Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
 
FORM 10-Q
 
(Mark One)
 
x     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2016
 
OR
 
o        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	 	(I.R.S. Employer	
incorporation or organization)	 	Identification No.)	
 	 	 	
1550 East Gude Drive, Rockville, MD	 	20850	
(Address of principal executive offices)	 	(Zip Code)	
 
(301) 838-2500
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes  o  No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    x  Yes  o  No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer o	 	Accelerated filer x	
 	 	 	
Non-accelerated filer o	 	Smaller reporting company o	
(Do not check if a smaller reporting company)	 	 	
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   o Yes x  No
 
The number of outstanding shares of the registrant’s common stock, par value $0.001 per share, as of the close of business on July 29, 2016 was 49,508,476.

 

Table of Contents
 
SUPERNUS PHARMACEUTICALS, INC.
FORM 10-Q — QUARTERLY REPORT
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2016
TABLE OF CONTENTS
 
 	Page No.	
PART I — FINANCIAL INFORMATION	 	
Item 1. Financial Statements	 	
Consolidated Balance Sheets as of June 30, 2016 (Unaudited) and December 31, 2015	1	
Consolidated Statements of Operations for the three and six month periods ended June 30, 2016 and 2015 (Unaudited)	2	
Consolidated Statements of Comprehensive Income for the three and six month periods ended June 30, 2016 and 2015 (Unaudited)	3	
Consolidated Statements of Cash Flows for the six month periods ended June 30, 2016 and 2015 (Unaudited)	4	
Notes to Consolidated Financial Statements (Unaudited)	5	
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	16	
Item 3. Quantitative and Qualitative Disclosures about Market Risk	25	
Item 4. Controls and Procedures	25	
PART II — OTHER INFORMATION	 	
Item 1. Legal Proceedings	26	
Item 1A. Risk Factors	29	
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	29	
Item 3. Defaults Upon Senior Securities	29	
Item 4. Mine Safety Disclosures	29	
Item 5. Other Information	29	
Item 6. Exhibits	29	
SIGNATURES	31	

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PART I — FINANCIAL INFORMATION
 
Supernus Pharmaceuticals, Inc.
Consolidated Balance Sheets
(in thousands, except share amounts)
 
 	 	June 30,	 	December 31,	 	
 	 	2016	 	2015	 	
 	 	(unaudited)	 	 	 	
Assets	 	 	 	 	 	
Current assets:	 	 	 	 	 	
Cash and cash equivalents	 	$	36,156	 	$	34,152	 	
Marketable securities	 	24,058	 	28,038	 	
Accounts receivable, net	 	34,281	 	25,908	 	
Inventories, net	 	16,373	 	12,587	 	
Prepaid expenses and other current assets	 	3,272	 	5,261	 	
Total current assets	 	114,140	 	105,946	 	
Long term marketable securities	 	67,809	 	55,009	 	
Property and equipment, net	 	4,193	 	3,874	 	
Deferred legal fees	 	16,386	 	22,503	 	
Intangible assets, net	 	15,785	 	976	 	
Other non-current assets	 	320	 	318	 	
 	 	 	 	 	 	
Total assets	 	$	218,633	 	$	188,626	 	
 	 	 	 	 	 	
Liabilities and stockholders’ equity	 	 	 	 	 	
Current liabilities:	 	 	 	 	 	
Accounts payable	 	$	2,243	 	$	4,314	 	
Accrued sales deductions	 	35,019	 	26,794	 	
Accrued expenses	 	28,102	 	24,813	 	
Deferred licensing revenue	 	208	 	176	 	
Total current liabilities	 	65,572	 	56,097	 	
Deferred licensing revenue, net of current portion	 	1,606	 	1,390	 	
Convertible notes, net	 	5,699	 	7,085	 	
Other non-current liabilities	 	4,322	 	4,325	 	
Derivative liabilities	 	412	 	854	 	
 	 	 	 	 	 	
Total liabilities	 	77,611	 	69,751	 	
 	 	 	 	 	 	
Stockholders’ equity:	 	 	 	 	 	
Common stock, $0.001 par value, 130,000,000 shares authorized at June 30, 2016 and December 31, 2015; 49,508,476 and 49,004,674 shares issued and outstanding at June 30, 2016 and December 31, 2015, respectively	 	50	 	49	 	
Additional paid-in capital	 	270,059	 	263,955	 	
Accumulated other comprehensive income (loss)	 	549	 	(488	)	
Accumulated deficit	 	(129,636	)	(144,641	)	
Total stockholders’ equity	 	141,022	 	118,875	 	
 	 	 	 	 	 	
Total liabilities and stockholders’ equity	 	$	218,633	 	$	188,626	 	
 
See accompanying notes.
 
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Supernus Pharmaceuticals, Inc.
Consolidated Statements of Operations
(in thousands, except share and per share data)
 
 	 	Three Months ended June 30,	 	Six Months ended June 30,	 	
 	 	2016	 	2015	 	2016	 	2015	 	
 	 	(unaudited)	 	(unaudited)	 	
Revenue	 	 	 	 	 	 	 	 	 	
Net product sales	 	$	50,335	 	$	34,266	 	$	93,360	 	$	62,363	 	
Licensing revenue	 	86	 	786	 	135	 	822	 	
 	 	 	 	 	 	 	 	 	 	
Total revenue	 	50,421	 	35,052	 	93,495	 	63,185	 	
 	 	 	 	 	 	 	 	 	 	
Costs and expenses	 	 	 	 	 	 	 	 	 	
Cost of product sales	 	2,751	 	1,762	 	4,786	 	3,380	 	
Research and development	 	11,109	 	6,878	 	21,671	 	10,561	 	
Selling, general and administrative	 	26,121	 	23,336	 	51,281	 	42,737	 	
 	 	 	 	 	 	 	 	 	 	
Total costs and expenses	 	39,981	 	31,976	 	77,738	 	56,678	 	
 	 	 	 	 	 	 	 	 	 	
Operating income	 	10,440	 	3,076	 	15,757	 	6,507	 	
Other income (expense)	 	 	 	 	 	 	 	 	 	
Interest income	 	363	 	137	 	694	 	250	 	
Interest expense	 	(196	)	(331	)	(375	)	(712	)	
Changes in fair value of derivative liabilities	 	123	 	1	 	224	 	(48	)	
Loss on extinguishment of debt	 	—	 	(241	)	(382	)	(2,375	)	
Other income (expense)	 	2	 	25	 	(1	)	25	 	
 	 	 	 	 	 	 	 	 	 	
Total other income (expense)	 	292	 	(409	)	160	 	(2,860	)	
 	 	 	 	 	 	 	 	 	 	
Earnings before income taxes	 	10,732	 	2,667	 	15,917	 	3,647	 	
 	 	 	 	 	 	 	 	 	 	
Income tax expense	 	714	 	662	 	912	 	724	 	
 	 	 	 	 	 	 	 	 	 	
Net income	 	$	10,018	 	$	2,005	 	$	15,005	 	$	2,923	 	
 	 	 	 	 	 	 	 	 	 	
Income per common share:	 	 	 	 	 	 	 	 	 	
Basic	 	$	0.20	 	$	0.04	 	$	0.30	 	$	0.06	 	
Diluted	 	$	0.18	 	$	0.03	 	$	0.28	 	$	0.06	 	
 	 	 	 	 	 	 	 	 	 	
Weighted-average number of common shares outstanding:	 	 	 	 	 	 	 	 	 	
Basic	 	49,427,825	 	47,911,932	 	49,333,962	 	46,246,866	 	
Diluted	 	51,745,342	 	52,273,549	 	51,484,686	 	47,687,992	 	
 
See accompanying notes.
 
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Supernus Pharmaceuticals, Inc.
Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
 
 	 	Three Months ended June 30,	 	Six Months ended June 30,	 	
 	 	2016	 	2015	 	2016	 	2015	 	
 	 	(unaudited)	 	(unaudited)	 	
 	 	 	 	 	 	 	 	 	 	
Net income	 	$	10,018	 	$	2,005	 	$	15,005	 	$	2,923	 	
Other comprehensive income:	 	 	 	 	 	 	 	 	 	
Unrealized net gain (loss) on marketable securities	 	381	 	(86	)	1,037	 	3	 	
Other comprehensive income (loss):	 	381	 	(86	)	1,037	 	3	 	
 	 	 	 	 	 	 	 	 	 	
Comprehensive income	 	$	10,399	 	$	1,919	 	$	16,042	 	$	2,926	 	
 
See accompanying notes.
 
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Supernus Pharmaceuticals, Inc.
Consolidated Statements of Cash Flows
(in thousands)
 
 	 	Six Months ended June 30,	 	
 	 	2016	 	2015	 	
 	 	(unaudited)	 	
Cash flows from operating activities	 	 	 	 	 	
Net income	 	$	15,005	 	$	2,923	 	
 	 	 	 	 	 	
Adjustments to reconcile net income to net cash provided by operating activities:	 	 	 	 	 	
Loss on extinguishment of debt	 	382	 	2,375	 	
Change in fair value of derivative liability	 	(224	)	48	 	
Depreciation and amortization	 	1,117	 	431	 	
Non-cash interest expense, net/ interest income, net	 	405	 	524	 	
Share-based compensation expense	 	2,971	 	2,020	 	
Changes in operating assets and liabilities:	 	 	 	 	 	
Accounts receivable	 	(8,373	)	(630	)	
Inventories	 	(3,786	)	(151	)	
Prepaid expenses and other assets	 	1,989	 	(738	)	
Accounts payable	 	(2,071	)	2,655	 	
Accrued sales deduction	 	8,225	 	7,527	 	
Accrued expenses	 	(2,249	)	(1,261	)	
Deferred licensing revenue	 	248	 	(72	)	
Other non-current liabilities	 	(4	)	(482	)	
Net cash provided by operating activities	 	13,635	 	15,169	 	
 	 	 	 	 	 	
Cash flows from investing activities	 	 	 	 	 	
Purchases of marketable securities	 	(23,693	)	(34,274	)	
Sales and maturities of marketable securities	 	15,658	 	21,865	 	
Purchases of property and equipment	 	(903	)	(777	)	
Deferred legal fees	 	(3,688	)	(6,278	)	
Net cash used in investing activities	 	(12,626	)	(19,464	)	
 	 	 	 	 	 	
Cash flows from financing activities	 	 	 	 	 	
Proceeds from issuance of common stock	 	995	 	1,009	 	
Net cash provided by financing activities	 	995	 	1,009	 	
 	 	 	 	 	 	
Net change in cash and cash equivalents	 	2,004	 	(3,286	)	
Cash and cash equivalents at beginning of period	 	34,152	 	36,396	 	
Cash and cash equivalents at end of period	 	$	36,156	 	$	33,110	 	
 	 	 	 	 	 	
Supplemental cash flow information:	 	 	 	 	 	
Cash paid for interest	 	$	247	 	$	504	 	

Non-cash financial activity:	 	 	 	 	 	
Conversion of convertible notes and interest make-whole	 	$	2,138	 	$	25,056	 	
Deferred legal fees included in accounts payable and accrued expenses	 	$	5,537	 	$	—	 	
 
See accompanying notes.
 
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Supernus Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements
For the Six Months ended June 30, 2016 and 2015
(unaudited)
 
1.  Organization and Business
 
Supernus Pharmaceuticals, Inc. (the Company) was incorporated in Delaware on March 30, 2005, and commenced operations on December 22, 2005. The Company is a specialty pharmaceutical company focused on developing and commercializing products for the treatment of central nervous system (CNS) diseases, including neurological and psychiatric disorders. The Company markets two epilepsy products, Oxtellar XR and Trokendi XR, and has several proprietary product candidates in clinical development that address the psychiatry market.
 
The Company commenced the commercialization of Oxtellar XR and Trokendi XR in 2013.
 
2.  Summary of Significant Accounting Policies
 
Basis of Presentation
 
The Company’s consolidated financial statements include the accounts of Supernus Pharmaceuticals, Inc. and Supernus Europe Ltd., collectively referred to herein as “Supernus” or “the Company.” All significant intercompany transactions and balances have been eliminated in consolidation. The Company’s unaudited 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 consolidated financial statements presented in this Quarterly Report on Form 10-Q. Therefore, these financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 filed with the SEC.
 
In the opinion of management, the consolidated financial statements reflect all adjustments necessary to fairly present the Company’s financial position, results of operations, and cash flows for the periods presented. These adjustments are of a normal recurring nature.  The Company currently operates in one business segment.
 
The results of operations for the three and six months ended June 30, 2016 are not necessarily indicative of the Company’s future financial results.
 
Marketable Securities
 
Marketable securities consist of investments in U.S. Treasuries, various U.S. governmental agency debt securities, corporate bonds and other fixed income securities. The Company’s investments are classified as available for sale. Such securities are carried at estimated fair value, with any unrealized holding gains or losses reported, net of any tax effects reported, as accumulated other comprehensive income, which is a separate component of stockholders’ equity. Realized gains and losses, and declines in value judged to be other-than-temporary, if any, are included in consolidated results of operations. A decline in the market value of any available for sale security below cost that is deemed to be other-than-temporary results in a reduction in fair value, which is charged to earnings in that period, and a new cost basis for the security is established. Dividend and interest income is recognized when earned. The cost of securities sold is calculated using the specific identification method. The Company places all investments with government, industrial, or financial institutions whose debt is rated as investment grade. The Company classifies all available-for-sale marketable securities with maturities greater than one year from the balance sheet date as non-current assets.
 
The Company established the Supernus Supplemental Executive Retirement Plan (SERP) for the sole purpose of receiving funds for executives from a previous SERP and providing a continuing deferral program under the Supernus SERP. As of June 30, 2016 and December 31, 2015, the fair value of the SERP was $266,000 and $263,000, respectively. The SERP assets were held in mutual fund investments. The fair value of these assets is included within other non-current assets on the consolidated balance sheets. A corresponding noncurrent liability is also included in the consolidated balance sheets to reflect the Company’s obligation for the SERP. The Company has not made, and has no plans to make, contributions to the SERP. The securities are restricted in nature and can only be used for purposes of paying benefits under the SERP.
 
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Accounts Receivable, net
 
Accounts receivable are reported on the consolidated balance sheets at outstanding amounts, less an allowance for doubtful accounts and discounts. The Company extends credit without requiring collateral. The Company writes off uncollectible receivables when the likelihood of collection is remote. The Company evaluates the collectability of accounts receivable on a regular basis. An allowance, when needed, is based upon various factors including the financial condition and payment history of customers, an overall review of collections experience on other accounts, and economic factors or events expected to affect future collections experience. The Company recorded an allowance of approximately $0.1 million as of June 30, 2016 and no accounts were written off as of December 31, 2015. The Company recorded an allowance of approximately $4.8 million and $3.8 million for expected sales discounts as of June 30, 2016 and December 31, 2015, respectively.
 
Deferred Financing Costs
 
Deferred financing costs consist of financing costs incurred by the Company in connection with the closing of the Company’s 7.50% Convertible Senior Secured Notes due 2019 (the Notes) (see Note 8). The Company amortizes deferred financing costs over the term of the related debt using the effective interest method. When extinguishing debt, the related deferred financing costs are written off.
 
Revenue Recognition
 
Revenue from product sales is recognized when persuasive evidence of an arrangement exists; delivery has occurred and title to the product and associated risk of loss has passed to the customer; the price is fixed or determinable; collection from the customer has been reasonably assured; all performance obligations have been met; and returns and allowances can be reasonably estimated. Product sales are recorded net of estimated rebates, chargebacks, discounts, co-pay assistance and other deductions as well as estimated product returns (collectively, “sales deductions”).
 
Our products are distributed through wholesalers and pharmaceutical distributors. Each of these wholesalers and distributors will take title and ownership to the product upon physical receipt of the product and then distribute our products to pharmacies.
 
Sales Deductions
 
Allowances for estimated sales deductions are provided for the following:
 
·                  Rebates.  Rebates include mandated discounts under the Medicaid Drug Rebate Program, the Medicare coverage gap program, as well as negotiated discounts with commercial healthcare providers. Rebates are amounts owed after the final dispensing of products to a benefit plan participant and are based upon contractual agreements or legal requirements with the public sector (e.g. Medicaid) and with private sector benefit providers. The allowance for rebates is based on statutory and contractual discount rates and expected claimed rebates paid based on a plan provider’s utilization. Rebates are generally invoiced and paid quarterly in arrears so that the accrual balance consists of an estimate of the amount expected to be incurred for the current quarter’s activity, plus an accrual balance for known or estimated prior quarters’ unpaid rebates. If actual future rebates vary from estimates, we may need to adjust balances of such rebates to reflect the actual expenditures of the Company with respect to these programs, which would affect revenue in the period of adjustment.
 
·                  Chargebacks.  Chargebacks are discounts that occur when contracted customers purchase directly from an intermediary distributor or wholesaler. Contracted customers, which currently consist primarily of Public Health Service institutions and federal government entities purchasing via the Federal Supply Schedule, generally purchase the product at a discounted price. The distributor or wholesaler, in turn, charges back the difference between the price initially paid by the distributor or wholesaler and the discounted price paid to the distributor or wholesaler by the customer. The allowance for distributor/wholesaler chargebacks is based on known sales to contracted customers.
 
·                  Distributor/Wholesaler deductions and discounts.  U.S. specialty distributors and wholesalers are offered various forms of consideration including allowances, service fees and prompt payment discounts for distributing our products. Distributor allowances and service fees arise from contractual agreements with distributors and are generally a percentage of the purchase price paid by the distributors and wholesalers. Wholesale customers are offered a prompt pay discount for payment within a specified period.
 
·                  Co-pay assistance.  Patients who pay in cash or have commercial insurance and meet certain eligibility requirements may receive co-pay assistance from the Company. The intent of this program is to reduce the patient’s out of pocket costs. Liabilities for co-pay assistance are based on actual program participation and estimates of program redemption using data provided by third-party administrators.
 
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·                  Returns.  Sales of our products are not subject to a general right of return; however, the Company will accept product that is damaged or defective when shipped directly from our warehouse. The Company will accept expired product six months prior and up to 12 months subsequent to its expiry date. Product that has been used to fill patient prescriptions is no longer subject to any right of return.
 
Milestone Payments
 
Milestone payments on licensing agreements are recognized as revenue when the collaborative partner acknowledges completion of the milestone and substantive effort (i.e., effort consistent with amount of the milestone) that was necessary to achieve the milestone. Management may recognize revenue contingent upon the achievement of a milestone in its entirety in the period in which the milestone is achieved only if the milestone meets all the criteria to be considered substantive. The Company recorded no milestone revenue during the three months and six months ended June 30, 2016 and $750,000 of milestone revenue during the three and six months ended June 30, 2015.
 
Cost of Product Sales
 
The cost of product sales consists primarily of materials, third-party manufacturing costs, freight and distribution costs, allocation of labor, quality control and assurance, and other manufacturing overhead costs.
 
Income Taxes
 
The Company utilizes the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax reporting bases of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. Valuation allowances are established to reduce deferred tax assets to the amounts expected to be realized.
 
The Company accounts for uncertain tax positions in its consolidated financial statements when it is more-likely-than-not that the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts. The Company’s policy is to recognize any interest and penalties related to income taxes in income tax expense.
 
Recently Issued Accounting Pronouncements
 
In March 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-09, “Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” The standard is intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax impact, classification on the statement of cash flows and forfeitures. ASU 2016-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and early adoption is permitted. We are currently evaluating the impact that the standard will have on our consolidated financial statements.
 
In February 2016, FASB issued ASU No. 2016-02, “Leases (Topic 842).” The standard requires a lessee to recognize assets and liabilities on the balance sheet for leases with lease terms greater than 12 months. ASU 2016-02 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, and early adoption is permitted. We are currently evaluating the impact that the standard will have on our consolidated financial statements.
 
In April 2015, FASB issued ASU No. 2015-03, “Simplifying the Presentation of Debt Issuance Costs.” This ASU more closely aligns the treatment of debt issuance costs with debt discounts and premiums and requires debt issuance costs to be presented as a direct deduction from the carrying amount of the related debt. The amendments in this ASU are effective for financial statements issued for fiscal years beginning after December 15, 2015 and interim periods within those fiscal years. This guidance was applied on a retrospective basis and the Company was required to comply with the applicable disclosures for a change in accounting principle. The adoption of ASU 2015-03 resulted in a reclassification of deferred financing costs of $104,000 from asset to liability classification on the Company’s consolidated December 31, 2015 financial statements.
 
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers”. ASU 2014-09 will eliminate transaction-and industry-specific revenue recognition guidance under current U.S. GAAP and replace it with a principles-based approach for determining revenue recognition. ASU 2014-09 will require that companies recognize revenue based on the value of transferred goods or services as they occur in the contract. The ASU also will require additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016. The FASB has voted to approve a one-year deferral, changing the effective date to annual reporting periods beginning after December 15, 2017, with early adoption being permitted for periods ending after December 15, 2016. Entities can transition to the standard either retrospectively or as a cumulative effect adjustment as of the date of adoption. Presently, the Company is assessing what effect the adoption of ASU 2014-09 will have on our consolidated financial statements and accompanying notes and has not yet selected a method of adoption.
 
3.  Fair Value of Financial Instruments
 
The fair value of an asset or liability should represent the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Such transactions to sell an asset or transfer a liability are assumed to occur in the principal or most advantageous market for the asset or liability. Accordingly, fair value is determined based on a hypothetical
 
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transaction at the measurement date, considered from the perspective of a market participant rather than from a reporting entity’s perspective.
 
The Company reports assets and liabilities that are measured at fair value using a three tier or level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy maximizes the use of observable inputs and minimizes the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
 
·                  Level 1—Inputs are unadjusted quoted prices in active markets for identical assets that the Company has the ability to access at the measurement date.
 
·                  Level 2—Inputs are quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (interest rates, yield curves, etc.) and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).
 
·                  Level 3—Unobservable inputs that reflect the Company’s own assumptions, based on the best information available, including the Company’s own data.
 
In accordance with the fair value hierarchy described above, the following tables show the fair value of the Company’s financial assets and liabilities that are required to be measured at fair value, in thousands:
 
 	 	Fair Value Measurements at	 	
 	 	June 30, 2016	 	
 	 	(unaudited)	 	
 	 	 	 	 	 	Significant	 	 	 	
 	 	Total Carrying	 	Quoted Prices	 	Other	 	Significant	 	
 	 	Value at	 	in Active	 	Observable	 	Unobservable	 	
 	 	June 30,	 	Markets	 	Inputs	 	Inputs	 	
 	 	2016	 	(Level 1)	 	(Level 2)	 	(Level 3)	 	
Assets:	 	 	 	 	 	 	 	 	 	
Cash and cash equivalents	 	$	36,156	 	$	36,156	 	$	—	 	$	—	 	
Marketable securities	 	24,058	 	—	 	24,058	 	—	 	
Long term marketable securities	 	67,809	 	—	 	67,809	 	—	 	
Marketable securities - restricted (SERP)	 	266	 	—	 	266	 	—	 	
Total assets at fair value	 	$	128,289	 	$	36,156	 	$	92,133	 	$	—	 	
 	 	 	 	 	 	 	 	 	 	
Liabilities:	 	 	 	 	 	 	 	 	 	
Derivative liabilities	 	$	412	 	$	—	 	$	—	 	$	412	 	
 
 	 	Fair Value Measurements at	 	
 	 	December 31, 2015	 	
 	 	 	 	 	 	Significant	 	 	 	
 	 	Total Carrying	 	Quoted Prices	 	Other	 	Significant	 	
 	 	Value at	 	in Active	 	Observable	 	Unobservable	 	
 	 	December 31,	 	Markets	 	Inputs	 	Inputs	 	
 	 	2015	 	(Level 1)	 	(Level 2)	 	(Level 3)	 	
Assets:	 	 	 	 	 	 	 	 	 	
Cash and cash equivalents	 	$	34,152	 	$	34,152	 	$	—	 	$	—	 	
Marketable securities	 	28,038	 	—	 	28,038	 	—	 	
Long term marketable securities	 	55,009	 	—	 	55,009	 	—	 	
Marketable securities - restricted (SERP)	 	263	 	—	 	263	 	—	 	
Total assets at fair value	 	$	117,462	 	$	34,152	 	$	83,310	 	$	—	 	
 	 	 	 	 	 	 	 	 	 	
Liabilities:	 	 	 	 	 	 	 	 	 	
Derivative liabilities	 	$	854	 	$	—	 	$	—	 	$	854	 	
 
The fair value of the restricted marketable securities is included within other non-current assets in the consolidated balance sheets.
 
The Company’s Level 1 assets include cash held with banks and money market funds.
 
Level 2 assets include the SERP assets, commercial paper and investment grade corporate bonds and other fixed income securities. Level 2 securities are valued using third-party pricing sources that apply applicable inputs and other relevant data into their models to estimate fair value.
 
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Level 3 liabilities include the estimated fair value of the interest make-whole liability associated with the Company’s Notes, which are recorded as derivative liabilities.
 
The fair value of the interest make-whole liability of the Notes was calculated using a binomial-lattice model with the following key assumptions as of June 30, 2016, unaudited:
 
Volatility	 	45%	 	
Stock Price as of June 30, 2016	 	$20.37 per share	 	
Credit Spread	 	900 bps	 	
Term	 	10 months	 	
Dividend Yield	 	0.0%	 	
 
Significant changes to these assumptions could result in increases/decreases to the fair value of the derivative liabilities.
 
Changes in the fair value of the interest make-whole liability are recognized as a component of other income (expense) in the Consolidated Statements of Operations. The following table presents information about the Company’s Level 3 liabilities as of December 31, 2015 and June 30, 2016 that are included in the non-current liabilities section of the consolidated balance sheets, in thousands:
 
 	 	Six Months ended	 	
 	 	June 30, 2016	 	
 	 	(unaudited)	 	
 	 	 	 	
Balance at December 31, 2015	 	$	854	 	
 	 	 	 	
Changes in fair value of derivative liabilities included in earnings	 	(224	)	
Reduction due to conversion of debt to equity	 	(218	)	
 	 	 	 	
Balance at June 30, 2016	 	$	412	 	
 
The carrying value, face value and estimated fair value of the Notes was approximately $5.7 million, $6.6 million and $25.8 million, respectively, as of June 30, 2016. The fair value was estimated based on actual trade information as well as quoted prices provided by bond traders, which would be characterized within Level 2 of the fair value hierarchy. This fair value amount gives recognition to the value of the interest make-whole liability and the value of the conversion option. Upon issuance, these were accounted for as derivative liabilities and additional paid-in-capital, respectively.
 
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The carrying amounts of other financial instruments, including accounts receivable, accounts payable and accrued expenses, approximate fair value due to their short-term maturities. Unrestricted marketable securities held by the Company were as follows, in thousands:
 
At June 30, 2016 (unaudited):
 
Available for Sale	 	Amortized 
Cost	 	Gross 
Unrealized 
Gains	 	Gross 
Unrealized 
Losses	 	Fair Value	 	
Corporate debt securities	 	$	91,318	 	597	 	(48	)	$	91,867	 	

At December 31, 2015:
 
Available for Sale	 	Amortized 
Cost	 	Gross 
Unrealized 
Gains	 	Gross 
Unrealized 
Losses	 	Fair Value	 	
Corporate debt securities	 	$	83,535	 	5	 	(493	)	$	83,047	 	

The contractual maturities of the unrestricted available for sale marketable securities held by the Company were as follows, in thousands:
 
 	 	June 30, 2016	 	
 	 	(unaudited)	 	
Less Than 1 Year	 	$	24,058	 	
1-5 years	 	67,809	 	
Greater Than 5 Years	 	—	 	
Total	 	$	91,867	 	
 
The Company has not experienced any other-than-temporary losses on its marketable securities and restricted marketable securities. The cost of securities sold is calculated using the specific identification method.
 
4. Inventories
 
Inventories consist of the following, in thousands:
 
 	 	June 30,	 	December 31,	 	
 	 	2016	 	2015	 	
 	 	(unaudited)	 	 	 	
Raw materials	 	$	2,935	 	$	2,887	 	
Work in process	 	6,238	 	3,946	 	
Finished goods	 	7,200	 	5,754	 	
 	 	$	16,373	 	$	12,587	 	
 
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5.  Property and Equipment
 
Property and equipment consist of the following, in thousands:
 
 	 	June 30,	 	December 31,	 	
 	 	2016	 	2015	 	
 	 	(unaudited)	 	 	 	
Computer equipment	 	$	1,152	 	$	1,112	 	
Software	 	1,611	 	307	 	
Lab equipment and furniture	 	6,333	 	5,667	 	
Leasehold improvements	 	2,642	 	2,642	 	
Construction in progress	 	8	 	1,114	 	
 	 	11,746	 	10,842	 	
Less accumulated depreciation and amortization	 	(7,553	)	(6,968	)	
 	 	$	4,193	 	$	3,874	 	
 
Depreciation and amortization expense on property and equipment was approximately $298,000 and $585,000 for the three and six months ended June 30, 2016, and $160,000 and $317,000 for the three and six months ended June 30, 2015, respectively.
 
6.  Deferred Legal Fees and Intangible Assets
 
Deferred legal fees have been incurred in connection with patent litigation for Oxtellar XR and Trokendi XR. As of June 30, 2016 and December 31, 2015, the Company had deferred legal fees of $16.4 million and $22.5 million, respectively.
 
The following sets forth the gross carrying amount and related accumulated amortization of the intangible asset, in thousands:
 
 	 	 	 	June 30, 2016	 	 	 	 	 	
 	 	 	 	(unaudited)	 	December 31, 2015	 	
 	 	 	 	Gross Carrying	 	Accumulated	 	Gross Carrying	 	Accumulated	 	
 	 	Average Life	 	Amount	 	Amortization	 	Amount	 	Amortization	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Capitalized patent defense costs	 	9.5 - 11 years	 	$	16,318	 	$	533	 	$	994	 	$	18	 	

The Company prevailed in a lawsuit related to Oxtellar XR in February 2016, at which time the Company began amortizing the costs associated with that litigation.
 
The net book value of intangible assets was $15.8 million as of June 30, 2016 and was $1.0 million as of December 31, 2015. The increase in intangible assets reflects the successful outcome of the lawsuit related to Oxtellar XR in February 2016. There is an offsetting reduction in the amount carried as deferred legal fees, as described above. Amortization expense on intangible assets was approximately $0.4 million and $0.5 million for the three and six months ended June 30, 2016 and was approximately $57,000 and $115,000 for the three and six months ended June 30, 2015.
 
There were no indicators of impairment identified at June 30, 2016 or December 31, 2015.
 
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7.  Accrued Expenses
 
Accrued expenses are comprised of the following, in thousands:
 
 	 	June 30,	 	December 31,	 	
 	 	2016	 	2015	 	
 	 	(unaudited)	 	 	 	
 	 	 	 	 	 	
Accrued professional fees	 	$	12,051	 	$	10,057	 	
Accrued compensation	 	6,507	 	7,519	 	
Accrued clinical trial and clinical supply costs	 	3,225	 	3,677	 	
Accrued product costs	 	923	 	113	 	
Accrued sales and marketing expenses	 	575	 	434	 	
Accrued interest expense	 	270	 	295	 	
Other accrued expenses	 	4,551	 	2,718	 	
 	 	$	28,102	 	$	24,813	 	
 
8.   Convertible Senior Secured Notes
 
The table below summarizes activity related to the Notes from issuance on May 3, 2013 through June 30, 2016, in thousands:
 
Gross proceeds	 	$	90,000	 	
Initial value of interest make-whole derivative reported as debt discount	 	(9,270	)	
Conversion option reported as debt discount and APIC	 	(22,336	)	
Conversion of debt to equity - principal	 	(81,463	)	
Conversion of debt to equity - accretion of debt discount and deferred financing costs	 	25,003	 	
Accretion of debt discount and deferred financing costs	 	5,151	 	
December 31, 2015 carrying value	 	7,085	 	
 	 	 	 	
Conversion of debt to equity - principal	 	(1,962	)	
Conversion of debt to equity - accretion of debt discount and deferred financing costs	 	424	 	
Accretion of debt discount and deferred financing costs	 	152	 	
June 30, 2016 carrying value, unaudited	 	$	5,699	 	
 
During the six month period ended June 30, 2016, approximately $2.0 million of the Notes were presented to the Company for conversion. Accordingly, the Company issued approximately 0.4 million shares of common stock in conversion of the principal amount of the Notes. As a result of the conversions, the Company incurred a loss of approximately $0.4 million on extinguishment of debt during the six months ended June 30, 2016, which is included as a separate component of other income (expense) on the Consolidated Statement of Operations. During the six month period ended June 30, 2015, as a result of approximately $25.3 million in note conversions, the Company incurred a loss of approximately $2.4 million on extinguishment of debt.
 
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9. Summary Stockholders’ Equity
 
The following summary table provides details related to the activity in certain captions within Stockholders’ Equity for the six month period ended June 30, 2016, in thousands:

 	 	Common Stock	 	Additional Paid-in
Capital	 	
 	 	(unaudited)	 	
 	 	 	 	 	 	
Balance, December 31, 2015	 	$	49	 	$	263,955	 	
Share-based compensation	 	—	 	2,971	 	
Exercise of stock options	 	1	 	995	 	
Equity issued on note conversion	 	—	 	2,138	 	
Balance, June 30, 2016	 	$	50	 	$	270,059	 	
 
10. Share-Based Payments
 
The Company has adopted the Supernus Pharmaceuticals, Inc. 2012 Equity Incentive Plan (the 2012 Plan), which is stockholder approved, and provides for the grant of stock options and certain other awards, including stock appreciation rights (SAR), restricted and unrestricted stock, stock units, performance awards, cash awards and other awards that are convertible into or otherwise based on the Company’s common stock, to the Company’s key employees, directors, and consultants and advisors. The 2012 Plan is administered by the Company’s Board of Directors and provides for the issuance of up to 8,000,000 shares of the Company’s common stock upon the exercise of stock awards. Option awards are granted with an exercise price equal to the estimated fair value of the Company’s common stock at the grant date. Those option awards generally vest in four annual installments, starting on the first anniversary of the date of grant and have ten year contractual terms. Share-based compensation recognized related to the grant of employee and non-employee stock options, SAR, potential Employee Stock Purchase Plan (ESPP) awards and non-vested stock was as follows, in thousands:
 
 	 	Three Months ended June 30,	 	Six Months ended June 30,	 	
 	 	2016	 	2015	 	2016	 	2015	 	
 	 	(unaudited)	 	(unaudited)	 	
 	 	 	 	 	 	 	 	 	 	
Research and development	 	$	340	 	$	206	 	$	628	 	$	410	 	
Selling, general and administrative	 	1,272	 	912	 	2,343	 	1,610	 	
Total	 	$	1,612	 	$	1,118	 	$	2,971	 	$	2,020	 	
 
The following table summarizes stock option and SAR activity:
 
 	 	Number of 
Options	 	Weighted-
Average 
Exercise Price	 	Weighted-
Average 
Remaining 
Contractual 
Term (in years)	 	
 	 	 	 	 	 	 	 	
Outstanding, December 31, 2015	 	2,699,007	 	$	8.94	 	7.92	 	
Granted (unaudited)	 	1,024,150	 	13.01	 	 	 	
Exercised (unaudited)	 	(44,057	)	4.69	 	 	 	
Forfeited or expired (unaudited)	 	(6,750	)	11.47	 	 	 	
Outstanding, June 30, 2016 (unaudited)	 	3,672,350	 	$	10.12	 	8.07	 	
 	 	 	 	 	 	 	 	
As of December 31, 2015:	 	 	 	 	 	 	 	
Vested and expected to vest	 	2,654,381	 	$	8.93	 	7.90	 	
Exercisable	 	901,672	 	$	7.95	 	6.86	 	
 	 	 	 	 	 	 	 	
As of June 30, 2016:	 	 	 	 	 	 	 	
Vested and expected to vest (unaudited)	 	3,599,518	 	$	10.09	 	8.05	 	
Exercisable (unaudited)	 	1,475,322	 	$	8.41	 	7.00	 	
 
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11.  Earnings per Share
 
Basic income per common share is determined by dividing income attributable to common stockholders by the weighted-average number of common shares outstanding during the period, without consideration of common stock equivalents. Diluted income per share is computed by dividing the income attributable to common stockholders by the weighted-average number of common share equivalents outstanding for the period. The treasury stock method is used to determine the dilutive effect of the Company’s stock option grants, SARs, and potential ESPP awards, and the if-converted method is used to determine the dilutive effect of the Company’s Notes.
 
The following common stock equivalents were excluded in the calculation of diluted income per share because their effect would be anti-dilutive as applied to the income from continuing operations applicable to common stockholders for the three and six months ended June 30, 2016 and 2015:
 
 	 	Three Months ended June 30,	 	Six Months ended June 30,	 	
 	 	2016	 	2015	 	2016	 	2015	 	
 	 	(unaudited)	 	(unaudited)	 	
 	 	 	 	 	 	 	 	 	 	
Shares underlying Convertible Senior Secured Notes	 	—	 	—	 	—	 	2,791,624	 	
Warrants to purchase common stock	 	—	 	28,613	 	—	 	25,950	 	
Stock options, stock appreciation rights, and non-vested stock options	 	1,124,100	 	—	 	1,159,100	 	—	 	
 
The following table sets forth the computation of basic and diluted net income per share for the three and six months ended June 30, 2016 and 2015, in thousands, except share and per share amounts:
 
 	 	Three Months ended June 30,	 	Six Months ended June 30,	 	
 	 	2016	 	2015	 	2016	 	2015	 	
 	 	(unaudited)	 	(unaudited)	 	
Numerator, in thousands:	 	 	 	 	 	 	 	 	 	
Net income used for calculation of basic EPS	 	$	10,018	 	$	2,005	 	$	15,005	 	$	2,923	 	
 	 	 	 	 	 	 	 	 	 	
Interest expense on convertible debt	 	196	 	331	 	375	 	—	 	
Changes in fair value of derivative liabilities	 	(123	)	(195	)	(224	)	—	 	
Loss on extinguishment of debt	 	—	 	241	 	382	 	—	 	
Loss on extinguishment of outstanding debt, as if converted	 	(849	)	(553	)	(1,183	)	—	 	
Total adjustments	 	(776	)	(176	)	(650	)	—	 	
Net income used for calculation of diluted EPS	 	$	9,242	 	$	1,829	 	$	14,355	 	$	2,923	 	
 	 	 	 	 	 	 	 	 	 	
Denominator:	 	 	 	 	 	 	 	 	 	
Weighted average shares outstanding, basic	 	49,427,825	 	47,911,932	 	49,333,962	 	46,246,866	 	
 	 	 	 	 	 	 	 	 	 	
Effect of dilutive potential common shares:	 	 	 	 	 	 	 	 	 	
Shares underlying Convertible Senior Secured Notes	 	1,240,814	 	2,417,586	 	1,301,885	 	—	 	
Shares issuable to settle interest make-whole derivatives	 	52,563	 	246,105	 	71,537	 	—	 	
Stock options, stock appreciation rights, and non-vested stock options	 	1,024,140	 	1,697,926	 	777,302	 	1,441,126	 	
Total potential dilutive common shares	 	2,317,517	 	4,361,617	 	2,150,724	 	1,441,126	 	
Weighted average shares outstanding, diluted	 	51,745,342	 	52,273,549	 	51,484,686	 	47,687,992	 	
 	 	 	 	 	 	 	 	 	 	
Net income per share, basic	 	$	0.20	 	$	0.04	 	$	0.30	 	$	0.06	 	
Net income per share, diluted	 	$	0.18	 	$	0.03	 	$	0.28	 	$	0.06	 	
 
12. Income Taxes
 
During the three and six months ended June 30, 2016, the Company had pre-tax income of $10.7 million and $15.9 million, respectively. The provision for Federal and state income taxes related to the pre-tax income has been largely offset by the utilization of available net operating loss carryforwards (NOLs). Accordingly, the Company reduced its valuation allowance against its deferred tax assets and recognized an income tax expense for the jurisdictions that did not have sufficient NOLs to offset the expected tax expense.
 
During the three and six months ended June 30, 2016, the Company recorded $0.7 million and $0.9 million of current tax expense, respectively, primarily related to an increase in our reserve for an uncertain tax position related to the Alternative Minimum Tax.
 
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13. Commitments and Contingencies
 
The Company has concurrent leases for office and lab space that extend through April 2020. The Company may elect to extend the term of the leases for an additional five-year term. The leases provide for a tenant improvement allowance of approximately $2.1 million in aggregate. During the three and six months ended June 30, 2016, none of the allowance was utilized. During the three and six months ended June 30, 2015, $0.2 million of the allowance was utilized and is included in fixed assets and deferred rent. As of June 30, 2016, $0.5 million remains available for tenant improvements. Rent expense for the leased facilities and leased vehicles for the Company’s sales representatives for the three and six months ended June 30, 2016 was approximately $0.7 million and $1.3 million, respectively. Rent expense for the leased facilities and leased vehicles for the three and six months ended June 30, 2015 was approximately $0.6 million and $1.2 million, respectively.
 
Future minimum lease payments under non-cancelable operating leases as of June 30, 2016 are as follows, in thousands, unaudited:
 
Year ending December 31:	 	 	 	
2016 (remaining)	 	$	681	 	
2017	 	1,312	 	
2018	 	1,314	 	
2019	 	1,341	 	
Thereafter	 	454	 	
 	 	$	5,102	 	
 
The Company has obtained exclusive licenses from third parties for proprietary rights to support the product candidates in the Company’s psychiatry portfolio. Under license agreements with Afecta Pharmaceuticals, Inc. (Afecta), the Company has obtained exclusive worldwide rights to selected product candidates, including an exclusive license to SPN-810 (molindone hydrochloride). The Company does not owe any future milestone payments for SPN-810. The Company is obligated to pay royalties in the low-single digits to Afecta based on worldwide net sales of each of these products.
 
The Company has also entered into a purchase and sale agreement with Rune Healthcare Limited (Rune), where the Company obtained the exclusive worldwide rights to a product concept from Rune. There are no future milestone payments due to Rune under this agreement. If the Company receives approval to market and sell any products based on the Rune product concept for SPN-809 (viloxazine hydrochloride), the Company is obligated to pay royalties to Rune based on net sales worldwide in the low-single digits.
 
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to help the reader understand the results of operations and the financial condition of the Company. The interim financial statements included in this report and this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our audited consolidated financial statements and notes thereto for the year ended December 31, 2015 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 9, 2016.
 
In addition to historical information, this Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. These forward-looking statements may include declarations regarding the Company’s belief or current expectations of management, such as statements including the words “budgeted,” “anticipate,” “project,” “estimate,” “expect,” “may,” “believe,” “potential,” and similar statements or expressions, which are intended to be among the statements that are forward-looking statements, as such statements reflect the reality of risk and uncertainty that is inherent in the Company’s business. Actual results may differ materially from those expressed or implied by such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which are made as of the date this report was filed with the Securities and Exchange Commission. Our actual results and the timing of events could differ materially from those discussed in our forward-looking statements as a result of many factors, including those set forth under the “Risk Factors” section of our Annual Report on Form 10-K and elsewhere in this report as well as in other reports and documents we file with the Securities and Exchange Commission from time to time. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances occurring after the date of this Quarterly Report on Form 10-Q.
 
Solely for convenience, in this Quarterly Report on Form 10-Q the trade names are referred to without the TM symbols and the trademark registrations are referred to without the circled R, but such references should not be construed as any indicator that the Company will not assert, to the fullest extent under applicable law, our rights thereto.
 
Overview
 
We are a specialty pharmaceutical company focused on developing and commercializing products for the treatment of central nervous system (CNS) diseases.
 
Oxtellar XR and Trokendi XR are the first once-daily extended release oxcarbazepine and topiramate products indicated for patients with epilepsy in the U.S. market. These products differ from immediate release products by offering once-daily dosing and unique pharmacokinetic characteristics which we believe can have very positive clinical effects for some patients. We believe a once-daily dosing regimen improves adherence, making it more probable that patients maintain sufficient levels of medication in their bloodstream to protect against seizures. In addition, the unique smooth and steady pharmacokinetic profiles of our once-daily formulations reduce the peak to trough fluctuation in blood level that are typically associated with immediate release products, which we believe may result in increased adverse events (AEs), more symptomatic side effects and decreased efficacy.
 
In addition, we are developing multiple product candidates in psychiatry to address large unmet medical needs and market opportunities. With SPN-810 (molindone hydrochloride), we are developing a product candidate to treat impulsive aggression (IA) in patients who have attention deficit hyperactivity disorder (ADHD). There are currently no approved products indicated for the treatment of IA. We subsequently plan to develop SPN-810 for treatment of IA in other CNS diseases, such as autism, bipolar disorder, schizophrenia, and some forms of dementia. With SPN-812 (viloxazine hydrochloride), we are developing this product candidate to treat patients who have ADHD.
 
The table below summarizes our current pipeline of novel products and product candidates.
 
Product	 	Indication	 	Status	
Oxtellar XR	 	Epilepsy	 	Launched	
Trokendi XR	 	Epilepsy*	 	Launched	
SPN-810	 	Impulsive Aggression**	 	Phase III	
SPN-812	 	ADHD	 	Phase IIb	
SPN-809	 	Depression	 	Phase II ready	

*          Supplemental New Drug Application (sNDA) submitted in August 2015 for treatment in adults for prophylaxis of migraine headache.
**   Initial program is in patients with ADHD, with a plan to follow on in other indications, such as IA in patients with autism, bipolar disorder, schizophrenia, and some forms of dementia.
 
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We are continuing to expand our intellectual property portfolio to provide additional protection for our technologies, products, and product candidates. We currently have seven U.S. patents issued covering Oxtellar XR and six U.S. patents issued covering Trokendi XR, providing patent protection expiring no earlier than 2027 for each product.
 
Commercial Products
 
Trokendi XR
 
Trokendi XR, the first once-daily extended release topiramate product indicated for patients with epilepsy in the U.S. market, is designed to improve patient adherence over immediate release products, which must be taken multiple times per day.
 
We remain in discussions with the United States Food and Drug Administration (FDA) regarding the sNDA on migraine headache. The FDA requested that the Company resubmit the Trokendi XR product label with migraine as an indication in a different format prior to completing its review. No additional new data, studies or analyses for efficacy or safety were required by the FDA. We have submitted the revised label, and a targeted PDUFA date has been set for the third quarter of 2016.
 
Oxtellar XR
 
Oxtellar XR is the only once-daily extended release oxcarbazepine product indicated for the treatment of patients with epilepsy in the U.S. as adjunctive therapy.
 
In a retrospective medical chart review of 200 patients treated with immediate release oxcarbazepine or Oxtellar XR, Oxtellar XR was associated with a significantly lower rate of inpatient hospitalization stays, lower rate of emergency department visits, and a higher rate of compliance. The patient charts were obtained from 17 geographically and clinically diverse sites across the U.S. and included non-academic and academic affiliated practices, general neurology, pediatric neurology, and epilepsy centers.
 
We expect the number of prescriptions filled for Oxtellar XR and Trokendi XR to continue to increase through the end of 2016 and in subsequent years. Data from Intercontinental Marketing Services (IMS) shows 238,531 prescriptions filled for both drugs during the six months ended June 30, 2016, representing a growth of 43.9% as compared to the 165,776 prescriptions reported for the six months ended June 30, 2015. For the three months ended June 30, 2016, data from IMS shows 123,758 prescriptions filled for both drugs, representing a growth of 38.9% as compared to the 89,086 prescriptions reported for the three months ended June 30, 2015.
 
We have received Paragraph IV Notice Letters concerning Oxtellar XR and Trokendi XR from various third-parties. In response to these Paragraph IV notice letters, we have initiated litigation against these third parties alleging infringement of our intellectual property rights. We intend to vigorously defend our intellectual property rights in each of these cases. We anticipate continuing to incur increasing amounts of legal fees and related expenses for these cases as they progress. On February 8, 2016, the Company announced a court ruling that three patents covering Oxtellar XR were valid and that Actavis, plc infringed two of these three patents by submitting an abbreviated new drug application (ANDA) to the FDA. (See Part II, Item 1—Legal Proceedings in this Quarterly Report on Form 10-Q for additional information).
 
Product Candidates
 
SPN-810
 
We are developing SPN-810 as a novel treatment for IA in patients who have ADHD. Our Phase III clinical trial (P301) is being conducted under a Special Protocol Assessment (SPA).  SPN-810 has been granted fast-track designation by the FDA. We initiated two Phase III clinical trials in 2015 (P301 and P302) and began dosing patients during the first quarter of 2016. We expect patient enrollment to continue through the end of 2016 and into 2017. We continue to expect launching SPN-810, if approved by the FDA, according to the current timeline in 2019.
 
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SPN-812
 
SPN-812 is being developed as a novel non-stimulant treatment for ADHD. We initiated a Phase IIb dose ranging trial during 2015 and began dosing patients during the first quarter of 2016. Patient enrollment has been completed, and last visit for the last patient occurred during the third quarter. We continue to project that we will have data from this Phase IIb trial available by early 2017. In April 2016, we initiated an open-label trial in which 84% of the patients completing the Phase IIb trial have been enrolled.
 
We expect to incur significant research and development expenses related to the continued development of each of our product candidates, with a total cost of approximately $100 million for each of the two programs through FDA approval.
 
Collaboration Update
 
Recently, Shire announced positive results of SHP465 Safety and Efficacy Study in Children and Adolescents with ADHD. The study addresses a key FDA requirement, keeping SHP465 on track for resubmission in the fourth quarter of 2016 and potential launch in second half of 2017, if it is approved by the FDA. SHP465 was originally developed by Shire Laboratories, the former division of Shire that subsequently became Supernus Pharmaceuticals. Based on the agreement between Supernus and Shire, Shire will pay to Supernus a single digit percentage royalty on net sales of the product.
 
Critical Accounting Policies and the Use of Estimates
 
The significant accounting policies and bases of presentation for our consolidated financial statements are described in Note 2 “Summary of Significant Accounting Policies.” The preparation of our financial statements in accordance with Generally Accepted Accounting Principles (GAAP), requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and the disclosure of contingent assets and liabilities. Actual results could differ from those estimates.
 
We believe the following accounting policies and estimates to be critical:
 
Revenue Recognition
 
Revenue from product sales is recognized when: persuasive evidence of an arrangement exists; delivery has occurred and title to the product and associated risk of loss has passed to the customer; the price is fixed or determinable; collection from the customer has been reasonably assured; all performance obligations have been met; and returns and allowances can be reasonably estimated. Product sales are recorded net of estimated rebates, chargebacks, discounts, co-pay assistance and other deductions as well as estimated product returns (collectively, “sales deductions”).
 
We derive our estimated sales deductions from an analysis of historical levels of deductions specific to each product. In addition, we also consider the impact of anticipated changes in product price, sales trends and changes in managed care coverage and co-pay assistance.
 
Deferred Legal Fees
 
Deferred legal fees are comprised of costs incurred in connection with the defense of patents for Oxtellar XR and Trokendi XR. Amortization of the deferred legal fees will begin upon successful outcome of the on-going litigation. Deferred legal fees will be charged to expense in the event of an unsuccessful outcome of the on-going litigation.
 
Research and Development Expenses
 
Research and development (R&D) expenditures are expensed as incurred. Research and development costs consist primarily of employee-related expenses, including salaries and benefits; share-based compensation expense; expenses incurred under agreements with clinical research organizations (CROs), investigative sites, consultants and other vendors that conduct the Company’s clinical trials; the cost of acquiring and manufacturing clinical trial materials; the cost of manufacturing materials used in process validation, to the extent that those materials are manufactured prior to receiving regulatory approval for those products and are not expected to be sold commercially; facilities costs that do not have an alternative future use; related depreciation and other allocated expenses; license fees for and milestone payments related to in-licensed products and technologies; and costs associated with animal testing activities and regulatory approvals.
 
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Accrued Clinical Expenses
 
Clinical trials are inherently complex, often involving multiple service providers, and can include payments made to investigator physicians at study sites. Because billing for services often lags by a substantial amount of time, we often are required to estimate a significant portion of our accrued clinical expenses. This process involves reviewing open contracts and communicating with our subject matter expert personnel and the appropriate service provider personnel to identify services that have been performed on our behalf. We accrue for the estimated but unbilled services performed and the associated costs incurred.
 
Payments to service providers can either be based on hourly rates for services or based on performance driven milestones. When accruing clinical expenses, we estimate the time period over which services will be performed during the life of the entire clinical program, the total cost of the program, and the level of effort to be expended in each intervening period. To the maximum extent possible, we work with each service provider to provide an estimate for unbilled services as of the end of the calendar quarter. This includes estimates for payments to site investigators. We work diligently to minimize estimates based solely on company generated calculations. If the service provider underestimates or overestimates the cost associated with a trial or service at any given point in time, adjustments to research and development expenses may be necessary in future periods. Historically, our estimated accrued clinical expenses have closely approximated actual expenses incurred.
 
Results of Operations
 
Comparison of the three months ended June 30, 2016 and June 30, 2015
 
 	 	Three Months ended June 30,	 	Increase/	 	
 	 	2016	 	2015	 	(decrease)	 	
 	 	(unaudited, in thousands)	 	 	 	
Revenue	 	 	 	 	 	 	 	
Net product sales	 	$	50,335	 	$	34,266	 	16,069	 	
Licensing revenue	 	86	 	786	 	(700	)	
Total revenues	 	50,421	 	35,052	 	 	 	
Costs and expenses	 	 	 	 	 	 	 	
Cost of product sales	 	2,751	 	1,762	 	989	 	
Research and development	 	11,109	 	6,878	 	4,231	 	
Selling, general and administrative	 	26,121	 	23,336	 	2,785	 	
Total costs and expenses	 	39,981	 	31,976	 	 	 	
Operating income	 	10,440	 	3,076	 	 	 	
Other income (expense)	 	 	 	 	 	 	 	
Interest income	 	363	 	137	 	226	 	
Interest expense	 	(196	)	(331	)	135	 	
Changes in fair value of derivative liabilities	 	123	 	1	 	122	 	
Loss on extinguishment of debt	 	—	 	(241	)	241	 	
Other income	 	2	 	25	 	(23	)	
Total other income (expenses)	 	292	 	(409	)	 	 	
Earnings before income taxes	 	10,732	 	2,667	 	 	 	
Income tax	 	714	 	662	 	52	 	
Net income	 	$	10,018	 	$	2,005	 	 	 	
 
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Net Product Sales.  The increase in net product sales for the three months ended June 30, 2015 as compared to the three months ended June 30, 2016 was primarily driven by increased prescriptions. Net product sales are based on gross revenue from shipments to distributors, less estimates for discounts, rebates, other sales deductions and returns. The table below lists our net product sales by product comparison, in thousands, unaudited:
 
 	 	Net Product Sales	 	 	 	
 	 	Three Months ended June 30,	 	Change in Net Product	 	
 	 	2016	 	2015	 	Sales (%)	 	
 	 	(unaudited)	 	 	 	
Trokendi XR	 	$	37,663	 	$	26,279	 	43.3	%	
Oxtellar XR	 	12,672	 	7,987	 	58.7	%	
Total	 	$	50,335	 	$	34,266	 	46.9	%	
 
Cost of Product Sales.  Cost of product sales during the three months ended June 30, 2016 was $2.8 million as compared to $1.8 million for the three months ended June 30, 2015, an increase of $1.0 million or 56.1%. This increase is primarily due to sales increases.
 
Research and Development Expenses.  R&D expenses during the three months ended June 30, 2016 were $11.1 million as compared to $6.9 million for the three months ended June 30, 2015, an increase of $4.2 million or 61.5%. This increase is primarily due to preclinical and late stage clinical trials for SPN-810 and SPN-812 as well as manufacture and scale-up of doseage form manufacturing. During the second half of 2015, we initiated two Phase III trials for SPN-810 and a Phase IIb trial for SPN-812. We expect R&D costs to increase significantly in 2016, as we continue to advance these trials and the related development activities for both of these programs.
 
Selling, General and Administrative Expenses.  Our selling, general and administrative (SG&A) expenses were $26.1 million during the three months ended June 30, 2016 as compared to $23.3 million for the three months ended June 30, 2015, an increase of $2.8 million or 11.9%. The increase in SG&A expenses is primarily due to the development of promotional material and preparation for the launch of the migraine indication for Trokendi XR.
 
Interest Income. During the three months ended June 30, 2016 and June 30, 2015, we recognized $0.4 million and $0.1 million, respectively, of interest income earned on our cash and marketable securities.
 
Interest Expense.  Interest expense was $0.2 million during the three months ended June 30, 2016 as compared to $0.3 million incurred for the three months ended June 30, 2015. The decrease was due to a decrease in the principal amount of our outstanding 7.5% Convertible Senior Secured Notes due in 2019 (the Notes) from $10.7 million at June 30, 2015 to $6.6 million at June 30, 2016.
 
Changes in Fair Value of Derivative Liability.  During the three months ended June 30, 2016, we recognized a non-cash gain of $0.1 million related to a change in estimated fair value of the interest make-whole derivative liability related to our Notes. This gain is primarily due to the passage of time.
 
Loss on Extinguishment of Debt.  During the three months ended June 30, 2016, there was no loss on extinguishment of debt as no Notes were converted. During the three months ended June 30, 2015, we recognized a non-cash loss on extinguishment of debt of $0.2 million related to the conversion of $3.9 million of our Notes.
 
Income Tax.  During the three months ended June 30, 2016, we recorded $0.7 million of current tax expense related primarily to an increase in our reserve for an uncertain tax position related to the Alternative Minimum Tax. During the three months ended June 30, 2015, we recorded $0.7 million of current tax expense related to an increase in our reserve for an uncertain tax position related to the Alternative Minimum Tax.
 
Net Income.  We realized net income of $10.0 million during the three months ended June 30, 2016, compared to net income of $2.0 million during the three months ended June 30, 2015, an increase of $8.0 million. This change was primarily due to the revenue generated from our two commercial products, Oxtellar XR and Trokendi XR, offset by increased research expenses incurred for the late stage studies for our two product candidates and an increase in marketing expenditures.
 
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Comparison of the six months ended June 30, 2016 and June 30, 2015
 
 	 	Six Months ended June 30,	 	Increase/	 	
 	 	2016	 	2015	 	(decrease)	 	
 	 	(unaudited, in thousands)	 	 	 	
Revenue	 	 	 	 	 	 	 	
Net product sales	 	$	93,360	 	$	62,363	 	30,997	 	
Licensing revenue	 	135	 	822	 	(687	)	
Total revenues	 	93,495	 	63,185	 	 	 	
Costs and expenses	 	 	 	 	 	 	 	
Cost of product sales	 	4,786	 	3,380	 	1,406	 	
Research and development	 	21,671	 	10,561	 	11,110	 	
Selling, general and administrative	 	51,281	 	42,737	 	8,544	 	
Total costs and expenses	 	77,738	 	56,678	 	 	 	
Operating income	 	15,757	 	6,507	 	 	 	
Other income (expense)	 	 	 	 	 	 	 	
Interest income	 	694	 	250	 	444	 	
Interest expense	 	(375	)	(712	)	337	 	
Changes in fair value of derivative liabilities	 	224	 	(48	)	272	 	
Loss on extinguishment of debt	 	(382	)	(2,375	)	1,993	 	
Other (expense) income	 	(1	)	25	 	(26	)	
Total other income (expenses)	 	160	 	(2,860	)	 	 	
Earnings before income taxes	 	15,917	 	3,647	 	 	 	
Income tax	 	912	 	724	 	188	 	
Net income	 	$	15,005	 	$	2,923	 	 	 	
 
Net Product Sales.  The increase in net product sales for the six months ended June 30, 2015 as compared to the six months ended June 30, 2016 was primarily driven by increased prescriptions. Net product sales are based on gross revenue from shipments to distributors, less estimates for discounts, rebates, other sales deductions and returns. The table below lists our net product sales by product comparison, in thousands, unaudited:
 
 	 	Net Product Sales	 	 	 	
 	 	Six Months ended June 30,	 	Change in Net Product	 	
 	 	2016	 	2015	 	Sales (%)	 	
 	 	(unaudited)	 	 	 	
Trokendi XR	 	$	69,983	 	$	47,205	 	48.3	%	
Oxtellar XR	 	23,377	 	15,158	 	54.2	%	
Total	 	$	93,360	 	$	62,363	 	49.7	%	
 
Cost of Product Sales.  Cost of product sales during the six months ended June 30, 2016 was $4.8 million as compared to $3.4 million for the six months ended June 30, 2015, an increase of $1.4 million or 41.6%. This increase is primarily due to sales increases.
 
Research and Development Expenses.  R&D expenses during the six months ended June 30, 2016 were $21.7 million as compared to $10.6 million for the six months ended June 30, 2015, an increase of $11.1 million or 105.2%. This increase is primarily due to preclinical and late stage clinical trials for SPN-810 and SPN-812 as well as manufacture of SPN-810 and SPN-812 clinical trial materials and manufacturing scale-up. During the second half of 2015, we initiated two Phase III trials for SPN-810 and a Phase IIb
 
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trial for SPN-812. We expect R&D costs to increase significantly in 2016, as we continue to advance these trials and the related development activities for both of these programs.
 
Selling, General and Administrative Expenses.  Our SG&A expenses were $51.3 million during the six months ended June 30, 2016 as compared to $42.7 million for the six months ended June 30, 2015, an increase of $8.6 million or 20.0%. The increase in SG&A expenses is primarily due to the development of promotional material and preparation for the launch of the migraine indication for Trokendi XR in 2016, as well as supply chain and Medical Affairs programs to support our commercial products.
 
Interest Income. During the six months ended June 30, 2016 and June 30, 2015, we recognized $0.7 million and $0.3 million, respectively, of interest income earned on our cash and marketable securities.
 
Interest Expense.  Interest expense was $0.4 million during the six months ended June 30, 2016 as compared to $0.7 million incurred for the six months ended June 30, 2015. The decrease of $0.3 million was primarily due to a decrease in the principal amount of our outstanding Notes from $10.7 million at June 30, 2015 to $6.6 million at June 30, 2016.
 
Changes in Fair Value of Derivative Liability.  During the six months ended June 30, 2016, we recognized a non-cash gain of $0.2 million related to a change in estimated fair value of the interest make-whole derivative liability related to our Notes. This gain is primarily due to the passage of time. During the six months ended June 30, 2015, we recognized a non-cash loss of $48,000 related to a change in estimated fair value of the warrant liability of $336,000, offset by $288,000 of interest make-whole derivative liability related to our Notes. This loss was primarily due to the increase of our stock price.
 
Loss on Extinguishment of Debt.  During the six months ended June 30, 2016, we recognized a non-cash loss on extinguishment of debt of $0.4 million related to the conversion of $2.0 million of our Notes. During the six months ended June 30, 2015, we recognized a non-cash loss on extinguishment of debt of $2.4 million related to the conversion of $25.3 million of our Notes.
 
Income Tax.  During the six months ended June 30, 2016, we recorded $0.9 million of current tax expense related primarily to an increase in our reserve for an uncertain tax position related to the Alternative Minimum Tax. During the six months ended June 30, 2015, we recorded $0.7 million of current tax expense related to an increase in our reserve for an uncertain tax position related to the Alternative Minimum Tax.
 
Net Income.  We realized net income of $15.0 million during the six months ended June 30, 2016, compared to net income of $2.9 million during the six months ended June 30, 2015, an increase of $12.1 million. This change was primarily due to the revenue generated from our two commercial products, Oxtellar XR and Trokendi XR, offset by increased expenses incurred for the late stage studies for our two product candidates and an increase in marketing expenditures.
 
Liquidity and Capital Resources
 
We believe with continued increasing levels of net product sales, we will have sufficient resources to finance our operations, including the increased R&D expenses for our clinical programs. We expect to incur significantly increased R&D expenses to support the development of SPN-810 and SPN-812 including the late stage trials for SPN-810 and SPN-812.
 
Our working capital at June 30, 2016 was $48.6 million, a decrease of $1.2 million compared to our working capital of $49.8 million at December 31, 2015. Our long term marketable securities at June 30, 2016 were $67.8 million, an increase of $12.8 million compared to our long term marketable securities of $55.0 million at December 31, 2015.
 
Our stockholders’ equity increased by $22.1 million during the six months ended June 30, 2016 primarily as a result of the issuance of shares related to the conversion of our Notes, coupled with net income of $15.0 million.
 
We expect to continue to incur significant sales and marketing expenses related to the commercial support of Oxtellar XR and Trokendi XR. In addition, we expect to incur substantial expenses related to our R&D efforts, primarily related to the development of SPN-810 and SPN-812 as we continue to advance these clinical programs.
 
In addition to income from operations, we have historically financed our business through the sale of our debt and equity securities. Our most recent financing occurred on May 3, 2013, when we issued $90.0 million aggregate principal amount of Notes to qualified institutional buyers, the initial purchasers of the Notes (Initial Purchasers). We issued the Notes under an Indenture, dated May 3, 2013. The Notes provide for 7.50% interest per annum on the principal amount of the Notes, payable semi-annually in arrears on May 1 and November 1 of each year. Interest will accrue on the Notes from and including May 3, 2013 and the Notes will mature on May 1, 2019, unless earlier converted, redeemed or repurchased by the Company. The Notes are secured by a first-priority lien, other than customary permitted liens, on substantially all of our assets, whether now owned or hereafter acquired.
 
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As of June 30, 2016, holders of the Notes have converted a total of approximately $83.4 million of the Notes. Cumulatively, through June 30, 2016, we issued a total of approximately 15.7 million shares of common stock in conversion of the principal amount of the Notes and issued an additional 2.2 million shares of common stock and paid approximately $1.7 million cash in settlement of the interest make-whole provision related to the converted Notes.
 
We believe our current working capital and long term marketable securities, along with increased revenues from increasing product sales, will be sufficient to finance the Company. Our operations were profitable in each quarter of 2015 and each of the first two quarters of 2016.
 
We expect continued profitability in 2016 as we continue to increase sales while also increasing activities and spending to advance our clinical product candidates. We expect significant variability from quarter to quarter in our level of profitability primarily due to variability in R&D expenditures for clinical trials and SG&A expenditures for marketing activities.
 
On December 17, 2014, the SEC declared effective our registration statement on Form S-3. We may offer and sell securities at a maximum aggregate offering price of up to $112.8 million. In addition, in this shelf registration statement we registered the resale of 12,749,328 shares of our common stock then held by two selling security holders. As these security holders have subsequently sold on the open market or distributed to their limited partners all of the shares, we will not resell any of these shares under this registration statement. In the event that we need additional working capital, this registration statement provides an efficient manner for us to complete securities offering to raise such funds.
 
Cash Flows
 
The following table sets forth the major sources and uses of cash and equivalents for the periods set forth below, in thousands:
 
 	 	Six Months ended June 30,	 	Increse/	 	
 	 	2016	 	2015	 	(decrease)	 	
 	 	(unaudited)	 	 	 	
Net cash provided by (used in):	 	 	 	 	 	 	 	
Operating activities	 	$	13,635	 	$	15,169	 	(1,534	)	
Investing activities	 	(12,626	)	(19,464	)	6,838	 	
Financing activities	 	995	 	1,009	 	(14	)	
Net increase (decrease) in cash and cash equivalents	 	$	2,004	 	$	(3,286	)	 	 	
 
Operating Activities
 
Net cash provided by operating activities is comprised of two components; cash provided by (used in) operating income and cash used in changes in working capital. Results for the six months ended June 30, 2016 and June 30, 2015 are summarized below, in thousands:
 
 	 	Six Months ended June 30,	 	Increse/	 	
 	 	2016	 	2015	 	(decrease)	 	
 	 	(unaudited)	 	 	 	
Cash provided by operating income	 	$	19,656	 	$	8,321	 	11,335	 	
Cash (used in) provided by changes in working capital	 	(6,021	)	6,848	 	(12,869	)	
Net cash provided by operating activities	 	$	13,635	 	$	15,169	 	 	 	
 
The increase in cash used in changes in working capital is primarily driven by increases in accounts receivable and inventory from increased revenue and decreases in accounts payable due to timing of payments.
 
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The changes in certain operating assets and liabilities are, in thousands:
 
 	 	Six Months ended June 30,	 	 	 	
 	 	2016	 	2015	 	Explanation of Change	 	
 	 	(unaudited)	 	 	 	
Increase in accounts receivable	 	$	(8,373	)	$	(630	)	Increased sales.	 	
Increase in inventory	 	(3,786	)	(151	)	Increased inventory to support sales growth.	 	
Decrease (increase) in prepaid expenses and other assets	 	1,989	 	(738	)	Progress of clinical trials.	 	
Increase in accounts payable and accrued expenses	 	3,905	 	8,921	 	Increased expenses, primarily for clinical trial accruals and accrued net sales deductions.	 	
Other	 	244	 	(554	)	 	 	
 	 	$	(6,021	)	$	6,848	 	 	 	
 
Investing Activities
 
We invest excess cash in accordance with our investment policy. Marketable securities consist of investments which mature in four years or less, including United States Treasury and various government agency debt securities, as well as investment grade securities in industrial and financial institutions. Fluctuations in investing activities between periods relate exclusively to the timing of marketable security purchases and the related maturities of these securities.
 
Net cash used in investing activities for the six months ended June 30, 2016 of $12.6 million related to net purchase of marketable securities of $8.0 million, deferred legal fees of $3.7 million, and property and equipment purchases of $1.0 million. Net cash used in investing activities for the six months ended June 30, 2015 consisted of $19.5 million related to net purchase of marketable securities of $12.4 million, an increase in deferred legal fees of $6.3 million, and property and equipment purchases of $0.8 million.
 
Financing Activities
 
Net cash provided by financing activities was $1.0 million for the six months ended June 30, 2016, $1.0 million for the six months ended June 30, 2015 and resulted from proceeds received from stock option exercises.
 
Contractual Obligations and Commitments
 
The following table summarizes our contractual obligations and commitments as of June 30, 2016 (except as noted below), in thousands, unaudited:
 
 	 	Less than	 	1 - 3	 	3 - 5	 	Greater than	 	 	 	
 	 	1 Year	 	Years	 	Years	 	5 Years	 	Total	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Convertible Senior Secured Notes	 	$	—	 	$	—	 	$	6,575	 	$	—	 	$	6,575	 	
Interest on Convertible Notes	 	493	 	986	 	 	 	—	 	1,479	 	
Operating leases (1)	 	1,346	 	2,629	 	1,127	 	—	 	5,102	 	
Purchase obligations (2)	 	4,056	 	—	 	—	 	—	 	4,056	 	
Total (3)	 	$	5,895	 	$	3,615	 	$	7,702	 	$	—	 	$	17,212	 	

(1)                                 Our commitments for operating leases relate to our lease of fleet vehicles and office and laboratory space as of June 30, 2016.
 
(2)                                 Relates primarily to agreements and purchase orders with contractors for the conduct of clinical trials, other research and development activities and sales and marketing activities.
 
(3)                                 This table does not include (a) any milestone payments which may become payable to third parties under license agreements or contractual agreements regarding our clinical trials as the timing and likelihood of such payments are not known, (b) any royalty payments to third parties as the amounts, timing and likelihood of such payments are not known and (c) contracts that are entered into in the ordinary course of business which are not material in the aggregate in any period presented above.
 
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We have obtained exclusive licenses from third parties for proprietary rights to support the product candidates in our psychiatry portfolio. Under license agreements with Afecta Pharmaceuticals, Inc. (Afecta), we have an exclusive option to evaluate Afecta’s CNS pipeline and to obtain exclusive worldwide rights to selected product candidates, including an exclusive license to SPN-810. We do not owe any future milestone payments for SPN-810. We will be obligated to pay royalties to Afecta based on net sales worldwide of our product candidates in the low-single digits.
 
We have also entered into a purchase and sale agreement with Rune HealthCare Limited (Rune), where we obtained the exclusive worldwide rights to a product concept from Rune. There are no future milestone payments owing to Rune under this agreement. If we receive approval to market and sell any products based on the Rune product concept for SPN-809 (viloxazine hydrochloride), we will be obligated to pay royalties to Rune based on net sales worldwide in the low-single digits.
 
Off-Balance Sheet Arrangements
 
We do not currently have, nor have we ever had, any relationships with unconsolidated entities or financial partnerships, such entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or for other contractually narrow or limited purposes. In addition, we do not engage in trading activities involving non-exchange traded contracts.
 
Recently Issued Accounting Pronouncements
 
For a discussion of new accounting pronouncements, see Note 2 in the notes to the consolidated financial statements in Part I, Item 1 of this report.
 
Jumpstart Our Business Startups Act of 2012
 
The JOBS Act permits an “emerging growth company” such as ours to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We have chosen to “opt out” of this provision. As a result, we will continue to comply with new or revised accounting standards as required when they are adopted. This decision to opt out of the extended transition period under the JOBS Act is irrevocable.
 
Item 3. Quantitative and Qualitative Disclosures About Market Risk
 
The primary objective of our investment activities is to preserve our capital and to fund operations. We also seek to maximize income from our investments without assuming significant interest rate or default risk. Our exposure to market risk is confined to our cash, cash equivalents, marketable securities and long term marketable securities. As of June 30, 2016, we had unrestricted cash, cash equivalents, marketable securities and long term marketable securities of $128.0 million. We do not engage in any hedging activities against changes in interest rates. Because of the short-term maturities of our cash, cash equivalents, marketable securities and because we hold these securities and our long term marketable securities to maturity, we do not believe that an increase in market rates would have any significant impact on the realized value of our investments. We do not have any currency or other derivative financial instruments other than the interest make-whole payment associated with our Notes.
 
We engage with a limited number of vendors where we pay for services recorded in currencies other than the U.S. dollar and may be subject to fluctuations in foreign currency rates. We do not hedge our foreign currency exchange rate risk. A hypothetical 10% appreciation in Euro exchange rates against the U.S. dollar from prevailing market rates would have decreased our net income by approximately $6,000 for the three months ended June 30, 2016. Conversely, a hypothetical 10% depreciation in Euro exchange rates against the U.S. dollar from prevailing market rates would have increased our net income by approximately $6,000 for the three months ended June 30, 2016. We do not believe that inflation and changing prices over the three and six months ended June 30, 2016 and June 30, 2015 had a significant impact on our consolidated results of operations.
 
Item 4. Controls and Procedures
 
Evaluation of Disclosure Controls and Procedures
 
We maintain disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act). Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is
 
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accumulated and communicated to our management, including our Chief Executive Officer (CEO) and our Chief Financial Officer (CFO), as appropriate, to allow timely decisions regarding required disclosures.
 
We conducted an evaluation under the supervision and with the participation of our management, including the CEO and CFO, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15(b) and 15d-15(b) under the Exchange Act. Based on this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2016.
 
Our management, including the CEO and CFO, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected.
 
Changes in Internal Control over Financial Reporting
 
In the first quarter of 2016, we implemented a new financial accounting system. The software package which was selected has been implemented in numerous publicly held manufacturing and service companies within the U.S.  It is supported by a major software provider in the U.S.
 
The primary impetus for this change was to retire a platform that the Company had outgrown and which lacked much of the additional functionality required to support the Company’s expanded operations. We believe incorporating this additional functionality into an upgraded system will provide a stronger base and enhance our overall control environment. The implementation was not made in response to any significant deficiency or material weakness in our internal control over financial reporting.
 
Management believes the new system has been successfully implemented and is functioning as required.
 
Other than the new financial accounting system implementation, there have been no changes in our internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
PART II — OTHER INFORMATION
 
Item 1. Legal Proceedings
 
From time to time and in the ordinary course of business, we are subject to various claims, charges and litigation. We may be required to file infringement claims against third parties for the infringement of our patents. We have filed such claims for infringement of the Orange Book patents listed for our products Oxtellar XR and Trokendi XR.
 
Supernus Pharmaceuticals, Inc. v. Actavis, Inc., et al., C.A. Nos. 13-4740; 14-1981 (RMB)(JS) (D.N.J.)
Supernus Pharmaceuticals, Inc. v. Actavis, Inc., et al., Appeal No. 2016-1619 (Fed. Cir.)
 
We received a Paragraph IV Notice Letter against two of our Oxtellar XR Orange Book patents (United States Patent Nos. 7,722,898 and 7,910,131) from generic drug maker Watson Laboratories, Inc.—Florida (WLF) n/k/a Actavis Laboratories FL, Inc. (Actavis Labs FL) on June 26, 2013. On August 7, 2013, we filed a lawsuit against Actavis, Inc., Actavis Labs FL, Actavis Pharma, Inc., Watson Laboratories, Inc., and ANDA, Inc. (collectively Actavis) alleging infringement of United States Patent Nos. 7,722,898 and 7,910,131. We received a second Paragraph IV Notice Letter against a later-issued Oxtellar XR Orange Book Patent (United States Patent No. 8,617,600) on February 20, 2014. On March 28, 2014, we filed a second lawsuit against Actavis alleging infringement of United States Patent No. 8,617,600. We have since listed four additional Orange Book patents: United States Patent Nos. 8,821,930, 9,119,791, 9,351,975, and 9,370,525. Our United States Patent Nos. 7,722,898, 7,910,131, 8,617,600, 8,821,930, 9,119,791, 9,351,975, and 9,370,525 generally cover once-a-day oxcarbazepine formulations and methods of treating seizures using those formulations. The FDA Orange Book lists all seven of our Oxtellar XR patents as expiring on April 13, 2027.
 
Both Complaints—filed in the U.S. District Court for the District of New Jersey—allege, inter alia, that Actavis infringed our Oxtellar XR patents by submitting to the FDA an Abbreviated New Drug Application (ANDA) seeking to market a generic version of Oxtellar XR prior to the expiration of our patents. The two cases were consolidated for all purposes on October 8, 2015.
 
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A seven-day bench trial for the consolidated action involving United States Patent Nos. 7,722,898, 7,910,131, and 8,617,600 was held between November 18 and December 4, 2015. On February 5, 2016, the Court issued an opinion and order finding that: (i) Actavis’s ANDA products infringe United States Patent Nos. 7,722,898 and 7,910,131; (ii) Actavis’s ANDA products do not infringe U.S. Patent No. 8,617,600; and (iii) United States Patent Nos. 7,722,898, 7,910,131, and 8,617,600 are valid.  The Court entered a final judgment on February 18, 2016: (i) enjoining the FDA from approving Actavis’s ANDA before the expiration date of United States Patent Nos. 7,722,898 and 7,910,131; and (ii) enjoining Actavis from commercially manufacturing, using, offering to sell, or selling within the United States, or importing into the United States, Actavis’s ANDA products until the expiration of United States Patent Nos. 7,722,898 and 7,910,131.  On February 19, 2016, Actavis filed a Notice of Appeal to the United States Court of Appeals for the Federal Circuit.  The parties executed a Partial Settlement Agreement in May 2016 that provided for the dismissal of all appeals, cross-appeals, claims, and counterclaims concerning U.S. Patent Nos. 8,617,600, 8,821,930, and 9,119,791. The appeal with respect to United States Patent Nos. 7,722,898 and 7,910,131 (docketed on February 24, 2016) is pending.
 
Supernus Pharmaceuticals, Inc. v. Actavis, Inc., et al., C.A. Nos. 15-2499 (RMB)(JS) (D.N.J.)
 
We received a Paragraph IV Notice Letter against United States Patent No. 8,821,930 from Actavis Labs FL on February 21, 2015. On April 7, 2015, we filed a third lawsuit against Actavis alleging infringement of United States Patent No. 8,821,930.
 
The Complaint—filed in the U.S. District Court for the District of New Jersey—alleges, inter alia, that Actavis infringed United States Patent No. 8,821,930 by submitting to the FDA an ANDA seeking to market a generic version of Oxtellar XR prior to the expiration of United States Patent No. 8,821,930.
 
The parties executed a Partial Settlement Agreement in May 2016 that provided for the dismissal of both parties’ claims and counterclaims concerning U.S. Patent No. 8,821,930.
 
Supernus Pharmaceuticals, Inc. v. TWi Pharmaceuticals, Inc., et al., C.A. Nos. 15-369 (RMB)(JS) (D.N.J.)
 
We received a Paragraph IV Notice Letter against United States Patent Nos. 7,722,898, 7,910,131, 8,617,600, and 8,821,930 from generic drug maker TWi Pharmaceuticals, Inc. on December 9, 2014. On January 16, 2015, we filed a lawsuit against TWi Pharmaceuticals, Inc. and TWi International LLC (d/b/a TWi Pharmaceuticals USA) (collectively TWi) alleging infringement of United States Patent Nos. 7,722,898, 7,910,131, 8,617,600, and 8,821,930.
 
The Complaint—filed in the U.S. District Court for the District of New Jersey—alleges, inter alia, that TWi infringed our Oxtellar XR patents by submitting to the FDA an ANDA seeking to market a generic version of Oxtellar XR prior to the expiration of our patents. Filing the Complaint within 45 days of receiving TWi’s Paragraph IV certification notice entitles Supernus to an automatic stay preventing the FDA from approving TWi’s ANDA for 30 months from the date of our receipt of the first Paragraph IV certification notice. On February 13, 2015, TWi answered the Complaint and denied the substantive allegations of the complaint.  TWi also asserted Counterclaims seeking declaratory judgments of non-infringement and invalidity of United States Patent Nos. 7,722,898 and 7,910,131. On March 20, 2015, we filed our Reply, denying the substantive allegations of those Counterclaims.
 
Following an October 7, 2015 Markman hearing, the Court issued a claim construction order for this case on October 9, 2015.  The case is proceeding through fact and expert discovery.
 
Supernus Pharmaceuticals, Inc. v. Actavis, Inc., et al., C.A. Nos. 15-8342 (RMB)(JS) (D.N.J.)
 
We received a Paragraph IV Notice Letter against United States Patent No. 9,119,791 from Actavis Labs FL on October 15, 2015. On November 25, 2015, we filed a fourth lawsuit against Actavis alleging infringement of United States Patent No. 9,119,791.
 
The Complaint—filed in the U.S. District Court for the District of New Jersey—alleges, inter alia, that Actavis infringed United States Patent No. 9,119,791 by submitting to the FDA an ANDA seeking to market a generic version of Oxtellar XR prior to the expiration of United States Patent No. 9,119,791. On January 29, 2016, Actavis answered the Complaint, denying the substantive allegations of that Complaint. Actavis Labs FL also asserted Counterclaims seeking declaratory judgments of non-infringement and invalidity of United States Patent No. 9,119,791.  On March 4, 2016, we filed our Reply, denying the substantive allegations of those Counterclaims.  The court has not yet issued a scheduling order.
 
Supernus Pharmaceuticals, Inc. v. Actavis, Inc., C.A. No. 14-6102 (SDW)(LDW) (D.N.J.)
 
We received three Paragraph IV Notice Letters against six Trokendi XR Orange Book patents, namely United States Patent Nos. 8,298,576, 8,298,580, 8,663,683, 8,877,248, 8,889,191, and 8,992,989 from generic drug maker Actavis Laboratories FL, Inc.
 
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These patents cover once-a-day topiramate formulations and methods of treating seizures using those formulations. On October 1, 2014, we initiated a lawsuit against Actavis; the lawsuit alleges infringement of the Trokendi XR Orange Book patents. The FDA Orange Book currently lists United States Patent No. 8,298,576 as expiring on April 4, 2028 and United States Patent Nos. 8,298,580, 8,663,683, 8,877,248, 8,889,191, and 8,992,989 as expiring on November 16, 2027.
 
This action for patent infringement—filed in the U.S. District Court for the District of New Jersey—alleges that Actavis infringed the Trokendi XR patents by, inter alia, submitting to the FDA an ANDA seeking to market a generic version of Trokendi XR prior to the expiration of these patents. Actavis answered these allegations with affirmative defenses and counterclaims of noninfringement and invalidity of the patents in suit. Filing its October 1, 2014 Complaint within 45 days of receiving the first of three Actavis Laboratories FL, Inc. Paragraph IV Notice Letters entitles Supernus to an automatic stay preventing the FDA from approving Actavis’s ANDA for 30 months from the date of our receipt of such Notice Letter.
 
This case has been consolidated for pretrial purposes with two other actions pending in the District of New Jersey concerning infringement of the Trokendi XR Orange Book patents, those actions being C.A. No. 14-7272 (against Zydus Pharmaceuticals (USA) Inc. and Cadila Healthcare Limited) and C.A. No. 15-326 (against Par Pharmaceutical Companies, Inc. and Par Pharmaceutical, Inc.). The Company has since entered into a settlement agreement with Par (see below). A Rule 16 scheduling conference was held on April 14, 2015. The Court issued a Scheduling Order on May 22, 2015, which was amended several times, most recently on July 15, 2016. The Court issued its Markman Opinion and Order on March 9, 2016. The Court adopted Supernus’s definitions of five of the seven disputed terms, and did not adopt any of Actavis’s definitions. Fact discovery ended on May 4, 2016. The case is proceeding through expert discovery, which closes on September 23, 2016. The Court’s Amended Scheduling Order states that no summary judgment motions shall be filed. No date has been set for trial.
 
Supernus Pharmaceuticals, Inc. v. Zydus Pharmaceuticals (USA) Inc., C.A. No. 14-7272 (SDW)(LDW) (D.N.J.)
 
We received three Paragraph IV Notice Letters against six Trokendi XR Orange Book patents, namely United States Patent Nos. 8,298,576, 8,298,580, 8,663,683, 8,877,248, 8,889,191, and 8,992,989 from generic drug maker Zydus Pharmaceuticals (USA) Inc. These patents cover once-a-day topiramate formulations and methods of treating seizures using those formulations. On November 21, 2014, we initiated a lawsuit against Zydus Pharmaceuticals (USA) Inc. and Cadila Healthcare Limited (collectively Zydus); the lawsuit alleges infringement of the Trokendi XR Orange Book patents. The FDA Orange Book currently lists United States Patent No. 8,298,576 as expiring on April 4, 2028 and United States Patent Nos. 8,298,580, 8,663,683, 8,877,248, 8,889,191 and 8,992,989 as expiring on November 16, 2027.
 
This action for patent infringement—filed in the U.S. District Court for the District of New Jersey—alleges that Zydus infringed the Trokendi XR patents by, inter alia, submitting to the FDA an ANDA seeking to market a generic version of Trokendi XR prior to the expiration of these patents. Zydus answered these allegations with affirmative defenses and counterclaims of noninfringement and invalidity of the patents in suit. Filing its November 21, 2014 Complaint within 45 days of receiving the first of three Paragraph IV Notice Letters from Zydus Pharmaceuticals (USA) Inc. entitles Supernus to an automatic stay preventing the FDA from approving Zydus’s ANDA for 30 months from the date of our receipt of such Notice Letter.
 
This case has been consolidated for pretrial purposes with two other actions pending in the District of New Jersey concerning infringement of the Trokendi XR Orange Book patents, those actions being C.A. No. 14-6102 (against Actavis, Inc., Actavis Laboratories FL, Inc., Actavis plc, Actavis Pharma, Inc., Watson Laboratories, Inc., and ANDA, Inc.) and C.A. No. 15-326 (against Par Pharmaceutical Companies, Inc. and Par Pharmaceutical, Inc.). The Company has since entered into a settlement agreement with Par (see below). A Rule 16 scheduling conference was held on April 14, 2015. The Court issued a Scheduling Order on May 22, 2015, which was amended several times, most recently on July 15, 2016. The Court issued its Markman Opinion and Order on March 9, 2016. The Court adopted Supernus’s definitions of five of the seven disputed terms, and did not adopt any of Zydus’s definitions. Fact discovery ended on May 4, 2016. The case is proceeding through expert discovery, which closes on September 23, 2016. The Court’s Amended Scheduling Order states that no summary judgment motions shall be filed. No date has been set for trial.
 
Supernus Pharmaceuticals, Inc. v. Par Pharmaceutical Companies, Inc., C.A. No. 15-326 (SDW)(LDW) (D.N.J.)
 
We received three Paragraph IV Notice Letters against six Trokendi XR Orange Book patents, namely United States Patent Nos. 8,298,576, 8,298,580, 8,663,683, 8,877,248, 8,889,191, and 8,992,989 from generic drug maker Par Pharmaceutical, Inc. These patents cover once-a-day topiramate formulations and methods of treating seizures using those formulations. On January 16, 2015, we initiated a lawsuit against Par; the lawsuit alleges infringement of the Trokendi XR Orange Book patents. The FDA Orange Book currently lists United States Patent No. 8,298,576 as expiring on April 4, 2028 and United States Patent Nos. 8,298,580, 8,663,683, 8,877,248, 8,889,191, and 8,992,989 as expiring on November 16, 2027.
 
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This action for patent infringement—filed in the U.S. District Court for the District of New Jersey—alleges that Par infringed the Trokendi XR patents by, inter alia, submitting to the FDA an ANDA seeking to market a generic version of Trokendi XR prior to the expiration of these patents. Par answered these allegations with affirmative defenses and counterclaims of noninfringement and invalidity of the patents in suit. Filing its January 16, 2015 Complaint within 45 days of receiving the first of three Paragraph IV Notice Letters from Par Pharmaceutical, Inc. entitles Supernus to an automatic stay preventing the FDA from approving Par’s ANDA for 30 months from the date of our receipt of such Notice Letter.
 
The Company announced on October 15, 2015 that it has entered into a settlement agreement with Par regarding this case. The settlement permits Par to begin selling a generic version of Trokendi XR on April 1, 2025, or earlier under certain circumstances. The agreement is subject to a consent judgment that was entered by the U.S. District Court for the District of New Jersey. In the consent judgment, Par acknowledges that the Orange Book-listed patents for Trokendi XR owned by Supernus, namely United States Patent Nos. 8,298,576, 8,298,580, 8,663,683, 8,877,248, 8,889,191, and 8,992,989, are valid and enforceable with respect to Par’s ANDA product, and would be infringed by Par’s ANDA product. The agreement has been submitted to the applicable governmental agencies.
 
Item 1A. Risk Factors
 
Any investment in our business involves a high degree of risk. Before making an investment decision, you should carefully consider the information we include in this Quarterly Report on Form 10-Q, including our condensed consolidated financial statements and related notes, and the additional information in the other reports we file with the Securities and Exchange Commission along with the risks described in our Annual Report on Form 10-K for the year ended December 31, 2015. These risks may result in material harm to our business and our financial condition and results of operations. In this event, the market price of our common stock may decline and you could lose part or all of your investment.
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 
(a)                                 Sales of Unregistered Securities.
 
During the three months ended June 30, 2016, the Company granted options to employees to purchase an aggregate of 7,400 shares of common stock at an exercise price of $17.16 per share. The options are exercisable for a period of ten years from the grant date. These issuances were exempt from registration in reliance on Section 4(a)(2) of the Securities Act as transactions not involving any public offering.
 
Item 3. Defaults Upon Senior Securities
 
None
 
Item 4. Mine Safety Disclosures
 
None
 
Item 5. Other Information
 
None
 
Item 6. Exhibits
 
The following exhibits are filed or furnished as part of this Quarterly Report on Form 10-Q:
 
31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) (filed herewith).
 
31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) (filed herewith).
 
32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
 
32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
 
101.INS XBRL Instance Document
 
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101.SCH XBRL Taxonomy Extension Schema Document
 
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
 
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
 
101.LAB XBRL Taxonomy Extension Label Linkbase Document
 
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
 
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SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 	SUPERNUS PHARMACEUTICALS, INC.	
 	
DATED: August 4, 2016	By:	/s/ Jack A. Khattar	
 	Jack A. Khattar	
 	President, Secretary and Chief Executive Officer	

DATED: August 4, 2016	By:	/s/ Gregory S. Patrick	
 	Gregory S. Patrick	
 	Vice President and Chief Financial Officer	

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EXHIBIT INDEX
 
Number	 	Description	
 	 	 	
31.1	 	Certification of Chief Executive Officer pursuant to Rule 13a-14(a).	
 	 	 	
31.2	 	Certification of Chief Financial Officer pursuant to Rule 13a-14(a).	
 	 	 	
32.1	 	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	
 	 	 	
32.2	 	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	
 	 	 	
101.INS	 	XBRL Instance Document	
 	 	 	
101.SCH	 	XBRL Taxonomy Extension Schema Document	
 	 	 	
101.CAL	 	XBRL Taxonomy Extension Calculation Linkbase Document	
 	 	 	
101.DEF	 	XBRL Taxonomy Extension Definition Linkbase Document	
 	 	 	
101.LAB	 	XBRL Taxonomy Extension Label Linkbase Document	
 	 	 	
101.PRE	 	XBRL Taxonomy Extension Presentation Linkbase Document	
 
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EXHIBIT 31.1
 
CERTIFICATION
 
I, Jack A. Khattar, certify that:
 
1.     I have reviewed this Quarterly Report on Form 10-Q of Supernus Pharmaceuticals, Inc.;
 
2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.     The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
(a)     designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
(b)     designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
(c)     evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
(d)     disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5.     The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
(a)     all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
(b)     any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 4, 2016	By:	/s/ Jack A. Khattar	
 	 	 	
 	 	Jack A. Khattar	
 	 	President and Chief Executive Officer	

EXHIBIT 31.2
 
CERTIFICATION
 
I, Gregory S. Patrick, certify that:
 
1.     I have reviewed this Quarterly Report on Form 10-Q of Supernus Pharmaceuticals, Inc.;
 
2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.     The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
(a)     designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
(b)     designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
(c)     evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
(d)     disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5.     The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
(a)     all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
(b)     any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 4, 2016	By:	/s/ Gregory S. Patrick	
 	 	 	
 	 	Gregory S. Patrick	
 	 	Vice President and Chief Financial Officer	

EXHIBIT 32.1
 
SUPERNUS PHARMACEUTICALS, INC.
 
CERTIFICATION PURSUANT TO
 
18 U.S.C. sec. 1350,
 
AS ADOPTED PURSUANT TO
 
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
In connection with the Quarterly Report of Supernus Pharmaceuticals, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jack A. Khattar, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. sec. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
 
(1)                                 The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
(2)                                 The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
Date: August 4, 2016	By:	/s/ Jack A. Khattar	
 	 	 	
 	 	Jack A. Khattar	
 	 	President and Chief Executive Officer	

EXHIBIT 32.2
 
SUPERNUS PHARMACEUTICALS, INC.
 
CERTIFICATION PURSUANT TO
 
18 U.S.C. sec. 1350,
 
AS ADOPTED PURSUANT TO
 
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
In connection with the Quarterly Report of Supernus Pharmaceuticals, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Gregory S. Patrick, Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. sec. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
 
(1)                                 The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
(2)                                 The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
Date: August 4, 2016	By:	/s/ Gregory S. Patrick	
 	 	 	
 	 	Gregory S. Patrick	
 	 	Vice President and Chief Financial Officer