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, 2015
 
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 August 3, 2015 was 48,446,269.

 

Table of Contents
 
SUPERNUS PHARMACEUTICALS, INC.
FORM 10-Q — QUARTERLY REPORT
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2015
TABLE OF CONTENTS
 
 	Page No.	
PART I — FINANCIAL INFORMATION	 	
Item 1. Financial Statements	 	
 	Consolidated Balance Sheets as of June 30, 2015 (Unaudited) and December 31, 2014	1	
 	Consolidated Statements of Operations for the three and six month periods ended June 30, 2015 and 2014 (Unaudited)	2	
 	Consolidated Statements of Comprehensive Income (Loss) for the three and six month periods ended June 30, 2015 and 2014 (Unaudited)	3	
 	Consolidated Statements of Cash Flows for the six month periods ended June 30, 2015 and 2014 (Unaudited)	4	
 	Notes to Consolidated Financial Statements (Unaudited)	5	
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	18	
Item 3. Quantitative and Qualitative Disclosures about Market Risk	29	
Item 4. Controls and Procedures	29	
PART II — OTHER INFORMATION	 	
Item 1. Legal Proceedings	30	
Item 1A. Risk Factors	32	
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	32	
Item 3. Defaults Upon Senior Securities	32	
Item 4. Mine Safety Disclosures	32	
Item 5. Other Information	32	
Item 6. Exhibits	33	
SIGNATURES	34	

Table of Contents
 
PART I — FINANCIAL INFORMATION
 
Supernus Pharmaceuticals, Inc.
Consolidated Balance Sheets
(in thousands, except share amounts)
 
 	 	June 30,	 	December 31,	 	
 	 	2015	 	2014	 	
 	 	(unaudited)	 	 	 	
Assets	 	 	 	 	 	
Current assets:	 	 	 	 	 	
Cash and cash equivalents	 	$	33,110	 	$	36,396	 	
Marketable securities	 	36,681	 	37,940	 	
Accounts receivable, net	 	17,900	 	17,270	 	
Inventories, net	 	13,592	 	13,441	 	
Prepaid expenses and other current assets	 	4,457	 	3,845	 	
Total current assets	 	105,740	 	108,892	 	
Long term marketable securities	 	33,488	 	19,816	 	
Property and equipment, net	 	2,908	 	2,448	 	
Intangible assets, net	 	11,597	 	5,434	 	
Other non-current assets	 	435	 	918	 	
 	 	 	 	 	 	
Total assets	 	$	154,168	 	$	137,508	 	
 	 	 	 	 	 	
Liabilities and stockholders’ equity	 	 	 	 	 	
Current liabilities:	 	 	 	 	 	
Accounts payable	 	$	4,518	 	$	1,863	 	
Accrued expenses	 	31,753	 	25,487	 	
Deferred licensing revenue	 	143	 	143	 	
Total current liabilities	 	36,414	 	27,493	 	
Deferred licensing revenue, net of current portion	 	1,202	 	1,274	 	
Convertible notes, net of discount	 	8,762	 	26,947	 	
Other non-current liabilities	 	3,355	 	3,876	 	
Derivative liabilities	 	2,070	 	6,564	 	
Total liabilities	 	51,803	 	66,154	 	
 	 	 	 	 	 	
Stockholders’ equity:	 	 	 	 	 	
Common stock, $0.001 par value, 130,000,000 shares authorized at June 30, 2015 and December 31, 2014; 48,444,821 and 42,974,463 shares issued and outstanding at June 30, 2015 and December 31, 2014, respectively	 	48	 	43	 	
Additional paid-in capital	 	258,202	 	230,122	 	
Accumulated other comprehensive loss	 	(151	)	(154	)	
Accumulated deficit	 	(155,734	)	(158,657	)	
Total stockholders’ equity	 	102,365	 	71,354	 	
 	 	 	 	 	 	
Total liabilities and stockholders’ equity	 	$	154,168	 	$	137,508	 	
 
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,	 	
 	 	2015	 	2014	 	2015	 	2014	 	
 	 	(unaudited)	 	(unaudited)	 	
Revenue	 	 	 	 	 	 	 	 	 	
Net product sales	 	$	34,266	 	$	27,609	 	$	62,363	 	$	36,604	 	
Licensing revenue	 	786	 	2,066	 	822	 	2,152	 	
 	 	 	 	 	 	 	 	 	 	
Total revenue	 	35,052	 	29,675	 	63,185	 	38,756	 	
 	 	 	 	 	 	 	 	 	 	
Costs and expenses	 	 	 	 	 	 	 	 	 	
Cost of product sales	 	1,762	 	1,661	 	3,380	 	2,155	 	
Research and development	 	6,878	 	4,677	 	10,561	 	9,159	 	
Selling, general and administrative	 	23,336	 	19,581	 	42,737	 	37,109	 	
 	 	 	 	 	 	 	 	 	 	
Total costs and expenses	 	31,976	 	25,919	 	56,678	 	48,423	 	
 	 	 	 	 	 	 	 	 	 	
Operating income (loss)	 	3,076	 	3,756	 	6,507	 	(9,667	)	
 	 	 	 	 	 	 	 	 	 	
Other income (expense)	 	 	 	 	 	 	 	 	 	
Interest income	 	137	 	85	 	250	 	187	 	
Interest expense	 	(331	)	(1,278	)	(712	)	(2,485	)	
Changes in fair value of derivative liabilities	 	1	 	678	 	(48	)	1,355	 	
Loss on extinguishment of debt	 	(241	)	(39	)	(2,375	)	(1,732	)	
Other income	 	25	 	—	 	25	 	—	 	
 	 	 	 	 	 	 	 	 	 	
Total other income (expense)	 	(409	)	(554	)	(2,860	)	(2,675	)	
 	 	 	 	 	 	 	 	 	 	
Earnings (loss) before income taxes	 	2,667	 	3,202	 	3,647	 	(12,342	)	
 	 	 	 	 	 	 	 	 	 	
Income tax expense	 	662	 	—	 	724	 	—	 	
 	 	 	 	 	 	 	 	 	 	
Net income (loss)	 	$	2,005	 	$	3,202	 	$	2,923	 	$	(12,342	)	
 	 	 	 	 	 	 	 	 	 	
Income (loss) per common share:	 	 	 	 	 	 	 	 	 	
Basic	 	$	0.04	 	$	0.08	 	$	0.06	 	$	(0.30	)	
Diluted	 	$	0.03	 	$	0.08	 	$	0.06	 	$	(0.30	)	
 	 	 	 	 	 	 	 	 	 	
Weighted-average number of common shares:	 	 	 	 	 	 	 	 	 	
Basic	 	47,911,932	 	42,056,285	 	46,246,866	 	41,595,232	 	
Diluted	 	52,273,549	 	42,372,137	 	47,687,992	 	41,595,232	 	
 
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,	 	
 	 	2015	 	2014	 	2015	 	2014	 	
 	 	(unaudited)	 	(unaudited)	 	
 	 	 	 	 	 	 	 	 	 	
Net income (loss)	 	$	2,005	 	$	3,202	 	$	2,923	 	$	(12,342	)	
Other comprehensive (loss) income:	 	 	 	 	 	 	 	 	 	
Unrealized net (loss) gain on marketable securities	 	(86	)	—	 	3	 	1	 	
Other comprehensive (loss) income:	 	(86	)	—	 	3	 	1	 	
 	 	 	 	 	 	 	 	 	 	
Comprehensive income (loss)	 	$	1,919	 	$	3,202	 	$	2,926	 	$	(12,341	)	
 
See accompanying notes.
 
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Supernus Pharmaceuticals, Inc.
Consolidated Statements of Cash Flows
(in thousands)
 
 	 	Six Months ended June 30,	 	
 	 	2015	 	2014	 	
 	 	(unaudited)	 	
Cash flows from operating activities	 	 	 	 	 	
Net income (loss)	 	$	2,923	 	$	(12,342	)	
 	 	 	 	 	 	
Adjustments to reconcile income (loss) from continuing operations to net cash provided by (used in) operating activities:	 	 	 	 	 	
Loss on extinguishment of debt	 	2,375	 	1,732	 	
Change in fair value of derivative liability	 	48	 	(1,355	)	
Unrealized gain on marketable securities	 	3	 	1	 	
Depreciation and amortization	 	431	 	460	 	
Amortization of deferred financing costs and debt discount	 	524	 	1,087	 	
Share-based compensation expense	 	2,020	 	1,319	 	
Changes in operating assets and liabilities:	 	 	 	 	 	
Accounts receivable	 	(630	)	(5,800	)	
Inventories	 	(151	)	(2,949	)	
Prepaid expenses and other assets	 	(738	)	(1,019	)	
Accounts payable	 	2,655	 	(1,329	)	
Accrued expenses	 	6,266	 	2,059	 	
Deferred product revenue, net	 	—	 	(7,882	)	
Deferred licensing revenue	 	(72	)	(133	)	
Other non-current liabilities	 	(482	)	107	 	
Net cash provided by (used in) operating activities	 	15,172	 	(26,044	)	
 	 	 	 	 	 	
Cash flows from investing activities	 	 	 	 	 	
Purchases of marketable securities	 	(34,274	)	(19,902	)	
Sales and maturities of marketable securities	 	21,862	 	27,093	 	
Purchases of property and equipment, net	 	(777	)	(381	)	
Deferred legal fees	 	(6,278	)	(2,040	)	
Net cash (used in) provided by investing activities	 	(19,467	)	4,770	 	
 	 	 	 	 	 	
Cash flows from financing activities	 	 	 	 	 	
Proceeds from issuance of common stock	 	1,009	 	251	 	
Cash settlement of debt to equity conversion	 	—	 	(1	)	
Net cash provided by financing activities	 	1,009	 	250	 	
 	 	 	 	 	 	
Net change in cash and cash equivalents	 	(3,286	)	(21,024	)	
Cash and cash equivalents at beginning of period	 	36,396	 	32,980	 	
Cash and cash equivalents at end of period	 	$	33,110	 	$	11,956	 	
 	 	 	 	 	 	
Supplemental cash flow information:	 	 	 	 	 	
Cash paid for interest	 	$	504	 	$	1,502	 	
 	 	 	 	 	 	
Noncash financial activity:	 	 	 	 	 	
Conversion of convertible notes and interest make-whole	 	$	25,056	 	$	10,676	 	
 
See accompanying notes.
 
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Supernus Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements
For the Three and Six Months ended June 30, 2015 and 2014
(unaudited)
 
1.  Organization and Business
 
Supernus Pharmaceuticals, Inc. (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 unaudited consolidated financial statements include the accounts of Supernus Pharmaceuticals, Inc. and Supernus Europe Ltd. These are 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, 2014 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, 2015 are not necessarily indicative of the Company’s future financial results.
 
Accounts Receivable, net
 
Accounts receivable are reported in 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. No accounts have been written off in 2015 and 2014. The Company recorded an allowance of approximately $4.9 million and $4.1 million for estimated sales discounts as of June 30, 2015 and December 31, 2014, respectively.
 
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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. For the three and six months ended June 30, 2015, the revenue for Oxtellar XR and Trokendi XR was recognized contemporaneously upon shipment of finished product to wholesalers, net of allowances for estimated sales deductions and returns.
 
Beginning in the second quarter of 2014, the Company began recognizing revenue for Trokendi XR, net of estimated sales deductions, at the time of shipments to wholesalers.  Prior to this change in accounting estimate, the Company recognized revenue for
Trokendi XR once delivery had occurred and all sales deductions were known or reasonably estimated. The effect of this change was to increase net product sales by $15.4 million and cost of product sales by $0.9 million for the three and six month periods ended June 30, 2014.
 
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 health-care 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 prior quarters’ unpaid rebates. If actual future rebates vary from estimates, we may need to adjust prior period accruals, 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 as consideration 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.
 
·                  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 or for expired product 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.
 
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Milestone Payments
 
Milestone payments on licensing agreements are recognized as revenue when the collaborative partner acknowledges completion of the milestone and substantive effort 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 $750,000 of milestone revenue during the three and six months ended June 30, 2015 and $2.0 million of milestone revenue during the three and six months ended June 30, 2014.
 
Cost of Product Sales
 
The cost of product sales consist 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 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 April 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2015-05, “Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.”  This ASU provides guidance about whether a cloud computing arrangement includes a software license.  If a cloud computing arrangement includes a software license, then the software license element of the arrangement is consistent with the acquisition of other software licenses.  If a cloud computing arrangement does not include a software license, then it should account for the arrangement as a service contract.  The amendments in this ASU are effective for financial statements issued for annual periods, including interim periods within those annual periods, beginning after December 15, 2015.  The Company has elected to early adopt the amendment.
 
In April 2015, the 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 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 should be applied on a retrospective basis and the Company will be required to comply with the applicable disclosures for a change in accounting principle. Presently, the Company is assessing what effect the adoption of ASU 2015-03 will have on our consolidated financial statements and accompanying notes.
 
In August 2014, the FASB issued ASU No. 2014-15 “Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern”. The new standard requires management to perform interim and annual assessments of an entity’s ability to continue to meet its obligations as they become due within one year after the date that the financial statements are issued. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. We do not believe the adoption of the new standard will have a significant impact on our operations.
 
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 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.  Earlier
 
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adoption is not permitted. 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.
 
The Company has evaluated all other ASUs issued through the date the consolidated financials were issued and believes that the adoption of these will not have a material impact on the Company’s consolidated financial statements.
 
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 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 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 or liabilities 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, 2015	 	
 	 	(unaudited)	 	
 	 	 	 	 	 	Significant	 	 	 	
 	 	Total Carrying	 	Quoted Prices	 	Other	 	Significant	 	
 	 	Value at	 	in Active	 	Observable	 	Unobservable	 	
 	 	June 30,	 	Markets	 	Inputs	 	Inputs	 	
 	 	2015	 	(Level 1)	 	(Level 2)	 	(Level 3)	 	
Assets:	 	 	 	 	 	 	 	 	 	
Cash and cash equivalents	 	$	33,110	 	$	33,110	 	$	—	 	$	—	 	
Marketable securities	 	36,681	 	—	 	36,681	 	—	 	
Long term marketable securities	 	33,488	 	—	 	33,488	 	—	 	
Marketable securities - restricted (SERP)	 	267	 	—	 	267	 	—	 	
Total assets at fair value	 	$	103,546	 	$	33,110	 	$	70,436	 	$	—	 	
 	 	 	 	 	 	 	 	 	 	
Liabilities:	 	 	 	 	 	 	 	 	 	
Derivative liabilities	 	$	2,070	 	$	—	 	$	—	 	$	2,070	 	
 
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 	 	Fair Value Measurements at	 	
 	 	December 31, 2014	 	
 	 	 	 	 	 	Significant	 	 	 	
 	 	Total Carrying	 	Quoted Prices	 	Other	 	Significant	 	
 	 	Value at	 	in Active	 	Observable	 	Unobservable	 	
 	 	December 31,	 	Markets	 	Inputs	 	Inputs	 	
 	 	2014	 	(Level 1)	 	(Level 2)	 	(Level 3)	 	
Assets:	 	 	 	 	 	 	 	 	 	
Cash and cash equivalents	 	$	36,396	 	$	36,396	 	$	—	 	$	—	 	
Marketable securities	 	37,940	 	—	 	37,940	 	—	 	
Long term marketable securities	 	19,816	 	—	 	19,816	 	—	 	
Marketable securities - restricted (SERP)	 	305	 	—	 	305	 	—	 	
Total assets at fair value	 	$	94,457	 	$	36,396	 	$	58,061	 	$	—	 	
 	 	 	 	 	 	 	 	 	 	
Liabilities:	 	 	 	 	 	 	 	 	 	
Derivative liabilities	 	$	6,564	 	$	—	 	$	—	 	$	6,564	 	
 
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 money market funds and U.S. Treasury and government agency debt securities with quoted prices in active markets.
 
Level 2 assets include the SERP (Supplemental Executive Retirement Plan) assets, commercial paper and investment grade corporate bonds and other fixed income securities.
 
Level 3 liabilities include the estimated fair value of the interest make-whole liability associated with the Company’s 7.50% Convertible Senior Secured Notes due 2019 (the Notes) and outstanding warrants to purchase Common Stock, 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, 2015, unaudited:
 
Volatility	 	45%	
Stock Price as of June 30, 2015	 	$16.98 per share	
Credit Spread	 	1522 bps	
Term	 	1.8 years	
Dividend Yield	 	0.0%	
 
The fair value of the common stock warrant liability was calculated using a Black-Scholes model with the following assumptions as of June 30, 2015, unaudited:
 
Exercise Price	 	$4.00 - $5.00 per share	
Volatility	 	65%	
Stock Price as of June 30, 2015	 	$16.98 per share	
Term	 	5.6 - 6.5 years	
Dividend Yield	 	0.0%	
Risk-Free Rate	 	1.8% -2.1%	
 
Significant changes to these assumptions could result in increases/decreases to the fair value of the derivative liabilities.
 
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Changes in the fair value of the warrants and 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, 2014 and June 30, 2015 that are included in the Non-Current Liabilities section of the Consolidated Balance Sheets, in thousands:
 
 	 	Six Months ended	 	
 	 	June 30,	 	
 	 	2015	 	
 	 	(unaudited)	 	
 	 	 	 	
Balance at December 31, 2014	 	$	6,564	 	
 	 	 	 	
Changes in fair value of derivative liabilities included in earnings	 	48	 	
Reduction due to conversion of debt to equity	 	(4,542	)	
 	 	 	 	
Balance at June 30, 2015	 	$	2,070	 	
 
The carrying value, face value and estimated fair value of the Notes was approximately $8.8 million, $10.7 million and $36.1 million, respectively, as of June 30, 2015. 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. These items have been accounted for as derivative liabilities and additional paid-in-capital, respectively.
 
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, 2015 (unaudited):
 
Available for Sale	 	Amortized
Cost	 	Gross
Unrealized
Gains	 	Gross
Unrealized
Losses	 	Fair Value	 	
Corporate debt securities	 	$	70,320	 	$	10	 	$	(161	)	$	70,169	 	

At December 31, 2014:
 
Available for Sale	 	Amortized
Cost	 	Gross
Unrealized
Gains	 	Gross
Unrealized
Losses	 	Fair Value	 	
Corporate debt securities	 	$	57,910	 	$	4	 	$	(158	)	$	57,756	 	

The contractual maturities of the unrestricted available for sale marketable securities held by the Company were as follows, in thousands:
 
 	 	June 30,	 	
 	 	2015	 	
 	 	(unaudited)	 	
Less Than 1 Year	 	$	36,681	 	
1-5 years	 	33,488	 	
Greater Than 5 Years	 	—	 	
Total	 	$	70,169	 	
 
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.
 
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4.  Inventories
 
Inventories consist of the following, in thousands:
 
 	 	June 30,	 	December 31,	 	
 	 	2015	 	2014	 	
 	 	(unaudited)	 	 	 	
 	 	 	 	 	 	
Raw materials	 	$	2,363	 	$	2,491	 	
Work in process	 	4,040	 	6,328	 	
Finished goods	 	7,189	 	4,622	 	
 	 	$	13,592	 	$	13,441	 	
 
5.  Property and Equipment
 
Property and equipment consist of the following, in thousands:
 
 	 	June 30,	 	December 31,	 	
 	 	2015	 	2014	 	
 	 	(unaudited)	 	 	 	
 	 	 	 	 	 	
Computer equipment	 	$	992	 	$	862	 	
Software	 	333	 	254	 	
Lab equipment and furniture	 	5,603	 	5,194	 	
Leasehold improvements	 	2,587	 	2,428	 	
 	 	9,515	 	8,738	 	
Less accumulated depreciation and amortization	 	(6,607	)	(6,290	)	
 	 	$	2,908	 	$	2,448	 	
 
Depreciation expense on property and equipment was approximately $160,000 and $317,000 for the three and six months ended June 30, 2015 and $176,000 and $345,000 for the three and six months ended June 30, 2014.
 
6.  Intangible Assets
 
The Company purchased certain patents from Shire Laboratories, Inc. pursuant to a 2005 purchase agreement. These patents are being amortized over the weighted average life of the patents purchased in that transaction. Deferred legal fees have been incurred in connection with litigation related to patents for Oxtellar XR and Trokendi XR (see Part II, Item I—Legal Proceedings in this Quarterly Report on Form 10-Q). The following sets forth the gross carrying amount and related accumulated amortization of these intangible assets, in thousands:
 
 	 	 	 	June 30, 2015	 	 	 	 	 	
 	 	 	 	(unaudited)	 	December 31, 2014	 	
 	 	Weighted-	 	Gross Carrying	 	Accumulated	 	Gross Carrying	 	Accumulated	 	
 	 	Average Life	 	Amount	 	Amortization	 	Amount	 	Amortization	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Purchased patents	 	10.0	 	$	2,292	 	$	2,182	 	$	2,292	 	$	2,067	 	
Deferred legal fees	 	 	 	$	11,487	 	$	—	 	$	5,209	 	$	—	 	
 
Deferred legal fees will be capitalized as part of the patents upon successful outcome of the on-going litigation related to these patents, at which point amortization of those costs will begin. If the Company is unsuccessful, the deferred legal fees will be expensed at that time. Four U.S. patents have been issued covering Oxtellar XR and six U.S. patents have been issued covering Trokendi XR, with the patents expiring no earlier than 2027.
 
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Amortization expense associated with purchased patents was approximately $57,000 for each of the three months ended June 30, 2015 and 2014 and was approximately $115,000 for each of the six months ended June 30, 2015 and 2014. The estimated annual aggregate amortization expense through December 31, 2015 is $229,000. The net book value of intangible assets as of June 30, 2015 was approximately $11.6 million and December 31, 2014 was approximately $5.4 million.
 
There were no indicators of impairment identified at June 30, 2015 or December 31, 2014.
 
7.  Accrued Liabilities
 
Accrued Liabilities are comprised of the following, in thousands:
 
 	 	June 30,	 	December 31,	 	
 	 	2015	 	2014	 	
 	 	(unaudited)	 	 	 	
 	 	 	 	 	 	
Accrued sales deductions	 	$	14,114	 	$	8,461	 	
Accrued compensation	 	6,493	 	5,829	 	
Accrued professional fees	 	4,461	 	2,049	 	
Accrued product costs	 	2,813	 	3,014	 	
Accrued clinical trial and clinical supply costs	 	715	 	2,942	 	
Accrued sales and marketing expenses	 	650	 	1,017	 	
Accrued interest expense	 	322	 	639	 	
Other accrued liabilities	 	2,185	 	1,536	 	
 	 	$	31,753	 	$	25,487	 	
 
8.   Convertible Senior Secured Notes
 
The table below summarizes activity related to the Notes from issuance on May 3, 2013 through June 30, 2015, 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	 	(53,941	)	
Conversion of debt to equity - accretion of debt discount	 	17,926	 	
Accretion of debt discount	 	4,568	 	
December 31, 2014 carrying value	 	26,947	 	
 	 	 	 	
Conversion of debt to equity - principal	 	(25,335	)	
Conversion of debt to equity - accretion of debt discount	 	6,669	 	
Accretion of debt discount	 	481	 	
June 30, 2015 carrying value, unaudited	 	$	8,762	 	
 
During the six month period ended June 30, 2015, approximately $25.3 million of the Notes were presented to the Company for conversion. Accordingly, the Company issued approximately 4.8 million shares of common stock in conversion of the principal amount of the Notes.  The Company issued an additional 0.5 million shares of common stock in settlement of the interest make-whole provision related to the converted Notes.  As a result of the conversions, the Company incurred a loss of approximately $2.4 million on extinguishment of debt during the six months ended June 30, 2015, 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, 2014, as a result of approximately $9.7 million in note conversions, the Company incurred a loss of approximately $1.7 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, 2015, in thousands.
 
 	 	Common Stock	 	Additional Paid-in
Capital	 	
 	 	(unaudited)	 	
 	 	 	 	 	 	
Balance, December 31, 2014	 	$	43	 	$	230,122	 	
Share-based compensation	 	—	 	2,020	 	
Issuance of ESPP shares	 	—	 	324	 	
Exercise of stock options	 	—	 	685	 	
Equity issued on note conversion	 	5	 	25,051	 	
Balance, June 30, 2015	 	$	48	 	$	258,202	 	
 
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 4,000,000 shares of the Company’s Common Stock upon the exercise of stockawards. 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,	 	
 	 	2015	 	2014	 	2015	 	2014	 	
 	 	(unaudited)	 	(unaudited)	 	
 	 	 	 	 	 	 	 	 	 	
Research and development	 	$	206	 	$	179	 	$	410	 	$	362	 	
Selling, general and administrative	 	912	 	473	 	1,610	 	957	 	
Total	 	$	1,118	 	$	652	 	$	2,020	 	$	1,319	 	
 
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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, 2014	 	2,080,749	 	$	7.93	 	8.04	 	
Granted (unaudited)	 	892,500	 	$	9.33	 	 	 	
Exercised (unaudited)	 	(165,733	)	$	4.13	 	 	 	
Forfeited or expired (unaudited)	 	(121,603	)	$	8.56	 	 	 	
Outstanding, June 30, 2015 (unaudited)	 	2,685,913	 	$	8.60	 	8.34	 	
 	 	 	 	 	 	 	 	
As of December 31, 2014:	 	 	 	 	 	 	 	
Vested and expected to vest	 	2,041,026	 	$	7.91	 	8.03	 	
Exercisable	 	626,548	 	$	6.40	 	6.91	 	
 	 	 	 	 	 	 	 	
As of June 30, 2015:	 	 	 	 	 	 	 	
Vested and expected to vest (unaudited)	 	2,625,969	 	$	8.59	 	8.32	 	
Exercisable (unaudited)	 	856,008	 	$	7.80	 	7.32	 	
 
11.  Earnings per Share
 
Basic income (loss) per common share is determined by dividing income (loss) attributable to common stockholders by the weighted-average number of common shares outstanding during the period, without consideration of common stock equivalents. Diluted income (loss) per share is computed by dividing the income (loss) 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 warrants, and the if-converted method is used to determine the dilutive effect of the Company’s Notes.  The assumed conversion of the Notes would result in a loss on extinguishment of debt which would cause a net loss in the three months ended June 30, 2014 and the six months ended June 30, 2015 and June 30, 2014; thus, the effect would be anti-dilutive.  The following common stock equivalents were excluded in the calculation of diluted income (loss) per share because their effect would be anti-dilutive as applied to the income (loss) from continuing operations applicable to common stockholders for the three and six months ended June 30, 2015 and 2014:
 
 	 	Three Months ended June 30,	 	Six Months ended June 30,	 	
 	 	2015	 	2014	 	2015	 	2014	 	
 	 	(unaudited)	 	(unaudited)	 	
 	 	 	 	 	 	 	 	 	 	
Shares underlying Convertible Senior Secured Notes	 	—	 	7,548,143	 	2,791,624	 	7,733,266	 	
Warrants to purchase common stock	 	28,613	 	20,571	 	25,950	 	20,928	 	
Stock options, stock appreciation rights, and non-vested stock options	 	—	 	—	 	—	 	259,478	 	
 
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The following table sets forth the computation of basic and diluted net income per share for the three and six months ended June 30, 2015 and 2014, in thousands, except share and per share amounts:
 
 	 	Three Months ended June 30,	 	Six Months ended June 30,	 	
 	 	2015	 	2014	 	2015	 	2014	 	
 	 	(unaudited)	 	(unaudited)	 	
Numerator, in thousands:	 	 	 	 	 	 	 	 	 	
Net income (loss) used for calculation of basic EPS	 	$	2,005	 	$	3,202	 	$	2,923	 	$	(12,342	)	
 	 	 	 	 	 	 	 	 	 	
Interest expense on convertible debt	 	331	 	—	 	—	 	—	 	
Changes in fair value of derivative liabilities	 	(195	)	—	 	—	 	—	 	
Loss on extinguishment of outstanding debt	 	241	 	—	 	—	 	—	 	
Loss on extinguishment of outstanding debt, as if converted	 	(553	)	—	 	—	 	—	 	
Total adjustments	 	(176	)	—	 	—	 	—	 	
Net income (loss) used for calculation of diluted EPS	 	$	1,829	 	$	3,202	 	$	2,923	 	$	(12,342	)	
 	 	 	 	 	 	 	 	 	 	
Denominator:	 	 	 	 	 	 	 	 	 	
Weighted average shares outstanding, basic	 	47,911,932	 	42,056,285	 	46,246,866	 	41,595,232	 	
 	 	 	 	 	 	 	 	 	 	
Effect of dilutive potential common shares:	 	 	 	 	 	 	 	 	 	
Shares underlying Convertible Senior Secured Notes	 	2,417,586	 	—	 	—	 	—	 	
Shares issuable to settle interest make-whole derivatives	 	246,105	 	—	 	—	 	—	 	
Stock options, stock appreciation rights, and non-vested stock options	 	1,697,926	 	315,852	 	1,441,126	 	—	 	
Total potential dilutive common shares	 	4,361,617	 	315,852	 	1,441,126	 	—	 	
Weighted average shares outstanding, diluted	 	52,273,549	 	42,372,137	 	47,687,992	 	41,595,232	 	
 	 	 	 	 	 	 	 	 	 	
Net income (loss) per share, basic	 	$	0.04	 	$	0.08	 	$	0.06	 	$	(0.30	)	
Net income (loss) per share, diluted	 	$	0.03	 	$	0.08	 	$	0.06	 	$	(0.30	)	
 
12. Income Taxes
 
During the three and six months ended June 30, 2015, the Company had pre-tax income of $2.7 million and $3.6 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 (NOL’s). 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 NOL’s to offset the expected tax expense.
 
During the three months ended June 30, 2015, the Company 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.
 
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, 2015, $0.2 million of the allowance was utilized and is included in fixed assets and deferred rent.  During the three and six months ended June 30, 2014, $0.1 million of the allowance was utilized.  As of June 30, 2015, $0.5 million remains available for tenant improvements. 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. Rent expense for the leased facilities and leased vehicles for the three and six months ended June 30, 2014 was approximately, $0.5 million, and $1.0 million, respectively.
 
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Future minimum lease payments under non-cancelable operating leases as of June 30, 2015 are as follows, in thousands:
 
Year ending December 31:	 	 	 	
2015 (remaining)	 	$	919	 	
2016	 	1,379	 	
2017	 	1,291	 	
2018	 	1,314	 	
Thereafter	 	1,795	 	
 	 	$	6,698	 	
 
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 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. The Company does not owe any future milestone payments for SPN-810. The Company is obligated to pay royalties to Afecta based on worldwide net sales of each of these products in the low-single digits.
 
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, the Company is obligated to pay royalties to Rune based on net sales worldwide in the low single digits.
 
14. Collaboration Agreements
 
United Therapeutics
 
The Company has a license agreement with United Therapeutics Corporation to use one of its proprietary technologies for an oral formulation of Remodulin for the treatment of pulmonary arterial hypertension and potentially for additional indications. Through June 30, 2015, the Company has received $3.5 million in milestone payments under the agreement.  During 2014, we entered into a Royalty Interest Acquisition Agreement with HC Royalty.  Pursuant to this Agreement, HC Royalty made a $30.0 million cash payment to the Company in consideration for acquiring from the Company certain royalty and milestone rights related to the commercialization of Orenitram (treprostinil) Extended-Release Tablets.  We will retain full ownership of the royalty rights after a certain threshold has been reached per the terms of the Agreement.  There was no revenue generated in the three and six months ended June 30, 2015. The revenue generated in the three and six months ended June 30, 2014 was $2.0 million for a milestone payment.  As of June 30, 2015 and December 31, 2014 there are no receivables or payables related to the collaboration with United Therapeutics Corporation.
 
Stendhal Licenses
 
In August 2011, we executed a Development and Licensing Agreement with Especificos Stendhal, S.A., DE C.V. (Stendhal) that provided Stendhal an exclusive license to our licensed intellectual property underlying our Oxtellar XR product in Mexico, Venezuela, Colombia and other select markets in Central and South America. The agreement included the right to our patents, proprietary information, and know-how of our drug-delivery technology and pharmaceutical product underlying our Oxtellar XR product. Stendhal is responsible for all costs associated with clinical development, approval, commercialization and distribution of the product in the defined territory, which may be expanded upon certain events. We have received $1.5 million from Stendhal, which was recognized as revenue on a straight-line basis over the substantive obligation period. As of June 30, 2015, this up-front payment had been fully recognized as revenue. We may receive up to $1.5 million in additional milestone payments, based on certain regulatory and commercial milestones defined in the agreement.
 
In September 2012, the Company executed a Development and Licensing Agreement (Stendhal License Agreement) with Stendhal that provided Stendhal with an exclusive license of the Company’s licensed intellectual property underlying the Trokendi XR product in the defined territory. The license included the right to the Company’s patents, proprietary information, and know-how of the Company’s drug-delivery technology and pharmaceutical product underlying its Trokendi XR product. Stendhal is responsible for all costs associated with clinical development, approval, commercialization and distribution of the product in the defined territory. The Company received $1.8 million that is being recognized as revenue on a straight-line basis over its substantive obligation period of twelve years. As of June 30, 2015, approximately $1.3 million of this amount was recorded as deferred revenue of which $0.1 million
 
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was current and $1.2 million was non-current. The Company monitors this estimate on a quarterly basis to determine if facts and circumstances may have changed that would require a prospective adjustment to the recognition period. The Company may receive up to an additional $1.8 million in future milestone payments, based on certain milestones defined in the Stendhal License Agreement.
 
The licensing revenue generated from Stendhal in the six months ended June 30, 2015 and June 30, 2014 was $0.8 million and $0.1 million, respectively.  As of June 30, 2015 and December 31, 2014, there is $1.3 million and $1.4 million, respectively, in deferred licensing revenue included in the balance sheet.  There were de minimis amounts of product revenue for the six months ended June 30, 2015 and 2014. There is a combined amount of $0.8 million of milestone and product receivables at June 30, 2015 and a de minimis amount of receivables at December 31, 2014.
 
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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 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, 2014 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 12, 2015.  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 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. In 2013, we launched Oxtellar XR (extended-release oxcarbazepine) and Trokendi XR (extended-release topiramate), our two novel treatments for patients with epilepsy.
 
In addition, we are developing multiple product candidates in psychiatry to address the large unmet medical need and market opportunity for the treatment of attention deficit hyperactivity disorder (ADHD), and with SPN-810 specifically, addressing impulsive aggression in patients who have ADHD and who are being treated with standard ADHD treatment, an indication area for which there is currently no approved product.
 
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 expected in 4Q2015	
SPN-812	 	ADHD	 	Phase IIb expected in 4Q2015	
SPN-809	 	Depression	 	Active IND	

*  Initial program will be in patients with ADHD, with a plan to follow on in other possible indications, such as autism and bipolar disorder.
 
We are continuing to expand our intellectual property portfolio to provide additional protection for our technologies, products, and product candidates. We currently have four U.S. patents issued covering Oxtellar XR and six U.S. patents issued covering Trokendi XR, with the patents expiring no earlier than 2027 for each product.
 
Marketed Products.  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 the immediate release products by offering convenient once-daily dosing and unique pharmacokinetic profiles that can have very positive clinical effects for some patients with epilepsy. 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
 
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profiles of our once-daily formulations avoid the peak to trough blood level fluctuations that are typically associated with immediate release products which result in increased adverse events or more symptomatic side effects and decreased efficacy. In a retrospective medical chart review of 200 patients treated with immediate release oxcarbazepine versus Oxtellar XR, the patients taking Oxtellar XR showed a significantly lower rate of inpatient hospitalization stays, lower rate of emergency department visits, and a higher rate of medication adherence.
 
Trokendi XR
 
Trokendi XR is the first once-daily extended release topiramate product indicated for patients with epilepsy in the U.S. market, designed to improve patient adherence and to show a better pharmacokinetic profile than  the current immediate release products, which must be taken multiple times per day. Trokendi XR’s pharmacokinetic profile results in lower peak plasma concentrations, higher trough plasma concentrations, and slower plasma input rate. This results in smoother and more consistent blood levels of topiramate than immediate release topiramate formulations can deliver. We believe that such a profile mitigates blood level fluctuations that are frequently associated with many of the symptomatic side effects or breakthrough seizures that patients can suffer when taking immediate release products. Side effects can lead patients to skip doses, whereupon the increased non-adherence could place them at higher risk for breakthrough seizures.
 
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 an adjunctive therapy. With its novel pharmacokinetic profile showing lower peak plasma concentrations, a slower rate of input, higher trough plasma concentrations, and smoother and more consistent blood levels compared to immediate release products, we believe Oxtellar XR has the potential to improve the tolerability of oxcarbazepine and thereby reduce side effects. This could enable more patients to tolerate higher doses of oxcarbazepine, which would permit them to benefit from the resulting improved efficacy and greater seizure control, which has been previously reported in patients taking higher doses. Patients taking higher doses of immediate release oxcarbazepine are often unable to tolerate the resultant increased side effects. In addition, Oxtellar XR once-per-day dosing is designed to improve patient adherence compared to the current immediate release products that must be taken multiple times per day.
 
We expect the number of prescriptions filled for Oxtellar XR and Trokendi XR to increase throughout 2015. Data from Wolters- Kluwer/Symphony show 170,087 prescriptions filled for both drugs during the six months ended June 30, 2015, representing a growth of 118% as compared to the 77,876 prescriptions reported for the six months ended June 30, 2014.  For the three months ended June 30, 2015 data from Wolters- Kluwer/Symphony show 91,324 prescriptions filled for both drugs, representing a growth of 99% as compared to the 45,813 prescriptions reported for the three months ended June 30, 2014 and sequential growth of 16% from the 78,763 prescriptions reported for the three months ended March 31, 2015.
 
Net product sales for the first half of 2015 totaled $62.4 million, an increase of 70% over the same period last year.  Total net product sales for the second quarter of 2015 were $34.3 million, compared to total net product sales of $27.6 million for the same quarter last year.  Net product sales for the second quarter of 2015 totaled $34.3 million, an increase of 22% over the first quarter of 2015. The effect of the change to contemporaneous revenue recognition for Trokendi XR for the three and six month periods ended June 30, 2014 was to increase net product sales by $15.4 million.
 
Operating income for the first half of 2015 totaled $6.5 million, an increase of $16.2 million over the same period last year. The effect of the change to contemporaneous revenue recognition for Trokendi XR was to increase operating income by $14.5 million for the three and six month periods ended June 30, 2014.
 
We believe our net working capital and long term marketable securities balance of $102.8 million as of June 30, 2015, along with revenues from increasing product sales, will be sufficient to finance the Company including our increased research and development activities and our expected clinical trials.
 
We are progressing with our Phase IV post-marketing commitments for Oxtellar XR and Trokendi XR. The work we are completing to meet our Food and Drug Administration (FDA) commitments may also have applicability in life-cycle management.
 
We have received several Paragraph IV Notice Letters concerning Oxtellar XR and Trokendi XR from various third-parties. In response to these Paragraph IV notice letters, we have filed 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 and we anticipate
 
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continuing to incur increasing amounts of legal fees and related expenses for these cases as they progress (See Part II, Item 1—Legal Proceedings in this Quarterly Report on Form 10-Q for additional information).
 
Oxtellar XR was one of several products prescribed to children whose safety profile was reviewed at a Pediatric Advisory Committee meeting in March 2015.  The committee voted for the FDA to continue their safety monitoring of this product per their current routine.  As part of the preparation for this committee review, the FDA noted that safety information in the Oxtellar XR package insert should be updated to reflect the same information as exists in the package insert of Reference Listed Drug, Trileptal, and, accordingly, we  have submitted the revised version of the package insert to the FDA for review.
 
Product Candidates.  We are developing SPN-810 (molindone hydrochloride) as a novel treatment for impulsive aggression in patients who have ADHD and who are being treated with standard ADHD treatment, and SPN-812 (viloxazine hydrochloride) for the treatment of ADHD. We expect to initiate the Phase III program for SPN-810 in the fourth quarter of 2015 and initiate the Phase IIb program for SPN-812 in the fourth quarter of 2015.
 
In early April 2015, the Company submitted to the FDA the impulsive aggression outcome and assessment scale we propose to use in the Phase III program SPN-810 trials. We subsequently met with the FDA in July 2015 to review this scale and our proposed primary endpoint for the Phase III trials.  The FDA accepted the use of our scale and agreed with our proposed primary endpoint.  As a result of the meeting, we continue to be on track to submit the Special Protocol Assessment (SPA) in the third quarter.
 
During 2014, the FDA granted fast track designation for SPN-810 for the treatment of impulsive aggression in ADHD in conjunction with standard ADHD treatment. Fast track designation is for products that are being investigated for treatment of serious conditions, and for which nonclinical or clinical data suggest that they may address an unmet medical need. Whether a disease or condition is serious is a matter of clinical judgment, based on its impact on such factors as survival, day-to-day functioning, or the likelihood that the disease, if left untreated, will progress from a less severe condition to a more serious one. The fast track designation allows for more frequent interactions with the FDA, for the early submission of some sections of the marketing application, and carries the potential for an expedited review category for the New Drug Application (NDA).  Additionally, we held an end of Phase II clinical meeting with the FDA.
 
SPN-812 is being developed as a novel non-stimulant treatment for ADHD.  The FDA accepted our Investigational New Drug application (IND) for the extended-release formulation and as a result we are on track to initiate the Phase IIb trial before year end.
 
We expect to incur significant research and development expenses related to the continued development of each of our product candidates.
 
Critical Accounting Policies and the Use of Estimates
 
The significant accounting policies and basis 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 U.S. 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 in our financial statements. Actual results could differ from those estimates.
 
We believe the following accounting policies and estimates to be critical:
 
Inventories and Cost of Product Sales
 
We carry inventories at the lower of cost or market using the first-in, first-out method. Inventory values include materials, labor, and direct and indirect overhead. Inventory is evaluated for impairment through consideration of factors such as net realizable value, obsolescence and expiry. The value of our inventories does not exceed either replacement cost or net realizable value. We believe Oxtellar XR and Trokendi XR have limited risk of obsolescence or expiry based on current demand, our projections for future demand, and product dating.
 
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 associated with the production and distribution of Oxtellar XR and Trokendi XR.
 
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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 of the product upon physical receipt of the product and then distribute our products to pharmacies.  For the three and six months ended June 30, 2015, the revenue for Oxtellar XR and Trokendi XR was recognized contemporaneously upon shipment of finished product to wholesalers, net of allowances for estimated sales deductions and returns.
 
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.
 
Deferred Legal Fees
 
Deferred legal fees will be capitalized as part of the patents upon successful outcome of the on-going litigation. We will begin amortization at that time. 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 expenditures are expensed as incurred. Research and development costs primarily consist of employee-related expenses, including salaries and benefits; share-based compensation expense; expenses incurred under agreements with contract research organizations, 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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Results of Operations
 
Comparison of the three months ended June 30, 2015 and June 30, 2014
 
 	 	Three Months ended June 30,	 	Increase/	 	
 	 	2015	 	2014	 	(decrease)	 	
 	 	(unaudited, in thousands)	 	 	 	
Revenues:	 	 	 	 	 	 	 	
Net product sales	 	$	34,266	 	$	27,609	 	6,657	 	
Licensing revenue	 	786	 	2,066	 	(1,280	)	
Total revenues	 	35,052	 	29,675	 	 	 	
Costs and expenses	 	 	 	 	 	 	 	
Cost of product sales	 	1,762	 	1,661	 	101	 	
Research and development	 	6,878	 	4,677	 	2,201	 	
Selling, general and administrative	 	23,336	 	19,581	 	3,755	 	
Total costs and expenses	 	31,976	 	25,919	 	 	 	
Operating income	 	3,076	 	3,756	 	 	 	
Other income (expense)	 	 	 	 	 	 	 	
Interest income and other income (expense), net	 	137	 	85	 	52	 	
Interest expense	 	(331	)	(1,278	)	947	 	
Changes in fair value of derivative liabilities	 	1	 	678	 	(677	)	
Loss on extinguishment of debt	 	(241	)	(39	)	(202	)	
Other income	 	25	 	—	 	25	 	
Total other income (expenses)	 	(409	)	(554	)	 	 	
Earnings before income taxes	 	2,667	 	3,202	 	 	 	
Income tax	 	662	 	—	 	662	 	
Net income	 	$	2,005	 	$	3,202	 	 	 	
 
Net Product Sales.  Our net product sales of $34.3 million for the three months ended June 30, 2015 are based on $8.0 million of revenue of Oxtellar XR from shipments to distributors, less estimates for discounts, rebates, other sales deductions and returns, and $26.3 million of revenue for Trokendi XR, from shipments to distributors, less estimates for discounts, rebates, other sales deductions and returns.  The increase in net product sales is primarily driven by an increase in underlying prescription growth. The effect of the change to contemporaneous revenue recognition for Trokendi XR was to increase net product sales by $15.4 million for the three month period ended June 30, 2014.
 
Research and Development Expense.  Research and development expenses during the three months ended June 30, 2015 were $6.9 million as compared to $4.7 million for the three months ended June 30, 2014, an increase of $2.2 million or 47.1%.  During the second quarter of 2015, we were focused on preparing for the SPN-810 late stage studies including development of the outcome and assessment scale that we propose to use in the trials coupled with manufacturing of the clinical supplies. We expect research and development costs to increase significantly throughout 2015 as we initiate the Phase III program for SPN-810 and initiate the Phase IIb program for SPN-812.
 
Selling, General and Administrative Expenses.  Our selling, general and administrative expenses were $23.3 million during the three months ended June 30, 2015 as compared to $19.6 million for the three months ended June 30, 2014, an increase of $3.7 million or 19.2%. This increase was mainly due to the increase in compensation and travel expenses associated with the expansion of our sales force throughout 2014, and an increase in promotional and marketing expenses including sample distribution to support the growth of Oxtellar XR and Trokendi XR.
 
Interest Expense.  Interest expense was $0.3 million during the three months ended June 30, 2015 as compared to $1.3 million for the three months ended June 30, 2014. The decrease of $0.9 million was primarily due to a decrease in the outstanding principal amount
 
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of our 7.5% Convertible Senior Secured Notes due in 2019 (the Notes) from $39.8 million at June 30, 2014 to $10.7 million at June 30, 2015.
 
Changes in Fair Value of Derivative Liability.  During the three months ended June 30, 2015, we recognized non-cash income of $1,000 related to a change in estimated fair value of the warrant liability of $194,000, offset by $195,000 of interest make-whole derivative liability related to our Notes. This loss is primarily due to the increase in our stock price. We recognized a non-cash credit of $0.7 million associated with the interest make-whole derivative liability during the three months ended June 30, 2014, due primarily to the passage of time.
 
Loss on Extinguishment of Debt.  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. During the three months ended June 30, 2014, we recognized a non-cash loss on extinguishment of debt of $39,000 related to the conversion of $0.2 million of our Notes.
 
Income 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 $2.0 million during the three months ended June 30, 2015, compared to a net income of $3.2 million during the three months ended June 30, 2014, a decrease of $1.2 million. This change was primarily due to the revenue generated from our two commercial products, Oxtellar XR and Trokendi XR, offset by increased expenses on preparing for the late stage studies for two product candidates and expenses associated costs with the expansion of our sales force as well as an increase in marketing expenditures associated with ongoing support of Oxtellar XR and Trokendi XR.
 
Comparison of the six months ended June 30, 2015 and June 30, 2014
 
 	 	Six Months ended June 30,	 	Increase/	 	
 	 	2015	 	2014	 	(decrease)	 	
 	 	(unaudited, in thousands)	 	 	 	
Revenues:	 	 	 	 	 	 	 	
Net product sales	 	$	62,363	 	$	36,604	 	25,759	 	
Licensing revenue	 	822	 	2,152	 	(1,330	)	
Total revenues	 	63,185	 	38,756	 	 	 	
Costs and expenses	 	 	 	 	 	 	 	
Cost of product sales	 	3,380	 	2,155	 	1,225	 	
Research and development	 	10,561	 	9,159	 	1,402	 	
Selling, general and administrative	 	42,737	 	37,109	 	5,628	 	
Total costs and expenses	 	56,678	 	48,423	 	 	 	
Operating income (loss)	 	6,507	 	(9,667	)	 	 	
Other income (expense)	 	 	 	 	 	 	 	
Interest income and other income (expense), net	 	250	 	187	 	63	 	
Interest expense	 	(712	)	(2,485	)	1,773	 	
Changes in fair value of derivative liabilities	 	(48	)	1,355	 	(1,403	)	
Loss on extinguishment of debt	 	(2,375	)	(1,732	)	(643	)	
Other income	 	25	 	—	 	25	 	
Total other income (expenses)	 	(2,860	)	(2,675	)	 	 	
Earnings (loss) before income taxes	 	3,647	 	(12,342	)	 	 	
Income tax	 	724	 	—	 	724	 	
Net income (loss)	 	$	2,923	 	$	(12,342	)	 	 	
 
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Net Product Sales.  Our net product sales of $62.4 million for the six months ended June 30, 2015 are based on $15.2 million of revenue of Oxtellar XR from shipments to distributors, less estimates for discounts, rebates, other sales deductions and returns, and $47.2 million of revenue for Trokendi XR, from shipments to distributors, less estimates for discounts, rebates, other sales deductions and returns.  The increase in net product sales is primarily driven by an increase in underlying prescription growth. The effect of the change to contemporaneous revenue recognition for Trokendi XR was to increase net product sales by $15.4 million for the six month period ended June 30, 2014.
 
Research and Development Expense.  Research and development expenses during the six months ended June 30, 2015 were $10.6 million as compared to $9.2 million for the six months ended June 30, 2014, an increase of $1.4 million or 15.3%. This increase is due to the focus on preparing for the SPN-810 and late stage studies including development of the outcome and assessment scale that we propose to use in the trials coupled with manufacturing of the clinical supplies.   We expect research and development costs to increase significantly throughout 2015 as we initiate the Phase III program for SPN-810 and initiate the Phase IIb program for SPN-812.
 
Selling, General and Administrative Expenses.  Our selling, general and administrative expenses were $42.7 million during the six months ended June 30, 2015 as compared to $37.1 million for the six months ended June 30, 2014, an increase of $5.6 million or 15.2%. This increase was mainly due to the increase in compensation and travel expenses associated with the expansion of our sales force in the first half of 2014, and an increase in promotional and marketing expenses including sample distribution to support the growth of Oxtellar XR and Trokendi XR.
 
Interest Expense.  Interest expense was $0.7 million during the six months ended June 30, 2015 as compared to $2.5 million for the six months ended June 30, 2014. The decrease of $1.8 million was primarily due to a decrease in the outstanding principal amount of our Notes from $39.8 million at June 30, 2014 to $10.7 million at June 30, 2015.
 
Changes in Fair Value of Derivative Liability.  During the six months ended June 30, 2015, we recognized 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 is primarily due to the increase in our stock price. We recognized a non-cash credit of $1.4 million associated with the interest make-whole derivative liability during the six months ended June 30, 2014, due primarily to the passage of time.
 
Loss on Extinguishment of Debt.  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. During the six months ended June 30, 2014, we recognized a non-cash loss on extinguishment of debt of $1.7 million related to the conversion of $9.7 million of our Notes.
 
Income 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/(Loss).  We realized net income of $2.9 million during the six months ended June 30, 2015, compared to a net loss of $12.3 million during the six months ended June 30, 2014, a change of $15.2 million. This change was primarily due to the revenue generated from our two commercial products, Oxtellar XR and Trokendi XR, offset by increased expenses on preparing for the late stage studies for two product candidates and expenses associated costs with the expansion of our sales force as well as an increase in marketing expenditures associated with ongoing support of Oxtellar XR and Trokendi XR.
 
Liquidity and Capital Resources
 
Our working capital at June 30, 2015 was $69.3 million, a decrease of $12.1 million compared to our working capital of $81.4 million at December 31, 2014. This decrease was primarily attributable to the purchase of long term marketable securities and an additional $6.3 million of deferred legal fees  incurred in connection with litigation related to patents for Oxtellar XR and Trokendi XR (see Part II, Item I—Legal Proceedings in this Quarterly Report on Form 10-Q).
 
Our stockholders’ equity increased by $31.0 million during the six month period ended June 30, 2015 primarily as a result of the issuance of shares related to the conversion of our Notes.
 
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 research and development efforts, primarily related to development of SPN-810 and SPN-812 as we continue to advance these clinical programs.
 
In addition to income through operations, we have historically financed our business through the sale of our debt and equity securities. On May 3, 2013, we issued $90.0 million aggregate principal amount of Notes to qualified institutional buyers, the initial purchasers of the Notes (the 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.
 
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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.
 
As of June 30, 2015, holders of the Notes have converted a total of approximately $79.3 million of the Notes. Cumulatively, through June 30, 2015, we issued a total of approximately 15.0 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. We achieved positive cash flow and profitability from operations during the fourth quarter of 2014 and expect continued profitability for calendar year 2015 and beyond as we continue to increase sales while also increasing activities and spending to advance our clinical product candidates.
 
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 up to12,749,328 shares of our common stock that may be sold by two selling security holders that held contractual rights to have the resale of their common stock registered. While we have no current plans to do so, in the event that we need additional working capital, this registration statement provides an efficient manner for us to complete a securities offering to raise such funds.
 
Cash Flows
 
The following table sets forth the major sources and uses of cash for the periods set forth below, in thousands:
 
 	 	Six Months ended June 30,	 	Increase/	 	
 	 	2015	 	2014	 	(decrease)	 	
 	 	(unaudited)	 	 	 	
Net cash provided by (used in):	 	 	 	 	 	 	 	
Operating activities	 	$	15,172	 	$	(26,044	)	41,216	 	
Investing activities	 	$	(19,467	)	$	4,770	 	(24,237	)	
Financing activities	 	$	1,009	 	$	250	 	759	 	
Net decrease in cash and cash equivalents	 	$	(3,286	)	$	(21,024	)	 	 	
 
Operating Activities
 
Net cash provided by/used in operating activities is comprised of two components; cash provided by/used in operating income/loss and cash provided by/used in changes in working capital. Results for the six months ended June 30, 2015 and June 30, 2014 are summarized below, in thousands:
 
 	 	Six Months ended June 30,	 	Increase/	 	
 	 	2015	 	2014	 	(decrease)	 	
 	 	(unaudited)	 	 	 	
Cash provided by (used in) operating income (loss)	 	$	8,324	 	$	(9,098	)	17,422	 	
 	 	 	 	 	 	 	 	
Cash used by changes in working capital	 	6,848	 	(16,946	)	23,794	 	
 	 	 	 	 	 	 	 	
Net cash provided by (used in) operating activities	 	$	15,172	 	$	(26,044	)	 	 	
 
The increase in net cash provided by operating activities is primarily driven by increased revenue generated from the sale of Trokendi XR and Oxtellar XR.
 
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The changes in certain operating assets and liabilities are, in thousands:
 
 	 	Six Months ended June 30,	 	 	 	
 	 	2015	 	2014	 	Explanation of Change	 	
 	 	(unaudited)	 	 	 	
 	 	 	 	 	 	 	 	
Increase in accounts receivable	 	$	(630	)	$	(5,800	)	Shipment of additional product to wholesalers.	 	
Increase in inventory	 	(151	)	(2,949	)	Build up of inventory for product sales.	 	
Increase in prepaid expenses and other assets	 	(738	)	(1,019	)	Increase in activity to support both products.	 	
Increase in accounts payable and accrued expenses	 	8,921	 	730	 	Increase in sales deductions.	 	
Decrease in deferred product and licensing revenue	 	(72	)	(8,015	)	Transition of Trokendi XR revenue recognition to be based on shipments to wholesalers.	 	
Other	 	(482	)	107	 	 	 	
 	 	$	6,848	 	$	(16,946	)	 	 	
 
Investing Activities
 
Our investing activities are principally driven by cash provided by our financing activities. We invest excess cash in accordance with our investment policy. Marketable securities consist of investments which generally mature in three years or less, including U.S. 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, 2015 of $19.5 million related to an increase in deferred legal fees of $6.3 million, property and equipment purchases of $0.8 million, and net purchases of marketable securities of $12.4 million. Net cash provided by investing activities for the six months ended June, 2014 consisted of $4.8 million related to: marketable securities holdings decreased by $7.2 million offset by the increase in deferred legal fees of $2.0 million and property and equipment purchases of $0.4 million.
 
Financing Activities
 
Net cash provided by financing activities of $1.0 million for the six months ended June 30, 2015 resulted from proceeds received from stock option exercises. Net cash provided by financing activities for the six months ended June 30, 2014 was $250,000, primarily the result of the issuance of common stock related to the proceeds received from employee stock purchase plan shares and exercise of stock options.
 
Contractual Obligations and Commitments
 
The following table summarizes our contractual obligations and commitments as of June 30, 2015 (except as noted below), in thousands:
 
 	 	Less than	 	1 - 3	 	3 - 5	 	Greater than	 	 	 	
Contractual Obligations	 	1 Year	 	Years	 	Years	 	5 Years	 	Total	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Convertible Senior Secured Notes	 	$	—	 	$	—	 	$	10,724	 	$	—	 	$	10,724	 	
Interest on Convertible Notes	 	804	 	1,609	 	670	 	—	 	3,083	 	
Operating leases (1)	 	1,663	 	2,581	 	2,454	 	—	 	6,698	 	
Purchase obligations (2)	 	1,365	 	—	 	—	 	—	 	1,365	 	
Total (3)	 	$	3,832	 	$	4,190	 	$	13,848	 	$	—	 	$	21,870	 	
 
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(1)                                 Our commitments for operating leases relate to our lease of office equipment, fleet vehicles and office and laboratory space as of June 30, 2015.
 
(2)                                 Relates primarily to agreements and purchase orders with contractors for the conduct of clinical trials and other research and development 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 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.
 
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, where we obtained the exclusive worldwide rights to a product concept from Rune Healthcare Limited (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, 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 as 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
 
In April 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2015-05, “Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.”  This ASU provides guidance about whether a cloud computing arrangement includes a software license.  If a cloud computing arrangement includes a software license, then the software license element of the arrangement is consistent with the acquisition of other software licenses.  If a cloud computing arrangement does not include a software license, then it should account for the arrangement as a service contract.  The amendments in this ASU are effective for financial statements issued for annual periods, including interim periods within those annual periods, beginning after December 15, 2015.  The Company has elected to early adopt the amendment.
 
In April 2015, the 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 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 should be applied on a retrospective basis and the Company will be required to comply with the applicable disclosures for a change in accounting principle. Presently, the Company is assessing what effect the adoption of ASU 2015-03 will have on our consolidated financial statements and accompanying notes.
 
In August 2014, the FASB issued ASU No. 2014-15 “Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern”. The new standard requires management to perform interim and annual assessments of an entity’s ability to continue to meet its obligations as they become due within one year after the date that the financial statements are issued. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. We do not believe the adoption of the new standard will have a significant impact on our operations.
 
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 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
 
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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.  Earlier adoption is not permitted. 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.
 
The Company has evaluated all other ASUs issued through the date the consolidated financials were issued and believes that the adoption of these will not have a material impact on the Company’s consolidated financial statements.
 
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 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.
 
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
 
The primary objective of our investment activities is to preserve our capital to fund operations. We also seek to maximize income from our investments without assuming significant risk. Our exposure to market risk is confined to our cash, cash equivalents, marketable securities and long term marketable securities. As of June 30, 2015, we had unrestricted cash, cash equivalents, marketable securities and long term marketable securities of $103.3 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 and marketable securities and because we hold these 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 outstanding warrants to purchase common stock and the interest make-whole payment associated with our Notes.
 
We contract with contract research organizations and investigational sites globally. We may be subject to fluctuations in foreign currency rates in connection with these agreements, primarily with respect to Euro denominated contracts. 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, 2015. 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, 2015. We do not believe that inflation and changing prices over the three and six months ended June 30, 2015 and 2014 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 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, and 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, 2015.
 
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
 
There have been no significant changes in our internal control over financial reporting during the three months ended June 30, 2015, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
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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.)
 
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 our 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 a fourth Orange Book patent, United States Patent No. 8,821,930. Our United States Patent Nos. 7,722,898, 7,910,131, 8,617,600, and 8,821,930 generally cover once-a-day oxcarbazepine formulations and methods of treating seizures using those formulations. The FDA Orange Book lists all four 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. Filing its August 7, 2013 Complaint within 45 days of receiving Actavis’s Paragraph IV certification notice entitles Supernus to an automatic stay preventing the FDA from approving Actavis’s ANDA for 30 months from the date of our receipt of the first Paragraph IV certification notice.
 
On September 25, 2013, Actavis answered the August 7, 2013 Complaint, denying the substantive allegations of that Complaint. One defendant, Actavis Labs FL, asserted Counterclaims seeking declaratory judgments of non-infringement and invalidity of United States Patent Nos. 7,722,898 and 7,910,131. On October 30, 2013, we filed a Reply, denying the substantive allegations of those Counterclaims. On April 30, 2014, Actavis answered the March 28, 2014 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. 8,617,600. On June 4, 2014, we filed our Reply, denying the substantive allegations of those Counterclaims. On July 17, 2015, the District Court issued a scheduling order for both cases. On July 27, 2015 Actavis moved for summary judgment of non-infringement of the three patents. We have not yet submitted our opposition papers.
 
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 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 United States Patent No. 8,821,930. On April 30, 2015, 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. 8,821,930. On June 9, 2015, we filed our Reply, denying the substantive allegations of those Counterclaims. The District Court issued a Scheduling Order on July 17, 2015. This case is in its early stages.
 
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. Our United States Patent Nos. 7,722,898, 7,910,131, 8,617,600, and 8,821,930 generally cover once-a-day oxcarbazepine formulations and methods of treating seizures using those formulations. The FDA Orange Book lists all four of our Oxtellar XR patents as expiring on April 13, 2027.
 
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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 TWi Pharmaceuticals, Inc. 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. The District Court issued a Scheduling Order on July 17, 2015. This case is in its early stages.
 
Supernus Pharmaceuticals, Inc. v. Actavis, Inc., C.A. No. 14-6102 (SDW)(SCM) (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. 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 March 18, 2029 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 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 also C.A. No. 15-326 (against Par Pharmaceutical Companies, Inc. and Par Pharmaceutical, Inc.). A Rule 16 scheduling conference was held before Magistrate Judge Mannion on April 14, 2015. The Court issued a Scheduling Order on May 22, 2015. This case is in its early stages.
 
Supernus Pharmaceuticals, Inc. v. Zydus Pharmaceuticals (USA) Inc., C.A. No. 14-7272 (SDW)(SCM) (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 March 18, 2029 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 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 also C.A. No. 15-326 (against Par Pharmaceutical Companies, Inc. and Par Pharmaceutical, Inc.(collectively Par)). A Rule 16 scheduling conference was held before Magistrate Judge Mannion on April 14, 2015. The Court issued a Scheduling Order on May 22, 2015. This case is in its early stages.
 
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Supernus Pharmaceuticals, Inc. v. Par Pharmaceutical Companies, Inc., C.A. No. 15-326 (SDW)(SCM) (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 March 18, 2029 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 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.
 
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) and also C.A. No. 14-7272 (against Zydus Pharmaceuticals (USA) Inc. and Cadila Healthcare Limited). A Rule 16 scheduling conference was held before Magistrate Judge Mannion on April 14, 2015. The Court issued a Scheduling Order on May 22, 2015. This case is in its early stages.
 
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, 2014. 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, 2015, the Company granted options to employees to purchase an aggregate of 26,200 shares of common stock at an  exercise price of $12.82 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
 
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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
 
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 6, 2015	 	By:	/s/ Jack A. Khattar	
 	 	Jack A. Khattar	
 	 	President, Secretary and Chief Executive Officer	

DATED: August 6, 2015	 	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	
 
35

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 6, 2015	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 6, 2015	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, 2015 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 6, 2015	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, 2015 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 6, 2015	By:	/s/ Gregory S. Patrick	
 	 	 	
 	 	Gregory S. Patrick	
 	 	Vice President and Chief Financial Officer