
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 unaudited 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 September 30, 2023 (unaudited)
Total Fair Value as of September 30, 2023 (unaudited)
Level 1

Level 2

Level 3
Assets:
Cash and cash equivalents
Cash$38,302 $38,302 $ $ 
Money market securities and funds56,683 56,683   
Marketable securities
Corporate and municipal debt securities105,204  105,204  
Long-term marketable securities
Corporate and municipal debt securities25,125  25,125  
Other assets
Marketable securities - restricted (SERP)512 14 498  
Total assets at fair value$225,826 $94,999 $130,827 $ 
Liabilities:
Contingent consideration$53,654 $ $ $53,654 
Total liabilities at fair value$53,654 $ $ $53,654 
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 funds40,939 40,939   
Marketable securities
Corporate and municipal debt securities368,214  368,214  
Long-term marketable securities
Corporate and municipal debt securities93,896  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, and accrued expenses approximate fair value due to their short-term maturities.
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Financial Liabilities Recorded at Carrying Value
On April 1, 2023, the Company paid the total principal amount due of $402.5 million under the 2023 Notes and the outstanding interest due of $1.3 million.
As of December 31, 2022, the carrying value and fair value of the 2023 Notes which were not carried at fair value was as follows (dollars in thousands):
December 31, 2022
Carrying ValueFair Value (Level 2)
Convertible notes, net$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 following table provides the current and long-term portions related to the contingent consideration for the USWM Acquisition and Adamas Acquisition (dollars in thousands):
September 30,
2023
December 31,
2022
Reported under the following captions in the condensed consolidated balance sheets:(unaudited)
Contingent consideration, current portion$45,880 $21,120 
Contingent consideration, long-term7,774 33,847 
Total$53,654 $54,967 

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 condensed consolidated statement of earnings (loss) 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 September 30, 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 September 30, 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, and the estimated amount and timing of projected revenues from the acquired USWM products.
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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 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.
Change in the Fair Value of Contingent Consideration
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 AcquisitionAdamas AcquisitionTotal
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 
Change in fair value recognized in earnings660 130 790 
Balance at June 30, 2023 (unaudited)45,220 8,890 54,110 
Change in fair value recognized in earnings660 (1,116)(456)
Balance at September 30, 2023 (unaudited)$45,880 $7,774 $53,654 
USWM AcquisitionAdamas AcquisitionTotal
Balance at December 31, 2021$70,170 $10,307 $80,477 
Milestone payments(25,000) (25,000)
Change in fair value recognized in earnings1,720 (1,055)665 
Balance at March 31, 2022 (unaudited)46,890 9,252 56,142 
Change in fair value recognized in earnings350 393 743 
Balance at June 30, 2022 (unaudited)47,240 9,645 56,885 
Change in fair value recognized in earnings350 136 486 
Balance at September 30, 2022 (unaudited)$47,590 $9,781 $57,371 
The Company recorded a $0.7 million expense and a $0.4 million gain due to the change in the fair value of the contingent consideration liabilities for the USWM milestones for the three and nine months ended September 30, 2023 primarily driven by the passage of time in both periods, as well as the change in timing of milestone achievement and estimated discount rate in the first quarter of 2023. The Company recorded a $0.4 million expense and a $2.4 million expense due to the change in the fair value of the contingent consideration liabilities for the USWM milestones for the three and nine months ended September 30, 2022 primarily driven by the passage of time and the accretion to the payout amount related to the milestone achieved in the first quarter of 2022.

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The Company recorded a $1.1 million gain and a $0.9 million gain due to the change in fair value of the contingent consideration liabilities for the Adamas CVRs for the three and nine months ended September 30, 2023 primarily driven by the passage of time. The Company recorded a $0.1 million expense and a $0.5 million gain due to the change in fair value of the contingent consideration liabilities for the Adamas CVRs for the three and nine months ended September 30, 2022 primarily driven by the passage of time.
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.
7.    Intangible Assets, Net
The following table sets forth the gross carrying amounts and related accumulated amortization of intangibles assets (dollars in thousands):
September 30,
2023
December 31,
2022
(unaudited)
Remaining Weighted
Average Life (Years)
Carrying Amount, GrossAccumulated AmortizationCarrying Amount, NetCarrying Amount, GrossAccumulated AmortizationCarrying 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 rights7.08681,500 (171,191)510,309 681,500 (113,061)568,439 
Capitalized patent defense costs0.9243,820 (36,982)6,838 43,820 (33,796)10,024 
Total intangible assets7.00$849,320 $(208,173)$641,147 $849,320 $(146,857)$702,463 
Amortization expense for intangible assets was approximately $21.2 million and $61.3 million, for the three and nine months ended September 30, 2023 and approximately $20.6 million and $61.9 million for the three and nine months ended September 30, 2022, respectively.
U.S. patents covering Trokendi XR and Oxtellar XR will expire no earlier than 2027. In regard to Trokendi XR, the Company entered into settlement agreements that allowed third parties to enter the market on January 1, 2023. In regard to Oxtellar XR, the Company entered into settlement and license agreements that allows a third party to enter the market in September 2024, or sooner under certain conditions.
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 2023 Notes matured on April 1, 2023. On March 30, 2023, the Company transferred funds totaling $403.8 million to the Trustee (Wilmington Trust) related to the repayment of the 2023 Notes which was reported as restricted cash in the first quarter of 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 with the restricted cash.
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
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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.
As of December 31, 2022, the liability component of the 2023 Notes consisted of the following, (dollars in thousands):
December 31,
2022
 
2023 Notes$402,500 
Unamortized debt discount and deferred financing costs(532)
Total carrying value$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.
On March 30, 2023, the Company borrowed $93.0 million under the Credit Line, which bore a variable interest rate. The funds from this borrowing were used to repay outstanding indebtedness under the 2023 Notes as discussed above under the Convertible Senior Notes Due 2023. As of June 30, 2023, the Company repaid the total principal balance of $93.0 million under the Credit Line and the interest incurred on the Credit Line of $0.7 million. As of September 30, 2023, there was no outstanding debt under the Credit Line.
9.    Share-Based Payments
Share-based compensation expense is as follows (dollars in thousands):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
(unaudited)(unaudited)
Research and development$1,254 $825 $3,458 $2,284 
Selling, general and administrative6,666 4,160 16,856 11,023 
Total$7,920 $4,985 $20,314 $13,307 
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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, 20225,797,569 $26.99 6.11
Granted 1,148,143 $38.28 
Exercised (228,628)$17.50 
Forfeited (91,986)$33.24 
Outstanding, September 30, 2023 (unaudited)6,625,098 $29.17 6.14
As of September 30, 2023 (unaudited):
Vested and expected to vest6,625,098 $29.17 6.14
Exercisable 4,116,000 $26.44 4.65
As of December 31, 2022:
Vested and expected to vest5,797,569 $26.99 6.11
Exercisable3,541,395 $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, 2022131,960 $32.17 
Granted227,980 $38.60 
Vested(47,049)$32.18 
Forfeited(6,375)$34.63 
Nonvested, September 30, 2023 (unaudited)306,516 $36.90 
Performance Share Units
The following table summarizes performance share unit (PSU) activities:
Performance-Based UnitsMarket-Based UnitsTotal PSUs
Number of PSUsWeighted
Average
Grant Date Fair Value per Share
Number of PSUsWeighted
Average
Grant Date Fair Value per Share
Number of PSUsWeighted
Average
Grant Date Fair Value per Share
Nonvested, December 31, 2022181,750 $29.07 20,000 $28.63 201,750 $29.03 
Granted205,000 $34.00  $ 205,000 $34.00 
Vested(102,520)$31.04  $ (102,520)$31.04 
Forfeited(3,000)$28.93  $ (3,000)$28.93 
Nonvested, September 30, 2023 (unaudited)281,230$31.95 20,000$28.63 301,230$31.73 
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10.    Earnings (Loss) per Share
Basic earnings (loss) per share is calculated using the weighted average number of common shares outstanding. Diluted earnings (loss) per share 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 as determined per the treasury method, 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 earnings (loss) per share 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 earnings (loss) per share because inclusion would be anti-dilutive. Specifically, the denominator of the diluted earnings (loss) per share 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. The Convertible Note Hedge Transactions are not considered in calculating diluted earnings (loss) 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 and shares associated with the conversion of the 2023 Notes in the calculation of diluted earnings (loss) per share, because their inclusion would be anti-dilutive:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
(unaudited)(unaudited)
2023 Notes 6,783,936 2,261,312  
Stock options, RSUs, PSUs411,506 792,904 486,080 470,822 
The following table sets forth the computation of basic and diluted earnings (loss) per share for the three and nine months ended September 30, 2023 and 2022 under the if-converted method (dollars in thousands, except share and per share amounts):

Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
(unaudited)(unaudited)
Numerator:
Net earnings (loss)$(15,976)$1,749 $141 $35,230 
After-tax interest expense for 2023 Notes   2,664 
Numerator for dilutive earnings (loss) per share
$(15,976)$1,749 $141 $37,894 
Denominator:
Weighted average shares outstanding, basic54,608,963 53,789,674 54,498,687 53,517,838 
Effect of dilutive securities:
Stock options, RSUs and SARs 1,245,164 1,076,235 1,241,347 
Convertible notes   6,783,936 
Weighted average shares outstanding, diluted54,608,963 55,034,838 55,574,922 61,543,121 
Earnings (loss) per share, basic$(0.29)$0.03 $0.00 $0.66 
Earnings (loss) per share, diluted$(0.29)$0.03 $0.00 $0.62 
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11.    Income Tax Expense (Benefit)
The following table provides information regarding the Company’s income tax expense (benefit) for the three and nine months ended September 30, 2023 and 2022 (dollars in thousands):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
(unaudited)(unaudited)
Income tax expense (benefit)$25,865 $(2,193)$1,638 $(9,627)
Effective tax rate261.6 %493.9 %92.1 %(37.6)%
Income tax expense was $25.9 million for the three months ended September 30, 2023, as compared to income tax benefit of $2.2 million for the same period in the prior year. The change was primarily due to the larger pretax income in the third quarter of 2023. Income tax expense was $1.6 million for the nine months ended September 30, 2023, as compared to income tax benefit of $9.6 million for the same period in the prior year. The change was primarily due to certain tax benefits recognized with certain reorganization activities that occurred during the first quarter of 2022.
The change in the effective tax rates for both the three months ended September 30, 2023 and nine months ended September 30, 2023, as compared to the same periods in prior year, were primarily due to lower pretax earnings forecasted for 2023. ASC 740, Income Taxes (ASC 740), requires an estimate of the annual effective income tax rate for the full year and apply it to pretax income (loss) for each interim period, taking into account year-to-date amounts and projected results for the full year. The annual forecasted earnings represent the Company's best estimate as of September 30, 2023 and is subject to changes, which could have a material impact on the effective tax rate in subsequent periods.
12.    Leases
Operating lease assets and lease liabilities as reported on the unaudited condensed consolidated balance sheets are as follows (dollars in thousands):

Balance Sheet ClassificationSeptember 30, 2023December 31, 2022
(unaudited)
Assets
Operating lease assetsOther assets$29,456 $28,904 
Total lease assets$29,456 $28,904 
Liabilities
Operating lease liabilities, current portionAccounts payable and accrued liabilities$8,480 $6,791 
Operating lease liabilities, long-termOperating lease liabilities, long-term33,841 35,998 
Total lease liabilities$42,321 $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 September 30, 2023 and December 31, 2022, the Company has reduced accounts receivable by approximately $10.8 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.
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Inventories
September 30,
2023
December 31,
2022
(unaudited)
Raw materials$21,556 $24,820 
Work in process26,966 31,710 
Finished goods34,958 35,011 
Total$83,480 $91,541 
Property and Equipment
September 30,
2023
December 31,
2022
(unaudited)
Lab equipment and furniture$12,620 $12,127 
Leasehold improvements14,023 14,023 
Software883 883 
Computer equipment1,078 983 
Construction-in-progress 206 
28,604 28,222 
Less accumulated depreciation and amortization(14,916)(13,049)
Property and equipment, net$13,688 $15,173 
Depreciation and amortization expense on property and equipment was approximately $0.6 million and $1.9 million for the three and nine months ended September 30, 2023, and approximately $0.8 million and $2.2 million for the three and nine months ended September 30, 2022, respectively.
Accounts Payable and Accrued Liabilities
September 30,
2023
December 31,
2022
(unaudited)
Accounts payable$3,389 $10,543 
Accrued compensation, benefits, & related accruals19,025 16,963 
Accrued sales & marketing11,656 16,783 
Accrued R&D expenses9,659 7,490 
Accrued manufacturing expenses9,569 15,216 
Accrued royalties (1)
8,852 12,022 
Operating lease liabilities, current portion (2)
8,480