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<A HREF="#fa71101_supernus_pharmaceuticals,_inc.__sup02880">  Supernus Pharmaceuticals, Inc. Index to Consolidated Financial Statements</A><BR></font>
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<A HREF="#bg71101a_main_toc">Table of Contents</A> </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>As filed with the Securities and Exchange Commission on December&nbsp;23, 2010  </B></FONT></P>

<P ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><B> Registration No.&nbsp;333-&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B> <div style="width:100%;border-top:solid #000000 3.0pt;padding:0in 0in 0in 0in;font-size:3.0pt;"></div>
<div style="width:100%;border-top:solid #000000 1.0pt;padding:0in 0in 0in 0in;font-size:4.0pt;"></div>  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=4><B>UNITED STATES SECURITIES AND EXCHANGE COMMISSION<BR>  </B></FONT><FONT SIZE=2><B>Washington, D.C. 20549  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=4><B>FORM S-1<BR>  </B></FONT><FONT SIZE=2><B>REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF&nbsp;1933  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=4><B>SUPERNUS PHARMACEUTICALS,&nbsp;INC.<BR>  </B></FONT><FONT SIZE=2>(Exact name of registrant as specified in its charter) </FONT></P>

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<TD ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>Delaware</B></FONT><FONT SIZE=2><BR>
(State or other jurisdiction of<BR>
incorporation or organization)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> 2834</B></FONT><FONT SIZE=2><BR>
(Primary Standard Industrial<BR>
Classification Code Number)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> 20-2590184</B></FONT><FONT SIZE=2><BR>
(I.R.S. Employer<BR>
Identification Number)</FONT></TD>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>1550 East Gude Drive<BR>
Rockville, MD 20850<BR>
(301)&nbsp;838-2500</B></FONT><FONT SIZE=2><BR>
(Address, including zip code, and telephone number, including<BR>
area code, of registrant's principal executive offices) </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>Jack A. Khattar<BR>
President and Chief Executive Officer<BR>
1550 East Gude Drive<BR>
Rockville, MD 20850<BR>
(301)&nbsp;838-2500</B></FONT><FONT SIZE=2><BR>
(Name, address, including zip code, and telephone number, including area code, of agent for service) </FONT></P>

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<TD COLSPAN=5 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B><I>Copies to:</I></B></FONT></TD>
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<TD ALIGN="CENTER" style="font-family:times;"><BR><FONT SIZE=2><B> Paul M. Kinsella<BR>
Ropes&nbsp;&amp; Gray&nbsp;LLP<BR>
Prudential Tower<BR>
800 Boylston Street<BR>
Boston, MA 02199-3600<BR>
Telephone: (617)&nbsp;951-7921<BR>
Facsimile: (617)&nbsp;235-0822</B></FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><B><BR>&nbsp;</B></FONT></TD>
<TD ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B><BR>
Russell P. Wilson<BR>
Supernus Pharmaceuticals,&nbsp;Inc.<BR>
Vice&nbsp;President,&nbsp;Chief&nbsp;Financial&nbsp;Officer<BR>
1550 East Gude Drive<BR>
Rockville, MD 20850<BR>
Telephone: (301)&nbsp;838-2500<BR>
Facsimile: (301)&nbsp;424-1364</B></FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><B><BR>&nbsp;</B></FONT></TD>
<TD ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B><BR>
Mitchell S. Bloom<BR>
Edward A. King<BR>
Goodwin Procter&nbsp;LLP<BR>
Exchange Place<BR>
Boston, MA 02109<BR>
Telephone: (617)&nbsp;570-1000<BR>
Facsimile: (617)&nbsp;523-1231<BR> </B></FONT></TD>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>Approximate date of commencement of proposed sale to public:<BR>  </B></FONT><FONT SIZE=2>As soon as practicable after this Registration Statement becomes effective. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule&nbsp;415 under the Securities Act of 1933, as amended (the
"Securities Act"), check the following box.&nbsp;<FONT FACE="WINGDINGS">&#111;</FONT> </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If this Form is filed to register additional securities for an offering pursuant to Rule&nbsp;462(b) under the Securities Act, please check the following box and
list the Securities Act registration statement number of the earlier effective registration statement for the same offering.&nbsp;<FONT FACE="WINGDINGS">&#111;</FONT> </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If this Form is a post-effective amendment filed pursuant to Rule&nbsp;462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective registration statement for the same offering.&nbsp;<FONT FACE="WINGDINGS">&#111;</FONT> </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If this Form is a post-effective amendment filed pursuant to Rule&nbsp;462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective registration statement for the same offering.&nbsp;<FONT FACE="WINGDINGS">&#111;</FONT> </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule&nbsp;12b-2 of the Exchange Act. (Check one): </FONT></P>
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<TD ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>Large accelerated filer <FONT FACE="WINGDINGS">&#111;</FONT></FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>Accelerated filer <FONT FACE="WINGDINGS">&#111;</FONT></FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>Non-accelerated filer <FONT FACE="WINGDINGS">&#253;</FONT><BR></FONT> <FONT SIZE=1>(Do not check if a<BR>
smaller reporting company)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1>Smaller reporting company <FONT FACE="WINGDINGS">&#111;</FONT></FONT></TD>
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 <P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>CALCULATION OF REGISTRATION FEE  </B></FONT></P>

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<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:5pt;text-indent:-5pt;"><FONT SIZE=2> </FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
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<TH ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Title of Each Class of Securities to be Registered</B></FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Proposed Maximum<BR>
Aggregate Offering Price(1)</B></FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>Amount of<BR>
Registration Fee</B></FONT><BR></TH>
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<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:4pt;text-indent:-4pt;"><FONT SIZE=1><B> </B></FONT><FONT SIZE=2>Common stock, $0.001 par value per share</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$100,000,000</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$7,130.00</FONT></TD>
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<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(1)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Estimated
solely for the purpose of calculating the registration fee pursuant to Rule&nbsp;457(o) under the Securities Act. The proposed maximum aggregate
offering price includes amounts attributed to shares of common stock that the underwriters may purchase if they exercise their option to purchase additional shares. </FONT></DD></DL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall
file&nbsp;a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section&nbsp;8(a) of the Securities Act or until the
Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section&nbsp;8(a), may determine.</B></FONT></P>

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<A HREF="#bg71101a_main_toc">Table of Contents</A> </FONT></P>

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</FONT><FONT COLOR="#FC1921" SIZE=2>The information in this preliminary prospectus is not complete and may be changed. We may not sell
these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not
soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted. </FONT></P>

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 </B></FONT><FONT COLOR="#FC1921" SIZE=2><B>SUBJECT TO COMPLETION, DATED DECEMBER&nbsp;23, 2010  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> PRELIMINARY PROSPECTUS  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>
<IMG SRC="g203884.jpg" ALT="GRAPHIC" WIDTH="364" HEIGHT="78">
  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=4><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Shares  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=6><B>Supernus Pharmaceuticals,&nbsp;Inc.  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=4><B>Common Stock<BR>
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=4><I>

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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This is the initial public offering of our common stock. We are selling&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of our common stock. We currently expect the
initial public offering price to be between $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;and $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share of common stock. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have granted the underwriters an option to purchase up
to&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;additional shares of common
stock to cover over-allotments. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
intend to apply to list our common stock on the Nasdaq Global Market under the symbol "SUPN." </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><I>

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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=3><B>Investing in our common stock involves risks. See "Risk Factors" on page&nbsp;9.  </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined
if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. </FONT></P>

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<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Per Share </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Total </B></FONT></TH>
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<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>Public Offering Price</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
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<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>Underwriting Discount</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
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<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>Proceeds to Supernus (before expenses)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
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 <P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
underwriters expect to deliver the shares to purchasers on or
about&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2011 through the book-entry
facilities of The Depository Trust Company. </FONT></P>

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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><I>Joint Book-Running Managers</I></FONT></P>
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<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=5><B>Citi</B></FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=5>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=5><B>Barclays Capital</B></FONT></TD>
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><I>Co-Managers</I></FONT></P>
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<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=3><B>Cowen and Company</B></FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=3>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=3><B>Stifel Nicolaus Weisel</B></FONT></TD>
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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2011. </FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>
<A HREF="#bg71101a_main_toc">Table of Contents</A> </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><A
NAME="BG71101A_main_toc"></A> </FONT> <FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><B>You should rely only on the information contained in this prospectus. We have not, and the underwriters have not, authorized
anyone to
provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell
these securities in any jurisdiction where the offer or sale is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than the date on
the front of this prospectus.</B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="bg71101_table_of_contents"> </A>
<BR></FONT><FONT SIZE=2><B>  TABLE OF CONTENTS    <BR>    </B></FONT></P>

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<A NAME="BG71101_TOC"></A> </FONT></P>
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<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Page </B></FONT></TH>
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<TD style="font-family:times;"><A HREF="#ca71101_summary"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Summary</FONT></A></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><A HREF="#ca71101_summary"><FONT SIZE=2>1</FONT></A></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:times;"><A HREF="#cc71101_the_offering"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>The Offering</FONT></A></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><A HREF="#cc71101_the_offering"><FONT SIZE=2>6</FONT></A></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:times;"><A HREF="#cd71101_summary_financial_data"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Summary Financial Data</FONT></A></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><A HREF="#cd71101_summary_financial_data"><FONT SIZE=2>7</FONT></A></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:times;"><A HREF="#da71101_risk_factors"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Risk Factors</FONT></A></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><A HREF="#da71101_risk_factors"><FONT SIZE=2>9</FONT></A></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:times;"><A HREF="#di71101_special_note_regarding_forward-looking_statements"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Special Note Regarding Forward-Looking Statements</FONT></A></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><A HREF="#di71101_special_note_regarding_forward-looking_statements"><FONT SIZE=2>41</FONT></A></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:times;"><A HREF="#di71101_use_of_proceeds"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Use of Proceeds</FONT></A></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><A HREF="#di71101_use_of_proceeds"><FONT SIZE=2>43</FONT></A></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:times;"><A HREF="#di71101_dividend_policy"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Dividend Policy</FONT></A></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><A HREF="#di71101_dividend_policy"><FONT SIZE=2>43</FONT></A></TD>
</TR>
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<TD style="font-family:times;"><A HREF="#dk71101_capitalization"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Capitalization</FONT></A></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><A HREF="#dk71101_capitalization"><FONT SIZE=2>44</FONT></A></TD>
</TR>
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<TD style="font-family:times;"><A HREF="#dk71101_dilution"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Dilution</FONT></A></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><A HREF="#dk71101_dilution"><FONT SIZE=2>46</FONT></A></TD>
</TR>
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<TD style="font-family:times;"><A HREF="#dm71101_selected_consolidated_financial_data"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Selected Consolidated Financial Data</FONT></A></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><A HREF="#dm71101_selected_consolidated_financial_data"><FONT SIZE=2>48</FONT></A></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:times;"><A HREF="#do71101_management_s_discussion_and_an__man03466"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Management's Discussion and Analysis of Financial Condition and Results of
Operations</FONT></A></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><A HREF="#do71101_management_s_discussion_and_an__man03466"><FONT SIZE=2>51</FONT></A></TD>
</TR>
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<TD style="font-family:times;"><A HREF="#ds71101_business"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Business</FONT></A></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><A HREF="#ds71101_business"><FONT SIZE=2>74</FONT></A></TD>
</TR>
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<TD style="font-family:times;"><A HREF="#ea71101_management"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Management</FONT></A></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><A HREF="#ea71101_management"><FONT SIZE=2>105</FONT></A></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:times;"><A HREF="#eg71101_certain_relationships_and_related_party_transactions"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Certain Relationships and Related Party Transactions</FONT></A></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><A HREF="#eg71101_certain_relationships_and_related_party_transactions"><FONT SIZE=2>126</FONT></A></TD>
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<TD style="font-family:times;"><A HREF="#eg71101_principal_stockholders"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Principal Stockholders</FONT></A></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><A HREF="#eg71101_principal_stockholders"><FONT SIZE=2>127</FONT></A></TD>
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<TD style="font-family:times;"><A HREF="#ei71101_description_of_capital_stock"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Description of Capital Stock</FONT></A></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><A HREF="#ei71101_description_of_capital_stock"><FONT SIZE=2>130</FONT></A></TD>
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<TD style="font-family:times;"><A HREF="#ei71101_shares_eligible_for_future_sale"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Shares Eligible for Future Sale</FONT></A></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><A HREF="#ei71101_shares_eligible_for_future_sale"><FONT SIZE=2>133</FONT></A></TD>
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<TD style="font-family:times;"><A HREF="#ek71101_material_u.s._federal_income_t__mat03146"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Material U.S. Federal Income Tax Considerations for Non-U.S. Holders of Common
Stock</FONT></A></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><A HREF="#ek71101_material_u.s._federal_income_t__mat03146"><FONT SIZE=2>136</FONT></A></TD>
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<TD style="font-family:times;"><A HREF="#em71101_underwriting"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Underwriting</FONT></A></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><A HREF="#em71101_underwriting"><FONT SIZE=2>140</FONT></A></TD>
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<TD style="font-family:times;"><A HREF="#em71101_legal_matters"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Legal Matters</FONT></A></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><A HREF="#em71101_legal_matters"><FONT SIZE=2>145</FONT></A></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:times;"><A HREF="#em71101_experts"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Experts</FONT></A></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><A HREF="#em71101_experts"><FONT SIZE=2>145</FONT></A></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:times;"><A HREF="#em71101_market_and_industry_data"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Market and Industry Data</FONT></A></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><A HREF="#em71101_market_and_industry_data"><FONT SIZE=2>145</FONT></A></TD>
</TR>
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<TD style="font-family:times;"><A HREF="#em71101_where_you_can_find_additional_information"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Where You Can Find Additional Information</FONT></A></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><A HREF="#em71101_where_you_can_find_additional_information"><FONT SIZE=2>145</FONT></A></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:times;"><A HREF="#fa71101_supernus_pharmaceuticals,_inc.__sup02880"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Index to Consolidated Financial Statements</FONT></A></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><A HREF="#fa71101_supernus_pharmaceuticals,_inc.__sup02880"><FONT SIZE=2>F-1</FONT></A></TD>
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<P style="font-family:times;"><FONT SIZE=2>
<A HREF="#bg71101a_main_toc">Table of Contents</A> </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="ca71101_summary"> </A>
<A NAME="toc_ca71101_1"> </A>
<BR></FONT><FONT SIZE=2><B>  SUMMARY    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><I>This summary highlights selected information appearing elsewhere in this prospectus. While this summary
highlights what we consider to be the most important information about us, you should carefully read this prospectus and the registration statement of which this prospectus is a part in their entirety
before investing in our common stock, especially the risks of investing in our common stock which we discuss under "Risk Factors," the information set forth in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our consolidated financial statements and related notes beginning on page&nbsp;F-1.</I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><I>Unless the context requires otherwise, the words "Supernus," "we," "us" and "our" refer to Supernus Pharmaceuticals,&nbsp;Inc. and its
subsidiaries.</I></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="ca71101_supernus_pharmaceuticals,_inc."> </A>
<A NAME="toc_ca71101_2"> </A>
<BR></FONT><FONT SIZE=2><B>  Supernus Pharmaceuticals,&nbsp;Inc.    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are a specialty pharmaceutical company focused on developing and commercializing products for the treatment of central nervous
system, or CNS, diseases. Our extensive expertise in product development has been built over the past 20&nbsp;years: initially as a stand alone development organization, then as a U.S. subsidiary of
Shire&nbsp;plc and, upon our acquisition of substantially all the assets of Shire Laboratories&nbsp;Inc. in late 2005, as Supernus Pharmaceuticals. We are developing several product candidates in
neurology and psychiatry to address large market opportunities in epilepsy and attention deficit hyperactivity disorder, or ADHD. We intend to market our product candidates in the United States
through our own focused sales force targeting specialty physicians, including neurologists and psychiatrists. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
use our proprietary technologies to enhance the therapeutic benefits of approved antiepileptic drugs, or AEDs, through advanced extended release formulations. Our two epilepsy product
candidates are SPN-538 (extended release topiramate), for which we expect to file&nbsp;a new drug application, or NDA, in the first quarter of 2011, and Epliga (extended release
oxcarbazepine), which is in Phase&nbsp;III clinical trials. Our ADHD product candidates include SPN-810 (molindone hydrochloride), a novel treatment for impulsive aggression in patients
with ADHD, and SPN-812, a novel non-stimulant treatment for ADHD. Both of these programs are in Phase&nbsp;II. In addition to these four lead product candidates, we have
several additional product candidates in various stages of development, including SPN-809, which would represent a novel mechanism of action for the U.S. antidepressant market. We believe
our broad and diversified portfolio of product candidates provides us with multiple opportunities to achieve our goal of becoming a leading specialty pharmaceutical company focused on CNS diseases. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
table below summarizes our current pipeline of novel product candidates. </FONT></P>
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<TH style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TH>
<TH ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=2><B>Indication </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TH>
<TH ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=2><B>Status </B></FONT></TH>
</TR>
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<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2><B>SPN-538</B></FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>Epilepsy</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>NDA to be filed Q1 2011</FONT></TD>
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<TR VALIGN="TOP">
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2><B>Epliga</B></FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>Epilepsy</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>Phase&nbsp;III</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2><B>SPN-810</B></FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>Impulsive Aggression in ADHD</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>Phase&nbsp;II</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2><B>SPN-812</B></FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>ADHD</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>Phase&nbsp;II</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2><B>SPN-809</B></FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>Depression</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>IND filed</FONT></TD>
</TR>
</TABLE></DIV>
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 <P style="font-family:times;"><FONT SIZE=2><B><I> Our Late-Stage Neurology Portfolio  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Epilepsy is a chronic neurological disorder characterized by recurrent convulsive seizures resulting from hyperactivity in the brain
cells. It is estimated to affect 50&nbsp;million people worldwide. Achieving reliable seizure control for patients, and avoiding the serious health and life dangers that can be associated with
sudden unexpected, or breakthrough, seizures depends on patients being compliant and </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>1</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>diligent
in taking their medications. We believe there are a number of benefits associated with extended release products in epilepsy that create a significant market opportunity for us. </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Extended release products have been shown to improve compliance and reduce breakthrough seizures. </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Extended release products have been shown to reduce side effects and improve tolerability.  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Managed care plans have not limited the success of extended release products.  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Extended release products have performed well in the market. </FONT></DD></DL>
</UL>
<UL>

<P style="font-family:times;"><FONT SIZE=2><I> SPN-538 (extended release topiramate)  </I></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our most advanced product candidate, SPN-538, is a novel oral once-daily extended release topiramate product for the
treatment of epilepsy. Topiramate is marketed by Johnson&nbsp;&amp;&nbsp;Johnson under the brand name Topamax and is available in a generic form. Topiramate is currently available only in immediate
release form and is indicated for monotherapy and adjunctive therapy of epilepsy and for the treatment of migraine. It works by enhancing the inhibitory effect of the GABA (Gamma-Aminobutyric Acid)
neurotransmitter that regulates neuronal excitability throughout the nervous system, blocking the excitatory effect of the glutamate neurotransmitter, blocking the sodium channel and inhibiting the
carbonic anhydrase enzyme. The side effects associated with taking topiramate, which have tended to limit its use, include, among others, dizziness, fatigue, somnolence and slowing of certain
cognitive functions. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SPN-538
is designed to improve patient compliance and to have a better tolerability profile compared to the current immediate release products that are taken multiple times
per day. SPN-538's pharmacokinetic profile delivers lower peak plasma concentrations and lower input rate over an extended time period, resulting in smoother and more consistent blood
levels of topiramate during the day compared to immediate release Topamax. We have completed ten clinical trials in support of our NDA, which we expect to file in the first quarter of 2011. We are
pursuing a regulatory strategy under Section&nbsp;505(b)(2) of the Federal Food, Drug and Cosmetic Act, which would allow us to rely in our filing on the existing data and knowledge the U.S. Food
and Drug Administration, or FDA, has from the NDA of Topamax. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><I> Epliga (extended release oxcarbazepine)  </I></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our second late-stage product candidate, Epliga, is a novel oral once-daily extended release formulation of
oxcarbazepine and is currently in Phase&nbsp;III trials. Oxcarbazepine is marketed by Novartis under the brand name Trileptal and is available in a generic form. Trileptal is indicated for
monotherapy and adjunctive therapy of epilepsy. Oxcarbazepine is an active voltage-dependent sodium channel blocker that, despite its effectiveness in treating epilepsy, is associated with many side
effects that tend to limit its use. The side effects associated with taking oxcarbazepine include, among others, dizziness, double vision, somnolence, nausea and vomiting. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;With
a novel pharmacokinetic profile that delivers lower peak plasma concentrations, a slower rate of input, smoother and more consistent blood levels compared to immediate release
products such as Trileptal, we believe Epliga has the potential of improving the tolerability of oxcarbazepine by reducing the side effects experienced by patients. We have completed eight clinical
trials to support filing the NDA in the second half of 2011. We are pursuing a Section&nbsp;505(b)(2) regulatory strategy, which would allow us to rely in our filing on the existing data and
knowledge the FDA has from the NDA of Trileptal. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>2</FONT></P>

<HR NOSHADE>
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<P style="font-family:times;"><FONT SIZE=2><B><I> Our Psychiatry Portfolio  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;ADHD is a common CNS disorder characterized by developmentally inappropriate levels of inattention, hyperactivity, and impulsivity.
ADHD affects an estimated 6.9% of all school-age children and 4.4% of adults in the United States. An estimated 60% to 80% of children with ADHD continue to meet the criteria for ADHD into
adolescence. As many as 67% of children who have ADHD may have coexisting conditions such as oppositional defiant disorder, conduct disorder, anxiety disorder and depression. Approximately 25% of
children with ADHD also exhibit persistent conduct problems, such as impulsive aggression. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><I> SPN-810 (molindone hydrochloride)  </I></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are developing SPN-810, which is currently in Phase&nbsp;II, as a novel treatment for impulsive aggression in patients
with ADHD. If approved by the FDA, SPN-810 could be the first product available to address this serious, unmet medical need. SPN-810 is based on molindone hydrochloride, which
was previously marketed in the United States as an anti-psychotic to treat schizophrenia under the trade name Moban. Molindone hydrochloride is unusual among anti-psychotics in
that it is not associated with weight gain. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have completed four clinical trials for SPN-810, including a Phase&nbsp;IIa trial in which we tested the safety and tolerability of immediate release molindone
hydrochloride in children with ADHD who suffer from serious persistent conduct problems. This open-label, dose-ranging trial randomized 78 children,
6-12&nbsp;years of age, into one of four treatment groups, which were given four different doses of immediate release molindone hydrochloride, between 10 mg and 40 mg per day, depending
on weight, three times a day over a six-week treatment period, after 2-5&nbsp;weeks of titration. SPN-810 was well tolerated in the trial with no clinically
meaningful changes in standard hematology, clinical chemistry values, vital signs or electrocardiogram results. SPN-810 also showed improvements on the primary and secondary outcome
measures, such as conduct problem and ADHD scales, across all four treatment groups. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><I> SPN-812  </I></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are developing SPN-812, which is currently in Phase&nbsp;II, as a novel non-stimulant treatment for ADHD.
SPN-812 is a selective norepinephrine reuptake inhibitor that we believe could be more effective and have a better side effect profile than other non-stimulant treatments for
ADHD. We initiated a proof-of-concept Phase&nbsp;IIa trial in mid-2010, and expect the results of this trial in the first quarter of 2011. The trial is a randomized,
double-blind, placebo-controlled trial in approximately 50 adults with a current diagnosis of ADHD, with approximately 25 subjects per treatment group. SPN-812 has not been developed and marketed in
the United States and, therefore, it would be considered and reviewed by the FDA as a new chemical entity. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> Our Proprietary Technology Platforms  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have a long track record of developing novel products by applying proprietary technologies to known drugs to improve existing
therapies and to enable the treatment of new indications. Our key proprietary technology platforms include: Microtrol (multiparticulate delivery platform), Solutrol (matrix delivery platform) and
EnSoTrol (osmotic delivery system). These technologies create customized product profiles designed to meet efficacy needs, permit more convenient and less frequent dosing, enhance patient compliance
and improve tolerability in certain specific applications. Our proprietary technologies have been used in the following approved and marketed products: Carbatrol (carbamazepine), Equetro
(carbamazepine), Adderall XR (mixed amphetamine salts), Sanctura XR (trospium chloride), Oracea (doxycycline) and Intuniv (guanfacine). We do not expect these products to contribute to our future cash
position as we have either monetized the future revenues associated with </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>3</FONT></P>

<HR NOSHADE>
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<BR>

<P style="font-family:times;"><FONT SIZE=2>them
or we developed them when we were formerly Shire Laboratories. In addition, we have used our proprietary technologies to develop an oral formulation of treprostinil diethanolamine which is
currently in Phase&nbsp;III trials for pulmonary arterial hypertension. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> Our Strategy  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our goal is to be a leading specialty pharmaceutical company developing and commercializing new medicines in neurology and psychiatry.
Key elements of our strategy to achieve this goal are to: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2><I>Build in-house sales and marketing capabilities, focused on specialty markets in the
United States, to promote SPN-538 and Epliga.</I></FONT><FONT SIZE=2> We are currently focused on attaining regulatory approval for, and bringing our two late-stage epilepsy
product candidates, SPN-538 and Epliga, to market. As SPN-538 and Epliga progress towards U.S. regulatory approval, we intend to build our own targeted, specialty sales force
to promote, if approved, SPN-538 and Epliga in the United States. We intend to direct our marketing efforts to high potential prescribers of both product candidates. </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2><I>Continue to advance our product candidates in our psychiatry portfolio, including
SPN-810 and SPN-812.</I></FONT><FONT SIZE=2> As part of our longer term strategy, we intend to further develop our product candidates in our psychiatry portfolio to enable
further diversification of our pipeline and future growth. For example, we are currently preparing to initiate a Phase&nbsp;IIb trial of SPN-810.  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2><I>Develop differentiated products by applying our technologies to known drug
compounds.</I></FONT><FONT SIZE=2> We intend to continue to focus our development activities on known drug compounds and compounds with established mechanisms of action and thereby reduce the risks,
costs and time typically associated with pharmaceutical product development. We intend to leverage our proprietary and in-licensed technologies and expand our patent portfolio to further
develop and protect our diverse pipeline of product candidates.  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2><I>Establish strategic partnerships to accelerate and maximize the potential of our product
candidates worldwide.</I></FONT><FONT SIZE=2> We intend to continue to seek strategic collaborations with other pharmaceutical companies to commercialize our product candidates outside the United
States. We believe that we are an attractive collaborator for pharmaceutical companies due to our broad portfolio of proprietary technologies and our product development track record. </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2><I>Leverage our management team's expertise to develop and commercialize our broad portfolio of
product candidates.</I></FONT><FONT SIZE=2> We intend to leverage the expertise of our executive management team in developing and commercializing innovative therapeutic products. We plan to continue
to evaluate and develop additional CNS product candidates that we believe have significant commercial potential through our internal research and development efforts or, if appropriate, external
collaborations. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Risks Associated With Our Business  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our ability to implement our business strategy is subject to numerous risks and uncertainties. As an early stage pharmaceutical
company, we face many risks inherent in our business and our industry, as more fully described in the section entitled "Risk Factors" immediately following this summary, including the
following: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>We are dependent on the success of our product candidates, which may never receive regulatory approval or be successfully
commercialized.  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Final marketing approval of SPN-538, Epliga or any of our other product candidates by the FDA or other
regulatory authorities may be delayed, limited, or denied, any of which would adversely affect our ability to generate operating revenues. </FONT></DD></DL>
</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>4</FONT></P>

<HR NOSHADE>
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<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>We have never generated any revenues from the sales of our own products, and we may never achieve or maintain
profitability.  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>If other versions of extended or controlled release topiramate or oxcarbazepine are approved and successfully
commercialized, especially if approved before SPN-538 or Epliga, our business would be materially harmed.  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>If the FDA or other applicable regulatory authorities approve generic products that compete with any of our product
candidates, the sales of those product candidates may be adversely affected. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;You
should carefully consider all of the information set forth in this prospectus and, in particular, the information under the heading "Risk Factors," prior to making an investment in
our common stock. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> Corporate Information  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We were incorporated in Delaware in 2005. Our principal executive office is located at 1550 East Gude Drive, Rockville, Maryland 20850.
Our telephone number is (301)&nbsp;838-2500. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
are the owner of various U.S. federal trademark registrations (&reg;) and registration applications (TM), including the following marks referred to in this prospectus pursuant
to applicable U.S. intellectual property laws: "Supernus&reg;," "Epliga&reg;," "Microtrol&reg;," "Solutrol&reg;," "ProScreen&reg;," "OptiScreen&reg;,"
"ProPhile&reg;," and the registered Supernus Pharmaceuticals logo. All other trademarks or trade names referred to in this prospectus are the property of their respective owners. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>5</FONT></P>

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<BR></FONT><FONT SIZE=2><B>  THE OFFERING    <BR>    </B></FONT></P>
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<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Common stock we are offering</FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares</FONT></TD>
</TR>
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<TD VALIGN="TOP" style="font-family:times;"><BR><FONT SIZE=2>Common stock to be outstanding after this offering</FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:times;"><BR><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD style="font-family:times;"><BR><FONT SIZE=2>Over-allotment option</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><BR><FONT SIZE=2>We have granted the underwriters an option for a period of up to 30&nbsp;days to purchase up to&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;additional shares of common
stock at the initial public offering price.</FONT></TD>
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<TD style="font-family:times;"><BR><FONT SIZE=2>Use of proceeds after expenses</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><BR><FONT SIZE=2>We estimate that the net proceeds from this offering will be approximately $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million, or approximately
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million if the underwriters exercise their over-allotment option in full. We expect to use the net proceeds from this offering to fund our clinical trials and for other
general corporate purposes.</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD style="font-family:times;"><BR><FONT SIZE=2>Risk factors</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><BR><FONT SIZE=2>You should read the "Risk Factors" section of this prospectus beginning on page&nbsp;9 for a discussion of factors to consider carefully before deciding to invest in shares of our common
stock.</FONT></TD>
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<TD VALIGN="TOP" style="font-family:times;"><BR><FONT SIZE=2>Proposed NASDAQ Global Market symbol</FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:times;"><BR><FONT SIZE=2>SUPN</FONT></TD>
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 <P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
number of shares of our common stock to be outstanding after this offering is based on 55,371,061 shares of common stock outstanding as of September&nbsp;30, 2010 after giving
effect to the conversion of 49,000,000 shares of our preferred stock outstanding as of September&nbsp;30, 2010 into 49,000,000 shares of our common stock at the closing of this offering. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
number of shares of our common stock outstanding immediately after this offering excludes: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>1,729,458&nbsp;shares of common stock issuable upon the exercise of options outstanding as of September&nbsp;30, 2010,
with exercise prices ranging from $0.10 to $1.76 per share and a weighted average exercise price of $0.48 per share (of which options to acquire 940,324 shares of common stock were vested as of
September&nbsp;30, 2010);  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>411,765 shares of common stock remaining to vest under a restricted stock award; and  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>2,487,716&nbsp;additional shares of common stock reserved for future grants under our 2005 Stock Plan as of
September&nbsp;30, 2010. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>Unless
otherwise indicated, all information in this prospectus: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>assumes the issuance and sale of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of our common
stock in the offering at the initial public offering
price of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>assumes our planned&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-for-&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;reverse stock split of our
common stock to be effected in connection with this offering;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>gives effect to the automatic conversion of all outstanding shares of our preferred stock into 49,000,000 shares of common
stock upon the closing of this offering; and  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>assumes no exercise by the underwriters of their option to purchase up to&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of our common stock in
this offering to cover over-allotments. </FONT></DD></DL>
</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>6</FONT></P>

<HR NOSHADE>
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<UL>
</UL>
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</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>
<A HREF="#bg71101a_main_toc">Table of Contents</A> </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="cd71101_summary_financial_data"> </A>
<A NAME="toc_cd71101_1"> </A>
<BR></FONT><FONT SIZE=2><B>  SUMMARY FINANCIAL DATA    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2>We have derived our statement of operations data for the years ended December&nbsp;31, 2007, 2008 and 2009 from our
audited consolidated financial statements included in this prospectus. We have derived our balance sheet data as of September&nbsp;30, 2010 and statement of operations data for each of the nine
months ended September&nbsp;30, 2009 and 2010 from our unaudited consolidated financial statements included in this prospectus. The unaudited consolidated financial statement data include, in our
opinion, all adjustments (consisting only of normal recurring adjustments) that are necessary for a fair presentation of our consolidated financial position and consolidated results of operations for
these periods. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2>Our historical results are not necessarily indicative of future operating results, and the results for the first nine months of 2010 are not necessarily
indicative of results expected for the full year or for any other period. You should read this summary consolidated financial data in conjunction with the sections entitled "Risk Factors,"
"Capitalization," "Selected Consolidated Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and
related notes, all included elsewhere in this prospectus. </FONT></P>
 <DIV style="padding:0pt;position:relative;width:80%;margin-left:10%;">
<p style="font-family:times;"><font size=1></FONT><FONT SIZE=1>


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 </FONT></P>

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<DIV ALIGN="CENTER"><TABLE width="100%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="7pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" style="font-family:times;"></TD>
<TD WIDTH="" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="4pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="42pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="4pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="42pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="4pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="47pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="4pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="47pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="4pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="50pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH COLSPAN=3 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Year Ended December&nbsp;31, </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Nine Months Ended<BR>
September&nbsp;30, </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=3 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2007 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2008 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2009 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2009 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2010 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=3 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(unaudited)</B></FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=3 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=14 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(in thousands of dollars, except share and per share data)</B></FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1><B>Consolidated Statement of Operations Data:</B></FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Revenues</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Development and milestone revenues</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1,405</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>2,697</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1,550</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1,181</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>97</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Royalty revenues</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>2,828</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>6,192</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>44,963</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>41,884</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>8,635</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=3 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Total revenues</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>4,233</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>8,889</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>46,513</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>43,065</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>8,732</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=3 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Costs and expenses</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>Research and development</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>19,269</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>30,463</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>29,260</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>21,804</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>26,080</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>General and administrative</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>4,011</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>4,287</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>4,649</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>3,503</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>3,388</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=3 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Total costs and expenses</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>23,280</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>34,750</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>33,909</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>25,307</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>29,468</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=3 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Income (loss) from operations</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(19,047</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(25,861</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>12,604</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>17,758</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(20,736</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Other income (expense):</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>Interest income</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1,773</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1,057</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>514</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>101</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>623</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>Interest expense</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(8,678</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(12,658</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(9,210</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(9,831</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>Other</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>54</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=3 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Total other income (expense)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1,773</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(7,621</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(12,144</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(9,109</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(9,154</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=3 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Net income (loss)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(17,274</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(33,482</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>460</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>8,649</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(29,890</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=3 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Cumulative dividends on Series&nbsp;A convertible preferred stock</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(3,430</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(3,430</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(3,430</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(2,573</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(2,573</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=3 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Net income (loss) attributable to common stockholders</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(20,704</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(36,912</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(2,970</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>6,076</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(32,463</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=3 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Net income (loss) per common share</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Basic</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(4.21</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(6.61</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(0.53</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.08</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(5.12</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=3 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Diluted</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(4.21</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(6.61</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.01</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.15</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(5.12</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=3 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=1>Weighted average number of common shares</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Basic</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>4,921,376</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>5,587,467</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>5,653,506</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>5,610,047</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>6,345,420</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=3 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=1>Diluted</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>4,921,376</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>5,587,467</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>56,324,761</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>56,282,411</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>6,345,420</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=3 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><BR><FONT SIZE=1> Net income (loss) used to compute pro forma net income (loss) per common share &#151; basic and diluted (unaudited)(1)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><BR><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><BR><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=1><BR></FONT><FONT SIZE=1>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1><BR>
460</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><BR><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><BR><FONT SIZE=1>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1><BR>
(29,890</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1><BR>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><BR><FONT SIZE=1> Weighted-average number of shares used in calculating pro forma net income (loss) per share&nbsp;&#151; basic and diluted (unaudited)(1)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><BR><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><BR><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><BR><FONT SIZE=1>56,324,761</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><BR><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><BR><FONT SIZE=1>55,345,420</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><BR><FONT SIZE=1> Pro forma net income (loss) per share &#151; basic and diluted(1)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><BR><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><BR><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><BR><FONT SIZE=1>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1><BR>
0.01</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><BR><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=1><BR></FONT><FONT SIZE=1>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1><BR>
(0.54</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1><BR>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=3 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
</TABLE></DIV>
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<DL compact>
<DT style='font-family:times;margin-bottom:-9pt;'><FONT SIZE=1>(1)</FONT></DT><DD style="font-family:times;"><FONT SIZE=1>Pro
forma net loss per share basic and diluted have been calculated assuming the conversion of all outstanding shares of the Company's Series&nbsp;A
convertible preferred stock into an aggregate of 49,000,000 shares of common stock upon completion of this offering, as if they had converted at the beginning of the period. Pro forma net loss per
share basic and diluted do not give effect to the sale of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of common stock that we are offering pursuant to this prospectus or any related estimated
net proceeds therefrom. See
Note&nbsp;2 to our audited consolidated financial statements for an explanation of the method used to calculate the pro forma basic and diluted net income (loss) per common share and the number of
the per share amounts. </FONT></DD></DL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>7</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=1,SEQ=10,EFW="2201368",CP="SUPERNUS PHARMACEUTICALS",DN="1",CHK=292508,FOLIO='7',FILE='DISK129:[10ZCU1.10ZCU71101]CD71101A.;29',USER='DSCHWAR',CD='22-DEC-2010;18:06' -->
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<P style="font-family:times;"><FONT SIZE=2><A
HREF="#bg71101a_main_toc">Table of Contents</A></FONT></P>
 <DIV style="padding:0pt;position:relative;width:80%;margin-left:10%;">
<p style="font-family:times;"><font size=1></FONT><FONT SIZE=1>


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 </FONT></P>

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<TD WIDTH="" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="55pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="65pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="65pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
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<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>As of September&nbsp;30, 2010 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Actual </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Pro Forma </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Pro Forma as<BR>
Adjusted </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(unaudited)</B></FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(in thousands of dollars)</B></FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><p style="font-family:times;margin-left:8pt;text-indent:-8pt;"><FONT SIZE=1> </FONT><FONT SIZE=1><B>Consolidated Balance Sheet Data:</B></FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:times;"><p style="font-family:times;margin-left:8pt;text-indent:-8pt;"><FONT SIZE=1> </FONT><FONT SIZE=1>Unrestricted cash and cash equivalents, and marketable securities</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>45,822</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>45,822</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><p style="font-family:times;margin-left:8pt;text-indent:-8pt;"><FONT SIZE=1> </FONT><FONT SIZE=1>Restricted cash and cash equivalents, and marketable securities</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1,680</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1,680</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:times;"><p style="font-family:times;margin-left:8pt;text-indent:-8pt;"><FONT SIZE=1> </FONT><FONT SIZE=1>Working capital</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>33,835</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>33,835</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><p style="font-family:times;margin-left:8pt;text-indent:-8pt;"><FONT SIZE=1> </FONT><FONT SIZE=1>Total assets</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>57,502</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>57,502</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:times;"><p style="font-family:times;margin-left:8pt;text-indent:-8pt;"><FONT SIZE=1> </FONT><FONT SIZE=1>Accumulated deficit</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(85,210</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(85,210</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><p style="font-family:times;margin-left:8pt;text-indent:-8pt;"><FONT SIZE=1> </FONT><FONT SIZE=1>Total stockholders' deficit</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(35,917</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>(35,917</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
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</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>
<A HREF="#bg71101a_main_toc">Table of Contents</A> </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="da71101_risk_factors"> </A>
<A NAME="toc_da71101_1"> </A>
<BR></FONT><FONT SIZE=2><B>  RISK FACTORS    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><I>Investing in our common stock involves a high degree of risk. You should carefully consider the risks described
below with all of the other information included in this prospectus before deciding to invest in our common stock. 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.</I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Risks Related to Our Business and Industry  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> We are dependent on the success of our product candidates, which may never receive regulatory approval or be successfully commercialized.  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To date, we have expended significant time, resources, and effort on the development of our product candidates, and a substantial
majority of our resources are now focused on seeking marketing approval for and planning for potential commercialization of our two most advanced product candidates, SPN-538 and Epliga, in the United
States. All of our other product candidates are in earlier stages of development and subject to the risks of failure inherent in developing drug products. Accordingly, our ability to generate
significant product revenues in the near term will depend almost entirely on our ability to successfully obtain marketing approval for and commercialize SPN-538 and Epliga. Neither
SPN-538 nor Epliga are approved for marketing in any jurisdiction and, therefore, unless they obtain regulatory approval, they may never be commercialized. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
ability to successfully commercialize any of our products candidates will depend, among other things, on our ability to: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>successfully complete our clinical trials;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>produce, through a validated process, sufficiently large quantities of our product candidates to permit successful
commercialization;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>receive marketing approvals from the U.S. Food and Drug Administration, or FDA, and similar foreign regulatory
authorities;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>establish commercial manufacturing arrangements with third-party manufacturers;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>build and maintain strong sales, distribution and marketing capabilities sufficient to launch commercial sales of our
product candidates;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>establish collaborations with third parties for the commercialization of our product candidates in countries outside the
United States, and such collaborators' ability to obtain regulatory and reimbursement approvals in such countries;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>secure acceptance of our product candidates from physicians, health care payors, patients and the medical community; and </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>manage our spending as costs and expenses increase due to clinical trials, regulatory approvals and commercialization. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There
are no guarantees that we will be successful in completing these tasks. If we are unable to successfully complete these tasks, we may not be able to commercialize
SPN-538, Epliga or any of our other product candidates in a timely manner, or at all, in which case we may be unable to generate sufficient revenues to sustain and grow our business. In
addition, although we believe that we have already incurred the majority of the costs related to the development of SPN-538 and Epliga, if we experience unanticipated delays or problems,
these costs could substantially increase and our business, financial condition and results of operations will be adversely affected. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>9</FONT></P>

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<BR>

<P style="font-family:times;"><FONT SIZE=2><B><I> Final marketing approval of SPN-538, Epliga or any of our other product candidates by the FDA or other regulatory authorities may be delayed, limited, or denied,
any of which would adversely affect our ability to generate operating revenues.  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our business depends on the successful development and commercialization of our product candidates. We are not permitted to market any
of our product candidates in the United States until we receive approval of a new drug application, or NDA, from the FDA, or in any foreign jurisdiction until we receive the requisite approvals from
such jurisdiction. Satisfaction of regulatory requirements typically takes many years, is dependent upon the type, complexity and novelty of the product and requires the expenditure of substantial
resources. We cannot predict whether or when we will obtain regulatory approval to commercialize our product candidates and we cannot, therefore, predict the timing of any future revenues from these
product candidates, if any. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;With
respect to our two most advanced product candidates, SPN-538 (extended release topiramate) and Epliga (extended release oxcarbazepine), we are pursuing a regulatory
strategy pursuant to Section&nbsp;505(b)(2) of the Federal Food, Drug and Cosmetic Act, or FDCA, which would allow us to rely in our filings on the existing data from the NDAs of Topamax and
Trileptal, respectively. Section&nbsp;505(b)(2) was enacted as part of the Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Amendments, and permits the submission
of an NDA where at least some of the information required for approval comes from clinical trials not conducted by or for the applicant and for which the applicant has not obtained a right of
reference. The FDA interprets Section&nbsp;505(b)(2) of the FDCA to permit the applicant to rely upon the FDA's previous findings of safety and effectiveness for an approved product. The FDA
requires submission of information needed to support any changes to a previously approved drug, such as published data or new studies conducted by the applicant or clinical trials demonstrating safety
and effectiveness. The FDA has substantial discretion in the drug approval process, including the ability to delay, limit or deny approval of a product candidate for many reasons. For example, the
FDA: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>could determine that we cannot rely on Section&nbsp;505(b)(2) for SPN-538 or Epliga; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>could determine that the information provided by us was inadequate, contained clinical deficiencies or otherwise failed to
demonstrate the safety and effectiveness of SPN-538, Epliga or any of our product candidates for any indication;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>may not find the data from bioequivalence studies and/or clinical trials sufficient to support the submission of an NDA or
to obtain marketing approval in the United States, including any findings that the clinical and other benefits of our product candidates outweigh their safety risks;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>may disagree with our trial design or our interpretation of data from preclinical studies, bioequivalence studies and/or
clinical trials, or may change the requirements for approval even after it has reviewed and commented on the design for our trials;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>may determine that we have identified the wrong reference listed drug or drugs or that approval of our
Section&nbsp;505(b)(2) application for SPN-538, Epliga or any of our other product candidates is blocked by patent or non-patent exclusivity of the reference listed drug or
drugs;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>may identify deficiencies in the manufacturing processes or facilities of third party manufacturers with which we enter
into agreements for the manufacturing of our product candidates;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>may approve our product candidates for fewer or more limited indications than we request, or may grant approval contingent
on the performance of costly post-approval clinical trials;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>may change its approval policies or adopt new regulations; or  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>may not approve the labeling claims that we believe are necessary or desirable for the successful commercialization of our
product candidates. </FONT></DD></DL>
</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>10</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Notwithstanding
the approval of many products by the FDA pursuant to Section&nbsp;505(b)(2), over the last few years, some pharmaceutical companies and others have objected to the
FDA's interpretation of Section&nbsp;505(b)(2). If the FDA changes its interpretation of Section&nbsp;505(b)(2), or if the FDA's interpretation is successfully challenged in court, this could
delay or even prevent the FDA from approving any Section&nbsp;505(b)(2) application that we submit. Any failure to obtain regulatory approval of our product candidates would significantly limit our
ability to generate revenues, and any failure to obtain such approval for all of the indications and labeling claims we deem desirable could reduce our potential revenues. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> Our trials may fail to demonstrate acceptable levels of safety and efficacy of our product candidates, which could prevent or significantly delay regulatory approval.  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We may be unable to sufficiently demonstrate the safety and efficacy of our product candidates to obtain regulatory approval. We must
demonstrate with substantial evidence gathered in well-controlled studies, and to the satisfaction of the FDA with respect to approval in the United States (and to the satisfaction of
similar regulatory authorities in other jurisdictions with respect to approval in those jurisdictions), that each product candidate is safe and effective for use in the target indication. The FDA may
require us to conduct or perform additional studies or trials to adequately demonstrate safety and efficacy, which could prevent or significantly delay our receipt of regulatory approval and,
ultimately, the commercialization of that product candidate. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition, the results from the trials that we have completed for our product candidates may not be replicated in future trials, or we may be unable to demonstrate sufficient safety
and efficacy to obtain the requisite regulatory approvals for our product candidates. A number of companies in the pharmaceutical industry have suffered significant setbacks in advanced development,
even after promising results in earlier trials. If our product candidates are not shown to be safe and effective, our clinical development programs could be delayed or might be terminated. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> Our product candidates may cause undesirable side effects or have other properties that delay or prevent their regulatory approval or limit their commercial potential.  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Undesirable side effects caused by any of our product candidates could cause us or regulatory authorities to interrupt, delay or halt
development and could result in the denial of regulatory approval by the FDA or other regulatory authorities, and potential products liability claims. Immediate release topiramate and oxcarbazepine,
drug compounds upon which our SPN-538 and Epliga product candidates are based, respectively, are known to cause various side effects, including dizziness, paresthesia, headaches, cognitive
deficiencies such as memory loss and speech impediment, digestive problems, somnolence, double vision, gingival enlargement, nausea, weight gain, and fatigue. The use of SPN-538 and Epliga may cause
similar side effects as compared to their reference products, or may cause additional or different side effects. Any undesirable side effects that are caused by any of our product candidates could
have a material adverse effect upon that product candidate's development program and our business as a whole. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition, if any of our product candidates receive marketing approval, and we or others later identify undesirable side effects caused by the product candidate, a number of
potentially significant negative consequences could result, including: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>regulatory authorities may withdraw approvals of the product candidate or otherwise require us to take the approved
product off the market;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>regulatory authorities may require additional warnings, or a narrowing of the indication, on the product label; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>we may be required to create a medication guide outlining the risks of such side effects for distribution to patients; </FONT></DD></DL>
</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>11</FONT></P>

<HR NOSHADE>
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<P style="font-family:times;"><FONT SIZE=2><A
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<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>we may be required to modify the product in some way;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the FDA may require us to conduct additional clinical trials or costly post-marketing testing and surveillance
to monitor the safety or efficacy of the product;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>sales of approved product candidates may decrease significantly;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>we could be sued and held liable for harm caused to patients; and  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>our reputation may suffer. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>Any
of these events could prevent us from achieving or maintaining the commercial success of our product candidates and could substantially increase commercialization costs. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> If other versions of extended or controlled release topiramate or oxcarbazepine are approved and successfully commercialized, especially if approved before SPN-538 or
Epliga, our business would be materially harmed.  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other third parties may seek approval to manufacture and market their own versions of extended release topiramate or oxcarbazepine in
the United States. If any of these parties obtain FDA approval before we do, they may be entitled to three years of marketing exclusivity. Such exclusivity would delay the commercialization of
SPN-538 and Epliga and, as a result, we may never achieve significant market share for these product candidates. Consequently, revenues from product sales of these product candidates would
be similarly delayed and our business, including our development programs, and growth prospects would suffer. For example, we are aware that Upsher-Smith Laboratories, or Upsher-Smith, is currently
conducting a Phase&nbsp;III clinical trial for USL255 (extended release topiramate). If Upsher-Smith's USL255 product is approved by the FDA before SPN-538, then Upsher-Smith may obtain
three years of marketing exclusivity based on its Phase&nbsp;III clinical trial, which would significantly delay our entry into the U.S. market. Even if SPN-538 is approved before
USL255, we may not be entitled to any marketing exclusivity and, other than under circumstances in which third parties may infringe or are infringing our patents, we may not be able to prevent the
submission or approval of another full NDA for any competitor's extended or controlled release topiramate product candidate, including USL255. In addition, we are aware of companies who are marketing
outside of the United States modified-release oxcarbazepine products, such as Apydan, which is developed by Desitin Arzneimittel&nbsp;GmbH and requires twice-daily administration. If companies with
modified-release oxcarbazepine products outside of the United States pursue or obtain approval of their products within the United States before we do, such competing products may be granted three
year marketing exclusivity, which would significantly delay Epliga's entry into the U.S. market. Such a delay would limit the potential success of Epliga in the United States, and our business and
growth prospects would be materially impaired. Accordingly, if any third party is successful in obtaining approval to manufacture and market their own versions of extended release topiramate or
oxcarbazepine in the United States, we may not be able to recover expenses incurred in connection with the development of our product candidates or realize revenues from SPN-538 or Epliga. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> Delays or failures in the completion of testing of our product candidates would increase our costs and delay or limit our ability to generate revenues.  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Delays or failures in the completion of clinical trials for our product candidates could significantly raise our product development
costs. We do not know whether current or planned trials will be completed on schedule, if at all. The commencement and completion of clinical development can be delayed or halted for a number of
reasons, including: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>difficulties obtaining regulatory approval to commence a clinical trial or complying with conditions imposed by a
regulatory authority regarding the scope or term of a clinical trial; </FONT></DD></DL>
</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>12</FONT></P>

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<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>delays in reaching or failure to reach agreement on acceptable terms with prospective clinical research organizations, or
CROs, and trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>insufficient or inadequate supply or quantity of a product candidate for use in trials;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>difficulties obtaining institutional review board approval to conduct a trial at a prospective site; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>challenges recruiting and enrolling patients to participate in clinical trials for a variety of reasons, including
competition from other programs for the treatment of similar conditions;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>severe or unexpected drug-related side effects experienced by patients in a clinical trial; and </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>difficulty retaining patients who have initiated a clinical trial but may be prone to withdraw due to side effects from
the therapy, lack of efficacy or personal issues. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Clinical
trials may also be delayed as a result of ambiguous or negative interim results. In addition, clinical trials may be suspended or terminated by us, an institutional review board
overseeing the clinical trial at a trial site (with respect to that site), the FDA or other regulatory authorities due to a number of factors, including: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>failure to conduct the clinical trial in accordance with regulatory requirements or the trial protocols; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>observations during inspection of the clinical trial operations or trial sites by the FDA or other regulatory authorities
that ultimately result in the imposition of a clinical hold;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>unforeseen safety issues; or  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>lack of adequate funding to continue the trial. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition, failure to conduct the clinical trial in accordance with regulatory requirements or the trial protocols may also result in the inability to use the data to support product
approval. Additionally, changes in regulatory requirements and guidance may occur, and we may need to amend clinical trial protocols to reflect these changes. Amendments may require us to resubmit our
clinical trial protocols to institutional review boards for reexamination, which may impact the costs, timing or successful completion of a clinical trial. In addition, many of the factors that cause,
or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates. If we experience delays in completion
of, or if we terminate any of our clinical trials, our ability to obtain regulatory approval for our product candidates may be materially harmed, and our commercial prospects and ability to generate
product revenues will be diminished. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> If we do not obtain marketing exclusivity for our product candidates, our business may suffer.  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the Hatch-Waxman Amendments, three years of marketing exclusivity may be granted for the approval of new and supplemental NDAs,
including Section&nbsp;505(b)(2) applications, for, among other things, new indications, dosage forms, routes of administration, or strengths of an existing drug, or for a new use, if new clinical
investigations that were conducted or sponsored by the applicant are determined by the FDA to be essential to the approval of the application. This exclusivity, which is sometimes referred to as
clinical investigation exclusivity, prevents the FDA from approving an application under Section&nbsp;505(b)(2) for the same conditions of use associated with the new clinical investigations before
the expiration of three years from the date of approval. Such exclusivity, however, would not prevent the approval of another application if the applicant submits a Section&nbsp;505(b)(1) NDA and
has conducted its own adequate, well-controlled clinical trials demonstrating safety and efficacy, nor would it prevent approval of a generic product or Section&nbsp;505(b)(2) product
that did not incorporate the exclusivity-protected changes of the approved drug product. Under the Hatch-Waxman Amendments, newly-approved drugs and indications may also benefit from a statutory
period of non-patent marketing exclusivity. The Hatch-Waxman Amendments provides five-year marketing </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>13</FONT></P>

<HR NOSHADE>
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<P style="font-family:times;"><FONT SIZE=2>exclusivity
to the first applicant to gain approval of an NDA for a new chemical entity, or NCE, meaning that the FDA has not previously approved any other drug containing the same active
pharmaceutical ingredient, or active moiety. Although protection under the Hatch-Waxman Amendments will not prevent the submission or approval of another full Section&nbsp;505(b)(1) NDA, such an NDA
applicant would be required to conduct its own preclinical and adequate, well-controlled clinical trials to demonstrate safety and effectiveness. If we are unable to obtain marketing
exclusivity for our product candidates including SPN-538, our competitors may obtain approval of competing products more easily than if we had such marketing exclusivity, and our future
revenues could be reduced, possibly materially. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> We expect intense competition and, if our competitors develop or market alternatives for treatments of our target indications, our commercial opportunities will be reduced
or eliminated.  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
pharmaceutical industry is characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary therapeutics. We face competition from a number
of sources, some of which may target the same indications as our product candidates, including large pharmaceutical companies, smaller pharmaceutical companies, biotechnology companies, academic
institutions,
government agencies and private and public research institutions. The availability of competing products will limit the demand and the price we are able to charge for any of our product candidates
that are commercialized unless we are able to differentiate them. We anticipate that we will face intense competition when and if our product candidates are approved by regulatory authorities and we
begin the commercialization process. For instance, there are over 15 branded products, as well as their generic counterparts, on the U.S. market indicated to treat epilepsy. In addition, competition
in the attention deficit hyperactivity disorder, or ADHD, market in the United States has increased with the launch of several products in recent years, including the launch of generic versions of
branded drugs such as Adderall XR. As a result, we may not be able to recover expenses incurred in connection with the development of our product candidates or realize revenues from any commercialized
product. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition to already marketed competing products, we believe certain companies are developing other products which could compete with our product candidates should they be approved by
regulatory authorities. For example, according to Datamonitor, as of April 2010, there were 47 compounds in preclinical and clinical development for epilepsy across the United States, Japan, France,
Germany, Italy, Spain and the United Kingdom. Of these, 15 are currently in late-stage (Phase&nbsp;II or later) clinical trials. We are also aware that Upsher-Smith announced the
initiation of a Phase&nbsp;III clinical trial for USL255 (extended release topiramate) for the management of epilepsy in adults. If successful, such competing product could limit the potential
success of SPN-538, and our growth prospects would be materially impaired. In addition, we are aware of companies who are marketing outside of the United States modified-release
oxcarbazepine products, such as Apydan which is developed by Desitin Arzneimittel&nbsp;GmbH and requires twice-daily administration. If companies with modified-release oxcarbazepine products outside
of the United States obtain approval for their products within the United States prior to us, such competing products may obtain three years of marketing exclusivity, which would significantly delay
our entry into the U.S. market and limit the potential success of Epliga. Further, new developments, including the development of other drug technologies, may render our product candidates obsolete or
noncompetitive. As a result, our product candidates may become obsolete before we recover expenses incurred in connection with their development or realize revenues from any commercialized product. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Further,
many competitors have substantially greater: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>capital resources;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>research and development resources and experience, including personnel and technology;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>drug development, clinical trial and regulatory resources and experience; </FONT></DD></DL>
</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>14</FONT></P>

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<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>sales and marketing resources and experience;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>manufacturing and distribution resources and experience;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>name recognition; and  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>resources, experience and expertise in prosecution and enforcement of intellectual property rights. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
a result of these factors, our competitors may obtain regulatory approval of their products more rapidly than we are able to or may obtain patent protection or other intellectual
property rights that limit or block us from developing or commercializing our product candidates. Our competitors may also develop drugs that are more effective, more useful, better tolerated, subject
to fewer or less severe side effects, more widely prescribed or accepted or less costly than ours and may also be more successful than us in manufacturing and marketing their products. If we are
unable to compete effectively with the products of our competitors or if such competitors are successful in developing products that compete with any of our product candidates that are approved, our
business, results of operations, financial condition and prospects may be materially adversely affected. Mergers and acquisitions in the pharmaceutical industry may result in even more resources being
concentrated at competitors. Competition may increase further as a result of advances made in the commercial applicability of technologies and greater availability of capital for investment. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B><I> If the FDA or other applicable regulatory authorities approve generic products that compete with any of our product candidates, the sales of those product candidates would
be adversely affected.  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Once an NDA, including a Section&nbsp;505(b)(2) application, is approved, the product covered thereby becomes a "listed drug" which
can, in turn, be cited by potential competitors in support of approval of an abbreviated new drug application, or ANDA. The FDCA, FDA regulations and other applicable regulations and policies provide
incentives to manufacturers to create modified, non-infringing versions of a drug to facilitate the approval of an ANDA or other application for generic substitutes. These manufacturers
might only be required to conduct a relatively inexpensive study to show that their product has the same active ingredient(s), dosage form, strength, route of administration, and conditions of use, or
labeling, as our product candidate and that the generic product is bioequivalent to ours, meaning it is absorbed in the body at the same rate and to the same extent as our product candidate. These
generic equivalents, which must meet the same quality standards as branded pharmaceuticals, would be significantly less costly than ours to bring to market and companies that produce generic
equivalents are generally able to offer their products at lower prices. Thus, after the introduction of a generic competitor, a significant percentage of the sales of any branded product is typically
lost to the generic product. Accordingly, competition from generic equivalents to our product candidates would materially adversely impact our revenues, profitability and cash flows and substantially
limit our ability to obtain a return on the investments we have made in our product candidates. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> We have limited sales and marketing experience and resources, and we may not be able to effectively market and sell our product candidates in the United States, if approved.  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are preparing the build-out of our commercial infrastructure to launch our product candidates within the United States. We have
limited sales or marketing experience. To develop internal sales and marketing capabilities, we will have to invest significant amounts of financial and management resources, some of which will be
committed prior to any confirmation that SPN-538, Epliga or any other of our product candidates will be approved. If the commercial launch of SPN-538 or Epliga is delayed for a
protracted period of time as a result of FDA requirements or other reasons, we would </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>15</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>incur
significant expenses prior to being able to realize any revenues. Further, we could face a number of additional risks in establishing internal sales and marketing capabilities,
including: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>we may not be able to attract talented and qualified personnel to build an effective marketing or sales force; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the cost of establishing a marketing or sales force may not be justifiable in light of the revenues generated by any of
our product candidates, if approved; and  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>our direct sales and marketing efforts may not be successful. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>If
we are unable to establish adequate sales and marketing capabilities, we may not be able to generate product revenues and may never become profitable. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B><I> We intend to rely on third party collaborators to market and commercialize our product candidates outside of the United States, who may fail to effectively commercialize our
product candidates.  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Outside of the United States we currently plan to utilize strategic partners or contract sales forces, where appropriate, to assist in
the commercialization of our product candidates, if approved. We currently possess limited resources and may not be successful in establishing collaborations or co-promotion arrangements
on acceptable terms, if at all. We also face competition in our search for collaborators and co-promoters. By entering into strategic collaborations or similar arrangements, we will rely
on third parties for financial resources and for development, commercialization, sales and marketing and regulatory expertise. Any collaborators may fail to develop or effectively commercialize our
product candidates because they cannot obtain the necessary regulatory approvals, they lack adequate financial or other resources or they decide to focus on other initiatives. Any failure of our third
party collaborators to successfully market and commercialize our product candidates outside of the United States would diminish our revenues and harm our results of operations. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> Limitations on our patent rights relating to our product candidates may limit our ability to prevent third parties from competing against us.  </I></B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our success will depend on our ability to obtain and maintain patent protection for our proprietary technologies and our product
candidates, preserve our trade secrets, prevent third parties from infringing upon our proprietary rights and operate without infringing upon the proprietary rights of others. To that end, we seek
patent protection in the United States and internationally for our product candidates. Our policy is to actively seek to protect our proprietary
position by, among other things, filing patent applications in the United States and abroad (including Europe, Canada and certain other countries when appropriate) relating to proprietary technologies
that are important to the development of our business. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
strength of patents in the pharmaceutical industry involves complex legal and scientific questions and can be uncertain. Patent applications in the United States and most other
countries are confidential for a period of time until they are published, and publication of discoveries in scientific or patent literature typically lags actual discoveries by several months or more.
As a result, we cannot be certain that we were the first to conceive inventions covered by our patents and pending patent applications or that we were the first to file patent applications for such
inventions. In addition, we cannot be certain that our patent applications will be granted, that any issued patents will adequately protect our intellectual property or that such patents will not be
challenged, narrowed, invalidated or circumvented. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
also rely upon unpatented trade secrets, unpatented know-how and continuing technological innovation to develop and maintain our competitive position, which we seek to
protect, in part, by confidentiality agreements with our employees and our collaborators and consultants. We also have agreements with our employees and selected consultants that obligate them to
assign their inventions to us. It is possible that technology relevant to our business will be independently developed by a person </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>16</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>that
is not a party to such an agreement. Furthermore, if the employees and consultants that are parties to these agreements breach or violate the terms of these agreements, we may not have adequate
remedies, and we could lose our trade secrets through such breaches or violations. Further, our trade secrets could otherwise become known or be independently discovered by our competitors. Any
failure to adequately prevent disclosure of our trade secrets and other proprietary information could have a material adverse impact on our business. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition, the laws of certain foreign countries do not protect proprietary rights to the same extent or in the same manner as the United States, and therefore, we may encounter
problems in protecting and defending our intellectual property in certain foreign jurisdictions. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> If we are sued for infringing intellectual property rights of third parties, it will be costly and time consuming, and an unfavorable outcome in that litigation would have a
material adverse effect on our business.  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our commercial success depends upon our ability and the ability of our collaborators to develop, manufacture, market and sell their
approved products and our product candidates and use our proprietary technologies without infringing the proprietary rights of third
parties. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we and our collaborators are developing product
candidates. As the pharmaceutical industry expands and more patents are issued, the risk increases that our collaborators' approved products and our product candidates may give rise to claims of
infringement of the patent rights of others. There may be issued patents of third parties of which we are currently unaware, that may be infringed by our collaborators' approved products or our
product candidates including SPN-538 and Epliga, which could prevent us from being able to commercialize these product candidates. Because patent applications can take many years to issue, there may
be currently pending applications which may later result in issued patents that our collaborators' approved products or our product candidates may infringe. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
may be exposed to, or threatened with, future litigation by third parties alleging that our collaborators' approved products and product candidates infringe their intellectual
property rights. If one of our collaborators' approved products and product candidates is found to infringe the intellectual property rights of a third party, we or our collaborators could be enjoined
by a court and required to pay damages and could be unable to commercialize the applicable approved products and product candidates unless we obtain a license to the patent. A license may not be
available to us on acceptable terms, if at all. In addition, during litigation, the patent holder could obtain a preliminary injunction or other equitable relief which could prohibit us from making,
using or selling our approved product candidates, pending a trial on the merits, which may not occur for several years. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There
is a substantial amount of litigation involving patent and other intellectual property rights in the pharmaceutical industry generally. If a third party claims that we or our
collaborators infringe its intellectual property rights, we may face a number of issues, including, but not limited to: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>infringement and other intellectual property claims which, regardless of merit, may be expensive and
time-consuming to litigate and may divert our management's attention from our core business;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>substantial damages for infringement, which we may have to pay if a court decides that the product at issue infringes on
or violates the third party's rights, and, if the court finds that the infringement was willful, we could be ordered to pay treble damages and the patent owner's attorneys' fees; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>a court prohibiting us from selling our approved product candidate, if any, unless the third party licenses its rights to
us, which it is not required to do;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>if a license is available from a third party, we may have to pay substantial royalties, fees or grant cross-licenses to
our intellectual property rights; and  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>redesigning our product candidates so they do not infringe, which may not be possible or may require substantial monetary
expenditures and time. </FONT></DD></DL>
</UL>
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<A HREF="#bg71101a_main_toc">Table of Contents</A> </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> We may become involved in lawsuits to protect or enforce our patents, which could be expensive, time consuming and unsuccessful.  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Competitors may infringe our patents. To counter infringement or unauthorized use, we may be required to file infringement claims,
which can be expensive and time consuming. For example, we are involved in the following matters related to Paragraph&nbsp;IV Certification Notice Letters that we have received in connection with
our collaborators' products. In connection with an ANDA, a Paragraph&nbsp;IV Certification Notice Letter notifies the FDA that one or more patents listed in the FDA's Approved Drug Product List
(Orange Book) is alleged invalid, unenforceable or will not be infringed by the ANDA product.  </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2><I>Sanctura XR Litigation.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;We are involved in a patent
infringement matter filed in response to three Paragraph&nbsp;IV Certification Notice Letters that we received in June 2009, November 2009 and April 2010 regarding an ANDA submitted to the FDA by
each of Watson Laboratories,&nbsp;Inc., Sandoz,&nbsp;Inc. and Paddock Laboratories,&nbsp;Inc., respectively, requesting approval to market and sell generic versions of Sanctura XR trospium
chloride extended release capsules, a product that is manufactured and sold by Allergan,&nbsp;Inc., which is the marketing partner of Endo Pharmaceuticals Solutions Inc. The ANDA filers alleged in
their respective original notice letters that the U.S. Patent Number&nbsp;7,410,978 issued to us is invalid, unenforceable and/or will not be infringed by the respective company's manufacture, use
or sale of the product described in its ANDA submission. Our patent covers extended-release formulations containing trospium chloride and expires on February&nbsp;1, 2025, and is licensed to Endo
Pharmaceuticals Solutions&nbsp;Inc. Each of the ANDA filers subsequently amended their respective notice letters to include other U.S. patents related to Sanctura XR trospium chloride (specifically,
U.S. Patent Nos.&nbsp;7,759,359; 7,763,635; 7,781,448; and 7,781,449). We intend to support Allergan,&nbsp;Inc. and Endo Pharmaceuticals Solutions&nbsp;Inc. in their efforts to contest this
matter.  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2><I>Oracea Litigation.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;We are involved in a patent
infringement action filed in response to a Paragraph&nbsp;IV Certification Notice Letter that we received in November 2010 regarding an ANDA, submitted to the FDA by Lupin Limited, requesting
approval to market and sell generic versions of Oracea doxycycline, a product that is manufactured and sold by Galderma Laboratories,&nbsp;L.P. The ANDA filer, Lupin, alleged in the original notice
letter that the U.S. Patent Number&nbsp;7,749,532 issued to us is invalid, unenforceable and/or will not be infringed by the manufacture, use or sale of the product described in its ANDA submission.
In addition, we have received in October 2010, a complaint for Declaratory Judgment from Mylan alleging invalidity of the 7,749,532 patent. Our patent covers once-daily formulations of
doxycycline, including methods of their use in treating rosacea and processes regarding their preparation, and expires on December&nbsp;19, 2027, and is licensed to Galderma
Laboratories,&nbsp;L.P. In both cases, we intend to support Galderma Laboratories,&nbsp;L.P. in its efforts to contest this matter.  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2><I>Intuniv Litigation.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;We are involved in several patent
infringement actions filed in response to Paragraph&nbsp;IV Certification Notice Letters that we received in March, April and October 2010 regarding ANDAs submitted to the FDA requesting approval to
market and sell generic versions of Intuniv, a product that is manufactured and sold by Shire&nbsp;plc. The defendants in these cases are Teva Pharmaceuticals USA,&nbsp;Inc. and Teva
Pharmaceutical Industries,&nbsp;Ltd; Actavis Elizabeth&nbsp;LLC and Actavis&nbsp;Inc.; Anchen Pharmaceuticals,&nbsp;Inc. and Anchen,&nbsp;Inc.; Watson Pharmaceuticals,&nbsp;Inc., Watson
Laboratories, Inc. - Florida Watson Pharma, Inc. and ANDA, Inc.; and Impax Laboratories,&nbsp;Inc. The ANDA filers allege that our U.S. Patent Numbers&nbsp;6,287,599 and 6,811,794 are invalid,
unenforceable and/or will not be infringed by the manufacture, use or sale of the product described in its ANDA submissions. Our patents cover extended-release formulations containing guanfacine
hydrochloride, with the latest patent expiration in 2022. Both of these patents are licensed to Shire&nbsp;plc. We intend to support Shire&nbsp;plc in its efforts to contest this matter. </FONT></DD></DL>
</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>18</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Unless
a court determines that our patents are invalid or unenforceable, we do not expect an adverse decision in any of the foregoing matters will have a material adverse effect on our
business as we have monetized the future revenues associated with each of Sanctura XR, Oracea and Intuniv. However, in any infringement proceeding including the foregoing, a court may decide that a
patent of ours is not valid or is unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An
adverse result in any litigation or defense proceedings could put one or more of our patents at risk of being invalidated or interpreted narrowly and could put our patent application at risk of not
issuing. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interference
proceedings brought by the U.S. Patent and Trademark Office, or USPTO, may be necessary to determine the priority of inventions with respect to our patents and patent
applications or those of our collaborators. An unfavorable outcome could require us to cease using the technology or to attempt to license rights to it from the prevailing party. Our business could be
harmed if a prevailing party does not offer us a license on terms that are acceptable to us. Litigation or interference proceedings may fail and, even if successful, may result in substantial costs
and distraction of our management and other employees. We may not be able to prevent, alone or with our collaborators, misappropriation of our proprietary rights, particularly in countries where the
laws may not protect those rights as fully as in the United States. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Furthermore,
because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could
be compromised by disclosure during this type of litigation. In addition, there could be public announcements of the results of hearings, motions or other interim proceeding or developments. If
securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock. There can be no assurance that our product
candidate will not be subject to same risks. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> The commercial success of our product candidates, if approved, depends upon attaining market acceptance by physicians, patients, third party payors and the medical
community.  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Even if our product candidates are approved for sale by the appropriate regulatory authorities, physicians may not prescribe our
approved product candidates, in which case we would not generate the revenues we anticipate. Market acceptance of any of our product candidates by physicians, patients, third party payors and the
medical community depends on, among other things: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>our ability to provide acceptable evidence of safety and efficacy;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>acceptance by physicians and patients of each product candidate as a safe and effective treatment; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>perceived advantages of our product candidates over alternative treatments;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>relative convenience and ease of administration of our product candidates compared to existing treatments; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>any labeling restrictions placed upon each product candidate in connection with its approval;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the prevalence and severity of the adverse side effects of each of our product candidates;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the clinical indications for which each of our product candidates is approved, including any potential additional
restrictions placed upon each product candidate in connection with its approval;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>prevalence of the disease or condition for which each product candidate is approved;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the cost of treatment in relation to alternative treatments, including generic products; </FONT></DD></DL>
</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>19</FONT></P>

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<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the extent to which each product is approved for inclusion on formularies of hospitals and managed care organizations; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>any negative publicity related to our or our competitors' products, including as a result of any related adverse side
effects;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the effectiveness of our or any current or future collaborators' sales, marketing and distribution strategies; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>pricing and cost effectiveness; and  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the availability of adequate reimbursement by third parties. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
example, new AEDs that were introduced in the market as new chemical entities, or NCEs, historically have not quickly gained significant market share against existing molecules in
the epilepsy market, because physicians are often reluctant to change a stable patient's existing therapy (even for a NCE) and risk a breakthrough seizure in their patients. Although our epilepsy
product candidates are not NCEs, if approved, they would be subject to the risk that they will not be able to gain significant market share against existing AEDs. If our product candidates do not
achieve an adequate level of acceptance by physicians, third-party payors and patients, we may not generate sufficient revenues from these product candidates to become or remain profitable on a timely
basis, if at all. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> Even if our product candidates receive regulatory approval, they may be subject to restrictions or withdrawal from the market and we may be subject to penalties if we fail
to comply with regulatory requirements.  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Even if U.S. regulatory approval is obtained, the FDA may still impose significant restrictions on a product's indicated uses or
marketing or impose ongoing requirements for potentially costly post-approval studies. Our product candidates would also be, and our collaborators' approved products are, subject to
ongoing FDA requirements governing the labeling, packaging, storage, advertising, promotion, recordkeeping and submission of safety and other post-market information. In addition,
manufacturers of drug products and their facilities are subject to continual review and periodic inspections by the FDA and other regulatory authorities for compliance with current good manufacturing
practices, or GMP, regulations. If we, our collaborators or a regulatory authority discovers previously unknown problems with a product, such as side effects of unanticipated severity or frequency, or
problems with the facility where the product is manufactured, a regulatory authority may impose restrictions on that product or the manufacturer, including requiring withdrawal of the product from the
market or suspension of manufacturing. If we, our collaborators, our collaborators' approved products or our product candidates, or the manufacturing facilities for our collaborators' approved
products or our product candidates fail to comply with applicable regulatory requirements, a regulatory authority may: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>issue warning letters or untitled letters;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>impose civil or criminal penalties;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>suspend regulatory approval;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>suspend any ongoing bioequivalence and/or clinical trials;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>refuse to approve pending applications or supplements to applications filed by us;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>impose restrictions on operations, including costly new manufacturing requirements, or suspension of production; or </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>seize or detain products or require us to initiate a product recall. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition, if any of our product candidates are approved, our product labeling, advertising and promotion would be subject to regulatory requirements and continuing regulatory review.
The FDA strictly regulates the promotional claims that may be made about prescription products. In particular, a </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>20</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>product
may not be promoted for uses that are not approved by the FDA as reflected in the product's approved labeling. If we receive marketing approval for our product candidates, physicians may
nevertheless prescribe our product candidates to their patients in a manner that is inconsistent with the approved label. The FDA and other authorities actively enforce the laws and regulations
prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant sanctions. The federal
government has levied large civil and criminal fines against companies for alleged improper promotion and has enjoined several companies from engaging in off-label promotion. If we are
found to have promoted off-label uses, we may be enjoined from such off-label promotion and become subject to significant liability, which would have an adverse effect on our
reputation, business and revenues, if any. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> If we fail to produce our product candidates in the volumes that we require on a timely basis, or fail to comply with stringent regulations applicable to pharmaceutical drug
manufacturers, we may face delays in the development and commercialization of our product candidates.  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As we do not currently own or operate manufacturing facilities for the commercial production of any of our product candidates, we
currently depend on third-party contract manufacturers for the supply of the active pharmaceutical ingredients for our product candidates, including drug substance and final product. Any future
curtailment in the availability of raw materials could result in production or other delays with consequent adverse effects on us. In addition, because regulatory authorities must generally approve
raw material sources for pharmaceutical products, changes in raw material suppliers may result in production delays or higher raw material costs. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
manufacture of pharmaceutical products requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls.
Pharmaceutical companies often encounter difficulties in production, particularly in scaling up production, of their products. These problems include manufacturing difficulties relating to production
costs and yields, quality control, including stability of the product and quality assurance testing, shortages of qualified personnel, as well as compliance with federal, state and foreign
regulations. If we are unable to demonstrate stability in accordance with commercial requirements, or if our manufacturers were to encounter difficulties or otherwise fail to comply with their
obligations to us, our ability to obtain FDA approval and market our product candidates would be jeopardized. In addition, any delay or interruption in the supply of clinical trial supplies could
delay or prohibit the completion of our bioequivalence and/or clinical trials, increase the costs associated with conducting our bioequivalence and/or clinical trials and, depending upon the period of
delay, require us to commence new trials at significant additional expense or to terminate a trial. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Manufacturers
of pharmaceutical products need to comply with GMP requirements enforced by the FDA through their facilities inspection programs. These requirements include, among other
things, quality control, quality assurance and the maintenance of records and documentation. Manufacturers of our product candidates may be unable to comply with these GMP requirements and with other
FDA and foreign regulatory requirements. A failure to comply with these requirements may result in fines and civil penalties, suspension of production, suspension or delay in product approval, product
seizure or recall, or withdrawal of product approval. If the safety of any of our product candidates is compromised due to failure to adhere to applicable laws or for other reasons, we may not be able
to obtain regulatory approval for such product candidate or successfully commercialize such product candidate, and we may be held liable for any injuries sustained as a result. Any of these factors
could cause a delay in clinical developments, regulatory submissions, approvals or commercialization of our product candidates, entail higher costs or result in our being unable to effectively
commercialize our product candidates. Furthermore, if we fail to obtain the required commercial quantities on a timely basis and at commercially reasonable prices, we may be unable to meet demand for
our approved product candidates, if any, and would lose potential revenues. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>21</FONT></P>

<HR NOSHADE>
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<P style="font-family:times;"><FONT SIZE=2><B><I> We depend on collaborators to work with us to develop, manufacture and commercialize their and our product candidates.  </I></B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have a license agreement with United Therapeutics to use one of our proprietary technologies for an oral formulation of treprostinil
diethanolamine, or treprostinil, for the treatment of pulmonary arterial hypertension, or PAH, as well as for other indications. This oral formulation is currently being evaluated by United
Therapeutics in Phase&nbsp;III trials for PAH. If United Therapeutics receives approval to market and sell this product candidate, we are entitled to receive single digit gross royalties based on
worldwide net sales. We are also entitled to receive milestones and royalties for use of this formulation in other indications. If we materially breach any of our obligations under the license
agreement, however, we could lose the potential to receive any future royalty payments thereunder, which could be financially significant to us. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition, we may enter into additional collaborations in the future. Our future collaboration agreements may have the effect of limiting the areas of research and development that we
may pursue, either alone or in collaboration with third parties. Much of the potential revenues from these future collaborations may consist of contingent payments, such as payments for achieving
development milestones and royalties payable on sales of developed products. The milestone and royalty revenues that we may receive under these collaborations will depend upon our collaborators'
ability to successfully develop, introduce, market and sell new products. Future collaboration partners may fail to develop or effectively commercialize products using our product candidates or
technologies because they, among other things: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>may change the focus of their development and commercialization efforts or may have insufficient resources to effectively
develop our product candidates. Pharmaceutical and biotechnology companies historically have re-evaluated their development and commercialization priorities following mergers and
consolidations, which have been common in recent years in these industries. The ability of some of our product candidates to reach their potential could be limited if our future collaborators decrease
or fail to increase development or commercialization efforts related to those product candidates;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>may decide not to devote the necessary resources due to internal constraints, such as limited personnel with the requisite
scientific expertise or limited cash resources, or the belief that other drug development programs may have a higher likelihood of obtaining marketing approval or may potentially generate a greater
return on investment;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>may develop and commercialize, either alone or with others, drugs that are similar to or competitive with the product
candidates that are the subject of their collaborations with us;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>may not have sufficient resources necessary to carry the product candidate through clinical development, marketing
approval and commercialization;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>may fail to comply with applicable regulatory requirements;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>may not be able to obtain the necessary marketing approvals; or  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>may breach or terminate their arrangement with us. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
collaboration partners fail to develop or effectively commercialize our product candidates for any of these reasons, we may not be able to replace the collaboration partner with
another partner to develop and commercialize the product candidate under the terms of the collaboration. Further, even if we are able to replace the collaboration partner, we may not be able to do so
on commercially favorable terms. As a result, the development and commercialization of the affected product candidate could be delayed, curtailed or terminated because we may not have sufficient
financial resources or capabilities to continue development and commercialization of the product candidate on our own, which could adversely affect our results of operations. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>22</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2><B><I> We rely and will continue to rely on outsourcing arrangements for certain of our activities, including clinical research of our product candidates and manufacturing of our
compounds and product candidates for our preclinical research and clinical trials.  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We rely on outsourcing arrangements for some of our activities, including manufacturing, preclinical and clinical research, data
collection and analysis. We may have limited control over these third parties and we cannot guarantee that they will perform their obligations in an effective and timely manner. Our reliance on third
parties, including third-party CROs, and contract manufacturing organizations, or CMOs, entails risks including, but not limited to: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>non-compliance by third parties with regulatory and quality control standards;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>sanctions imposed by regulatory authorities if compounds supplied or manufactured by a third party supplier or
manufacturer fail to comply with applicable regulatory standards;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the possible breach of the agreements by the CROs or CMOs because of factors beyond our control or the insolvency of any
of these third parties or other financial difficulties, labor unrest, natural disasters or other factors adversely affecting their ability to conduct their business; and  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>termination or non-renewal of an agreement by the third parties, at a time that is costly or inconvenient for
us, because of our breach of the manufacturing agreement or based on their own business priorities. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
do not own or operate manufacturing facilities for the production of any of our product candidates, nor do we have plans to develop our own manufacturing operations in the foreseeable
future. We currently depend on third-party contract manufacturers for all of our required raw materials, drug substance and drug product for our preclinical research and clinical trials. For
SPN-538 and Epliga, we are currently relying on single suppliers for raw materials including drug substance and single manufacturers for the final product. If any of these vendors is
unable to perform its obligations to us, including due to violations of the FDA's requirements, our ability to meet regulatory requirements or projected timelines and necessary quality standards for
successful manufacturing of the various required lots of material for our development and commercialization efforts would be adversely affected. Further, if we were required to change vendors, it
could result in delays in our regulatory approval efforts and significantly increase our costs. Accordingly, the loss of any of our current or future third-party manufacturers or suppliers could have
a material adverse effect on our business, results of operations, financial condition and prospects. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
do not have any current contractual relationships for the manufacture of commercial supplies of any of our product candidates. In connection with any approval, we intend to enter into
agreements with third-party contract manufacturers for the commercial production of those products. The number of third-party manufacturers with the expertise, required regulatory approvals and
facilities to manufacture bulk drug substance on a commercial scale is limited. Therefore, we may not be able to enter into such arrangements with third-party manufacturers in a timely manner, on
acceptable terms or at all. Failure to secure such contractual arrangements would harm the commercial prospects for our product candidates, our costs could increase and our ability to generate
revenues could be delayed. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> We have in-licensed or acquired a portion of our intellectual property necessary to develop certain of our psychiatry product candidates, and if we fail to
comply with our obligations under any of these arrangements, we could lose such intellectual property rights.  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are a party to and rely on several arrangements with third parties, such as those with Afecta Pharmaceuticals,&nbsp;Inc., or
Afecta, and Rune Healthcare Limited, or Rune, which give us rights to intellectual property that is necessary for the development of certain of our product candidates including SPN-810 and
SPN-809, respectively. In addition, we may enter into similar arrangements in the future. Our current arrangements impose various development, royalty and other obligations on us. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>23</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>If
we materially breach these obligations or if Afecta or Rune fail to adequately perform their respective obligations, these exclusive arrangements could be terminated, which would result in our
inability to develop, manufacture and sell products that are covered by such intellectual property. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> Even if our product candidates receive regulatory approval in the United States, we or our collaborators may never receive approval to commercialize our product candidates
outside of the United States.  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In order to market any products outside of the United States, we must establish and comply with numerous and varying regulatory
requirements of other jurisdictions regarding safety and efficacy. Approval procedures vary among jurisdictions and can involve product testing and administrative review periods different from, and
greater than, those in the United States. The time required to obtain approval in other jurisdictions might differ from that required to obtain FDA approval. The regulatory approval process in other
jurisdictions may include all of the risks detailed above regarding FDA approval in the United States as well as other risks. For example, legislation analogous to Section&nbsp;505(b)(2) of the FDCA
in the United States, which relates to the ability of an NDA applicant to use published data not developed by such applicant, may not exist in other countries. In territories where data is not freely
available, we may not have the ability to commercialize our products without negotiating rights from third parties to refer to their clinical data in our regulatory applications, which could require
the expenditure of significant additional funds. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition, regulatory approval in one jurisdiction does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one jurisdiction may have
a negative effect on the regulatory processes in others. Failure to obtain regulatory approvals in other jurisdictions or any delay or setback in obtaining such approvals could have the same adverse
effects detailed above regarding FDA approval in the United States. As described above, such effects include the risks that any of our product candidates may not be approved for all indications
requested, which could limit the uses of our product candidates and have an adverse effect on their commercial potential or require costly post-marketing studies. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> Guidelines and recommendations published by various organizations can reduce the use of our product candidates.  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Government agencies promulgate regulations and guidelines directly applicable to us and to our product candidates. In addition,
professional societies, practice management groups, private health and science foundations and organizations involved in various diseases from time to time may also publish guidelines or
recommendations to the health care and patient communities. Recommendations of government agencies or these other groups or organizations may relate to such matters as usage, dosage, route of
administration and use of concomitant therapies. Recommendations or guidelines suggesting the reduced use of our product candidates or the use of competitive or alternative products that are followed
by patients and health care providers could result in decreased use of our product candidates. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> We are subject to uncertainty relating to payment or reimbursement policies which, if not favorable for our product candidates, could hinder or prevent our commercial
success.  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our ability or our collaborators' ability to commercialize our product candidates, including SPN-538 and Epliga, successfully will
depend in part on the coverage and reimbursement levels set by governmental authorities, private health insurers, managed care organizations and other third-party payors. As a threshold for coverage
and reimbursement, third-party payors generally require that drug products have been approved for marketing by the FDA. Third-party payors also are increasingly challenging the effectiveness of and
prices charged for medical products and services. Government authorities and these third-party payors have attempted to control costs, in some instances, by limiting coverage and the amount of
reimbursement for particular medications or encouraging the use of </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>24</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>lower-cost
generic AEDs. We cannot be sure that reimbursement will be available for any of the products that we develop and, if reimbursement is available, the level of reimbursement.
Reduced or partial payment or reimbursement coverage could make our product candidates, including SPN-538 and Epliga, less attractive to patients and prescribing physicians. We also may be
required to sell our product candidates at a discount, which would adversely affect our ability to realize an appropriate return on our investment in our product candidates or compete on price. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
expect that private insurers and managed care organizations will consider the efficacy, cost effectiveness and safety of our product candidates, including SPN-538 and Epliga, in
determining whether to approve reimbursement for such product candidates and at what level. Because each third-party payor individually approves payment or reimbursement, obtaining these approvals can
be a time consuming and expensive process that could require us to provide scientific or clinical support for
the use of each of our product candidates separately to each third-party payor. In some cases it could take several months or years before a particular private insurer or managed care organization
reviews a particular product, and we may ultimately be unsuccessful in obtaining coverage. Our competitors generally have larger organizations, as well as existing business relationships with
third-party payors relating to their products. Our business would be materially adversely affected if we do not receive approval for reimbursement of our product candidates from private insurers on a
timely or satisfactory basis. Our approved product candidates, if any, may not be considered cost-effective, and coverage and reimbursement may not be available or sufficient to allow us
to sell our product candidates on a profitable basis. Our business would also be adversely affected if private insurers, managed care organizations, the Medicare program or other reimbursing bodies or
payors limit the indications for which our product candidates will be reimbursed to a smaller set than we believe they are effective in treating. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
some foreign countries, particularly Canada and the countries of Europe, the pricing of prescription pharmaceuticals is subject to strict governmental control. In these countries,
pricing negotiations with governmental authorities can take six to 12&nbsp;months or longer after the receipt of regulatory approval and product launch. To obtain favorable reimbursement for the
indications sought or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidates to other available
therapies. If reimbursement for our product candidates is unavailable in any country in which reimbursement is sought, limited in scope or amount, or if pricing is set at unsatisfactory levels, our
business could be materially harmed. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition, many managed care organizations negotiate the price of products and develop formularies which establish pricing and reimbursement levels. Exclusion of a product from a
formulary can lead to its sharply reduced usage in the managed care organization's patient population. If our product candidates are not included within an adequate number of formularies or adequate
payment or reimbursement levels are not provided, or if those policies increasingly favor generic products, our market share and gross margins could be negatively affected, which would have a material
adverse effect on our overall business and financial condition. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
expect to experience pricing pressures due to the potential healthcare reforms discussed elsewhere in this prospectus, as well as the trend toward programs aimed at reducing health
care costs, the increasing influence of health maintenance organizations and additional legislative proposals. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> We face potential product liability exposure, and, if successful claims are brought against us, we may incur substantial liabilities.  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The use of our product candidates in clinical trials and the sale of any of our product candidates for which we may obtain marketing
approval expose us to the risk of product liability claims. Product liability claims might be brought against us by consumers, healthcare providers or others selling or otherwise coming into contact
with our product candidates. If we cannot successfully defend ourselves </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>25</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>against
product liability claims, we could incur substantial liabilities. In addition, product liability claims may result in: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>decreased demand for any product candidate that has received approval and is being commercialized; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>impairment of our business reputation and exposure to adverse publicity;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>withdrawal of bioequivalence and/or clinical trial participants;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>initiation of investigations by regulators;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>costs of related litigation;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>distraction of management's attention from our primary business;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>substantial monetary awards to patients or other claimants;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>loss of revenues; and  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the inability to commercialize any of our product candidates for which we obtain marketing approval. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
product liability insurance coverage for our clinical trials is limited to $5&nbsp;million per occurrence, and $10&nbsp;million in the aggregate, and covers bodily injury and
property damage arising from our clinical trials, subject to industry-standard terms, conditions and exclusions. Our insurance coverage may not be sufficient to reimburse us for any expenses or losses
we may suffer. Moreover, insurance coverage is becoming increasingly expensive, and, in the future, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to
protect us against losses. If and when we obtain marketing approval for any of our product candidates, we intend to expand our insurance coverage to include the sale of commercial products; however,
we may be unable to obtain this product liability insurance on commercially reasonable terms. On occasion, large judgments have been awarded in class action lawsuits based on drugs that had
unanticipated side effects. A successful product liability claim or series of claims brought against us could cause our stock price to decline and, if judgments exceed our insurance coverage, could
decrease our cash and adversely affect our business. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> Our failure to successfully develop and market product candidates would impair our ability to grow.  </I></B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As part of our growth strategy, we intend to develop and market additional product candidates. We are pursuing various therapeutic
opportunities through our pipeline. We may spend several years completing our development of any particular current or future internal product candidate, and failure can occur at any stage. The
product candidates to which we allocate our resources may not end up being successful. In addition, because our internal research capabilities are limited, we may be dependent upon pharmaceutical
companies, academic scientists and other researchers to sell or license products or technology to us. The success of this strategy depends partly upon our ability to identify, select, discover and
acquire promising pharmaceutical product candidates and products. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
process of proposing, negotiating and implementing a license or acquisition of a product candidate or approved product is lengthy and complex. Other companies, including some with
substantially
greater financial, marketing and sales resources, may compete with us for the license or acquisition of product candidates and approved products. We have limited resources to identify and execute the
acquisition or in-licensing of third-party products, businesses and technologies and integrate them into our current infrastructure. Moreover, we may devote resources to potential
acquisitions or in-licensing opportunities that are never completed, or we may fail to realize the anticipated benefits of such efforts. We may not be able to acquire the rights to
additional product candidates on terms that we find acceptable, or at all. </FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, future acquisitions may entail numerous operational and financial risks, including: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>exposure to unknown liabilities;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>disruption of our business and diversion of our management's time and attention to develop acquired products or
technologies;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>incurrence of substantial debt, dilutive issuances of securities or depletion of cash to pay for acquisitions; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>higher than expected acquisition and integration costs;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>difficulty in combining the operations and personnel of any acquired businesses with our operations and personnel; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>increased amortization expenses;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>impairment of relationships with key suppliers or customers of any acquired businesses due to changes in management and
ownership; and  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>inability to motivate key employees of any acquired businesses. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Further,
any product candidate that we acquire may require additional development efforts prior to commercial sale, including extensive clinical testing and approval by the FDA and
applicable foreign regulatory authorities. All product candidates are prone to risks of failure typical of pharmaceutical product development, including the possibility that a product candidate will
not be shown to be sufficiently safe and effective for approval by regulatory authorities. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> Healthcare reform measures could hinder or prevent our product candidates' commercial success.  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The U.S. government and other governments have shown significant interest in pursuing healthcare reform. Any government-adopted reform
measures could adversely impact the pricing of healthcare products and services in the United States or internationally and the amount of reimbursement available from governmental agencies or other
third party payors. The continuing efforts of the U.S. and foreign governments, insurance companies, managed care organizations and other payors of health care services to contain or reduce healthcare
costs may adversely affect our ability to set prices for any approved product candidate which we believe are fair, and our ability to generate revenues and achieve and maintain profitability. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
both the United States and some foreign jurisdictions, there have been a number of legislative and regulatory proposals and initiatives to change the health care system in ways that
could affect our ability to sell any approved product candidate profitably. Some of these proposed and implemented reforms could result in reduced reimbursement rates for our potential products, which
would adversely affect our business strategy, operations and financial results. For example, in March 2010, President Obama signed into law a legislative overhaul of the U.S. healthcare system, known
as the Patient Protection and Affordable Care Act of 2010, as amended by the Healthcare and Education Affordability Reconciliation Act of 2010. This law, which we refer to as the PPACA, may have far
reaching consequences for biopharmaceutical companies like us. As a result of this new legislation, substantial changes could be made to the current system for paying for healthcare in the United
States, including changes made in order to extend medical benefits to those who currently lack insurance coverage. Extending coverage to a large population could substantially change the structure of
the health insurance system and the methodology for reimbursing medical services and drugs. These structural changes could entail modifications to the existing system of private payors and government
programs, such as Medicare and Medicaid, creation of a government-sponsored healthcare insurance source, or some combination of both, as well as other changes. Restructuring the coverage of medical
care in the United States could impact the reimbursement for prescribed drugs, including our product </FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>candidates.
If reimbursement for our approved product candidates, if any, is substantially less that we expect in the future, or rebate obligations associated with them are substantially increased,
our business could be materially and adversely impacted. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
September 2007, the Food and Drug Administration Amendments Act of 2007 was enacted, giving the FDA enhanced post-marketing authority, including the authority to require
post-marketing studies and clinical trials, labeling changes based on new safety information, and compliance with risk evaluations and mitigation strategies approved by the FDA. The FDA's
exercise of this authority could result in delays or increased costs during product development, clinical trials and regulatory review, increased costs to assure compliance with
post-approval regulatory requirements, and potential restrictions on the sale and/or distribution of any approved product candidates. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Future
federal and state proposals and health care reforms could limit the prices that can be charged for the product candidates that we develop and may further limit our commercial
opportunity. Our results of operations could be materially adversely affected by the PPACA by the possible effect of such current or future legislation on amounts that private insurers will pay and by
other health care reforms that may be enacted or adopted in the future. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> We will need to increase the size of our organization, and we may experience difficulties in managing growth.  </I></B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We will need to manage our anticipated growth and increased operational activity. Our personnel, systems and facilities currently in
place may not be adequate to support this future growth. Our need to effectively execute our growth strategy requires that we: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>manage our regulatory approval trials effectively;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>manage our internal development efforts effectively while complying with our contractual obligations to licensors,
licensees, contractors, collaborators and other third parties;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>develop internal sales and marketing capabilities;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>commercialize our product candidates;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>improve our operational, financial and management controls, reporting systems and procedures; and </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>attract and motivate sufficient numbers of talented employees. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
future growth could place a strain on our administrative and operational infrastructure and may require our management to divert a disproportionate amount of its attention away from
our day-to-day activities. We may not be able to effectively manage the
expansion of our operations or recruit and train additional qualified personnel, which may result in weaknesses in our infrastructure, give rise to operational mistakes, loss of business
opportunities, loss of employees and reduced productivity among remaining employees. We may not be able to make improvements to our management information and control systems in an efficient or timely
manner and may discover deficiencies in existing systems and controls. If our management is unable to effectively manage our expected growth, our expenses may increase more than expected, our ability
to generate or increase our revenues could be reduced and we may not be able to implement our business strategy. Our future financial performance and our ability to compete effectively will depend, in
part, on our ability to effectively manage any future growth. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> We may not be able to manage our business effectively if we are unable to attract and motivate key personnel or if we lose any of our current management team.  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We may not be able to attract or motivate qualified management and scientific and clinical personnel in the future due to the intense
competition for qualified personnel among biotechnology, </FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>pharmaceutical
and other businesses. Our industry has experienced a high rate of turnover of management personnel in recent years. If we are not able to attract and motivate necessary personnel to
accomplish our business objectives, we may experience constraints that will significantly impede the achievement of our objectives. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
are highly dependent on the development, regulatory, commercial and financial expertise of our management, particularly Jack A. Khattar, our President and Chief Executive Officer. We
do not have any employment agreements with any member of our senior management team except Mr.&nbsp;Khattar. Although no member of our management team has informed us to date that he or she intends
to resign or retire, if we lose any members of our management team in the future, we may not be able to find suitable replacements in a timely fashion, if at all, which may serve to impede the
achievement of our research, development and commercialization objectives. In addition to the competition for personnel, the greater Washington D.C. metropolitan area in particular is characterized by
a high cost of living. As such, we could have difficulty attracting experienced personnel to our company and may be required to expend significant financial resources in our employee recruitment
efforts. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
also have scientific and clinical advisors who assist us in formulating our product development and clinical strategies. These advisors are not our employees and may have commitments
to, or consulting or advisory contracts with, other entities that may limit their availability to us, or may have arrangements with other companies to assist in the development of products that may
compete with ours. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> We will need to obtain FDA approval of any proposed product names, and any failure or delay associated with such approval may adversely impact our business.  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any name we intend to use for our product candidates will require approval from the FDA regardless of whether we have secured a formal
trademark registration from the U.S. Patent and Trademark Office. The FDA typically conducts a review of proposed product names, including an evaluation of potential for confusion with other product
names. The FDA may object to any product name we submit if it believes the name inappropriately implies medical claims. We have in the past been required to change a proposed product name. If the FDA
objects to any of our proposed product names, we may be required to adopt an alternative name for our product candidates. If we adopt an alternative name, we would lose the benefit of our existing
trademark applications for such product candidate, and may be required to expend significant additional resources in an effort to identify a suitable product name that would qualify under applicable
trademark laws, not infringe the existing rights of third parties and be acceptable to the FDA. We may be unable to build a successful brand identity for a new trademark in a timely manner or at all,
which would limit our ability to commercialize our product candidates. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> If we fail to comply with healthcare regulations, we could face substantial penalties and our business, operations and financial condition could be adversely affected.  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As a manufacturer of pharmaceuticals, certain federal and state healthcare laws and regulations pertaining to fraud and abuse and
patients' rights are and will be applicable to our business. We could be subject to healthcare fraud and abuse and patient privacy regulation by both the federal government and the states in which we
conduct our business. The regulations include: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the federal healthcare program anti-kickback law, which prohibits, among other things, persons from
soliciting, receiving or providing remuneration, directly or indirectly, to induce either the referral of an individual, for an item or service or the purchasing or ordering of a good or service, for
which payment may be made under federal healthcare programs such as the Medicare and Medicaid programs; </FONT></DD></DL>
</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>29</FONT></P>

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<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>federal false claims laws which prohibit, among other things, individuals or entities from knowingly presenting, or
causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payors that are false or fraudulent, and which may apply to entities like us which provide coding and billing
advice to customers;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the federal Health Insurance Portability and Accountability Act of 1996, which prohibits executing a scheme to defraud any
healthcare benefit program or making false statements relating to healthcare matters and which also imposes certain requirements relating to the privacy, security and transmission of individually
identifiable health information;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the federal transparency requirements under the PPACA requires manufacturers of drugs, devices, biologics, and medical
supplies to report to the Department of Health and Human Services information related to physician payments and other transfers of value and physician ownership and investment interests; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the FDCA, which among other things, strictly regulates drug product marketing, prohibits manufacturers from marketing drug
products for off-label use and regulates the distribution of drug samples; and  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may
apply to items or services reimbursed by any third-party payor, including commercial insurers, and state laws governing the privacy and security of health information in certain circumstances, many of
which differ from each other in significant ways and often are not preempted by federal laws, thus complicating compliance efforts. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Efforts
to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations could be costly. If our operations are found to be in
violation of any of the laws described above or any governmental regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines and the
curtailment or restructuring of our operations. Any penalties, damages, fines, curtailment or restructuring of our operations could adversely affect our ability to operate our business and our
financial results. Although compliance programs can mitigate the risk of investigation and prosecution for violations of these laws, the risks cannot be entirely eliminated. Any action against us for
violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management's attention from the operation of our business.
Moreover, achieving and sustaining compliance with applicable federal and state privacy, security and fraud laws may prove costly. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> Our business involves the use of hazardous materials, and we must comply with environmental laws and regulations, which can be expensive and restrict how we do business.  </I></B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our activities and our third-party manufacturers' and suppliers' activities involve the controlled storage, use and disposal of
hazardous materials owned by us. We and our manufacturers and suppliers are subject to federal, state, city and local laws and regulations governing the use, manufacture, storage, handling and
disposal of these hazardous materials. Although we believe that the safety procedures we use for handling and disposing of these materials comply with the standards prescribed by these laws and
regulations, we cannot eliminate the risk of accidental contamination or injury from these materials. In the event of an accident, local, city, state or federal authorities may curtail the use of
these materials and interrupt our business operations, including our commercialization and research and development efforts. Although we believe that the safety procedures utilized by our third-party
manufacturers for handling and disposing of these materials generally comply with the standards prescribed by these laws and regulations, we cannot guarantee that this is the case or eliminate the
risk of accidental contamination or injury from these materials. In such an event, we may be held liable for any resulting damages and such liability could exceed our resources. We do not currently
maintain biological or hazardous materials insurance coverage. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>30</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2><B><I> Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by
governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and
other provisions during the patent process. There are situations in which noncompliance can result in abandonment or lapse of a patent or patent application, resulting in partial or complete loss of
patent rights in the relevant jurisdiction. In such an event, competitors might be able to enter the market earlier than would otherwise have been the case. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We employ individuals who were previously employed at other pharmaceutical companies, including our competitors or potential
competitors and, as such, we may be subject to claims that we or these employees have used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be
necessary to defend against these claims. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> Our business and operations would suffer in the event of system failures.  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Despite the implementation of security measures, our internal computer systems and those of our contractors and consultants are
vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. Such an event could cause interruption of our
operations. For example, the loss of trial data from completed or ongoing bioequivalence and/or clinical trials for our product candidates could result in delays in our regulatory approval efforts and
significantly increase our costs. To the extent that any disruption or security breach were to result in a loss of or damage to our data, or inappropriate disclosure of confidential or proprietary
information, we could incur liability and the development of our product candidates could be delayed. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> Provisions in our agreement with Shire impose restrictive covenants on us, which could limit our ability to operate effectively in the future.  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2005, we purchased substantially all of the assets of Shire Laboratories&nbsp;Inc. Pursuant to this agreement, we agreed to
perpetually refrain from engaging in any research, formulation development, analytical testing, manufacture, technology assessment or oral bioavailability screening that relate to five specific drug
compounds (amphetamine, carbamazepine, guanfacine, lanthanum and mesalamine) and any derivative thereof. In addition, we have agreed not to provide any services to, license any intellectual property
rights to, or otherwise perform any work for certain pharmaceutical companies primarily engaged in the development and marketing of generic products through 2012. Although these various restrictions
and covenants on us do not currently impact our product candidates or business, they could in the future limit or delay our ability to take advantage of business opportunities that may relate to such
compounds or such companies. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Risks Related to Our Finances and Capital Requirements  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> We have incurred significant operating losses since our inception and anticipate that we will incur continued losses for the foreseeable future.  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In recent years, we have focused primarily on developing our current product candidates, with the goal of supporting regulatory
approval for these product candidates. We have financed our operations primarily through private placements of convertible preferred stock, our collaboration and license </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>31</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>arrangements,
and non-recourse debt that is secured by our royalty rights related to sales of Oracea under our agreement with Galderma and our royalty rights related to sales of Sanctura
XR under our agreement with Allergan. We have incurred significant operating losses since our inception in 2005. We incurred net losses of approximately $17.3&nbsp;million and $33.5&nbsp;million
in the years ended December&nbsp;31, 2007 and 2008, respectively, and approximately $29.9&nbsp;million in the nine months ended September&nbsp;30, 2010. We incurred net income of approximately
$0.5&nbsp;million in the year ended December&nbsp;31, 2009. As of September&nbsp;30, 2010, we had an accumulated deficit of approximately $85.2&nbsp;million. Substantially all of our operating
losses resulted from costs incurred in connection with our development programs and from general and administrative costs associated with our operations. For example, the expenses that we have
incurred relating to the research and development of SPN-538 and Epliga from inception to September&nbsp;30, 2010 are approximately $18.2&nbsp;million and $35.4&nbsp;million,
respectively. We expect our research and development costs to continue to be substantial and to increase with respect to our product candidates as we advance those product candidates through
preclinical studies, clinical trials, manufacturing scale-up and other pre-approval activities. As a result, we expect to continue to incur significant and increasing operating
losses for the foreseeable future. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
prior losses, combined with expected future losses, have had and will continue to have an adverse effect on our stockholders' equity and working capital. Furthermore, upon the
closing of this offering, we expect to incur additional costs associated with operating as a public company. As a result, we expect to continue to incur significant and increasing operating losses for
the foreseeable future. Because of the numerous risks and uncertainties associated with developing pharmaceutical products, we are unable to predict the extent of any future losses or when, or if, we
will become profitable. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> We may need additional funding and may be unable to raise capital when needed, which would force us to delay, reduce or eliminate our product development programs or
commercialization efforts.  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Developing product candidates, conducting clinical trials, establishing manufacturing relationships and marketing drugs are expensive
and uncertain processes. Although it is difficult to predict future liquidity requirements, we believe that the net proceeds from this offering, together with our existing unrestricted cash, cash
equivalents and marketable securities and anticipated future product revenues will be sufficient to fund our operations for at least the next&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;months. We may need to obtain
additional
capital through equity offerings, debt financing and/or payments under new or existing licensing and research and development collaboration agreements. If sufficient funds on acceptable terms are not
available when needed, we could be required to significantly reduce operating expenses and delay, reduce the scope of, or eliminate one or more of our development programs, which may have a material
adverse effect on our business, results of operations and financial condition. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition, unforeseen circumstances may arise, or our strategic imperatives could change, causing us to consume capital significantly faster than we currently anticipate, requiring us
to seek to raise additional funds sooner than expected. We have no committed external sources of funds. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
amount and timing of our future funding requirements will depend on many factors, including, but not limited to: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the rate of progress and cost of our trials and other product development programs for our product candidates; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the costs and timing of in-licensing additional product candidates or acquiring other complementary companies; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the timing of any regulatory approvals of our product candidates;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the costs of establishing sales, marketing and distribution capabilities; and  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the status, terms and timing of any collaborative, licensing, co-promotion or other arrangements. </FONT></DD></DL>
</UL>
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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Additional
financing may not be available when we need it or may not be available on terms that are favorable to us. In addition, we may seek additional capital due to favorable market
conditions or strategic considerations, even if we believe we have sufficient funds for our current or future operating plans. If adequate funds are not available to us on a timely basis, or at all,
we may be required to delay, reduce the scope of or eliminate one or more of our development programs or our commercialization efforts. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> We have never generated any revenues from the sales of our own products, and we may never achieve or maintain profitability.  </I></B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our ability to become profitable depends upon our ability to generate revenues from sales of our product candidates. To date, we have
not generated any revenues from sales of our own product candidates and have incurred significant operating losses. Our historical revenues have been generated through fees for development services
and payment for the achievement of specified development, regulatory and sales milestones, as well as royalty, on product sales of Oracea, Sanctura XR and Intuniv licensed products. We have
non-recourse debt outstanding that is secured by our royalty rights related to sales of Oracea under our agreement with Galderma and our royalty rights related to sales of Sanctura XR
under our agreement with Allergan and we expect that all or substantially all of our future royalty revenues under these agreements will be used to satisfy this debt. In May 2009, we received a
one-time payment of approximately $36.9&nbsp;million from Shire&nbsp;plc as consideration for a royalty-free, fully paid-up license to Shire&nbsp;plc for
Intuniv. Accordingly, we will not receive any future royalties payments from Shire&nbsp;plc with respect to the net sales of Intuniv. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
ability to generate product revenues is dependent on our ability to receive regulatory approval of our product candidates, including SPN-538 and Epliga, and to
successfully commercialize these products. Our ability to successfully commercialize our product candidates depends on, among other things: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>our successful completion of ongoing and planned bioequivalence and clinical trials for our product candidates; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>our obtaining regulatory approvals for our product candidates, including SPN-538 and Epliga; and </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>if regulatory approvals are received, our manufacturing of commercial quantities of our product candidates at acceptable
cost levels. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Even
if any of our product candidates are approved for commercial sale, we anticipate incurring significant costs associated with commercialization. It is possible that we will never
have sufficient product sales revenues to achieve profitability. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> Our quarterly operating results may fluctuate significantly.  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We expect our operating results to be subject to quarterly fluctuations. Prior to commercializing any of our product candidates, we
expect that any revenues we generate will fluctuate from quarter to quarter as a result of the timing and amount of development and milestones and royalty revenues received under our collaboration
license agreements, as our revenues from these arrangements are principally based on the achievement of clinical and commercial milestones outside of our control. To date, we have monetized the future
royalties due to us from our existing license agreements for Oracea, Sanctura&nbsp;XR and Intuniv. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Once
we commercialize one or more of our product candidates, our net loss and other operating results will be affected by numerous factors, including: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>variations in the level of expenses related to our development programs; </FONT></DD></DL>
</UL>
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<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the success of our bioequivalence and clinical trials through all phases of clinical development; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>any delays in regulatory review and approval of product candidates in clinical development;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>potential side effects of our future products that could delay or prevent commercialization or cause an approved drug to
be taken off the market;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>any intellectual property infringement lawsuit in which we may become involved;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>our ability to establish an effective sales and marketing infrastructure;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>our dependency on third-party manufacturers to supply or manufacture our product candidates;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>competition from existing products or new products that may emerge;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>regulatory developments affecting our product candidates;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>our execution of any collaborative, licensing or similar arrangements, and the timing of payments we may make or receive
under these arrangements;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the achievement and timing of milestone payments under our existing collaboration and license agreements; and </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the level of market acceptance for any approved product candidates and underlying demand for that product and wholesalers'
buying patterns. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Due
to the various factors mentioned above, and others, the results of any prior quarterly periods should not be relied upon as an indication of our future operating performance. If our
quarterly operating results fall below the expectations of investors or securities analysts, the price of our common stock could decline substantially. Furthermore, any quarterly fluctuations in our
operating results may, in turn, cause the price of our stock to fluctuate substantially. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> Raising additional funds through borrowing or licensing arrangements may restrict our operations or require us to relinquish proprietary rights.  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We do not expect to be profitable in the near-term, if at all. Accordingly, we may need to raise additional funds through equity
offerings, debt financings and/or payments under new or existing licenses and research and development collaborations. If we seek to raise capital through debt financing, if available, such
transactions would result in increased fixed payment obligations and typically require covenants that restrict operating activities. Such restricted operating activities may include restrictions on
our ability to take specific actions such as incurring additional debt, making capital expenditures or declaring dividends. Any borrowings under debt financing will need to be repaid, which creates
additional financial risk, particularly if our business or prevailing financial market conditions are not conducive to paying-off or refinancing our outstanding debt obligations at
maturity. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
we raise additional funds through collaboration, licensing or other similar arrangements, it may be necessary to relinquish potentially valuable rights to our product candidates or
technologies, or to grant
licenses on terms that are not favorable to us. If adequate funds are not available when and if needed, our ability to achieve profitability or to respond to competitive pressures would be
significantly limited, and we may be required to delay, significantly curtail or eliminate one or more of our programs. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> We have operated as a private company and have no experience attempting to comply with public company obligations. Attempting to comply with these requirements will increase
our costs and require additional management resources, and we still may fail to comply.  </I></B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We will face increased legal, accounting, administrative and other costs and expenses as a public company. Compliance with the
Sarbanes-Oxley Act of 2002, the Dodd-Frank Act of 2010, as well as </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>34</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>rules
of the Securities and Exchange Commission and Nasdaq, for example, will result in significant initial cost to us as well as ongoing increases in our legal, audit and financial compliance costs.
The Exchange Act will require, among other things, that we file annual, quarterly and current reports with respect to our business and financial condition. Our management and other personnel will need
to devote a substantial amount of time to these compliance initiatives. Moreover, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and
officer liability insurance, and we may be required to incur substantial costs to maintain the same or similar coverage. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
a public company, we expect to become subject to Section&nbsp;404 of the Sarbanes-Oxley Act relating to internal controls over financial reporting. We expect to incur significant
expense and devote substantial management effort toward ensuring compliance with Section&nbsp;404. We currently do not have an internal audit group, and we will need to hire additional accounting
and financial staff with appropriate public company experience and technical accounting knowledge. Implementing any appropriate changes to our internal controls may require specific compliance
training for our directors, officers and employees, entail substantial costs to modify our existing accounting systems, and take a significant period of time to complete. Such changes may not,
however, be effective in maintaining the adequacy of our internal controls, and any failure to maintain that adequacy, or consequent inability to produce accurate consolidated financial statements or
other reports on a timely basis, could increase our operating costs and could materially impair our ability to operate our business. Although we have not identified any material weaknesses in our
internal controls over financial reporting to date, we cannot assure you that our internal controls over financial reporting will prove to be effective. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As a
result, stockholders could lose confidence in our financial and other public reporting, which would harm our business and the trading price of our common stock.  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and, together with
adequate disclosure controls and procedures, are designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation could cause
us to fail to meet our reporting obligations. In addition, any testing by us conducted in connection with Section&nbsp;404 of the Sarbanes-Oxley Act, or the subsequent testing by our independent
registered public accounting firm, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive
changes to our consolidated financial statements or identify other areas for further attention or improvement. Inferior internal controls could also cause investors to lose confidence in our reported
financial information, which could have a negative effect on the trading price of our common stock. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> Our ability to use net operating loss and tax credit carryforwards and certain built-in losses to reduce future tax payments is limited by provisions of the
Internal Revenue Code, and may be subject to further limitation as a result of the transactions contemplated by this offering.  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, contain rules that limit the ability of a
company that undergoes an ownership change, which is generally any change in ownership of more than 50% of its stock over a three-year period, to utilize its net operating loss and tax
credit carryforwards and certain built-in losses recognized in years after the ownership change. These rules generally operate by focusing on ownership changes involving stockholders
owning directly or indirectly 5% or more of the stock of a company and any change in ownership arising from a new issuance of stock by the company. Generally, if an ownership change occurs, the yearly
taxable income limitation on the use of net operating loss and tax credit carryforwards and certain built-in losses is equal to the product of the applicable long term tax exempt rate and
the value of the </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>35</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>company's
stock immediately before the ownership change. We may be unable to offset our taxable income with losses, or our tax liability with credits, before such losses and credits expire and
therefore would incur larger federal income tax liability. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition, it is possible that the transactions described in this offering, either on a standalone basis or when combined with future transactions, including issuances of new shares of
our common stock, will cause us to undergo one or more additional ownership changes. In that event, we generally would not be able to use our pre-change loss or credit carryovers or
certain built-in
losses prior to such ownership change to offset future taxable income in excess of the annual limitations imposed by Sections&nbsp;382 and 383 and those attributes already subject to limitations as
a result of our prior ownership changes may be subject to more stringent limitations. As of December&nbsp;31, 2009, we had approximately $54.1&nbsp;million of federal net operating loss
carryforwards. We also had federal and state research and development tax credit carryforwards of approximately $3.1&nbsp;million available to offset future taxable income. These federal and state
net operating loss and federal and state tax credit carryforwards will begin to expire at various dates beginning in 2025, if not utilized. We have not completed a study to assess whether an ownership
change has occurred, or whether there have been multiple ownership changes since our inception, due to the significant costs and complexities associated with such study. Accordingly, our ability to
utilize the aforementioned carryforwards and tax credits may be limited. As a result, we may not be able to take full advantage of these carryforwards or tax credits for federal and state tax
purposes. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> Royalties under our agreement with Endo Pharmaceuticals and Galderma may not be sufficient for our subsidiary to meet its payment obligations under the
non-recourse notes.  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;While our subsidiary, TCD Royalty Sub&nbsp;LLC, or Royalty Sub, will be entitled to receive the royalties related to the sales of
Santura XR under our agreement with Endo Pharmaceuticals as successor-in-interest to Indevus Pharmaceuticals,&nbsp;Inc. and its marketing partner, Allergan, Inc., and the
royalties related to the sales of Oracea under our agreement with Galderma Pharma&nbsp;S.A., as successor-in-interest to CollaGenex Pharmaceuticals,&nbsp;Inc., such
royalties may not be sufficient for it to meet its payment obligations under the non-recourse notes issued by Royalty Sub. As a result, Royalty Sub will be dependent on Allergan's and
Galderma's respective sales and marketing efforts to receive royalties in sufficient amounts to meet its payment obligations. Any royalty modifications could result in Royalty Sub receiving
significantly reduced or no royalties under the license agreements with Endo Pharmaceuticals and Galderma Pharma&nbsp;S.A., which would delay repayment of the non-recourse notes. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B><I> In certain circumstances we could be required to pay damages if we fail to perform our obligations in connection with the non-recourse notes issued by Royalty Sub and we may
lose the potential to receive future royalty payments after the non-recourse notes are repaid in full.  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In April 2008, Royalty Sub issued $75.0&nbsp;million in aggregate principal amount of non-recourse notes, which are
secured principally by royalty payments from future sales of Sanctura XR and Oracea, and by a pledge by us of all the outstanding equity interest in Royalty Sub. If the royalty payments from Sanctura
XR and Oracea are insufficient to repay the non-recourse notes or if an event of default occurs under the indenture governing the non-recourse notes, in certain circumstances,
the royalty payments and our equity interest in Royalty Sub may be foreclosed upon and we would lose the potential to receive any future royalty payments, which could be financially significant after
the non-recourse notes are repaid in full. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition, if we fail to perform our obligations under the purchase and sale agreement with Royalty Sub we may be required to indemnify Royalty Sub for damages arising due to such
failure. For example, pursuant to this agreement, we have an obligation to use commercially reasonable efforts to preserve, maintain, and maximize the commercial value of our licensed patents covering
Sanctura XR and Oracea, which includes the obligation to pay patent office maintenance fees in order to keep these </FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>patents
in force. If we fail to pay such patent office maintenance fees, these patents may expire and the royalty stream from such patents may terminate. In such a scenario, we may be called upon to
pay damages to Royalty Sub due to the loss of patent licensing revenue that Royalty Sub would have received from the sale of Santura XR and Oracea. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Risks Related to Securities Markets and Investment in Our Stock  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> The concentration of our capital stock ownership with our founders, directors, executives, employees and current holders of our preferred stock (and their affiliates) will
limit your ability to influence certain corporate matters.  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Upon completion of this offering and after giving effect to the conversion of the Series&nbsp;A convertible preferred stock into
common stock, the current holders of our preferred stock will, in the aggregate, beneficially own&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;% of our outstanding common stock (or approximately&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;% if
the underwriters
exercise their over-allotment option in full). As a result, these stockholders will collectively be able to significantly influence and may be able to control all matters requiring
approval of our stockholders, including the election of directors and approval of significant corporate transactions such as mergers, consolidations or the sale of all or substantially all of our
assets. The concentration of ownership may delay, prevent or deter a change in control of our company even when such a change may be in the best interests of some stockholders, impede a merger,
consolidation, takeover or other business combination involving us, or could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company or
our assets and might adversely affect the prevailing market price of our common stock. Participation in this offering by existing holders of our Series&nbsp;A convertible preferred stock will
further concentrate voting rights and may negatively impact liquidity for shares of our common stock. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> Anti-takeover provisions under our charter documents and Delaware law could delay or prevent a change of control which could negatively impact the market price
of our common stock.  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Provisions in our certificate of incorporation and bylaws, as amended and restated upon the completion of this offering, may have the
effect of delaying or preventing a change of control. These provisions include the following: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Our board of directors is divided into three classes serving staggered three-year terms, such that not all
members of the board will be elected at one time. This staggered board structure prevents stockholders from replacing the entire board at a single stockholders' meeting.  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Our board of directors has the right to elect directors to fill a vacancy created by the expansion of the board of
directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors.  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Our board of directors may issue, without stockholder approval, shares of preferred stock. The ability to authorize
preferred stock makes it possible for our board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to acquire us. </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Stockholders must provide advance notice to nominate individuals for election to the board of directors or to propose
matters that can be acted upon at a stockholders' meeting. Furthermore, stockholders may only remove a member of our board of directors for cause. These provisions may discourage or deter a potential
acquiror from conducting a solicitation of proxies to elect such acquiror's own slate of directors or otherwise attempting to obtain control of our company.  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Our stockholders may not act by written consent. As a result, a holder, or holders, controlling a majority of our capital
stock would not be able to take certain actions outside of a stockholders' meeting. </FONT></DD></DL>
</UL>
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<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Special meetings of stockholders may be called only by the chairman of our board of directors, our chief executive
officer, our president or a majority of our board of directors. As a result, a holder, or holders, controlling a majority of our capital stock would not be able to call a special meeting. </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>A majority of the outstanding shares of common stock are required to amend our certificate of incorporation and a super
majority (75%) of the outstanding shares of common stock are required to amend our by-laws, which make it more difficult to change the provisions described above. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition, we are governed by the provisions of Section&nbsp;203 of the Delaware General Corporation Law, which may prohibit certain business combinations with stockholders owning
15% or more of our outstanding voting stock. These and other provisions in our certificate of incorporation, our bylaws and in the Delaware General Corporation Law could make it more difficult for
stockholders or potential acquirers to obtain control of our board of directors or initiate actions that are opposed by the then-current board of directors. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B><I> There may not be a viable public market for our common stock.  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prior to this offering, there has been no public market for our common stock, and a regular trading market may not develop and continue
after this offering. Furthermore, the market price of our common stock may decline below the initial public offering price. The initial public offering price has been determined through negotiations
between us and the representatives of the underwriters and may not be indicative of the market price of our common stock following this offering. Among the factors considered in such negotiations were
prevailing market conditions, certain of our financial information, market valuations of other companies that we and the representatives of the underwriters believed were comparable to us, estimates
of our business potential and the present state of our business. See "Underwriting" for additional information. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
you purchase shares of our common stock, you may not be able to resell those shares at or above the initial public offering price. We cannot predict the extent to which investor
interest in our company will lead to the development of an active trading market on the Nasdaq Global Market or otherwise or how liquid that market might become. An active public market for our common
stock may not develop or be sustained after the offering. If an active public market does not develop or is not sustained, it may be difficult for you to sell your shares of common stock at a price
that is attractive to you, or at all. Further, an inactive market may also impair our ability to raise capital by selling shares of our common stock and may impair our ability to enter into strategic
partnerships or acquire companies or products, product candidates or technologies by using our shares of common stock as consideration. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> As a new investor, you will experience immediate and substantial dilution in the net tangible book value of your shares.  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The initial public offering price of our common stock in this offering is considerably more than the net tangible book value per share
of our common stock. Investors purchasing shares of common stock in this offering will pay a price that substantially exceeds the value of our tangible assets after subtracting liabilities. As a
result, investors will, as of September&nbsp;30, 2010: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>incur immediate dilution of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share of common stock, based on the initial public offering price of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share of common stock; and  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>contribute&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;% of the total amount invested to date to fund our company based on the initial offering price of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share of common stock, but will own only&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;% of the outstanding shares of common stock after the offering. </FONT></DD></DL>
</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>38</FONT></P>

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<UL>
<UL>
</UL>
</UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> To the extent outstanding stock options are exercised, there will be further dilution to new investors.  </I></B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of September&nbsp;30, 2010, we had options to purchase 1,729,458 shares of common stock outstanding, with exercise prices ranging
from $0.10 to $1.76 per share and a weighted average exercise price of $0.48 per share. Upon the vesting of each of these options, the holder may exercise his or her options, which would result in
further dilution to investors. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> The price of our common stock may fluctuate substantially.  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Following this offering, the market price for our common stock is likely to be volatile, in part because our common stock has not been
previously traded publicly. In addition, the market price of our common stock may fluctuate significantly in response to a number of factors, including: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>plans for, progress in and results from clinical trials of our product candidates generally;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the results from our bioequivalence trials for SPN-538 and our bioequivalence and/or clinical trials,
including our current and planned Phase&nbsp;III clinical trials for Epliga;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>FDA or international regulatory actions, including actions on regulatory applications for any of our product candidates; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the commercial performance of any of our product candidates that receive marketing approval;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>announcements of new products, services or technologies, commercial relationships, acquisitions or other events by us or
our competitors;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>market conditions in the pharmaceutical and biotechnology sectors;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>fluctuations in stock market prices and trading volumes of similar companies;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>variations in our quarterly operating results;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>changes in accounting principles;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>litigation or public concern about the safety of our potential products;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>actual and anticipated fluctuations in our quarterly operating results;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>deviations in our operating results from the estimates of securities analysts;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>additions or departures of key personnel;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>sales of large blocks of our common stock, including sales by our executive officers, directors and significant
stockholders;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>any third-party coverage and reimbursement policies for our product candidates, and  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>discussion of us or our stock price in the financial or scientific press or in online investor communities. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
realization of any of the risks described in these "Risk Factors" could have a dramatic and material adverse impact on the market price of our common stock. In addition, class action
litigation has often been instituted against companies whose securities have experienced periods of volatility. Any such litigation brought against us could result in substantial costs and a diversion
of management attention, which could hurt our business, operating results and financial condition. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> Our management team may invest or spend the proceeds of this offering in ways with which you may not agree or in ways which may not yield a significant return, if any.  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The net proceeds from this offering will be used to fund the continued development, commercialization and research and development of
our product candidates and other general corporate purposes. Because of the number and variability of factors that will determine our use of the proceeds from the offering, their ultimate use may vary
substantially from their currently intended use. You will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. The net proceeds
may be used for corporate purposes that do not </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>39</FONT></P>

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<BR>

<P style="font-family:times;"><FONT SIZE=2>increase
our operating results or market value. Until the net proceeds are used, they may be placed in investments that do not produce significant income or investments that lose value. For a further
description of our intended use of the proceeds of this offering, see "Use of Proceeds." </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> Future sales of our common stock may depress our stock price.  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;While we do not currently anticipate making additional offers of common stock, such sales, or the perception in the market that the
holders of a large number of shares intend to sell shares, could reduce the market price of our common stock and impair out ability to raise adequate capital through the sale of additional equity
securities. Immediately after this offering, we will have outstanding&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of common stock, based on the
number of outstanding shares of common stock as of September&nbsp;30, 2010
and after giving effect to the conversion of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of our preferred stock outstanding as of
September&nbsp;30, 2010 into&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of our common stock at the completion
of this offering. Of these outstanding shares,&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares are being sold in this offering and will be freely
tradable immediately after this offering, except for shares purchased by
affiliates, and the remaining shares may be sold upon expiration of lock-up agreements 180&nbsp;days after the date of this offering. In addition, as of September&nbsp;30, 2010, we had
outstanding options to purchase 1,729,458 shares of common stock that, if exercised, will result in these additional shares becoming available for sale upon expiration of the lock-up
agreements. A large portion of these shares and options are held by a small number of persons and investment funds. Moreover, after this offering, the holders of shares of common stock will have
rights, subject to some conditions, to require us to file registration statements covering the shares they currently hold, or to include these shares in registration statements that we may file for
ourselves or other stockholders. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
also intend to register all common stock that we may issue under our 2005 Stock Plan. Effective upon the closing of this offering, an aggregate
of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of our common
stock will be reserved for future issuance under this plan. Once we register these shares, which we plan to do shortly after the closing of this offering, they can be freely sold in the public market
upon issuance, subject to the lock-up agreements referred to above. If a large number of these shares are sold in the
public market, the sales could reduce the trading price of our common stock. See "Shares Eligible for Future Sale" for a more detailed description of sales that may occur in the future. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> We have never paid dividends on our capital stock, and because we do not anticipate paying any cash dividends in the foreseeable future, capital appreciation, if any, of our
common stock will be your sole source of gain on an investment in our common stock.  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have paid no cash dividends on any of our classes of capital stock to date, and we currently intend to retain our future earnings,
if any, to fund the development and growth of our business. We do not anticipate paying any cash dividends on our common stock in the foreseeable future. As a result, capital appreciation, if any, of
our common stock will be your sole source of gain for the foreseeable future. There is no guarantee that shares of our common stock will appreciate in value or even maintain the price at which our
stockholders have purchased their shares. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> If securities or industry analysts do not publish research or reports or publish unfavorable research or reports about our business, our stock price and trading volume could
decline.  </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish
about us, our business, our market or our competitors. We do not currently have and may never obtain research coverage by securities and industry analysts. If no securities or industry analysts
commence coverage of our company, the trading price for our stock would be negatively impacted. In the event we obtain securities or industry analyst coverage, if one or more of the analysts who
covers us downgrades our stock, our stock price would likely decline. If one or more of these analysts ceases to cover us or fails to regularly publish reports on us, interest in our stock could
decrease, which could cause our stock price or trading volume to decline. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>40</FONT></P>

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<A HREF="#bg71101a_main_toc">Table of Contents</A> </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="di71101_special_note_regarding_forward-looking_statements"> </A>
<A NAME="toc_di71101_1"> </A>
<BR></FONT><FONT SIZE=2><B>  SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This prospectus, including the sections titled "Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business," contains forward-looking statements. Forward-looking statements convey our current expectations or forecasts of future events. All statements contained in
this prospectus other than statements of historical fact are forward-looking statements. Forward-looking statements include statements regarding our future financial position, business strategy,
budgets, projected costs, plans and objectives of management for future operations. The words "may," "continue," "estimate," "intend," "plan," "will," "believe," "project," "expect," "seek,"
"anticipate," "should," "could," "would," "potential," or the negative of those terms and similar expressions may identify forward-looking statements, but the absence of these words does not
necessarily mean that a statement is not forward-looking. These forward-looking statements include, among other things, statements about: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>our ability to achieve profitability;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the implementation of our corporate strategy;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>our future financial performance and projected expenditures;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>our ability to enter into future collaborations with pharmaceutical companies and academic institutions or to obtain
funding from government agencies;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>our product research and development activities, including the timing and progress of our clinical trials, and projected
expenditures;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>our ability to receive, and the timing of any receipt of, regulatory approvals to develop and commercialize our product
candidates;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>our ability to protect our intellectual property and operate our business without infringing upon the intellectual
property rights of others;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>our expectations regarding federal, state and foreign regulatory requirements;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the therapeutic benefits, effectiveness and safety of our product candidates;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the accuracy of our estimates of the size and characteristics of the markets that may be addressed by our product
candidates;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>our ability to increase our manufacturing capabilities for our product candidates;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>our projected markets and growth in markets;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>our product formulations and patient needs and potential funding sources;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>our staffing needs;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>our use of the proceeds from this offering; and  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>our plans for sales and marketing. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any
or all of our forward-looking statements in this prospectus may turn out to be inaccurate. We have based these forward-looking statements largely on our current expectations and
projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. They may be affected by
inaccurate assumptions we might make or by known or unknown risks and uncertainties, including the risks, uncertainties and assumptions described in "Risk Factors" and elsewhere in this prospectus. In
light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this prospectus may not occur as contemplated, and actual results could differ materially
from those anticipated or implied by the forward-looking statements. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>41</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;You
should not unduly rely on these forward-looking statements, which speak only as of the date of this prospectus. Unless required by law, we undertake no obligation to publicly update
or revise any forward-looking statements to reflect new information or future events or otherwise. You should, however, read this prospectus and the documents that we reference in this prospectus and
have filed with the Securities and Exchange Commission as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future
results may be materially different from any future results expressed or implied by these forward-looking statements. You should also review the factors and risks we describe in the reports we will
file from time to time with the Securities and Exchange Commission after the date of this prospectus. See "Where You Can Find Additional Information." </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>42</FONT></P>

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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="di71101_use_of_proceeds"> </A>
<A NAME="toc_di71101_2"> </A>
<BR></FONT><FONT SIZE=2><B>  USE OF PROCEEDS    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We estimate that we will receive net proceeds from the sale of shares of our common stock in this offering of approximately
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, based upon an assumed initial public offering price of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share, the mid-point of the price range set forth on
the cover of this preliminary prospectus, and after
deducting underwriting discounts and commissions and estimated offering expenses payable by us. A $1.00 increase (decrease) in the assumed initial public offering price of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share
would increase (decrease) the net proceeds to us from this offering by $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million, assuming that the number of shares offered by us, as set forth on the cover page of this
preliminary prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
principal purposes of this offering are to fund our clinical trials, to fund operations, and to provide working capital. We intend to use the net proceeds of this offering for
general corporate purposes including to fund the development and commercialization of SPN-538 and Epliga, as well as development of our other product candidates, general and administrative
expenses, working capital, prosecution and maintenance of our intellectual property and the potential investment in or acquisition of technologies or products that complement our business. We have no
current agreements or commitments with respect to such investment or acquisition. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of the date of this prospectus, we cannot specify with certainty all of the particular uses for the net proceeds from this offering. The amounts and timing of our actual expenditures
may vary significantly from our expectations depending upon numerous factors, including the progress of our research, development and commercialization efforts, the progress of our clinical trials,
and our operating costs and capital expenditures. Accordingly, we will retain the discretion to allocate the net proceeds of this offering among the identified uses described above, and we reserve the
right to change the allocation of the net proceeds among the uses described above as a result of contingencies such as the progress and results of our clinical trials and our research and development
activities, the results of our commercialization efforts, competitive developments and our manufacturing requirements. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pending
use of proceeds from this offering, we intend to invest the proceeds in a variety of capital preservation investments, including short-term, investment-grade,
interest-bearing instruments. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="di71101_dividend_policy"> </A>
<A NAME="toc_di71101_3"> </A>
<BR></FONT><FONT SIZE=2><B>  DIVIDEND POLICY    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have never declared or paid any cash dividends on our capital stock and we do not currently anticipate declaring or paying cash
dividends on our capital stock in the foreseeable future. We currently intend to retain all of our future earnings, if any, to finance operations. Additionally, our ability to pay dividends on our
common stock is limited by restrictions on the ability of our subsidiaries and us to pay dividends or make distributions, including restrictions under the terms of the agreements governing our
indebtedness. For additional information, see "Management's Discussion and Analysis of Financial Condition and Results of Operations." Any future determination relating to our dividend policy will be
made at the discretion of our board of directors and will depend on a number of factors, including future earnings, capital requirements, financial conditions, future prospects, contractual
restrictions and covenants and other factors that our board of directors may deem relevant. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>43</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>
<A HREF="#bg71101a_main_toc">Table of Contents</A> </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="dk71101_capitalization"> </A>
<A NAME="toc_dk71101_1"> </A>
<BR></FONT><FONT SIZE=2><B>  CAPITALIZATION    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth our cash and capitalization as of September&nbsp;30, 2010: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>on an actual basis;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>on a pro forma basis, reflecting the conversion of all of our preferred stock into an aggregate of 49,000,000 shares of
common stock upon the closing of this offering; and  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>on a pro forma as adjusted basis to further reflect our receipt of the estimated net proceeds from our sale of
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of common stock offered hereby at an assumed initial public offering price of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share, the mid-point of the price range reflected on the cover of
this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;You
should read this table in conjunction with the sections of this prospectus entitled "Selected Consolidated Financial Data" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and with our consolidated financial statements and related notes appearing elsewhere in this prospectus. </FONT></P>
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<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="50pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
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<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>As of September&nbsp;30, 2010 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Actual </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Pro Forma </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Pro Forma<BR>
as Adjusted(1) </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(unaudited)</B></FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(in thousands of dollars, except share data)</B></FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2><B>Balance Sheet Data:</B></FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Unrestricted cash and cash equivalents and marketable securities</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>45,822</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>45,822</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Restricted cash and cash equivalents and marketable securities</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,680</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,680</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Non-recourse Notes</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>75,000</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>75,000</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Redeemable Series&nbsp;A convertible preferred stock, $0.001 par value&#151;49,000,000 shares authorized, issued and outstanding, actual; none, pro forma and pro forma as adjusted</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>49</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Stockholders' deficit:</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Common stock, $0.001 par value&#151;62,000,000 shares authorized, 6,371,061 shares issued and outstanding, actual;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>55</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Additional paid-in capital</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>49,238</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>49,238</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Accumulated deficit</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(85,210</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(85,210</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Total stockholders' deficit</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(35,917</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(35,917</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>Total capitalization</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>39,083</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>39,083</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
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<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(1)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Each
$1.00 increase (decrease) in the assumed initial public offering price of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share, the mid-point of the price range
reflected on the cover page of this prospectus, would increase (decrease) each of additional paid-in capital, total stockholders' equity and total capitalization by approximately
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting
discounts and commissions and offering expenses payable by us. We may also increase or decrease the number of shares we are offering. Each increase (decrease) of one million shares in the number of
shares offered by us would increase (decrease) each of additional paid-in capital, total stockholders' equity and total capitalization by approximately $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million,
assuming that the assumed initial public offering price remains the same. </FONT></DD></DL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>44</FONT></P>

<HR NOSHADE>
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<!-- ZEQ.=1,SEQ=47,EFW="2201368",CP="SUPERNUS PHARMACEUTICALS",DN="1",CHK=990761,FOLIO='44',FILE='DISK129:[10ZCU1.10ZCU71101]DK71101A.;26',USER='EPEREZ',CD='22-DEC-2010;18:20' -->
<A NAME="page_dk71101_1_45"> </A>

<P style="font-family:times;"><FONT SIZE=2><A
HREF="#bg71101a_main_toc">Table of Contents</A></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
table above does not include: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>1,729,458 shares of common stock issuable upon the exercise of options outstanding as of September&nbsp;30, 2010 at a
weighted average exercise price of $0.48 per share;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>411,765 shares of common stock remaining to vest under a restricted stock award; and  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>2,487,716 additional shares of common stock reserved for future issuance under our 2005 Stock Plan. </FONT></DD></DL>
</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>45</FONT></P>

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<A NAME="page_dk71101_1_46"> </A>

<P style="font-family:times;"><FONT SIZE=2><A
HREF="#bg71101a_main_toc">Table of Contents</A></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="dk71101_dilution"> </A>
<A NAME="toc_dk71101_2"> </A>
<BR></FONT><FONT SIZE=2><B>  DILUTION    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If you invest in our common stock, your interest will be diluted to the extent of the difference between the public offering price per
share you will pay in this offering and the pro forma net tangible book value per share of our common stock immediately after this offering. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
net tangible book value as of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2010 was approximately $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
or $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share of common stock. Net tangible book value per share is equal to
our total tangible assets minus total liabilities, all divided by the number of shares of common stock outstanding as of September&nbsp;30, 2010. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
pro forma net tangible book value per share as of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2010 was approximately
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share. Pro forma net tangible book value per share gives effect to the
conversion of all outstanding shares of our preferred stock as
of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;into&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of our common stock, upon the closing of this offering. </FONT></P>
<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;After
giving effect to the sale of the&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of common stock we are offering based on an assumed initial public offering price of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share, the
mid-point of the price range set forth on the cover of this prospectus, less underwriting discounts and commissions and our estimated offering expenses, our pro forma as adjusted net
tangible book value as of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2010 would have been approximately
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, or $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share. This represents an immediate increase in pro forma net tangible book
value of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share and an immediate dilution of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share to new investors. Dilution per share to new
investors is determined by subtracting pro forma as adjusted net
tangible book value per share after this offering from the assumed initial public offering price per share paid by a new investor. The following table illustrates this calculation on a per share basis
(without giving effect to the over-allotment option granted to the underwriters): </FONT></P>
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<TD WIDTH="10pt" style="font-family:times;"></TD>
<TD WIDTH="" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="51pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="51pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
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<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Assumed initial public offering price per share(1)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>Net tangible book value per share as of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2010</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>Pro forma increase in net tangible book value per share attributable to conversion of preferred stock outstanding
at&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2010</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>Pro forma net tangible book value per share of common stock as of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2010</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>Increase per share attributable to the offering</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Pro forma as adjusted net tangible book value per share of common stock after this offering</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Pro forma dilution per share to new investors</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
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<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(1)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>The
mid-point of the price range set forth on the cover of this prospectus. </FONT></DD></DL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A
$1.00 increase (decrease) in the assumed initial public offering price of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share, the mid-point of the price range set forth on the cover of this
prospectus, would increase
(decrease) the pro forma as adjusted net tangible book value per share after giving effect to this offering by $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share and would increase (decrease) the dilution in pro forma
net
tangible book value per share to investors in this offering by $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share. This calculation assumes that the number of shares offered by us, as set forth on the cover page of
this
prospectus, remains the same and is after deducting underwriting discounts and commissions and estimated offering expenses payable by us. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
the underwriters exercise their over-allotment option in full, pro forma as adjusted net tangible book value will increase to $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share, representing an
increase to existing holders of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share, and there will be an immediate dilution of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share to new
investors. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>46</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2><A
HREF="#bg71101a_main_toc">Table of Contents</A></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table summarizes, on a pro forma as adjusted basis as of September&nbsp;30, 2010, after giving effect to this offering and the pro forma adjustments referred to above,
the total number of shares of our common stock purchased from us and the total consideration and average price per share paid by existing stockholders and by new investors: </FONT></P>
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<TD WIDTH="45pt" style="font-family:times;"></TD>
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<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="45pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
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<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH ROWSPAN=2 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=4 ROWSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Total Shares </B></FONT></TH>
<TH ROWSPAN=2 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ROWSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Total Consideration </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH ROWSPAN=2 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Average<BR>
Price Per<BR>
Share </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Number </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Percent </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Amount </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Percent </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=13 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(in thousands of dollars, except share and per share data)</B></FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Existing stockholders</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>New Investors</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
</TABLE></DIV>
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 </DIV>
 <P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
the underwriters exercise their over-allotment option in full, the following will occur: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the pro forma as adjusted percentage of shares of our common stock held by existing stockholders will decrease to
approximately&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;% of the total number of pro forma as adjusted shares of our common stock outstanding after this offering; and  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the pro forma as adjusted number of shares of our common stock held by new public investors will increase to or
approximately&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;% of the total pro forma as adjusted number of shares of our common stock outstanding after this offering. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
tables and calculations above are based on 6,371,061 shares of our common stock outstanding as of September&nbsp;30, 2010 after giving effect to the conversion of 49,000,000 shares
of our preferred stock outstanding as of September&nbsp;30, 2010 into 49,000,000 shares of our common stock at the closing of this offering and exclude: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>shares of common stock issuable upon the exercise of options outstanding as of September&nbsp;30, 2010 with exercise
prices ranging from $0.10 to $1.76 per share and a weighted average exercise price of $0.48 per share (of which options to acquire 940,324 shares of common stock were vested as of September&nbsp;30,
2010); and  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>shares of our common stock available for future grants under our 2005 Stock Plan as of September&nbsp;30, 2010. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
all of our outstanding options as of September&nbsp;30, 2010 were exercised, the pro forma as adjusted net tangible book value per share after this offering would be
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share, representing an increase to existing holders of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share, and there will be an immediate
dilution of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share to new investors. In
addition, we will need to obtain additional capital, and we may choose to raise such additional capital through equity offerings, debt financing and/or payments under new or existing licensing and
research and development collaboration agreements. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of these securities would
result in further dilution to our stockholders. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>47</FONT></P>

<HR NOSHADE>
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</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>
<A HREF="#bg71101a_main_toc">Table of Contents</A> </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="dm71101_selected_consolidated_financial_data"> </A>
<A NAME="toc_dm71101_1"> </A>
<BR></FONT><FONT SIZE=2><B>  SELECTED CONSOLIDATED FINANCIAL DATA    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><I>The following table sets forth selected consolidated financial data that is qualified in its entirety by and
should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and notes thereto appearing
elsewhere in this prospectus. The consolidated financial data as of December&nbsp;31, 2009 and for the fiscal years ended December&nbsp;31, 2007, 2008 and 2009 are derived from our audited
consolidated financial statements appearing elsewhere in this prospectus. The consolidated financial data for the fiscal year ended December&nbsp;31, 2006 are derived from our audited consolidated
financial statements not included in this prospectus. The consolidated financial data for the nine month periods ended September&nbsp;30, 2009 and 2010, is derived from our unaudited consolidated
financial statements which are presented elsewhere in this prospectus, but has been prepared on the same basis as the audited consolidated financial statements and the notes thereto, which include, in
the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the information for the unaudited interim periods. The operating results
for the nine month period ended September&nbsp;30, 2010 may not be indicative of the operating results for the full year.</I></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>48</FONT></P>

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<A NAME="page_dm71101_1_49"> </A>

<P style="font-family:times;"><FONT SIZE=2><A
HREF="#bg71101a_main_toc">Table of Contents</A></FONT></P>
 <DIV style="padding:0pt;position:relative;width:54%;margin-left:10%;">
<p style="font-family:times;"><font size=1></FONT><FONT SIZE=2>


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</FONT></P>

<!-- User-specified TAGGED TABLE -->
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<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="9pt" style="font-family:times;"></TD>
<TD WIDTH="9pt" style="font-family:times;"></TD>
<TD WIDTH="" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="58pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="58pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="58pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="58pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="58pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="61pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH COLSPAN=3 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=11 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Year Ended December&nbsp;31, </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Nine Months Ended<BR>
September&nbsp;30, </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=3 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2006 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2007 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2008 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2009 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2009 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2010 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=3 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(unaudited)</B></FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=3 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=17 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(in thousands of dollars, except share and per share data)</B></FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><B>Consolidated Statement of Operations Data:</B></FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Revenue:</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Development and milestone revenue</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5,616</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,405</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,697</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,550</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,181</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>97</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Royalty revenue</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>652</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,828</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6,192</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>44,963</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>41,884</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8,635</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=3 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>Total revenues</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6,268</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4,233</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8,889</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>46,513</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>43,065</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8,732</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><BR><FONT SIZE=2> Operating Expenses:</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Research and development</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8,958</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>19,269</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>30,463</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>29,260</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>21,804</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>26,080</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>General and administrative</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,945</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4,011</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4,287</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4,649</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,503</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,388</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=3 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>Total operating expenses</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>12,903</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>23,280</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>34,750</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>33,909</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>25,307</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>29,468</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><BR><FONT SIZE=2> Income (loss) from operations</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><BR><FONT SIZE=2>(6,635</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><BR><FONT SIZE=2>(19,047</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><BR><FONT SIZE=2>(25,861</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><BR><FONT SIZE=2>12,604</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><BR><FONT SIZE=2>17,758</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><BR><FONT SIZE=2>(20,736</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><BR><FONT SIZE=2> Other income (expense):</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Interest income</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,712</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,773</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,057</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>514</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>101</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>623</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Interest expense</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(8,678</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(12,658</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(9,210</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(9,831</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Other</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>40</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>54</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=3 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>Total other income (expense)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,752</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,773</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(7,621</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(12,144</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(9,109</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(9,154</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><BR><FONT SIZE=2> Net income (loss)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2><BR></FONT><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
(4,883</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2><BR></FONT><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
(17,274</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><BR><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
(33,482</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><BR><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
460</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2><BR></FONT><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
8,649</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2><BR></FONT><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
(29,890</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=3 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><BR><FONT SIZE=2> Cumulative dividends on Series A convertible preferred stock</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><BR><FONT SIZE=2>(3,316</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><BR><FONT SIZE=2>(3,430</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><BR><FONT SIZE=2>(3,430</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><BR><FONT SIZE=2>(3,430</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><BR><FONT SIZE=2>(2,573</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><BR><FONT SIZE=2>(2,573</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><p style="font-family:times;margin-top:10pt;margin-left:0pt;text-indent:-0pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Net income (loss) attributable to common stockholders</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
(8,253</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
(20,704</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
(36,912</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
(2,970</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
6,076</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
(32,463</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=3 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><BR><FONT SIZE=2> Basic net income (loss) per share</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2><BR></FONT><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
(2.39</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2><BR></FONT><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
(4.21</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><BR><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
(6.61</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><BR><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
(0.53</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2><BR></FONT><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
1.08</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2><BR></FONT><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
(5.12</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Diluted net income (loss) per share</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(2.39</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(4.21</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(6.61</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.01</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.15</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(5.12</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2>Weighted average number of common shares:</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Basic</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,455,762</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4,921,376</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5,587,467</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5,653,506</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5,610,047</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6,345,420</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><FONT SIZE=2>Diluted</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,455,762</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4,921,376</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5,587,467</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>56,324,761</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>56,282,411</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6,345,420</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><BR><FONT SIZE=2> Net income (loss) used to compute pro forma net income (loss) per common share &#151; basic and diluted (unaudited)(1)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><BR><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><BR><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><BR><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><BR><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
460</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><BR><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2><BR></FONT><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
(29,890</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><BR><FONT SIZE=2> Weighted-average number of shares used in calculating pro forma net income (loss) per share &#151; basic and diluted (unaudited):(1)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><BR><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><BR><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><BR><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><BR><FONT SIZE=2>56,324,761</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><BR><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><BR><FONT SIZE=2>55,345,420</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3 style="font-family:times;"><BR><FONT SIZE=2> Pro forma net income (loss) per share &#151; basic and diluted (unaudited)(1)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><BR><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><BR><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><BR><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><BR><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
0.01</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><BR><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2><BR></FONT><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
(0.54</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=3 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
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<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(1)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Pro
forma net loss per share basic and diluted have been calculated assuming the conversion of all outstanding shares of the Company's Series&nbsp;A
convertible preferred stock into an aggregate of 49,000,000 shares of common stock upon completion of this offering, as if they had converted at the beginning of the period. Pro forma net loss per
share basic and diluted do not give effect to the sale of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of common stock that we are offering pursuant to this prospectus or any
related estimated net proceeds therefrom. See
Note&nbsp;2 to our audited financial statements for an explanation of the method used to calculate the pro forma basic and diluted net income (loss) per common share and the number of the per share
amounts. </FONT></DD></DL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>49</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2><A
HREF="#bg71101a_main_toc">Table of Contents</A></FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><BR></FONT></P>

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 </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE width="110%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="45pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="50pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="50pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="50pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="67pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH ROWSPAN=2 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=11 ROWSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Year Ended December&nbsp;31, </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH ROWSPAN=2 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>As of<BR>
September&nbsp;30,<BR>
2010 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2006 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2007 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2008 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2009 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(unaudited)</B></FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=14 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(in thousands of dollars)</B></FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=2><B>Consolidated Balance Sheet Data:</B></FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=2>Unrestricted cash and cash equivalents and marketable securities</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>40,655</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>25,592</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>60,380</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>66,524</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>45,822</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=2>Restricted cash and cash equivalents and marketable securities</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>256</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>281</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6,281</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,076</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,680</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=2>Working capital</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>39,746</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>22,674</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>61,183</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>62,847</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>33,835</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=2>Total assets</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>46,426</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>31,907</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>77,134</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>79,899</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>57,502</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=2>Long-term debt</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>75,000</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>75,000</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>75,000</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=2>Series A convertible preferred stock</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>49</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>49</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>49</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>49</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>49</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=2>Accumulated deficit</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(5,027</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(22,301</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(55,782</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(55,321</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(85,210</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=2>Total stockholders' equity (deficit)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>43,830</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>26,635</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(6,747</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(6,155</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(35,917</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
</TABLE></DIV>
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</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>
<A HREF="#bg71101a_main_toc">Table of Contents</A> </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="do71101_management_s_discussion_and_an__man03466"> </A>
<A NAME="toc_do71101_1"> </A>
<BR></FONT><FONT SIZE=2><B>  MANAGEMENT'S DISCUSSION AND ANALYSIS OF<BR>  FINANCIAL CONDITION AND RESULTS OF OPERATIONS    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><I>You should read the following discussion and analysis of our financial condition and results of operations
together with our consolidated financial statements and related notes appearing at the end of this prospectus. In addition to historical information, some of the information in this discussion and
analysis contains forward-looking statements reflecting our current expectations and involves risk and uncertainties. For example, statements regarding our expectations as to our plans and strategy
for our business, future financial performance, expense levels and liquidity sources are forward-looking statements. 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 and elsewhere in this prospectus.</I></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B> Overview  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are a specialty pharmaceutical company focused on developing and commercializing products for the treatment of central nervous
system, or CNS, diseases. Our extensive expertise in product development has been built over the past 20&nbsp;years: initially as a stand alone development organization, then as a U.S. subsidiary of
Shire&nbsp;plc and, upon our acquisition of substantially all the assets of Shire Laboratories,&nbsp;Inc. in late 2005, as Supernus Pharmaceuticals. We are developing several product candidates in
neurology and psychiatry to address large market opportunities in epilepsy and attention deficit hyperactivity disorder, or ADHD. Our two epilepsy product candidates are SPN-538 (extended
release topiramate), for which we expect to file&nbsp;a new drug application, or NDA, in the first quarter of 2011, and Epliga (extended release oxcarbazepine), which is in Phase&nbsp;III clinical
trials. Our ADHD product candidates include SPN-810 (molindone hydrochloride), a novel treatment for impulsive aggression in patients with ADHD, and SPN-812, a novel
non-stimulant treatment for ADHD. Both of these programs are in Phase&nbsp;II. In addition to these four lead product candidates, we have several additional product candidates in various
stages of development. We intend to market our product candidates in the United States through our own focused sales force targeting specialty physicians, including neurologists and psychiatrists. We
believe our broad and diversified portfolio of product candidates provides us with multiple opportunities to achieve our goal of becoming a leading specialty pharmaceutical company focused on CNS
diseases. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
use our proprietary technologies to enhance the therapeutic benefits of approved anti-epileptic drugs, or AEDs through advanced extended release formulations. Our most advanced
product candidates, SPN-538 and Epliga, are novel oral once-daily extended release formulations of topiramate and oxcarbazepine, respectively, for the treatment of epilepsy. Immediate
release formulations of topiramate and oxcarbazepine, are available in generic form and are marketed under the brand names of Topamax and Trileptal, respectively. According to IMS Health, peak sales
of Topamax and Trileptal represented an estimated 25.8% and 8.1% of the total seizure disorder market in 2008 and 2006, respectively. We are pursuing a Section&nbsp;505(b)(2) regulatory strategy for
SPN-538 and Epliga, which would allow us to rely on the existing data from the NDAs of Topamax and Trileptal, respectively. The once-per-day dosing of each of
SPN-538 and Epliga is designed to improve patient compliance and to have a better tolerability profile compared to the current immediate release AEDs that are taken multiple times per day
to maintain therapeutic drug concentrations over the dosing interval. We believe there is a significant unmet need for extended release products, such as SPN-538 and Epliga, for the
treatment of epilepsy. Extended release products have been shown to improve compliance, increase seizure control, reduce side effects and improve tolerability as compared to immediate release
products. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
are also developing treatments for new indications in diseases such as ADHD and its coexisting disorders. We are developing SPN-810, which is currently in Phase&nbsp;II,
as a novel treatment for impulsive aggression in patients with ADHD. If approved by the U.S. Food and Drug Administration, or FDA, SPN-810 could be the first product available to address
this serious, unmet medical need. SPN-810 is based on molindone hydrochloride, which was previously marketed in the </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>51</FONT></P>

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<BR>

<P style="font-family:times;"><FONT SIZE=2>United
States as an anti-psychotic to treat schizophrenia under the trade name Moban. In addition, SPN-812, which is currently in Phase&nbsp;II, is being developed as a novel
non-stimulant treatment for ADHD. SPN-812 is a selective norepinephrine reuptake inhibitor that we believe could be more effective and have a better side effect profile than
other non-stimulant treatments for ADHD. In addition, because the active ingredient of SPN-812 has demonstrated efficacy as an antidepressant in Europe, this product candidate
may provide increased benefit to an estimated 40% of ADHD patients who suffer from depression. In addition to these four lead product candidates, we have a number of other product candidates in
various stages of development such as SPN-809, which would represent a novel mechanism of action for the U.S. antidepressant market. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Historically,
our revenues have been generated through research and development agreements, which included fees for development services provided to customers and payments for
achievement of specified development, regulatory and sales milestones, as well as royalties on product sales of licensed products, Oracea, Sanctura XR, and Intuniv. Since our inception in 2005, we
have generated $0 in revenue from product sales and have incurred significant operating losses. As of September&nbsp;30, 2010, we had an accumulated deficit of $85.2&nbsp;million. We expect to
continue to incur net losses and negative cash flow from operating activities for the foreseeable future as we continue to develop our product candidates and seek marketing approval and, subject to
obtaining such approval, the eventual commercialization of SPN-538 and Epliga, as well as our other product candidates. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> History of our Company  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have a long track record of developing novel products by applying proprietary technologies to known drugs to improve existing
therapies and to enable the treatment of new indications. We have a broad portfolio of drug development technologies consisting of six platforms that include the following: Microtrol (multiparticulate
delivery platform), Solutrol (matrix delivery platform) and EnSoTrol (osmotic delivery system). Our proprietary technologies have been used in the following approved products: Carbatrol
(carbamazepine), Adderall XR (mixed amphetamine salts), and Intuniv (guanfacine), marketed by Shire; Equetro (carbamazepine), marketed by Validus Pharmaceuticals Inc.; Sanctura XR (trospium chloride),
marketed by Allergan; and Oracea (doxycycline), marketed by Galderma. Throughout our 20&nbsp;year history, we have continued our commitment to innovation with a focus for the past five years on
developing our own product candidates in neurology and psychiatry. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have historically raised capital through the monetization of certain future royalty streams under our existing licenses for Oracea, Sanctura XR and Intuniv. We raised approximately
$63.3&nbsp;million in net proceeds in April 2008 through the monetization of future royalty payment rights and other license rights for both Oracea and Sanctura XR. In that deal, we transferred the
license rights to both Oracea and Sanctura XR to TCD Royalty Sub&nbsp;LLC, our wholly-owned subsidiary ("Royalty Sub"), which issued $75.0&nbsp;million in non-recourse notes in a
private placement. All milestone and royalty revenues due from net sales of Oracea and Sanctura XR are required to be used to satisfy the payment of principal and interest on the
non-recourse notes. The non-recourse notes are non-recourse to us and are secured by our Royalty Sub's assets, which include the royalty payment rights and other
rights related to net sales of Oracea and Sanctura XR. In addition, we entered into an agreement with an affiliate of Shire&nbsp;plc in May 2009, whereby the Shire affiliate paid us a
one-time, lump-sum payment of approximately $36.9&nbsp;million as consideration for a royalty-free, fully paid-up license for Intuniv. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
also have a license agreement with United Therapeutics Corporation, or United Therapeutics, to use one of our proprietary technologies for an oral formulation of treprostinil for the
treatment of pulmonary arterial hypertension, or PAH, as well as for other indications. This oral formulation is currently being evaluated by United Therapeutics in Phase&nbsp;III trials for PAH.
Remaining milestone payments to us could total up to approximately $6.8&nbsp;million, which includes milestone payments of up to approximately $2.8&nbsp;million for the satisfaction of development
milestones relating to the product candidate for the treatment of PAH. If United Therapeutics receives approval to market and sell this </FONT></P>

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<BR>

<P style="font-family:times;"><FONT SIZE=2>product
candidate, we are entitled to receive single digit royalties based on worldwide net sales. We are also entitled to receive milestones and royalties for use of this formulation in other
indications. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;See
"Liquidity and Capital Resources&#151;Financing History and Future Capital Requirements" for additional details regarding the foregoing transactions. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Financial Overview  </B></FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Revenue  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our historical revenues have been generated through research and development agreements. These agreements included fees for development
services provided to customers and payments for achievement of specified development, regulatory and sales milestones, which comprise our development and milestone revenues, as well as royalties on
product sales of licensed products, Oracea, Sanctura XR, and Intuniv, which comprise our royalty revenues. Until such time that we begin generating revenues from the sales of our own approved product
candidates, we expect that development and milestone revenues and royalty revenues will continue to represent our primary sources of revenues. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
recognize development and milestone revenues related to research and development agreements pursuant to which various third parties have accessed our proprietary technologies. These
arrangements generally provided for fees for research and development services rendered, including milestone payments at the conclusion of the research period upon achieving specified events. Over
time, we do not expect these historical revenues relating to development and milestone revenues to be significant as we continue to focus on the development and potential commercialization of our own
product candidates. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
recognize royalty revenues from our collaboration agreements. Royalty revenues consist of payments received from our various collaborative partners related to the sales of products
that utilize our proprietary technologies under these collaboration agreements. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
table below summarizes the revenues that we received from our collaboration arrangements. </FONT></P>
 <DIV style="padding:0pt;position:relative;width:80%;margin-left:10%;">
<p style="font-family:times;"><font size=1></FONT><FONT SIZE=2>


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<TD WIDTH="10pt" style="font-family:times;"></TD>
<TD WIDTH="" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="39pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="39pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="45pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="45pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="39pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Year Ended<BR>
December&nbsp;31, </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Nine&nbsp;Months&nbsp;Ended<BR>
September&nbsp;30, </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2007 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2008 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2009 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2009 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2010 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(unaudited)</B></FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=14 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(in thousands of dollars)</B></FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Development and milestone revenues</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Oracea&nbsp;&amp; Sanctura XR</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>400</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>1,500</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>500</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>500</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Other collaboration arrangements</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>1,005</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>1,197</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>1,050</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>681</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>97</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total development and milestone revenues</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>1,405</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>2,697</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>1,550</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>1,181</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>97</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Royalty revenues:</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Oracea&nbsp;&amp; Sanctura XR</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>2,828</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>6,192</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>8,088</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>5,009</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>8,635</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Intuniv</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>36,875</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>36,875</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total royalty revenues</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>2,828</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>6,192</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>44,963</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>41,884</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>8,635</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total revenues</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>4,233</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>8,889</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>46,513</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>43,065</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>8,732</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->
 </DIV>
 <P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;From
and after April&nbsp;15, 2008, all development and milestone revenues and royalty revenues due from net sales of Oracea and Sanctura XR are required to be used to satisfy the
payment of principal and interest on the non-recourse notes of Royalty Sub. We also received in May 2009 a one-time payment of approximately $36.9&nbsp;million from
Shire&nbsp;plc as consideration for a royalty-free, fully paid-up license to Shire&nbsp;plc for Intuniv and, as a result, we will not receive any future royalty payments
with respect to the net sales of Intuniv. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>53</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<A NAME="page_do71101_1_54"> </A>

<P style="font-family:times;"><FONT SIZE=2><A
HREF="#bg71101a_main_toc">Table of Contents</A></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
we obtain regulatory approval for SPN-538, Epliga or any of our other product candidates, we would expect to begin to generate revenues from product sales and, over time,
we expect that our future revenues would begin to be principally derived from product sales as compared to development and milestone revenues and royalty revenues. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prior
to commercializing any of our product candidates, we expect that any revenues we generate will fluctuate from quarter to quarter as a result of the timing and amount of development
and milestone revenues and royalty revenues received under our collaboration license agreements, as our revenues from these arrangements are principally based on the achievement of clinical and
commercial milestones outside of our control. If we fail to complete the development of our product candidates in a timely manner or obtain regulatory approval for them, our ability to generate future
revenues, and our results of operations and financial position, would be materially adversely affected. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Research and Development Expense  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Research and development expenses consist of costs incurred in connection with the development of our and our collaborators' product
candidates. These expenses consist primarily of: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>employee-related expenses, which include salaries and benefits;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>expenses incurred under agreements with contract research organizations, investigative sites and consultants that conduct
our clinical trials and a substantial portion of our preclinical studies;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the cost of acquiring and manufacturing clinical trial materials;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>costs related to facilities, depreciation and other allocated expenses;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>license fees for and milestone payments related to in-licensed products and technology; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>stock-based compensation expense to employees and consultants; and  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>costs associated with non-clinical activities and regulatory approvals. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
expense research and development costs as incurred. Non-refundable advance payments for goods and services that will be used in future research and development activities
are initially recorded as prepaid expenses and expensed as the activity is performed or when the goods have been received. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Since
our founding, we have developed and evaluated a series of CNS product candidates through Phase&nbsp;I pharmacokinetic trials. In 2008, we conducted a review of our portfolio of
product candidates and rationalized the programs based on clinical profiles, expected required resources to complete development, intellectual property, existing treatment options and commercial
opportunity. As a result of that review, we elected to concentrate on our two epilepsy product candidates and the product candidates that comprise our psychiatry portfolio. We intend to continue to
strategically invest in our pipeline, and the commitment of funding for each subsequent stage of our development programs is dependent upon, among other things, the receipt of clear, positive data. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
majority of our external costs relate to later-stage product candidates, as costs associated with later-stage clinical trials are, in most cases, more significant than those incurred
in earlier stages of our pipeline. For example, the external costs related to our Epliga program have been higher than our other programs in recent years because Epliga is undergoing a
Phase&nbsp;III clinical trial that began in late 2008. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
track external development expenses and direct personnel expense on a program-by-program basis. Costs related to facilities, depreciation, employee benefits
and bonuses, stock-based compensation, research and development management and research and development support services and supplies are not charged to specific programs, because the number of
clinical and preclinical product candidates or development projects tends to vary from period to period and internal resources are utilized across and benefit multiple programs over any given period
of time. The following table is </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>54</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<A NAME="page_do71101_1_55"> </A>

<P style="font-family:times;"><FONT SIZE=2><A
HREF="#bg71101a_main_toc">Table of Contents</A></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>a
summary of our research and development expenses for the years ended December&nbsp;31, 2007, 2008 and 2009, and the nine months ended September&nbsp;30, 2009 and 2010. </FONT></P>
 <DIV style="padding:0pt;position:relative;width:62%;margin-left:10%;">
<p style="font-family:times;"><font size=1></FONT><FONT SIZE=2>


<!-- COMMAND=ADD_TABLEWIDTH,"130%" -->


 </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE width="130%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="45pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="45pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="45pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="45pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="45pt" style="font-family:times;"></TD>
<TD WIDTH="15pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="67pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Year Ended<BR>
December&nbsp;31, </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Nine Months Ended<BR>
September&nbsp;30, </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>From<BR>
Inception to<BR>
September&nbsp;30, </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2007 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2008 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2009 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2009 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2010 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2010 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(unaudited)</B></FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=17 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(in thousands of dollars)</B></FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=2>SPN-538</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,044</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4,098</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6,464</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5,013</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5,923</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>18,232</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=2>Epliga</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,845</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10,834</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10,027</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>7,352</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10,190</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>35,360</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=2>SPN-810</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,192</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,199</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,333</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,265</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,705</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>9,429</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=2>SPN-812 and SPN-809</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,392</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,923</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>680</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>370</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,684</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>7,721</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=2>Other research and development programs</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,796</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,822</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>426</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>312</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>538</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>7,564</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=2>Development expenses&#151;general</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>7,000</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8,587</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8,331</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6,492</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6,041</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>35,821</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=2>Total research and development expenses</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>19,269</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>30,463</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>29,261</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>21,804</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>26,081</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>114,127</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->
 </DIV>
 <P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
successful development of our product candidates is highly uncertain and subject to a number of risks including, but not limited to: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>The duration of clinical trials varies substantially according to the type, complexity and novelty of the product
candidate;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>The FDA and comparable agencies in foreign countries impose substantial requirements on the introduction of therapeutic
pharmaceutical products, typically requiring lengthy and detailed laboratory and clinical testing procedures, sampling activities and other costly and time-consuming procedures; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Data obtained from nonclinical and clinical activities at any step in the testing process may be adverse and lead to
discontinuation or redirection of development activity. Data obtained from these activities also are susceptible to varying interpretations, which could delay, limit or prevent regulatory approval; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>The duration and cost of nonclinical studies and clinical trials may vary significantly over the life of a product
candidate and are difficult to predict;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>The costs, timing and outcome of regulatory review of a product candidate are uncertain; and  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>The emergence of competing technologies and products and other adverse market developments could impede our commercial
efforts. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Development
timelines, probability of success and development costs vary widely. As a result of the uncertainties discussed above, we anticipate that we will make determinations as to
which additional programs to pursue and how much funding to direct to each program on an ongoing basis in response to the scientific and clinical data of each product candidate, as well as ongoing
assessments of such product candidate's commercial potential. Accordingly, we cannot currently estimate with any degree of certainty the amount of time or money that we will be required to expend in
the future on SPN-538, Epliga or other product candidates to complete current or future clinical stages prior to their regulatory approval, if such approval is ever granted. As a result of
these uncertainties surrounding the timing and outcome of any approvals, we are currently unable to estimate precisely when, if ever, SPN-538, Epliga or any of our other product candidates
will generate revenues and cash flows. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
expect our research and development costs to continue to be substantial for the foreseeable future and to increase with respect to our product candidates as we advance those product
candidates through preclinical studies, clinical trials, manufacturing scale-up and other pre-approval activities. We </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>55</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<A NAME="page_do71101_1_56"> </A>

<P style="font-family:times;"><FONT SIZE=2><A
HREF="#bg71101a_main_toc">Table of Contents</A></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>may
elect to expand existing collaborative relationships or to seek new partnerships in order to provide us with a diversified revenue stream and to help facilitate the development and
commercialization of our product candidate pipeline. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> General and Administrative Expenses  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;General and administrative expenses consist principally of salaries and related costs for personnel in executive, finance, business
development, marketing, information technology, legal and human resources functions. Other general and administrative expenses include facility costs not otherwise included in research and development
expenses, patent filing, prosecution and defense costs, professional fees for legal, consulting, auditing and tax services, and stock compensation expense. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
expect that our general and administrative expenses in 2011 will be higher than in 2010 as a result of greater expenses relating to our operations as a public company, including
increased payroll and increased consulting, legal and compliance, accounting, insurance and investor relations costs. Additionally, we plan to increase spending related to the build-out of our
commercial infrastructure for the anticipated launch of both SPN-538 and Epliga in the United States in 2012. Upon approval of SPN-538, we would hire a small specialty sales
force, initially consisting of a limited number of field sales representatives to support the launch of the product. We would then seek to expand our sales force in connection with an approval and
commercial launch of Epliga. Having two epilepsy products that can be promoted to the same physician audience would allow us to leverage our commercial infrastructure with these prescribers. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Other Income and Expense  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other income and expense is comprised of interest income, gain on sales of equipment and interest expense. Interest income consists of
interest earned on our cash and cash equivalents and marketable securities. The primary objective of our investment policy is capital preservation. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest
expense consists primarily of interest on the $75.0&nbsp;million non-recourse notes of Royalty Sub and the amortization of the related deferred financing costs.
The non-recourse notes have a final stated maturity date of April&nbsp;15, 2024. Until any portion of the principal on the non-recourse notes is paid down, the annual
interest expense is $12.0&nbsp;million, or $3.0&nbsp;million per quarter. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Net Operating Losses and Tax Carryforwards  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2009, we had approximately $54.1&nbsp;million of federal net operating loss carryforwards. We also had
federal and state research and development tax credit carryforwards of approximately $3.1&nbsp;million available to offset future taxable income. These federal and state net operating loss and
federal and state tax credit carryforwards will begin to expire at various dates beginning in 2025, if not utilized. The Tax Reform Act of 1986 provides for a limitation on the annual use of net
operating loss and research and development tax credit carryforwards following certain ownership changes that could limit our ability to utilize these carryforwards. We have not completed a study to
assess whether an ownership change has occurred, or whether there have been multiple ownership changes since our inception, due to the significant costs and complexities associated with such study.
Accordingly, our ability to utilize the aforementioned carryforwards may be limited. Additionally, U.S. tax laws limit the time during which these carryforwards may be utilized against future taxes.
As a result, we may not be able to take full advantage of these carryforwards for federal and state tax purposes. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Net Income and Loss  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have incurred significant net losses since our inception in 2005, with the exception of 2009 when we generated net income of
$0.5&nbsp;million principally because of the one-time payment of $36.9&nbsp;million that we received from Shire&nbsp;plc as consideration for a royalty-free,
fully-paid-up license to </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>56</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<A NAME="page_do71101_1_57"> </A>

<P style="font-family:times;"><FONT SIZE=2><A
HREF="#bg71101a_main_toc">Table of Contents</A></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>Shire&nbsp;plc
for Intuniv. We expect to continue to incur net losses for the foreseeable future as we continue to develop our product portfolio, seek regulatory approval, and, if such approval is
obtained, commercialize SPN-538 and Epliga as well as our other product candidates. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Results of Operations  </B></FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Comparison of Nine Months Ended September&nbsp;30, 2010 and Nine Months Ended September&nbsp;30, 2009  </I></B></FONT></P>

</UL>
 <DIV style="padding:0pt;position:relative;width:80%;margin-left:10%;">
<p style="font-family:times;"><font size=1></FONT><FONT SIZE=2>


<!-- COMMAND=ADD_TABLEWIDTH,"100%" -->


 </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE width="100%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="10pt" style="font-family:times;"></TD>
<TD WIDTH="" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="45pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="50pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="50pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH ROWSPAN=2 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ROWSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Nine Months Ended<BR>
September&nbsp;30, </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH ROWSPAN=2 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Increase/<BR>
(decrease) </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2009 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2010 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(unaudited)</B></FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(in thousands of dollars)</B></FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Revenues:</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Development and milestone revenues</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>1,181</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>97</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>(1,084</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Royalty revenues</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>41,884</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>8,635</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>(33,249</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total revenues</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>43,065</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>8,732</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Operations Expenses:</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Research and development</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>21,804</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>26,080</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>4,276</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>General and administrative</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>3,503</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>3,388</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>(115</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total operating expenses</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>25,307</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>29,468</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Income (loss) from operations</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>17,758</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>(20,736</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Interest income</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>101</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>623</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>522</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Interest expense</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>(9,210</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>(9,831</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>621</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Net income (loss)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>8,649</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>(29,890</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
</TABLE></DIV>
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 </DIV>
 <P style="font-family:times;"><FONT SIZE=2><B><I> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenues.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Our revenues were $8.7&nbsp;million for the nine months ended September&nbsp;30, 2010 compared to $43.1&nbsp;million
for the same
period in 2009, representing a decrease of $34.3&nbsp;million or approximately 80%. This decrease was principally attributable to the one-time, lump-sum payment of
approximately $36.9&nbsp;million that we received in May 2009 from Shire&nbsp;plc as consideration for a royalty-free, fully paid-up license to Shire&nbsp;plc for
Intuniv. We also generated lower development and milestone revenues for the nine months ended September&nbsp;30, 2010 period as compared to same period in 2009 due to our focus on the development of
our own product candidates as opposed to developing product candidates for third parties. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Research and Development.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Our research and development expenses were $26.1&nbsp;million for the nine months ended
September&nbsp;30, 2010
compared to $21.8&nbsp;million for the same period in 2009, representing an increase of $4.3&nbsp;million or approximately 20%. The $4.3&nbsp;million increase in research and development expense
is primarily attributable to an increase in clinical trial costs of approximately $3.2&nbsp;million, the largest portion of which was due to the continuing costs for our Phase&nbsp;III clinical
trial for Epliga and higher manufacturing costs of approximately $0.8&nbsp;million principally associated with pre-validation work done at our commercial manufacturers for both
SPN-538 and Epliga. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;General and Administrative.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Our general and administrative expenses were $3.4&nbsp;million for the nine months ended
September&nbsp;30, 2010
compared to $3.5&nbsp;million for the same period in 2009, representing a decrease of $0.1&nbsp;million or approximately 3%. The $0.1&nbsp;million decrease in general and administrative expense
is primarily the result of lower patent and outside consulting fees incurred during the nine months ended September&nbsp;30, 2010. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest and Other Income.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Interest income was $0.6&nbsp;million for the nine months ended September&nbsp;30, 2010 compared to
$0.1&nbsp;million for the same period in 2009, representing an increase of $0.5&nbsp;million. The $0.5&nbsp;million increase is primarily because we invested a larger portion of our cash in
marketable securities during the nine months ended September&nbsp;30, 2010, which yielded higher returns </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>57</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<P style="font-family:times;"><FONT SIZE=2><A
HREF="#bg71101a_main_toc">Table of Contents</A></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>than
in the prior period. For the nine months ended September&nbsp;30, 2010, we also had a one-time net gain of approximately $54,000 on the sale of certain laboratory equipment. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest Expense.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Interest expense was $9.8&nbsp;million for the nine months ended September&nbsp;30, 2010 compared to
$9.2&nbsp;million for
the same period in 2009, representing an increase of $0.6&nbsp;million or approximately 7%. Interest expense is comprised primarily of interest payable on the non-recourse notes of
Royalty Sub at $3.0&nbsp;million per quarter, or approximately $9.0&nbsp;million for both nine month periods reported here, together with amortization of the related deferred financing costs
related to the non-recourse notes. The $0.6&nbsp;million increase in interest expense in the nine months ended September&nbsp;30, 2010 is largely because of amortization expense
associated with marketable securities purchased at a premium. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net Income (Loss).</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Net loss was $29.9&nbsp;million for the nine months ended September&nbsp;30, 2010 compared to net income of
$8.6&nbsp;million for the same period in 2009, representing a decrease of $38.6&nbsp;million. The $38.6&nbsp;million decrease is principally a result of the higher royalty revenues recognized in
the nine months ended September&nbsp;30, 2009, including in connection with our sale to Shire&nbsp;plc of a fully paid-up license for Intuniv and also due to the higher research and
development costs incurred for the same period in 2010. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Comparison of Year Ended December&nbsp;31, 2009 and Year Ended December&nbsp;31, 2008  </I></B></FONT></P>

</UL>
 <DIV style="padding:0pt;position:relative;width:80%;margin-left:10%;">
<p style="font-family:times;"><font size=1></FONT><FONT SIZE=2>


<!-- COMMAND=ADD_TABLEWIDTH,"100%" -->


</FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE width="100%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="10pt" style="font-family:times;"></TD>
<TD WIDTH="" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="50pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="50pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="49pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH ROWSPAN=2 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ROWSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Year Ended<BR>
December&nbsp;31, </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH ROWSPAN=2 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Increase/<BR>
(decrease) </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2008 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2009 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(in thousands of dollars)</B></FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Revenues:</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Development and milestone revenues</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>2,697</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>1,550</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>(1,147</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Royalty revenues</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>6,192</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>44,963</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>38,771</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total revenues</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>8,889</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>46,513</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-top:12pt;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Operations Expenses:</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Research and development</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>30,463</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>29,260</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>(1,203</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>General and administrative</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>4,287</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>4,649</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>362</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total operating expenses</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>34,750</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>33,909</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-top:12pt;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Income (loss) from operations</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><BR>
(25,861</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><BR>)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><BR>
12,604</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Interest income</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>1,057</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>514</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>(543</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Interest expense</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>(8,678</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>(12,658</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>3,980</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Net income (loss)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>(33,482</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>460</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->
 </DIV>
 <P style="font-family:times;"><FONT SIZE=2><B><I> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenues.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Our revenues were $46.5&nbsp;million for the year ended December&nbsp;31, 2009 compared to $8.9&nbsp;million for the
same period in
2008, representing an increase of $37.6&nbsp;million. This increase was principally due to the one-time, lump-sum payment from Shire&nbsp;plc of approximately
$36.9&nbsp;million as consideration for a royalty-free, fully paid-up license for Intuniv. We also received increased royalty revenues of approximately $1.9&nbsp;million
from Oracea and Sanctura XR. These gains were offset by a decrease in development and milestone revenues of approximately $1.1&nbsp;million as we continue to increase our focus on the development of
our own product candidates, as opposed to earning revenues from developing collaborators' product candidates. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Research and Development.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Our research and development expenses were $29.3&nbsp;million for the year ended December&nbsp;31,
2009 compared to
$30.5&nbsp;million for the same period in 2008, representing a decrease of $1.2&nbsp;million or approximately 4%. The decrease was primarily attributable to an approximately $0.9&nbsp;million
decrease in salaries, benefits and laboratory supplies associated with a </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>58</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<P style="font-family:times;"><FONT SIZE=2><A
HREF="#bg71101a_main_toc">Table of Contents</A></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>reduction
in the average number of research and development employees from 69 for the year ended December&nbsp;31, 2008 as compared to 56 for the year ended December&nbsp;31, 2009 as part of our
business strategy to improve our operating efficiencies and reduce our operating costs. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;General and Administrative.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Our general and administrative expenses were $4.7&nbsp;million for the year ended December&nbsp;31,
2009 compared to
$4.3&nbsp;million for the same period in 2008, representing an increase of $0.4&nbsp;million or approximately 8%. This increase in general and administrative expense was primarily a result of
increases in consulting expenses associated with market research and partnering opportunities as well as higher patent and legal costs. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest Income.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Interest income was $0.5&nbsp;million for the year ended December&nbsp;31, 2009 compared to $1.1&nbsp;million
for the same
period in 2008, representing a decrease of $0.5&nbsp;million or approximately 51%. Although average cash balances were higher for the year ended December&nbsp;31, 2009, the decrease in interest
income was principally a result of lower prevailing interest rates during the period. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest Expense.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Interest expense was $12.7&nbsp;million for the year ended December&nbsp;31, 2009 compared to $8.7&nbsp;million
for the same
period in 2008, representing an increase of $4.0&nbsp;million or approximately 46%. The increase in interest expense was primarily due to interest payments on the non-recourse notes of
Royalty Sub, together with amortization of related deferred financing costs, for the year ended December&nbsp;31, 2009 compared with the eight and one-half months that the
non-recourse notes were outstanding in 2008. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net Income (Loss).</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Net income was $0.5&nbsp;million for the year ended December&nbsp;31, 2009 compared to a net loss of
$33.5&nbsp;million for
the same period in 2008, representing a decrease of $34.0&nbsp;million. The $34.0&nbsp;million change between the net loss of $33.5&nbsp;million for the year ended December&nbsp;31, 2008 and
the net income of $0.5&nbsp;million for the same period in 2009 is primarily due to higher royalty revenues recognized in the year ended December&nbsp;31, 2009, offset by the higher interest
expense related to the
non-recourse notes in 2009 because the non-recourse notes were outstanding for the full year. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Comparison of Year Ended December&nbsp;31, 2008 and Year Ended December&nbsp;31, 2007  </I></B></FONT></P>

</UL>
 <DIV style="padding:0pt;position:relative;width:80%;margin-left:10%;">
<p style="font-family:times;"><font size=1></FONT><FONT SIZE=2>


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<TD WIDTH="" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="50pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="50pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="50pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
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<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH ROWSPAN=2 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ROWSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Year Ended<BR>
December&nbsp;31, </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH ROWSPAN=2 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Increase/<BR>
(decrease) </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2007 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2008 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(in thousands of dollars)</B></FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Revenues:</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Development and milestone revenues</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>1,405</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>2,697</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>1,292</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Royalty revenues</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>2,828</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>6,192</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>3,364</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total revenues</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>4,233</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>8,889</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-top:12pt;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Operations Expenses:</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Research and development</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>19,269</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>30,463</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>11,194</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>General and administrative</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>4,011</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>4,287</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>276</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total operating expenses</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>23,280</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>34,750</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-top:12pt;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Income (loss) from operations</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><BR>
(19,047</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><BR>)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><BR>
(25,861</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><BR>)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Interest income</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>1,773</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>1,057</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>(716</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Interest expense</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>(8,678</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>8,678</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Net income (loss)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>(17,274</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>(33,482</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->
 </DIV>
 <P style="font-family:times;"><FONT SIZE=2><B><I> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenues.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Our revenues were $8.9&nbsp;million for the year ended December&nbsp;31, 2008 compared to $4.2&nbsp;million for the
same period in
2007, representing an increase of $4.7&nbsp;million. The increase in revenues relates primarily to an increase in royalties received from Oracea and the receipt of royalty </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>59</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<A NAME="page_do71101_1_60"> </A>

<P style="font-family:times;"><FONT SIZE=2><A
HREF="#bg71101a_main_toc">Table of Contents</A></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>revenues
related to the product launch of Sanctura XR in the second half of 2008. The increase in development and milestone revenues was due to a $1.3&nbsp;million milestone payment related to the
FDA approval of Sanctura XR that we received. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Research and Development.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Our research and development expenses were $30.5&nbsp;million for the year ended December&nbsp;31,
2008 compared to
$19.3&nbsp;million for the same period in 2007, representing an increase of $11.2&nbsp;million or approximately 58%. The increase in research and development expense is primarily attributable to
an increase in clinical trial expenses of approximately $9.4&nbsp;million, principally due to outside costs associated with the Phase&nbsp;III clinical trial for Epliga that began in second half
of 2008, as well as an increase in compensation costs of approximately $1.7&nbsp;million, primarily related to an increase in clinical and regulatory personnel hired to run and support the
Phase&nbsp;III program for Epliga. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;General and Administrative.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Our general and administrative expenses were $4.3&nbsp;million for the year ended December&nbsp;31,
2008 compared to
$4.0&nbsp;million for the same period in 2007, representing an increase of $0.3&nbsp;million or approximately 7%. The increase in general and administrative expense was primarily a result of an
increase in salaries and benefits costs of $0.2&nbsp;million due to an increase in personnel to support our expanded clinical operations. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest Income.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Interest income was $1.1&nbsp;million for the year ended December&nbsp;31, 2008 compared to $1.8&nbsp;million
for the same
period in 2007, representing a decrease of $0.7&nbsp;million or approximately 40%. The decrease in interest income for the year ended December&nbsp;31, 2008 was principally the result of
significantly lower prevailing interest rates during the period, notwithstanding higher average cash balances. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest Expense.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Interest expense was $8.7&nbsp;million for the year ended December&nbsp;31, 2008 compared to $0 for the same
period in 2007,
representing an increase of $8.7&nbsp;million. The increase in interest expense was due to interest on the non-recourse notes of Royalty Sub, which were issued by it in April 2008,
together with amortization of the related deferred financing costs. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net Income (Loss).</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Net loss was $33.5&nbsp;million for the year ended December&nbsp;31, 2008 compared to $17.3&nbsp;million for
the same period
in 2007, representing an increase of $16.2&nbsp;million or approximately 94%. This change was principally the result of the higher research and development expenses associated with initiating the
Phase&nbsp;III program for Epliga, and the higher interest expense for the year ended December&nbsp;31, 2008 associated with the issuance of the non-recourse notes of Royalty Sub.
These expenses were slightly offset by higher royalty revenues from product sales of Oracea and Sanctura XR. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Liquidity and Capital Resources  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December 2005, we acquired substantially all of the assets of Shire Laboratories,&nbsp;Inc. from Shire&nbsp;plc in exchange for
a cash payment of approximately $0.8&nbsp;million and the issuance of 4&nbsp;million shares of our Series&nbsp;A convertible preferred stock at a value of $1.00 per share. In connection with the
commencement of our operations, in December 2005 and February 2006, we raised approximately $45.0&nbsp;million through the sale of 45&nbsp;million shares of Series&nbsp;A convertible preferred
stock. To date, we have not generated any revenues from the product sales. Since our inception in 2005, we
have funded our operations largely through venture capital equity and other financings, such as the monetization of future royalties due to us from existing license agreements with Endo
Pharmaceuticals Solutions Inc., Galderma Laboratories, L.P. and Shire plc pursuant to which we have received net proceeds of approximately $100.2&nbsp;million through September&nbsp;30, 2010. As
of September&nbsp;30, 2010, we had unrestricted cash, cash equivalents and marketable securities of approximately $45.8&nbsp;million. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>60</FONT></P>

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</FONT> <FONT SIZE=2>
<A HREF="#bg71101a_main_toc">Table of Contents</A> </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Financing History and Future Capital Requirements  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Non-recourse Notes.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;In April 2008, we raised approximately $63.3&nbsp;million in net proceeds through a private placement of
$75.0&nbsp;million aggregate principal amount of 16% non-convertible, non-recourse, secured promissory notes due April&nbsp;15, 2024 (the "Non-recourse Notes")
by Royalty Sub. As part of the transaction, we transferred to Royalty Sub our payment rights and other license rights related to two products that utilize our proprietary technologies: Oracea, which
is marketed by Galderma as a treatment for rosacea; and Sanctura XR, which is marketed by Allergan as a treatment for overactive bladder. The Non-recourse Notes are secured by these
payment and other license rights, as well as by the pledge of all our outstanding equity interest in Royalty Sub. While the Non-recourse Notes are outstanding, all royalty and milestone
payments due from net sales of Oracea and Sanctura XR go to the payment of interest, and when available, to the principal on such Non-recourse Notes. Accordingly, unless and until the
Non-recourse Notes are fully paid, future royalties and milestone payments due from net sales of Oracea and Sanctura XR will not be available to fund our operations. Annual interest
expense related to the Non-recourse Notes is $12.0&nbsp;million. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Royalty
Sub began making quarterly debt service payments on the Non-recourse Notes beginning on July&nbsp;15, 2008. Applicable royalties received by Royalty Sub on net
sales of Oracea and Sanctura XR for any quarter that exceed the interest payments and expenses due for that quarter are applied to the repayment of principal on the Non-recourse Notes. Any
portion of the principal amount of the Non-recourse Notes not repaid on or before the legal final maturity date of April&nbsp;15, 2024, will be payable on that date. As of
September&nbsp;30, 2010, no principal payments have been made. Upon payment of the Non-recourse Notes in full, any residual rights to the royalty payments will revert to us. In addition,
the Non-recourse Notes may be redeemed at our option on any quarterly payment date, subject to the payment of a redemption premium if repaid on or before April&nbsp;15, 2012. After
April&nbsp;15, 2012, the Non-recourse Notes may be redeemed without premium. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
connection with the Non-recourse Note transaction, an $8.0&nbsp;million interest reserve was established to fund potential interest shortfalls or, if none, for repayment
of principal due under the Non-recourse Notes. These funds came out of the debt proceeds and are restricted. Deferred financing costs of approximately $4.4&nbsp;million were paid by
Royalty Sub to complete the transaction. These costs were funded from the debt proceeds and will be amortized to interest expense over 16.2&nbsp;years, which is the expected term of
Non-recourse Notes. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
the first quarter of 2010, the $8.0&nbsp;million interest reserve was exhausted. As of September&nbsp;30, 2010, the Royalty Sub had approximately $1.4&nbsp;million available for
the quarterly interest payment of $3.0&nbsp;million due on October&nbsp;15, 2010. As of December&nbsp;1, 2010, the Royalty Sub paid the interest shortfall of $1.6&nbsp;million and had
$0.8&nbsp;million available for future interest payments. Under the terms of the Non-recourse Notes, the Royalty Sub is not in default for payment of interest unless it fails to make
payment in full on the interest payment by the next succeeding payment date. To date, the Royalty Sub has been able to make payment in full of all interest payments before the next succeeding payment
date. In the event of a default for failure to pay interest timely, the noteholders do not have recourse to us as the Non-recourse Notes are non-recourse beyond Royalty Sub and
non-convertible into any other of our securities, and have not been guaranteed by us. However, we have pledged all of our equity interests in Royalty Sub to secure the
Non-recourse Notes and, upon an event of default, the noteholders could elect to exercise their rights to acquire those equity interests in the Royalty Sub. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sale of Intuniv Royalties.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;In May 2009, we entered into an agreement with an affiliate of Shire&nbsp;plc, whereby a Shire
affiliate paid us a
one-time, lump-sum payment of approximately $36.9&nbsp;million as consideration for a royalty-free, fully paid-up license for Intuniv, which is a
novel ADHD product marketed by Shire&nbsp;plc and utilizes one of our proprietary technologies. As a result, we will not receive any future royalty payments from Shire&nbsp;plc with respect to
Intuniv. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>61</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2><A
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<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> United Therapeutics License  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have a license agreement with United Therapeutics to use one of our proprietary technologies for an oral formulation of Remodulin
for the treatment of PAH, and potentially for additional indications. This oral formulation of treprostinil diethanolamine, or treprostinil, is currently being evaluated by United Therapeutics in
Phase&nbsp;III trials for PAH. Through September&nbsp;30, 2010, we have received approximately $750,000 in pre-commercial milestone payments under the agreement. Remaining milestone
payments to us could total up to approximately $2.8&nbsp;million based on satisfaction of development milestones of oral treprostinil and up to approximately $4.0&nbsp;million for the development
of each additional product that combines a form of oral treprostinal that utilizes our technologies with another drug compound. If United Therapeutics receives approval to market and sell oral
treprostinil for additional indications and/or any additional combination products that utilizes our technologies, we will receive royalties based on net sales worldwide in the single digits. Any
revenues received under this license will fluctuate as a result of the timing and amount of milestone and other payments received under this license, and the amount and timing of payments that we
receive upon the sale of covered products, to the extent any are successfully commercialized by United Therapeutics or its sublicensees. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Funding Requirements  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of September&nbsp;30, 2010, we had unrestricted cash, cash equivalents and marketable securities of $45.8&nbsp;million, and
$1.4&nbsp;million in restricted cash and cash equivalents reserved for interest payments by the Royalty Sub. Although it is difficult to predict future liquidity requirements, we believe that the
net proceeds from this offering, together with our existing unrestricted cash, cash equivalents and marketable securities and anticipated future product revenues, will be sufficient to fund our
operations for at least the next&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;months. However, successful transition to profitability is dependent upon achieving a level of revenues adequate to support our cost structure,
which
we do not expect in the near term, if at all. We cannot assure you that we will ever be profitable or generate positive cash flow from operating activities. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
expect to continue to incur substantial additional operating losses for at least the foreseeable future as we continue to develop our product candidates and seek marketing approval
and, subject to obtaining such approval, the eventual commercialization of SPN-538, Epliga and our other product candidates. If we obtain marketing approval for SPN-538 or Epliga, we will incur
significant sales,
marketing and outsourced manufacturing expenses. In addition, we expect to incur additional expenses to add operational, financial and information systems and personnel, including personnel to support
our planned product commercialization efforts. We also expect to incur significant costs to comply with corporate governance, internal controls and similar requirements applicable to us as a public
company following the closing of this offering. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
future use of operating cash and capital requirements will depend on many forward-looking factors, including the following: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>The timing of our submission to the FDA, and outcome of the FDA's review, of the NDA for SPN-538; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>The timing and outcome of Phase&nbsp;III data for Epliga, along with the timing of our submission to the FDA, and the
outcome of the FDA's review, of the NDA for Epliga;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>The extent to which the FDA may require us to perform additional clinical trials for SPN-538 or Epliga; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>The timing and success of this offering; </FONT></DD></DL>
</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>62</FONT></P>

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HREF="#bg71101a_main_toc">Table of Contents</A></FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>The costs of our commercialization activities for SPN-538 and/or Epliga, if either is approved by the FDA; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>The cost of purchasing manufacturing and other capital equipment for our potential products;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>The scope, progress, results and costs of development for our other product candidates;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>The cost, timing and outcome of regulatory review of our other product candidates;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>The extent to which we acquire or invest in products, businesses and technologies;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>The extent to which we choose to establish collaboration, co-promotion, distribution or other similar
agreements for product candidates; and  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>The costs of preparing, submitting and prosecuting patent applications and maintaining, enforcing and defending
intellectual property claims. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
may need to obtain additional capital through equity offerings, debt financing and/or payments under new or existing licensing and research and development collaboration agreements.
We expect that our progress in the development of our product candidates may provide sufficient value inflection milestones, based on which we will be able to seek additional funding. The type,
timing, and terms of financing, if required, will depend upon our cash needs, the availability of financing sources and the prevailing conditions in the financial markets. There can be no assurance
that such financing will be available to us at any given time or available on favorable terms, if at all. If sufficient funds on acceptable terms are not available when needed, we could be required to
significantly reduce operating expenses and delay, reduce the scope of, or eliminate one or more of our development programs, which may have a material adverse effect on our business, results of
operations and financial condition. In addition, additional debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include covenants limiting
or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Any debt financing or additional equity that we raise may
contain terms, such as liquidation and other preferences, that are not favorable to us or our stockholders. If we raise additional funds through collaboration and licensing arrangements with third
parties, it may be necessary to relinquish valuable rights to our technologies, future revenue streams or product candidates or to grant licenses on terms that may not be favorable to us. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Cash Flows  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth the major sources and uses of cash for the periods set forth below: </FONT></P>
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<TD WIDTH="12pt" style="font-family:times;"></TD>
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<TD WIDTH="50pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
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<TD WIDTH="12pt" style="font-family:times;"></TD>
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<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Year Ended<BR>
December&nbsp;31, </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Nine Months Ended<BR>
September&nbsp;30, </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
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<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2007 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2008 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2009 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2009 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2010 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(unaudited)</B></FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=14 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(in thousands of dollars)</B></FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Net cash provided by (used in):</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Operating activities</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(13,980</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(29,652</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,634</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>11,994</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(20,840</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Investing activities</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>14,854</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>15,481</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(28,385</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(19,618</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>14,278</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Financing activities</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>64,462</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4,280</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,546</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>412</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><p style="font-family:times;margin-left:0pt;text-indent:-0pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Net increase (decrease) in cash and cash equivalents</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>879</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>50,291</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(21,471</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(5,078</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(6,150</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->
 </DIV>
 <P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>63</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=3,SEQ=66,EFW="2201368",CP="SUPERNUS PHARMACEUTICALS",DN="1",CHK=313002,FOLIO='63',FILE='DISK129:[10ZCU1.10ZCU71101]DQ71101A.;40',USER='CMCELRO',CD='22-DEC-2010;18:09' -->
<A NAME="page_dq71101_1_64"> </A>

<P style="font-family:times;"><FONT SIZE=2><A
HREF="#bg71101a_main_toc">Table of Contents</A></FONT></P>
 </DIV>
<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Operating Activities  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The decrease in cash of $32.8&nbsp;million in net cash provided by operations for the nine months ended September&nbsp;30, 2010
compared to the same period in 2009 was primarily because of the royalty revenues received in May 2009 as a one-time, lump-sum payment of approximately $36.9&nbsp;million
from Shire&nbsp;plc as consideration for a royalty-free, fully paid-up license to Shire&nbsp;plc for Intuniv. This decrease in cash provided by operations was offset in the
2010 period by an increase of $5.6&nbsp;million in the net changes in working capital relating to operations. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net
cash provided by operations activities for the year ended December&nbsp;31, 2009 compared to net cash used in operations for the same period in 2008 increased by
$32.3&nbsp;million. This increase was primarily the result of a $33.8&nbsp;million increase in the difference between the net income for the year ended December&nbsp;31, 2009 compared to the net
loss for the same period in 2008 because of the receipt of the one-time payment of approximately $36.9&nbsp;million from Shire&nbsp;plc for Intuniv. This was offset by a
$1.7&nbsp;million decrease in the net changes in working capital relating to operations. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net
cash used in operations for the year ended December&nbsp;31, 2008 compared to the same period in 2007 increased by $15.7&nbsp;million. This increase was primarily the result of a
$16.2&nbsp;million increase in the net loss, offset by, among other things, a $0.4&nbsp;million increase in non-cash items, such as depreciation, stock-based compensation expense and
amortization of deferred financing expenses associated with the Non-recourse Notes issued in 2008. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
expect cash used in operating activities to increase for the year ending December&nbsp;31, 2010 as compared to same period in 2009 due to the anticipated increase in our operating
losses associated with the clinical trials, particularly the Phase&nbsp;III trials for Epliga, costs associated with the preparing the NDA for SPN-538, which we expect to file in the
first quarter of 2011, and the expected acceleration of our development programs. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Investing Activities  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The increase of $33.9&nbsp;million in net cash provided by investing activities for the nine months ended September&nbsp;30, 2010
compared to the same period in 2009 was primarily the result of a $71.9&nbsp;million increase in cash used for the purchase of marketable securities, offset by a $38.2&nbsp;million decrease in the
cash received from the sales and maturities of marketable securities and a $0.2&nbsp;million decrease in cash used for the purchase of property and equipment. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net
cash used in investing activities for the year ended December&nbsp;31, 2009 compared to net cash provided by investing activities for the same period in 2008 decreased by
$43.9&nbsp;million. This decrease was primarily a result of a $76.5&nbsp;million decrease in cash received from the sales and maturities of marketable securities, offset by a $33.2&nbsp;million
increase in the cash used for the purchase of marketable securities and $0.6&nbsp;million increase in purchases of property and equipment primarily related to the leasehold improvements for our
facility and the purchase of laboratory equipment. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net
cash used in investing activities increased by $0.6&nbsp;million for the year ended December&nbsp;31, 2008 compared to the same period in 2007. This increase in cash used for
investing activities was primarily a result of a $40.8&nbsp;million increase in the cash received from the sales and maturities of marketable securities and a $0.9&nbsp;million decrease in
purchases of property and equipment, offset by $41.1&nbsp;million decrease in purchases of marketable securities. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Financing Activities  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash provided by financing activities decreased by $2.1&nbsp;million for the nine months ended September&nbsp;30, 2010 compared
to the same period in 2009. This decrease was primarily due to the drawdown in full by January 2010 of the remaining balance in the interest reserve account established to fund shortfalls in interest
payments for the Non-recourse Notes. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>64</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=4,SEQ=67,EFW="2201368",CP="SUPERNUS PHARMACEUTICALS",DN="1",CHK=628232,FOLIO='64',FILE='DISK129:[10ZCU1.10ZCU71101]DQ71101A.;40',USER='CMCELRO',CD='22-DEC-2010;18:09' -->
<A NAME="page_dq71101_1_65"> </A>

<P style="font-family:times;"><FONT SIZE=2><A
HREF="#bg71101a_main_toc">Table of Contents</A></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net
cash provided by financing activities decreased by $60.2&nbsp;million for the year ended December&nbsp;31, 2009 compared to the same period in 2008 and increased by
$64.5&nbsp;million for the year ended December&nbsp;31, 2008 compared to the same period in 2007. The increase for the year ended December&nbsp;31,
2008 and the decrease for the year ended December&nbsp;31, 2009 were primarily due to the issuance of the $75&nbsp;million in Non-recourse Notes in April 2008, offset by the initial
funding of, and then subsequent interest payments from, the interest reserve account for the Non-recourse Notes and the deferred financing costs associated with the
Non-recourse Notes. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Contractual Obligations and Commitments  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table summarizes our contractual obligations and commitments as of September&nbsp;30, 2010 (except as noted below): </FONT></P>
 <DIV style="padding:0pt;position:relative;width:80%;margin-left:10%;">
<p style="font-family:times;"><font size=1></FONT><FONT SIZE=2>


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<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE width="100%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="47pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="45pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="45pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="61pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="51pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH NOWRAP  ALIGN="LEFT" style="font-family:times;"><DIV style="border-bottom:solid #000000 1.0pt;margin-bottom:0pt;width:85pt;"><FONT SIZE=1><B>Contractual Obligations

<!-- COMMAND=ADD_SCROPPEDRULE,85pt -->

 </B></FONT></DIV></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Less than<BR>
1 Year </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>1&nbsp;&#150;&nbsp;3<BR>
Years </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>3&nbsp;&#150;&nbsp;5<BR>
Years </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Greater&nbsp;than<BR>
5 Years </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Total </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=14 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(in&nbsp;thousands of dollars)</B></FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Non-recourse Notes<SUP>(1)</SUP></FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>75,000</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>75,000</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Interest on Non-recourse Notes<SUP>(1)</SUP></FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>12,000</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>24,000</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>24,000</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>102,500</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>162,500</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Operating leases<SUP>(2)</SUP></FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>983</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>1,610</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>2,593</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Purchase obligations<SUP>(3)</SUP></FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>9,988</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>190</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>10,178</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total<SUP>(4)</SUP></FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>22,971</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>25,800</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>24,000</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>177,500</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>250,271</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
</TABLE></DIV>
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<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(1)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Annual
interest expense is $12.0&nbsp;million, based on a principal amount outstanding of $75.0&nbsp;million as of September&nbsp;30, 2010. For
purposes of this table, we have assumed that the repayment of principal will not be repaid before the legal final maturity date of April&nbsp;15, 2024. The Non-recourse Notes and related
interest payments are non-recourse beyond Royalty Sub and non-convertible into any other of our securities.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(2)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Our
commitments for operating leases relate to our lease of office and laboratory space as of September&nbsp;30, 2010.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(3)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Relates
primarily to agreements and purchase orders with contractors for the conduct of clinical trials and other research and development and marketing
activities.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(4)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>This
table does not include (a)&nbsp;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)&nbsp;any royalty payments to third parties as the amounts, timing and likelihood of such payments are not known and (c)&nbsp;contracts that are
entered into in the ordinary course of business which are not material in the aggregate in any period presented above. </FONT></DD></DL>
 </DIV>
 <P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In November 2010, we amended the lease for our principal office and laboratory space. Under terms of the amended lease, we extended the term for
an additional five years to April 2018, obtained six months' rent abatement beginning in November 2010, with no future rent increase until November 2013 and thereafter only 2% annual rent increase per
year, as well as additional funds and reimbursements for certain tenant improvements. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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, 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 also 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. There are no future milestone payments owing to Rune
under this agreement. If we receive approval to </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>65</FONT></P>

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<P style='font-family:times;page-break-before:always'></p>
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<P style="font-family:times;"><FONT SIZE=2><A
HREF="#bg71101a_main_toc">Table of Contents</A></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>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. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B> Off-Balance Sheet Arrangements  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 other
contractually narrow or limited purposes. In addition, we do not engage in trading activities involving non-exchange traded contracts. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Critical Accounting Policies and Estimates  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our management's discussion and analysis of our financial condition and results of operations are based on our consolidated financial
statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we evaluate these estimates and judgments, including those described below. We base our estimates on
historical experience and on various other
assumptions that we believe to be reasonable under the circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities and
amounts recorded as revenues and expenses that are not readily apparent from other sources. Actual results and experiences may differ materially from these estimates. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;While
a summary of significant accounting policies are more fully described in Note&nbsp;2 to our consolidated financial statements appearing at the end of this prospectus, we believe
that the following accounting policies are the most critical to aid you in fully understanding and evaluating our reported financial results and affect the more significant judgments and estimates
that we use in the preparation of our consolidated financial statements. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Revenue Recognition  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our revenues have been generated through research and development agreements, which included fees for development services provided to
customers, payments for achievement of specified development, regulatory and sales milestones and royalties on product sales of licensed products. For multiple element arrangements, we evaluate the
components of each arrangement as separate elements based on certain criteria. Accordingly, revenues from collaboration agreements are recognized based on the performance requirements of the
agreements. We recognize revenues when persuasive evidence of an arrangement exists; delivery has occurred or services have been rendered; the fee is fixed and determinable; and collection is
reasonably assured. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
recognize development revenues as the related costs are incurred. Milestone payments are recognized as revenues when the collaborative partner acknowledges completion of the milestone
and substantive effort was necessary to achieve the milestone. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
record royalty revenues based on estimates of the sales that occurred during the relevant period. The relevant period estimates of sales are based on interim data provided by
licensees and analysis of historical royalties received (adjusted for any changes in facts and circumstances, as appropriate). We maintain regular communication with our licensees in order to obtain
information to develop reasonable estimates. Differences between actual royalty revenues and estimated royalty revenues are reconciled and adjusted for in the period which they become known, typically
the following quarter. Historically, adjustments have not been material based on actual amounts received from licensees. To the extent we do not have sufficient ability to accurately estimate
revenues; we record revenues on a cash basis. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>66</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2><A
HREF="#bg71101a_main_toc">Table of Contents</A></FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Accrued Expenses  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As part of the process of preparing the consolidated financial statements, we may be required to estimate accrued expenses. This
process involves reviewing open contracts and purchase orders, communicating with applicable personnel to identify services that have been performed on our behalf and estimating the level of service
performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual cost. The majority of our service providers invoice us monthly in arrears
for services performed. We make estimates of our accrued expenses as of each consolidated balance sheet date in our consolidated financial statements based on facts and circumstances known to us. We
confirm the accuracy of our estimates with the service providers and make adjustments if necessary. Examples of estimated accrued expenses include: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>fees paid to contract research organizations, or CROs, in connection with clinical trials;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>fees paid to investigative sites in connection with clinical trials;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>fees paid to contract manufacturers in connection with the production of clinical trial materials; and </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>professional service fees. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
base our expenses related to clinical trials on our estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and CROs that
conduct and manage clinical trials on our behalf. The financial terms of these agreements are subject to negotiation, vary
from contract to contract and may result in uneven payment flows. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical
trial milestones. In accruing the related service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of
the performance of services or the level of effort varies from our estimate, we will adjust the accrual accordingly. If we do not identify costs that we have begun to incur or if we underestimate or
overestimate the level of services performed or the costs of these services, our actual expenses could differ from our estimates. We do not anticipate the future settlement of existing accruals to
differ materially from our estimates. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Stock-Based Compensation  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We recognize as compensation expense the estimated fair value of stock options and non-vested stock awards issued to
employees over the requisite service periods, which are typically the vesting periods. Equity instruments issued to non-employees are recorded at their estimated fair value and are
remeasured each reporting period as the equity instruments vest and the related expense is recognized ratably over the related service period. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stock-based
compensation expense includes stock options and non-vested stock granted to employees and non-employees and has been reported in our statements of
operations as follows: </FONT></P>
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<p style="font-family:times;"><font size=1></FONT><FONT SIZE=2>


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</FONT></P>

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<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="25pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="25pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="30pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="56pt" style="font-family:times;"></TD>
<TD WIDTH="18pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="30pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
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<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Years Ended<BR>
December&nbsp;31, </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Nine Months Ended<BR>
September&nbsp;30, </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2007 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2008 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2009 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2009 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2010 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(unaudited)</B></FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=14 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(in thousands of dollars)</B></FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Research and development</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>9</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>28</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>28</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>21</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>32</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>General and administrative</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>65</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>71</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>83</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>62</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>92</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>74</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>99</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>111</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>83</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>124</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
</TABLE></DIV>
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 </DIV>
 <P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>67</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<A NAME="page_dq71101_1_68"> </A>

<P style="font-family:times;"><FONT SIZE=2><A
HREF="#bg71101a_main_toc">Table of Contents</A></FONT></P>
 </DIV>
 <P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Historically,
stock-based compensation has not been material to our results of operations or financial position. Because the determination of the estimated fair value of share-based
payments inherently includes the use of subjective assumptions and the potential that the related expense may be material in the future, we have included stock-based compensation as a significant
accounting policy. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
calculate the fair value of stock-based compensation awards using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model requires the input of subjective
assumptions, including stock price volatility, assumed dividend yield, the expected life of stock options and a risk-free interest rate. We calculate expected volatility based on reported
data for selected reasonably similar publicly traded companies, or guideline peer group, for which the historical information is available. We will continue to use the guideline peer group volatility
information until the historical volatility of our common stock is relevant to measure expected volatility for future option grants. The assumed dividend yield is based on our expectation of not
paying dividends in the foreseeable future. We determine the average expected life of stock options according to the "simplified method" as described in Staff Accounting Bulletin 110, which is the
mid-point between the vesting date and the end of the contractual term. We determine the risk-free interest rate by reference to implied yields available from U.S. Treasury
securities with a remaining term equal to the expected life assumed at the date of grant. The assumptions used in the Black-Scholes option-pricing model for the years ended December&nbsp;31, 2007,
2008 and 2009 and the nine months ended September&nbsp;30, 2009 and 2010 are set forth in our consolidated financial statements appearing at the end of this prospectus. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Forfeitures
are not an assumption that impacts the Black-Scholes option-pricing model, however, it is an estimate that impacts the amount of stock compensation expense recognized. We
estimate forfeiture rates based on our historical analysis of actual stock option forfeitures. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There
is a high degree of subjectivity involved when using option-pricing models to estimate stock-based compensation. There currently is no market-based mechanism or other practical
application to verify the reliability and accuracy of the estimates stemming from these valuation models, nor is there a means to compare and adjust the estimates to actual values. Although the
estimated fair value of employee stock-based awards is determined using an option-pricing model, that value may not be indicative of the fair value observed in a market transaction between a willing
buyer and willing seller. If factors change and we employ different assumptions when valuing our options, the compensation expense that we record in the future may differ significantly from what we
have historically reported. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
board of directors estimated the fair value for our common stock, with input from management. Given the absence of an active market for our common stock, our board of directors
contemporaneously estimated the fair value of our common stock with the assistance of a third-party valuation firm on the dates of grant. These contemporaneous valuations were performed in accordance
with applicable methodologies, approaches and assumptions of the technical practice aid issued by the American Institute of Certified Public Accountants Practice Aid entitled </FONT> <FONT SIZE=2><I>Valuation of
Privately-Held Company Equity Securities Issued as Compensation,</I></FONT><FONT SIZE=2> considering numerous objective and subjective factors to determine common stock fair market value
at each option grant date, including but not limited to the following factors: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>our stage of development and business strategy;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>our financial condition, operating results and book value;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>economic and competitive elements affecting us, our industry and our target markets;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>our projected operating results;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>a comparative analysis of our financial condition and operating results with those of publicly-owned companies engaged in
similar lines of business; </FONT></DD></DL>
</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>68</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<A NAME="page_dq71101_1_69"> </A>

<P style="font-family:times;"><FONT SIZE=2><A
HREF="#bg71101a_main_toc">Table of Contents</A></FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the current and historical relationship between the reported stock prices and revenues and earning levels of selected
publicly traded companies engaged in similar lines of business;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>important developments relating to the results of our clinical trials;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the likelihood of achieving a liquidity event for our outstanding shares of stock; and  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the price per share at which our Series&nbsp;A convertible preferred stock was issued to investors including the rights,
preferences and privileges of the preferred stock relative to the common stock. In considering the rights and preferences of our Series&nbsp;A convertible preferred stock relative to our common
stock, we considered the following rights and preferences: </FONT> <FONT SIZE=2>
<BR><BR></FONT>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>The holders of our Series&nbsp;A convertible preferred stock are entitled to receive a cumulative annual dividend of
$0.07 per share, when and if declared by the board of directors; and,  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>The holders of our Series&nbsp;A convertible preferred stock are entitled to a liquidation preference. The aggregate
amount of liquidation preferences, excluding any dividends, has increased from $6.8&nbsp;million as of December&nbsp;31, 2007 to $16.2&nbsp;million as of September&nbsp;30, 2010. In the event
of liquidation, dissolution or winding up of our company, the liquidation preference for each Series&nbsp;A convertible preferred share equals the original purchase price of $1.00 per share, plus
accumulated unpaid dividends. </FONT></DD></DL>
</DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table represents stock option grant information from January&nbsp;1, 2009 through the filing date, including the estimated fair value of the option grant as determined by
the Black-Scholes option-pricing model. </FONT></P>
 <DIV style="padding:0pt;position:relative;width:80%;margin-left:10%;">
<p style="font-family:times;"><font size=1></FONT><FONT SIZE=2>


<!-- COMMAND=ADD_TABLEWIDTH,"100%" -->


 </FONT></P>

<!-- User-specified TAGGED TABLE -->
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<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="10pt" style="font-family:times;"></TD>
<TD WIDTH="" style="font-family:times;"></TD>
<TD WIDTH="18pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="55pt" style="font-family:times;"></TD>
<TD WIDTH="18pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="40pt" style="font-family:times;"></TD>
<TD WIDTH="18pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="49pt" style="font-family:times;"></TD>
<TD WIDTH="18pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="41pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH NOWRAP  COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><DIV style="border-bottom:solid #000000 1.0pt;margin-bottom:0pt;width:40pt;"><FONT SIZE=1><B>Grant Date

<!-- COMMAND=ADD_SCROPPEDRULE,40pt -->

 </B></FONT></DIV></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Number of<BR>
Options </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Exercise<BR>
Price </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Estimated<BR>
Fair&nbsp;Value </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Intrinsic<BR>
Value </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>January&nbsp;19, 2009</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>225,000</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>0.40</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>0.23</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>December&nbsp;15, 2009<SUP>(1)</SUP></FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>257,200</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>1.76</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><SUP>(1)</SUP></FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>1.03</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>February&nbsp;10, 2010</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>52,500</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>0.84</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>0.49</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>April&nbsp;16, 2010</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>32,750</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>0.84</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>0.49</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>July&nbsp;20, 2010</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>38,500</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>0.84</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>0.48</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>October&nbsp;15, 2010</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>15,000</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>0.64</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>0.37</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>November&nbsp;2, 2010</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>880,000</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>0.64</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>0.41</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>November&nbsp;16, 2010</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>35,000</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>0.64</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>0.41</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>1,535,950</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
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<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2><SUP>(1)</SUP></FONT></DT><DD style="font-family:times;"><FONT SIZE=2>On
November&nbsp;2, 2010, 255,000 of these options were repriced from $1.76 to $0.64 per share. </FONT></DD></DL>
 </DIV>
 <P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
board of directors has made only one grant of non-vested stock. This grant was made in December 2005 for 3,500,000 shares of common stock. The estimated fair value of
those shares as of the date of grant was $0.10 per share. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
November&nbsp;2, 2010, our board of directors repriced 255,000 of the options granted on December&nbsp;15, 2009 from a per share exercise price of $1.76 to $0.64. In addition, our
board approved the modification of the performance vesting requirements related to 157,697 employee stock options and 411,765 shares of non-vested stock awarded to our chief executive
officer. The vesting of these share-based awards were contingent upon the filing of our first NDA on or before December&nbsp;22, 2010, and our board extended the deadline for the achievement of this
performance condition to March&nbsp;31, 2011. As a result of these actions, there is no immediate charge related to the repriced and modified options, and we will recognize additional stock based
compensation of approximately $50,000 over the remaining vesting periods for these options. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>69</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All
contemporaneous valuations were prepared consistent with the AICPA Practice Aid. At each valuation date, we considered the use of market, income and asset valuation approaches. We
lacked relevant financial metrics to utilize the market approach and the asset approach was not utilized because the majority of our assets are intangible, accordingly we used an income approach for
each valuation. The income approach values a business based upon the future benefits that will accrue to it with the value of the future economic benefits discounted back to a present value at some
appropriate discount rate. Implicit in the market price of all publicly traded securities is a consensus forecast of earnings and financial condition. The consensus forecast results from the
information made available to the investing public by us and from the numerous forecasts prepared by financial analysts. We have replicated this approach through the preparation of an operating
forecast and the use of discounted cash flow analysis. The discount rate reflects all the risk of ownership and the associated risks of realizing the prospective economic income stream. Given that we
have Series&nbsp;A convertible preferred stock outstanding, it was also necessary to allocate our company's value to the various classes of stock. As provided in the AICPA Practice Guide, there are
several approaches for allocating equity value of a privately-held company among the securities in a complex capital structure, including the current value method, the probability weighted
expected return method and the option pricing method. The current value method was not employed because a liquidity event, in the form of an acquisition or dissolution, was not imminent. The
probability weighted expected return method was not utilized because of the nature of drug development and our stage of development estimating the probability and value of various liquidity events is
highly speculative. We used the option-pricing method to allocate the estimated value of our equity to the classes of securities. The value of our common stock was then discounted for lack of
marketability, or the inability to readily sell shares, which increases the owner's exposure to changing market conditions and increases the risk of ownership. The discount for lack of marketability
was derived using a protective put calculation using the Black-Scholes option pricing model. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Stock Option Grants on January&nbsp;19, 2009  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our board of directors granted stock options on January&nbsp;19, 2009, with each having an exercise price of $0.40 per share. In
addition to considering the objective and subjective factors listed above, our board of directors considered the valuation as of December&nbsp;31, 2007 provided by management in determining the fair
value of our common stock on January&nbsp;19, 2009. We considered this valuation relevant in our determination of the estimated fair value of the common stock primarily because the deterioration of
the overall financial markets in the second half of 2008 overshadowed progress on our clinical pipeline and the financing from the Non-recourse Notes. Our board of directors considered
that in the face of the credit and liquidity crisis and the resulting uncertainties, the prospects for a liquidity event in the foreseeable future were significantly lower. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
the December&nbsp;31, 2007 valuation, we used the income approach, specifically a discounted cash flow analysis, to estimate our company's equity value. The first step in that
process was to calculate the present value of our discrete net cash flows for the periods projected. Next, the present value of our terminal net cash flow was calculated. The sum of these two present
values, utilizing a cost of capital discount rate of 21.2%, determined the total market value capitalization on a minority basis to approximate $59.5&nbsp;million. We added free cash (cash remaining
after all investments and commitments that could potentially be available for debt service or shareholders dividends without impairing operations) in the amount of $25.9&nbsp;million to estimate the
market value of the total equity on a minority interest basis to approximate $85.4&nbsp;million. This estimated value was allocated between the Series&nbsp;A convertible preferred stock and common
stock using the option-pricing method. A discount of 25.0% was applied to account for the lack of marketability of our common stock. This analysis yielded an estimated fair value of our common stock
at December&nbsp;31, 2007 of $0.40 per share. Our board determined this valuation analysis to be reasonable and, on the basis of the factors described above, that the estimated fair value of our
common stock on January&nbsp;19, 2009 was $0.40 per share. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>70</FONT></P>

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<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Stock Option Grants on December&nbsp;15, 2009  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our board of directors granted stock options on December&nbsp;15, 2009, with each having an exercise price of $1.76 per share. In
addition to considering the objective and subjective factors listed above, our board of directors considered the valuation as of July&nbsp;16, 2009 provided by management in determining the fair
value of our common stock on December&nbsp;15, 2009. We utilized the income approach, specifically a discounted cash flow analysis, to estimate the equity value of our company. In addition, to the a
non-risk adjusted forecast we also considered a
risk-adjusted forecast using various probabilities to reflect the risks of achieving commercialization based on the products clinical stage of development. We utilized non-risk
adjusted and risk adjusted costs of capital of 25.0% and 18.9%, respectively. These discount rates were applied to our discrete net cash flows to determine the present value. This present value was
combined with the present value of our terminal cash flow to determine the total market value of capitalization for us on a minority interest basis of approximately $122.9&nbsp;million. We added
free cash in the amount of $80.6&nbsp;million to estimate the market value of the total equity, on a minority interest basis, of to be approximately $203.5&nbsp;million. This estimated value was
allocated between the Series&nbsp;A convertible preferred stock and common stock using option-pricing method. A discount of 30.0% was applied to account for the lack of marketability of our common
stock. This analysis yielded an estimated fair value of our common stock at July&nbsp;16, 2009 of $1.76 per share. Based on the foregoing, we concluded the fair value of our common stock as of
December&nbsp;15, 2009 was $1.76 per share. No significant changes had come to our attention between July&nbsp;16, 2009 and the December&nbsp;15, 2009 grant date to warrant a revaluation of the
stock. We therefore concluded there was no basis for a change in the fair value during such period. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
increase in the estimated fair value of the common stock relative to the December&nbsp;31, 2007 valuation relates to several items. First, we had an additional $55.0&nbsp;million
of free cash on hand as a result of the monetization of certain future royalty streams under our licenses for Oracea, Sanctura XR and Intuniv. In addition, we had completed in-depth market
research in mid-2009 that indicated a substantially greater commercial potential for our two epilepsy product candidates. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Stock Option Grants on February&nbsp;10, April&nbsp;16 and July&nbsp;20, 2010  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our board of directors granted stock options on February&nbsp;10, April&nbsp;16 and July&nbsp;20, 2010, with each having an
exercise price of $0.84 per share. In addition to considering the objective and subjective factors listed above, our board of directors considered the valuation as of December&nbsp;31, 2009 provided
by management in determining the fair value of our common stock on each of February&nbsp;10, April&nbsp;16 and July&nbsp;20, 2010. We utilized the income approach, specifically a discounted cash
flow analysis, to estimate the equity value of our company. We considered a non-risk adjusted forecast and risk-adjusted forecast using various probabilities to reflect the
risks of achieving commercialization based on our products clinical stage of development. We utilized non-risk adjusted and risk adjusted costs of capital of 25.0% and 15.7%, respectively.
These discount rates were applied to our discrete net cash flows to determine the present value. This present value was combined with the present value of our terminal cash flow to determine the total
market value of capitalization for us, on a minority interest basis, of approximately $53.0&nbsp;million. We added free cash in the amount of $66.7&nbsp;million to estimate the market value of the
total equity on a minority interest basis to be approximately $119.7&nbsp;million. This estimated value was allocated between the Series&nbsp;A convertible preferred stock and common stock using
option-pricing method. A discount of 30.0% was applied to account for the lack of marketability of our common stock. This analysis yielded an estimated fair value of our common stock at
December&nbsp;31, 2007 of $0.84 per share. Based on the foregoing, we concluded the fair value of our common stock as of February&nbsp;10, 2010 was $0.84 per share. We further determined the fair
value of the common stock as of April&nbsp;16 and July&nbsp;20, 2010 to be $0.84 per share. No significant changes had come to our attention between
December&nbsp;31, 2009 and each of the foregoing grants date to warrant a revaluation of the stock. We therefore concluded there was no basis for a change in the fair value during such period. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>71</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
decrease in the estimated fair value of the common stock as compared to the July&nbsp;16, 2009 valuation principally relates to information regarding the announcement in December
2009 by a competitor of the initiation of a Phase&nbsp;III clinical trial for a once-a-day, extended-release topiramate product to treat epilepsy that could compete
head-to-head with SPN-538, and, if approved before SPN-538, would have three years of market exclusivity. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Stock Option Grants on October&nbsp;15, November&nbsp;2 and November&nbsp;16, 2010  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our board of directors granted stock options on October&nbsp;15, November&nbsp;2 and November&nbsp;16, 2010, with each having an
exercise price of $0.64 per share. In addition to considering the objective and subjective factors listed above, our board of directors considered the valuation as of October&nbsp;1, 2010 provided
by management in determining the fair value of our common stock on each of October&nbsp;15, November&nbsp;2 and November&nbsp;16, 2010. We utilized the income approach, specifically a discounted
cash flow analysis, to estimate the equity value of our company. We utilized a non-risk adjusted forecast and a risk-adjusted forecast using various probabilities to reflect
the risks of achieving commercialization based on our product candidates' clinical stage of development. We utilized non-risk adjusted and risk adjusted costs of capital of 22.0% and
14.2%, respectively. These discount rates were applied to our discrete net cash flows to determine the present value. This present value was combined with the present value of our terminal cash flow
to determine our total market value of capitalization on a minority interest basis of approximately $64.4&nbsp;million. We added free cash in the amount of $45.8&nbsp;million to estimate the
market value of the total equity on a minority interest basis to be approximately $110.2&nbsp;million. This estimated value was allocated between the Series&nbsp;A convertible preferred stock and
common stock using option-pricing method. A discount of 20.0% was applied to account for the lack of marketability of our common stock. This analysis yielded an estimated fair value of our common
stock at October&nbsp;1, 2010 of $0.64 per share. Based on the foregoing, we concluded the fair value of our common stock as of October&nbsp;15, November&nbsp;2 and November&nbsp;16, 2010 was
$0.64 per share. No significant changes had come to our attention between October&nbsp;1, 2010 and each of the foregoing grants date to warrant a revaluation of the stock. We therefore concluded
there was no basis for a change in the fair value during such period. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
decrease in the estimated fair value of the common stock as compared to the December&nbsp;31, 2009 valuation principally relates to a reduction of $20.8&nbsp;million of free cash
and a further refinement in the
market estimates for our two epilepsy products based on additional market research on the dynamics of the market for epilepsy products and our expected product profiles upon approval. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Recent Accounting Pronouncements  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In August 2009, the FASB issued ASU No.&nbsp;2009-05, </FONT><FONT SIZE=2><I>Fair Value Measurements and Disclosures
(Topic 820)&#151;Measuring Liabilities at Fair Value</I></FONT><FONT SIZE=2> ("ASU 2009-05"). ASU 2009-05 provides guidance in measuring the fair value of a liability
when a quoted price in an active market does not exist for an identical liability or when a liability is subject to restrictions on its transfer. ASU 2009-15 was effective for us beginning
with the quarter ended December&nbsp;31, 2009. The adoption of ASU 2009-05 had no impact on the fair value measurements of our liabilities. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
October 2009, the FASB issued ASU No.&nbsp;2009-13, </FONT><FONT SIZE=2><I>Revenue Recognition (Topic 605)&#151;Multiple-Deliverable Revenue Arrangements: a
consensus of the FASB Emerging Issues Task Force</I></FONT><FONT SIZE=2> ("ASU 2009-13"). ASU 2009-13 establishes a selling-price hierarchy for determining the selling price of
each element within a multiple-deliverable arrangement. Specifically, the selling price assigned to each deliverable is to be based on vendor-specific objective evidence (VSOE) if available,
third-party evidence, if VSOE is unavailable, and estimated selling prices if neither VSOE or third-party evidence is available. In addition, ASU 2009-13 eliminates the residual method of
allocating arrangement consideration and instead requires allocation using the relative selling price method. ASU 2009-13 will be effective prospectively for multiple-deliverable revenue
arrangements entered into, or materially modified, in </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>72</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>fiscal
years beginning on or after June&nbsp;15, 2010. Presently, we are assessing what impact, if any, the adoption of ASU 2009-13 may have on our consolidated financial statements. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
January 2010, the FASB issued Accounting Standards Update (ASU) No.&nbsp;2010-06, </FONT><FONT SIZE=2><I>Fair Value Measurements and Disclosures (Topic
820)&#151;Improving Disclosures about Fair Value Measurements</I></FONT><FONT SIZE=2> ("ASU No.&nbsp;2010-06"). ASU No.&nbsp;2010-06 requires: (1)&nbsp;fair value
disclosures of assets and liabilities by class; (2)&nbsp;disclosures about significant transfers in and out of Levels&nbsp;1 and 2 on the fair value hierarchy, in addition to Level&nbsp;3;
(3)&nbsp;purchases, sales, issuances, and settlements be disclosed on gross basis on the reconciliation of beginning and ending balances of Level&nbsp;3 assets and liabilities; and
(4)&nbsp;disclosures about valuation methods and inputs used to measure the fair value of Level&nbsp;2 assets and liabilities. ASU No.&nbsp;2010-06 becomes effective for the first
financial reporting period beginning after December&nbsp;15, 2009, except for disclosures about purchases, sales, issuances, and settlements of Level&nbsp;3 assets and liabilities which will be
effective for fiscal years beginning after December&nbsp;15, 2010. We are currently assessing what impact, if any, ASU No.&nbsp;2010-06 will have on our fair value disclosures;
however, we do not expect the
adoption of the guidance provided in this codification update to have any material impact on our consolidated financial statements. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
February 2010, the FASB issued amended guidance on subsequent events. Under this amended guidance, SEC filers are no longer required to disclose the date through which subsequent
events have been evaluated in originally issued and revised financial statements. This guidance was effective immediately and we adopted these new requirements upon issuance of this guidance. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
April 2010, the FASB issued ASU No.&nbsp;2010-17, </FONT><FONT SIZE=2><I>Revenue Recognition&#151;Milestone Method</I></FONT><FONT SIZE=2> (ASU
2010-017). ASU 2010-017 provides guidance in applying the milestone method of revenue recognition to research or development arrangements. This guidance concludes that the
milestone method is a valid application of the proportional performance model when applied to research or development arrangements. Accordingly, an entity can make an accounting policy election to
recognize a payment that is contingent upon the achievement of a substantive milestone in its entirety in the period in which the milestone is achieved. The guidance is effective for fiscal years, and
interim periods within those years, beginning on or after June&nbsp;15, 2010. The adoption of this accounting standard is not expected to impact our financial position or results of operations. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Quantitative and Qualitative Disclosure About Market Risk  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 and cash equivalents. As of September&nbsp;30, 2010, we had unrestricted cash, cash equivalents
and marketable securities of $45.8&nbsp;million. We do not engage in any hedging activities against changes in interest rates. Because of the short-term maturities of our cash and cash
equivalents, 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 foreign currency or other derivative
financial instruments. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 currencies. 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 $139,000 for the year ended December&nbsp;31, 2009. 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 $139,000 for the year ended December&nbsp;31, 2009. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
do not believe that inflation and changing prices over the years ended December&nbsp;31, 2008 and 2009 and the nine months ended September&nbsp;30, 2010 had a significant impact
on our results of operations. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>73</FONT></P>

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<BR></FONT><FONT SIZE=2><B>  BUSINESS    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Overview  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are a specialty pharmaceutical company focused on developing and commercializing products for the treatment of central nervous
system, or CNS, diseases. Our extensive expertise in product development has been built over the past 20&nbsp;years: initially as a stand alone development organization, then as a U.S. subsidiary of
Shire&nbsp;plc and, upon our acquisition of substantially all the assets of Shire Laboratories&nbsp;Inc. in late 2005, as Supernus Pharmaceuticals. We are developing several product candidates in
neurology and psychiatry to address large market opportunities in epilepsy and attention deficit hyperactivity disorder, or ADHD. Our two epilepsy product candidates are SPN-538 (extended
release topiramate), for which we expect to file&nbsp;a new drug application, or NDA, in the first quarter of 2011, and Epliga (extended release oxcarbazepine), which is in Phase&nbsp;III clinical
trials. Our ADHD product candidates include SPN-810 (molindone hydrochloride), a novel treatment for impulsive aggression in patients with ADHD and SPN-812, a novel
non-stimulant treatment of ADHD. Both of these programs are in Phase&nbsp;II. In addition to these four lead product candidates, we have several additional product candidates in various
stages of development. We intend to market our product candidates in the United States through our own focused sales force targeting specialty physicians, including neurologists and psychiatrists. We
believe our diversified and broad portfolio of product candidates provides us with multiple opportunities to achieve our goal of becoming a leading specialty pharmaceutical company focused on CNS
diseases. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
use our proprietary technologies to enhance the therapeutic benefits of approved anti-epileptic drugs, or AEDs through advanced extended release formulations. Our most advanced
product candidates, SPN-538 and Epliga, are novel oral once-daily extended release formulations of topiramate and oxcarbazepine, respectively; for the treatment of epilepsy. Immediate
release formulations of topiramate and oxcarbazepine, are available in generic form and are marketed by Johnson &amp; Johnson and Novartis under the brand names of Topamax and Trileptal, respectively.
According to IMS Health, peak sales of Topamax and Trileptal represented an estimated 25.8% and 8.1% of the total seizure disorder market in 2008 and 2006, respectively. We are pursuing a
Section&nbsp;505(b)(2) regulatory strategy for SPN-538 and Epliga, which would allow us to rely on the existing data from the NDAs of Topamax and Trileptal, respectively. The
once-per-day dosing of each of SPN-538 and Epliga is designed to improve patient compliance and to provide a better tolerability profile compared to the current
immediate release AEDs that are taken multiple times per day to maintain therapeutic drug concentrations over the dosing interval. We believe there is a significant unmet need for extended release
products, such as SPN-538 and Epliga, for the treatment of epilepsy. Extended release products have been shown to improve compliance, increase seizure control, reduce side effects and improve
tolerability as compared to immediate release products, which can lead to fewer side effects, better tolerability, increased seizure control and greater patient compliance. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
are also developing treatments for new indications in diseases such as ADHD and its coexisting disorders. We are developing SPN-810, which is currently in Phase&nbsp;II,
as a novel treatment for impulsive aggression in patients with ADHD. If approved by the U.S. Food and Drug Administration, or FDA, SPN-810 could be the first product available to address
this serious, unmet medical need. SPN-810 is based on molindone hydrochloride, which was previously marketed in the United States as an anti-psychotic to treat schizophrenia
under the trade name Moban. In addition, SPN-812, which is currently in Phase&nbsp;II, is being developed as a novel non-stimulant treatment for ADHD. SPN-812 is
a selective norepinephrine reuptake inhibitor that we believe could be more effective and have a better side effect profile than other non-stimulant treatments for ADHD. In addition,
because the active ingredient of SPN-812 has demonstrated efficacy as an antidepressant in Europe, this product candidate may provide increased benefit to an estimated 40% of ADHD patients who suffer
from depression. </FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition to these four lead product candidates, we have a number of other product candidates in various stages of development such as SPN-809, which would represent a
novel mechanism of action for the U.S. antidepressant market. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
table below summarizes our current pipeline of novel product candidates. </FONT></P>
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<TH style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TH>
<TH ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=2>Indication </FONT></TH>
<TH style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TH>
<TH ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=2>Status </FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><B>SPN-538</B></FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2> Epilepsy</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2> NDA to be filed Q1 2011</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><B>Epliga</B></FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2> Epilepsy</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2> Phase&nbsp;III</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><B>SPN-810</B></FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2> Impulsive Aggression in ADHD</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2> Phase&nbsp;II</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><B>SPN-812</B></FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2> ADHD</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2> Phase&nbsp;II</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><B>SPN-809</B></FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2> Depression</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2> IND filed</FONT></TD>
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 <P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have a long track record of developing novel products by applying proprietary technologies to known drugs to improve existing therapies and enable the treatment of new indications. We
have a broad portfolio of drug development technologies consisting of six platforms that include the following: Microtrol (multiparticulate delivery platform), Solutrol (matrix delivery platform) and
EnSoTrol
(osmotic delivery system). Our proprietary technologies have been used in the following approved products: Carbatrol (carbamazepine), Adderall XR (mixed amphetamine salts), and Intuniv (guanfacine),
marketed by Shire; Equetro (carbamazepine), marketed by Validus Pharmaceuticals&nbsp;Inc.; Sanctura XR (trospium chloride), marketed by Allergan; and Oracea (doxycycline), marketed by Galderma. We
are continuing to expand our intellectual property portfolio to provide additional protection for our technologies and our product candidates. Throughout our 20&nbsp;year history, we have continued
our commitment to innovation with a focus for the past five years on successfully developing our own product candidates in neurology and psychiatry. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Our Strategy  </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our goal is to be a leading specialty pharmaceutical company developing and commercializing new medicines in neurology and psychiatry.
Key elements of our strategy to achieve this goal are to: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2><I>Build in-house sales and marketing capabilities, focused on specialty markets in the
United States, to promote SPN-538 and Epliga</I></FONT><FONT SIZE=2>. We are currently focused on attaining regulatory approval for, and bringing our two late-stage epilepsy products,
SPN-538 and Epliga, to market. As SPN-538 and Epliga progress towards U.S. regulatory approval, we intend to build our own targeted, specialty sales force to promote, if
approved, SPN-538 and Epliga in the United States. We intend to direct our marketing efforts to high potential prescribers of both products.  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2><I>Continue to advance our product candidates in our psychiatry portfolio, including
SPN-810 and SPN-812</I></FONT><FONT SIZE=2>. As part of our longer term strategy, we intend to further develop our product candidates in our psychiatry portfolio to enable
further diversification of our pipeline and future growth. For example, we are currently preparing to initiate a Phase&nbsp;IIb trial for SPN-810.  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2><I>Develop differentiated products by applying our technologies to known drug
compounds</I></FONT><FONT SIZE=2>. We intend to continue to focus our development activities on known drug compounds and compounds with established mechanisms of action and thereby reduce the risks,
costs and time typically associated with pharmaceutical product development. We intend to leverage our proprietary and in-licensed technologies and expand our patent portfolio to further
develop and protect our diverse pipeline of product candidates.  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2><I>Establish strategic partnerships to accelerate and maximize the potential of our product
candidates worldwide</I></FONT><FONT SIZE=2>. We intend to continue to seek strategic collaborations with other pharmaceutical companies to commercialize our product candidates outside the United
States. We believe that </FONT></DD></DL>
</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>75</FONT></P>

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<UL>
<UL>

<P style="font-family:times;"><FONT SIZE=2>we
are an attractive collaborator for pharmaceutical companies due to our broad portfolio of proprietary technologies and our product development track record.  </FONT></P>

</UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2><I>Leverage our management team's expertise to develop and commercialize our broad portfolio of
product candidates.</I></FONT><FONT SIZE=2> We intend to leverage the expertise of our executive management team in developing and commercializing innovative therapeutic products. We plan to continue
to evaluate and develop additional CNS product candidates that we believe have significant commercial potential through our internal research and development efforts or, if appropriate, external
collaborations. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2><B> Epilepsy  </B></FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Overview  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Epilepsy is a complex neurological disorder characterized by spontaneous recurrence of unprovoked seizures, which are sudden surges of
electrical activity in the brain that impair a person's mental or physical abilities. Epilepsy, which is typically diagnosed by a neurologist, is estimated to affect 50&nbsp;million people
worldwide. According to IMS Health, U.S. sales of AEDs were approximately $5.3&nbsp;billion in 2009. The annual cost of epilepsy is estimated to be $12.5&nbsp;billion. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Epileptic
seizures can cause a person to experience severe muscle jerking, to lose consciousness and fall, or to suffer from distorted vision, all potentially leading to physical
injuries or hospitalization. Until reliable seizure control has been achieved, patients are forced to adjust their lifestyles to avoid activities that a seizure can significantly disrupt or render
life threatening. A breakthrough seizure is a sudden, unexpected seizure experienced by a patient who previously had achieved reliable seizure control. Even when no physical injury occurs,
breakthrough seizures often result in significant social, legal and
developmental consequences for patients such as loss of driver's license, loss of employment, disruption of school attendance, academic underachievement, and disruption of social networks. In
addition, a single breakthrough seizure can lead to permanent loss or reduction in overall seizure control. Data suggest that a significant proportion of patients who experience a breakthrough seizure
have a lower chance of achieving reliable seizure control. In certain cases, a single breakthrough seizure can develop into </FONT><FONT SIZE=2><I>status epilepticus</I></FONT><FONT SIZE=2>, a
prolonged seizure or series of repeated seizures, and eventually result in brain damage or death. Data indicate that the risk of sudden unexpected death in epilepsy was 23 times higher in patients who
had at least one breakthrough seizure compared to patients who had achieved seizure control. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Current Treatment Options  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Once a patient is diagnosed with epilepsy, the goal of the neurologist is to find the particular drug or combination of drugs, and
appropriate dosing, that will lead the patient to reliable seizure control while minimizing side effects. There are currently over 15 approved AEDs marketed in the United States. Side effects play a
major role in altering treatment in epilepsy as they can limit the usefulness of AEDs. AEDs are generally associated with the incidence of numerous side effects that can adversely impact the quality
of life for epileptic patients. Such side effects may include dizziness, paresthesia, headaches, cognitive deficiencies such as memory loss and speech impediment, digestive problems, somnolence,
double vision, gingival enlargement, nausea, weight gain, and fatigue. To address these side effects and help patients tolerate their AEDs, neurologists typically initiate treatment with a single AED
as monotherapy at a low dose then increase the dose to a higher level until the patient reaches the most efficacious dose with an acceptable tolerance of side effects. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Many
patients develop refractory epilepsy, which refers to inadequate control of seizures despite treatment, thereby requiring treatment with multiple AEDs. Patients taking more than one
AED at a time are susceptible to side effects associated with each of the multiple drugs and with drug interactions. Despite the introduction of new AEDs in the past few years, drug therapy remains </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>76</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>ineffective
for seizure control in up to 30% of patients with epilepsy. Many patients fail drug therapy either because the drugs do not control their seizures or because they cannot tolerate the side
effects. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Dynamics of the Epilepsy Market  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There are several important dynamics that play a major role in the treatment of epilepsy and that differentiate epilepsy from many
other diseases: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2><B><I>Compliance is Critical to the Reduction in Breakthrough Seizures</I></B></FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Compliance
with drug treatment regimens is critically important to achieving effective therapy for patients with epilepsy where the consequences of non-compliance can be life
threatening. Patient non-compliance with AED therapy is a serious issue and remains one of the most common causes of breakthrough seizures. Not only is taking all prescribed doses critical
for epileptic patients, but the timing of when patients take their prescribed doses is also important. Typically, non-compliance is caused by frequent or multiple dosing, serious side
effects, or a lack of tolerability. A 2002 survey undertaken by neurologists in the United States revealed that at least once per month, 71% of patients with epilepsy forgot to take their AED, and it
was evident that the chances of a patient missing a dose increased with the number of tablets prescribed. Of patients that missed a dose, 45% reported a breakthrough seizure. Patients taking a larger
number of tablets/capsules further increased their odds of having a breakthrough seizure after a missed dose by 43%. In addition, other studies have shown reduced rates in breakthrough seizures as a
result of improved compliance with AED treatment regimens.  </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2><B><I>Immediate Release Products Have Serious Side Effects and Lack of
Tolerability</I></B></FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
FDA has recognized AEDs as being "critical dose drugs," drugs in which a comparatively small difference in dose or concentration may lead to serious therapeutic failures and/or
serious side effects. Immediate release formulations of AEDs necessitate frequent administration to maintain appropriate drug concentrations. However, these immediate release formulations cause wide
fluctuations of blood levels of the active drug during the day, with peak concentrations when the drug is released and potentially sub-therapeutic concentrations thereafter. At least one
study has shown that complaints of side effects typically occur when blood levels exceed certain concentrations, particularly at high doses, and the risk of breakthrough seizures can occur when blood
levels are below certain minimum effective levels, as indicated in the chart below. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>77</FONT></P>

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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Simulated Plasma Concentration-Time Curve at Steady State of Immediate Release<BR>
Anti-Epileptic Drug Administered Over Two Days  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <FONT SIZE=2><B>
<IMG SRC="g618662.jpg" ALT="GRAPHIC" WIDTH="432" HEIGHT="298">
  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1>Source: Pellock, JM et al, Epilepsy&nbsp;&amp; Behavior 5 (2004), 302 </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2><B><I>Generic Substitution Can Cause an Increase in Breakthrough Seizures</I></B></FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Patients
today are most typically switched from branded drugs to generics, or from one generic drug to another, mainly to reduce cost. In most states, unless a physician explicitly
writes "dispense as written" or "no substitution," pharmacists can switch a patient to a lower-cost generic drug without the consent of either the patient or the physician. Epilepsy
patients are particularly vulnerable to changes in their drugs. Slight variations in the blood concentrations of these drugs could lead to the occurrence of breakthrough seizures. Accordingly, despite
existing regulatory criteria to ensure the bioequivalence of generic drugs, the "switch-back" rates of AEDs (that is, the frequency of an individual being returned to his or her previous
branded product under a physician's guidance) is much higher than for many other drug products. For example, in a 2008 study, the rates of patients switching back from generics to branded drugs
because of adverse events were found to be 20.8% to 44.1% for AEDs compared to 7.7% to 9.1% for non-AEDs. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A
number of epilepsy advocacy groups such as the Epilepsy Foundation, the American Academy of Neurology, the Centers for Medicare and Medicaid Services and several regulatory agencies
around the world, including the UK National Institute for Health and Clinical Excellence (NICE), Sweden's Medical Products Agency (MPA) and other European agencies, have all acknowledged that AED
generic substitutions for non-therapeutic reasons can be harmful and should either be limited or not permitted, and have issued guidelines, recommendations or taken affirmative steps to
limit such substitutions. While we are not aware of any well-controlled studies conducted to establish unequivocal scientific evidence that generic substitutions cause increased incidence
of breakthrough seizures, the FDA is currently considering stricter standards of bioequivalence for generics and its Pharmaceutical Science and Clinical Pharmacology Advisory Committee voted
11-2 that the current bioequivalence standards are insufficient for critical dose drugs such as AEDs.  </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2><B><I>Physicians are Reluctant to Switch to New Chemical Entities</I></B></FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
the epilepsy market, new chemical entities, or NCEs, generally lack the same appeal that would typically be associated with a new drug for other indications. Based on prescription
data from 1994 to 2005 for NCE launches for seizure disorders, such NCEs, on average, experienced slow market </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>78</FONT></P>

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<BR>

<P style="font-family:times;"><FONT SIZE=2>penetration
characterized by a 0.58 to 1.1 market share point gain on an annual basis. We believe this is because physicians are often reluctant to change a stable patient's existing therapy and risk
a breakthrough seizure in the patient. Despite the introduction of several NCEs over the past decade, a significant number of epileptic patients continue to lack reliable seizure control. Many NCEs
continue to be associated with several side effects. Therefore, many older and existing drugs continue to be prescribed and their prescription levels have either been maintained since their peak or
declined very slowly. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Benefits of Extended Release Products in the Epilepsy Market  </I></B></FONT></P>

<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2><B><I>Extended Release Products Improve Compliance and Reduce Breakthrough
Seizures</I></B></FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Achieving
reliable seizure control for patients and avoiding the serious health and life dangers that can be associated with breakthrough seizures depends on patients being compliant and
diligent in taking their medications. Frequent and multiple dosing, side effects and lack of tolerability of the immediate release products can significantly contribute to patients forgetting doses or
skipping them. Even taking a second or third dose later than the scheduled time may place a patient at an increased risk of a breakthrough seizure because the drug level in the patient's blood could
drop below the minimum effective therapeutic level that prevents such seizures. We believe increased patient compliance can be achieved with extended release products that offer once-daily
dosing, reduced side effects and improved tolerability. We believe physicians understand that the release profiles of extended release products can produce more consistent and steadier blood levels as
compared to immediate release products, resulting in fewer side effects and better tolerability that further help patients to be compliant, have fewer breakthrough seizures and, correspondingly, enjoy
a better quality of life.  </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2><B><I>Extended Release Products Reduce Side Effects and Improve Tolerability</I></B></FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;When
extended release formulations are used appropriately, drug levels remain within the patient's therapeutic zone, thereby reducing patient exposure to fluctuating drug levels, which
may exacerbate side effects or induce breakthrough seizures. Because extended release formulations can reduce peak concentrations, it may also be possible to adjust doses upward to a more efficacious
level without exacerbating side effects associated with peak concentrations. Extended release formulations can also reduce the frequency and the extent of the troughs, or lower concentrations of the
drug in the blood, thereby avoiding concentrations below the minimum effective concentrations that can increase the risk of breakthrough seizures. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>79</FONT></P>

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<BR></FONT><FONT SIZE=2><B>  Simulated Plasma Concentration-Time Curve at Steady State of Immediate Release and<BR>  Extended Release Anti-Epileptic Drug Administered Over Two Days    <BR>    </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <FONT SIZE=2><B>
<IMG SRC="g986085.jpg" ALT="GRAPHIC" WIDTH="526" HEIGHT="363">
  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1>Source: Pellock, JM et al, Epilepsy&nbsp;&amp; Behavior 5 (2004), 302 </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The enhanced safety profile of extended release products as compared to similar immediate release products has been supported by several studies.
For example, in a 2004 published trial conducted by physicians at Johns Hopkins, Carbatrol, an anti-epileptic extended release carbamazepine product that uses our Microtrol technology, and
Tegretol XR, another extended release carbamazepine product, demonstrated better tolerability and side effect profiles than comparable immediate release products. The trial reported that 49% of
patients had side effects during treatment with immediate release carbamazepine such as sedation, double-vision, confusion, ataxia, dizziness or poor coordination, whereas with extended release
carbamazepine treatments, only 20% of patients reported these side effects. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>80</FONT></P>

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<BR></FONT><FONT SIZE=2><B>  Reduction in CNS Side Effects Following Conversion to Carbamazepine Extended Release<BR>  from Immediate Release Preparation    <BR>    </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT> <FONT SIZE=2><B>
<IMG SRC="g806553.jpg" ALT="GRAPHIC" WIDTH="432" HEIGHT="298">
  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1>Source: Miller AD et al., Acta Neurol. Scand 2004: 109: 374-377 </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Equally as important, the patients in the trial tolerated high doses of extended release carbamazepine significantly better than high doses of
immediate release carbamazepine. Specifically, 63% of patients treated with 1200 mg or more per day of immediate release carbamazepine developed side effects, yet only 12% of patients experienced side
effects while taking similar doses of extended release carbamazepine. The investigators surmised that the improved tolerability of extended release carbamazepine at high doses may provide a treatment
option for patients previously discontinuing immediate release carbamazepine because of dose-limiting side effects. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other
products where reductions in side effects were reported by patients when switching from immediate release to extended release formulations include Depakote ER (divalproex sodium
extended release) and Keppra XR (levetiracetam extended release).  </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2><B><I>Managed Care Does Not Limit Success of Extended Release Products</I></B></FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Given
the serious nature of epilepsy and the key dynamics in the epilepsy market, we believe managed care plans acknowledge the important benefits of extended release AED products and,
therefore, have not limited the success of such products even when lower cost generic immediate release products are available. For example, according to industry data, the recent launches of extended
release products Keppra XR and Lamictal XL have enjoyed acceptance rates by managed care plans that are similar to those of the corresponding immediate release products. Most managed care plans also
acknowledge the position of several patient advocacy groups and the American Academy of Neurology regarding the risks of generic substitution of AEDs, including potential for breakthrough seizures.
Although switching to a low-cost generic AED may initially offer some cost savings, we believe they also recognize that the risk and cost of one breakthrough seizure outweighs the
potential savings from generics. For example, the healthcare costs associated with the treatment of patients who experience breakthrough seizures, which may run in excess of $26,000 per patient on an
annual basis, is significantly greater than any cost savings per patient that may be achieved through switching to a low-cost generic AED. According to a 2009 survey, the total healthcare
costs for patients using branded topiramate products were approximately 20% lower than for patients using multiple generic topiramate products. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>81</FONT></P>

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<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2><B><I>Extended Release Products Perform Well in the Market</I></B></FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Extended
release products have performed well in the epilepsy market, even in the face of immediate release generic products. Moreover, prescription data for seizure disorder drugs from
1994 to 2005 shows that extended release products perform better than NCEs during the first five years of their launch. Currently, there are five extended release AEDs on the market (Tegretol XR,
Carbatrol, Depakote ER, Lamictal XL, Keppra XR), and each of these products has gained significant market penetration as measured by the total prescriptions written for each specific molecule. For
example, as reflected in the chart below, Depakote ER gained almost 40% of all divalproex prescriptions, including immediate release versions of Depakote and generic divalproex, in its fifth year
after launch. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="du71101_comparison_of_molecule_convers__com05938"> </A>
<A NAME="toc_du71101_1"> </A>
<BR></FONT><FONT SIZE=2><B>  Comparison of Molecule Conversion of Extended Release Anti-Epilepsy Drugs<BR>  (measured as percentage of total prescriptions for each individual molecule)    <BR>    </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>
<IMG SRC="g737938.jpg" ALT="GRAPHIC" WIDTH="507" HEIGHT="355">
  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT>
<FONT SIZE=1>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Source: IMS Health</FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B> Our Late-Stage Neurology Portfolio  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are developing a promising epilepsy product portfolio consisting of SPN-538 and Epliga that utilize our proprietary
technologies, Microtrol and Solutrol, respectively, each of which has been proven and validated through use in products that are currently on the market. Among them is Carbatrol, an AED that has been
shown to reduce side effects compared to immediate release carbamazepine products. We believe that our 20&nbsp;years of history and portfolio of technologies have enabled us to develop
highly-customized product candidates that overcome challenges with the molecules' pharmacokinetic profiles. Our differentiated approach to product development and the strength of our technologies have
allowed us to develop SPN-538 with what we believe to be a unique pharmacokinetic profile and to develop a once-daily formulation of oxcarbazepine with Epliga where others have failed. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SPN-538
and Epliga are novel extended release formulations of two well known and approved AEDs, topiramate and oxcarbazepine, respectively. Both product candidates are
designed to offer epilepsy patients effective therapy, reduced side effects and improved compliance with once-per-day dosing. We believe that by delivering more consistent and
steady maintenance of blood level concentrations of topiramate and oxcarbazepine, our product candidates can reduce adverse side effects </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>82</FONT></P>

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<BR>

<P style="font-family:times;"><FONT SIZE=2>and
improve tolerability of the drugs, which can improve compliance and enable patients to benefit from better seizure control and fewer breakthrough seizures as compared to similar immediate release
products. Given that SPN-538 and Epliga are based on different drug compounds and different mechanisms of action, they would target different market segments and patient populations within
the epilepsy market. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
currently expect to file the NDA for SPN-538 in the first quarter of 2011 and the NDA for Epliga in the second half of 2011. The development and regulatory strategy for
both products follows a Section&nbsp;505(b)(2) pathway, which allows us to rely upon FDA's previous findings of safety and efficacy for two known and approved products, Topamax and Trileptal.
Therefore, our NDAs are not required to have the same amount of safety or efficacy data as would be required in the case of an NCE, and each NDA could contain different types of clinical trials and
clinical data. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> SPN-538 (extended release topiramate)  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our most advanced product candidate is SPN-538, a novel oral once-daily extended release topiramate product for the
treatment of epilepsy. We expect to file the NDA for this product candidate in the first quarter of 2011. We have completed ten clinical trials in support of our NDA. SPN-538 delivers
topiramate, one of the most effective AEDs, which is marketed by Johnson &amp; Johnson under the brand name Topamax and is also available in a generic form. Topiramate is currently available only in
immediate release form and is indicated for monotherapy and adjunctive therapy of epilepsy and for the treatment of migraine. Topamax reached peak worldwide sales of $2.7&nbsp;billion in 2008,
before generic products entered the U.S. market in March 2009. With approximately 9.1&nbsp;million total topiramate prescriptions in 2009, topiramate continues to represent a significant portion of
prescriptions with approximately 8.7% of total prescriptions. Topiramate is believed to work in epilepsy through various mechanisms. It enhances the inhibitory effect of the GABA (Gamma-Aminobutyric
Acid) neurotransmitter that regulates neuronal excitability throughout the nervous system, blocks the excitatory effect of the glutamate neurotransmitter, blocks the sodium channel and inhibits the
carbonic anhydrase enzyme. The side effects associated with taking topiramate, which have tended to limit its use, include, among others, dizziness, fatigue, somnolence and slowing of certain
cognitive functions. We believe that this creates an opportunity for us to offer patients SPN-538 as an alternative therapy to immediate release topiramate with an improved
once-per-day profile. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SPN-538
is designed to improve patient compliance and to have a better tolerability profile compared to the current immediate release products that are taken multiple times
per day. SPN-538's pharmacokinetic profile delivers lower peak plasma concentrations and lower input rate over an extended time period resulting in smoother and more consistent blood
levels of topiramate during the day compared to immediate release Topamax. We believe such a profile avoids blood level fluctuations that are typically associated with many of the side effects or
breakthrough seizures that patients can suffer when taking immediate release products. These side effects can lead patients to skipping doses, and such non-compliance, which could place
them at higher risk for breakthrough seizures. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> SPN-538 Development Program  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have completed ten clinical trials, including bioequivalence trials, in support of our NDA for SPN-538, which we expect
to file in the first quarter of 2011. We are pursuing a Section 505(b)(2) regulatory strategy, which would allow us to rely in our filing on the existing data and knowledge the FDA has from the NDA of
Topamax. The various clinical trials conducted on SPN-538 were designed to select the best extended release once-per-day formulation that delivers equivalent levels
of topiramate compared to the immediate release twice-per-day Topamax product, as well as to test the robustness and consistency of our technology in delivering the
once-per-day formulation across a full range of product strengths. We also have scaled up production of the product candidate at our commercial contract manufacturing facility
and have conducted studies that confirm that the </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>83</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>commercial
scale product is bio-equivalent to the clinical product that was initially developed at our research laboratories. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Commercialization Strategy  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If we are successful in obtaining regulatory approval, we believe that SPN-538 will be the first once-daily
topiramate product approved for the monotherapy and adjunct therapy of epilepsy. We believe that SPN-538 could, over time, capture a significant share of the topiramate prescriptions,
consistent with the performance of similar extended release products that have been introduced in the U.S. epilepsy market over the past 15&nbsp;years. Upon the launch of SPN-538, we
plan to build a small specialty sales force primarily targeting neurologists to promote the use of SPN-538 in epilepsy in the United States.
This physician group is responsible for a substantial portion of the prescriptions for the treatment of epilepsy and, accordingly, provides an attractive, focused market opportunity for us. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B> Epliga (extended release oxcarbazepine)  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our second late-stage product candidate, Epliga, is a novel oral once-daily extended release formulation of
oxcarbazepine and is currently in a Phase&nbsp;III clinical trial for the treatment of epilepsy. We currently anticipate having data from the Phase&nbsp;III trial available early in 2011, and
expect to file an NDA in the second half of 2011. To date, we have conducted eight clinical trials to support the filing of an NDA. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Epliga
delivers oxcarbazepine, another effective AED, which is marketed by Novartis under the brand name Trileptal and is available in a generic form. Trileptal was initially developed
and approved in the United States in 2000. Trileptal is indicated for monotherapy and adjunctive therapy of epilepsy. It reached peak worldwide sales of $721&nbsp;million in 2006, before generic
products entered the U.S. market in October 2007. With approximately 3.3&nbsp;million total oxcarbazepine prescriptions in 2009, oxcarbazepine represents a portion of prescription of prescriptions
with approximately 3.2% of total prescriptions. Oxcarbazepine is an active voltage-dependent sodium channel blocker that, despite its effectiveness in treating epilepsy, is associated with many side
effects that tend to limit its use. The side effects associated with taking oxcarbazepine include, among others, dizziness, double vision, somnolence, nausea and vomiting. Epliga has been designed to
reduce side effects, resulting in improved patient compliance and tolerability. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;With
its novel pharmacokinetic profile that delivers lower peak plasma concentrations, slower rate of input and smoother and more consistent blood levels compared to immediate release
products such as Trileptal, we believe Epliga has the potential of improving the tolerability of oxcarbazepine by reducing the side effects experienced by patients. This could enable more patients to
effectively tolerate higher doses of oxcarbazepine, which would permit them to benefit from the resulting efficacy and greater seizure control that have been previously reported in patients at higher
doses. In addition, Epliga's once-per-day dosing is designed to improve patient compliance compared to the current immediate release products that are taken multiple times per
day. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Epliga Development Program  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have completed eight clinical trials, including bioequivalence trials, to support filing the NDA in the second half of 2011. We are
pursuing a Section&nbsp;505(b)(2) regulatory strategy, which would allow us to rely in our filing on the existing data and knowledge the FDA has from the NDA of Trileptal. The various clinical
trials conducted on Epliga were designed to select the
best extended release once-per-day formulation that delivers equivalent levels of oxcarbazepine compared to immediate release twice-per-day Trileptal,
as well as to test the robustness and consistency of our technology in delivering the once-per-day formulation across a full range of product strengths. We also have scaled up
our production of the product candidate at our commercial contract manufacturing facility, which has produced clinical supplies to conduct our Phase&nbsp;III trial. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>84</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
our pilot clinical trial in 32 healthy subjects, Epliga demonstrated a superior adverse event profile when compared to the immediate release oxcarbazepine therapy Trileptal. In this
trial, a single center, open-label, randomized, two-way crossover, two-sequence trial, we compared multiple dose administration of Epliga tablets and Trileptal
tablets in 32 healthy adult volunteers under fasting conditions. While the steady-state crossover comparison trial was designed to evaluate the steady-state bioavailability of the different
formulations of oral oxcarbazepine at 1200 mg doses, the trial also assessed the safety and tolerability of repeat oral dosing of Epliga tablets in healthy subjects at 1200 mg in comparison to
Trileptal. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
this trial, the adverse events in the trial were observed in 30 healthy subjects using a total daily dose of 1200 mg of each of Trileptal and Epliga. There were 190 total adverse
events reported for Trileptal, while Epliga generated a total of only 120 adverse events, a reduction of 37%. Of these, a total of 197 adverse events were considered by the principal investigator to
be possibly drug related: 131 for Trileptal and 66 for Epliga. More specifically, Trileptal demonstrated a 36.7% occurrence rate of dizziness as compared to Epliga which demonstrated a 0.0% occurrence
rate in our trial. In other trials, Epliga demonstrated higher occurrence rates of dizziness. The results from these trials and the pilot clinical trial are preliminary and based on small populations,
and may not be predictive of the results in the pivotal Phase&nbsp;III trial. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
the pivotal Phase&nbsp;III trial for Trileptal, refractory patients had increasing reductions in seizures as dose levels increased, including 50% median reduction in seizures at the
highest dose of 2400 mg. Of those subjects at 2400 mg, 22% of the subjects were seizure free at the highest dose of 2400 mg. However, Trileptal is not without a host of side effects at the highest
doses, which result in many subjects discontinuing treatment. Accordingly, while 22% of subjects were seizure-free during the pivotal trial for Trileptal at the highest dose of 2400 mg,
approximately three-quarters of subjects at the highest dose discontinued their participation in the trial, largely because of the adverse events associated with the drug. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have discussed our Phase&nbsp;III trial for Epliga with the FDA in the form of a Special Protocol Assessment, or SPA. The Phase&nbsp;III protocol will assess the safety and
effectiveness of Epliga as an adjunctive therapy in patients with a diagnosis of simple partial seizures and complex partial seizures with or without secondarily generalized seizures as confirmed by
the 1981 and 1989 International
League Against Epilepsy Classifications. Epilepsy can be broadly characterized into partial and generalized seizures. Partial seizures occur in a specific location of the brain, affecting the physical
or mental activity controlled by that particular area of the brain, whereas generalized seizures occur throughout both hemispheres of the brain at once. Partial seizures may be further subdivided into
both simple and complex seizures. This refers to the effect of such a seizure on consciousness; simple seizures cause no interruption to consciousness (although they may cause sensory distortions or
other sensations), whereas complex seizures interrupt consciousness to varying degrees. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Phase&nbsp;III trial is a multi-center, multiple-dose, randomized (1:1:1 ratio), double-blind, placebo-controlled, three-arm, parallel group trial in male
and female subjects (18 to 65&nbsp;years of age, inclusive) with refractory partial epilepsy on at least one and up to three concomitant AEDs. Enrollment in the trial has been completed with a total
of 369 patients enrolled across 103 sites and 8 different countries in North America and Europe. Patients will be randomized to one of three treatment groups and will take Epliga (1200 mg/day or 2400
mg/day) or placebo. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
primary objective of the trial is to evaluate the efficacy of Epliga as an adjunctive therapy in the treatment of seizures of partial origin in adults with refractory epilepsy on at
least one and up to three other AEDs. The secondary objectives are: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>To assess the safety and tolerability of adjunctive Epliga in the treatment of seizures of partial origin in subjects with
refractory epilepsy on at least one and up to three other AEDs; </FONT></DD></DL>
</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>85</FONT></P>

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<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>To assess the effect of Epliga on the subject's global impression of change in his/her epilepsy status; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>To assess the effect of Epliga on quality of life as assessed by the Quality of Life in Epilepsy Inventory-31,
which is a measurement tool of the overall impact of an AED on a patient; and  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>To assess secondarily generalized seizures for each treatment group. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
expect top-line data from this trial to be available in the first quarter of 2011 and, based on such data, to file the NDA in the second half of 2011. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Commercialization Strategy  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If we are successful in obtaining regulatory approval, we expect Epliga to be the only once-daily oxcarbazepine product
indicated for the treatment of epilepsy and to compete against the existing immediate release oxcarbazepine products on the market. We believe that Epliga could, over time, capture a significant share
of the oxcarbazepine prescription market, consistent with the performance of similar extended release products that have been introduced in the U.S. epilepsy market over the past 15&nbsp;years. To
support the commercial launch of Epliga, we plan to further expand our U.S. specialty sales force in epilepsy to promote both SPN-538 and Epliga. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B> ADHD  </B></FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Overview  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;ADHD is a common CNS disorder characterized by developmentally inappropriate levels of inattention, hyperactivity, and impulsivity.
ADHD affects an estimated 6.9% of all school-age children and 4.4% of adults in the United States. An estimated 60% to 80% of children with ADHD continue to meet criteria for ADHD into
adolescence. In 2008, the U.S. market for ADHD prescription drugs was more than $4&nbsp;billion. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Diagnosis
of ADHD requires a comprehensive clinical evaluation based on identifying patients who exhibit the core symptoms of inattention, hyperactivity, and impulsivity. Generally,
behavior is sufficiently severe and persistent to cause functional impairment. Although many children may be
inattentive, hyperactive or impulsive, the level of severity and degree of functional impairment, as well as considerations of what may be behind the underlying symptoms, determine which children meet
the diagnosis and are treated for ADHD. It is estimated that the annual societal cost of illness for ADHD is more than $36&nbsp;billion. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Current Treatment Options  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Since Ritalin was introduced, stimulant therapies have grown to become the most common form of treatment for ADHD. Studies indicate
that approximately 80% of ADHD patients respond to stimulants. A key difference between older and newer oral stimulants is the duration of action. Most of the older stimulants, representing
approximately 35% of total oral stimulant prescriptions, are immediate release products that last approximately four hours, requiring multiple administrations throughout the day. In contrast, most of
the recently launched products, representing approximately 65% of total oral stimulant prescriptions, are extended release formulations that last up to twelve hours or more. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;While
stimulant treatments calm and improve the concentration of ADHD patients, these drugs have been shown to have various side effects including loss of appetite, insomnia and, to a
lesser degree, cardiovascular effects. Stimulant treatments are controlled substances and can be associated with social stigma and the potential for abuse. Approximately 30% of patients with ADHD are
non-responsive to or non-tolerant of treatment with stimulants. Non-stimulants offer physicians an alternative ADHD therapy, including for patients who have
coexisting conditions, such as conduct disorder, major depressive disorder, or bipolar disorder, that are contraindicated for stimulant use based on the risk for stimulant abuse. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>86</FONT></P>

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</FONT> <FONT SIZE=2>
<A HREF="#bg71101a_main_toc">Table of Contents</A> </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Coexisting Conditions  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Studies show that as many as 67% of children who have ADHD may have coexisting conditions such as oppositional defiant disorder,
conduct disorder, anxiety disorder and depression. Approximately 25% of children with ADHD also exhibit persistent conduct problems, such as impulsive aggression. Untreated, these serious conduct
problems can place patients at risk of persistent aggressive and anti-social behavior, such as knowingly destroying property, physically attacking people and bullying. These patients also
face an increased risk of suicidal behavior, and are at high risk of entering the juvenile justice system and developing substance abuse problems later in adulthood. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Aggression
is usually divided into two subtypes: predatory (i.e.,&nbsp;"cold") aggression, which can be described as goal-oriented, controlled and/or planned, and impulsive
or affective ("hot") aggression, which can be described as reactive, unplanned and/or uncontrolled. Patients with ADHD who exhibit aggression commonly demonstrate the "hot," or impulsive, type of
aggression. For these patients, this "hot" aggression is generally recurrent, occurs outside of a justifiable social context, has intensity, frequency, duration or severity that is disproportionate to
its triggers and causes distress and impairment to the patient. Impulsive aggression represents a broad category of maladaptive, aggressive behaviors that can complicate the management of ADHD,
autism, bipolar disorder, post-traumatic stress disorder and other psychiatric disorders. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Current Treatments for Impulsive Aggression in Patients with ADHD  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Currently, there are no approved medications for treating impulsive aggression in patients with ADHD. The current treatment options for
impulsive aggression in patients with ADHD include psychosocial interventions, such as school- or family-based behavioral therapies, which are usually not wholly effective. In a seminal clinical trial
designed by experts from key stakeholder communities such as the National Institute of Mental Health, researchers observed that after 14&nbsp;months of either ADHD medication-only or a
regimen that combined ADHD medication with behavioral interventions, 44% of those children with ADHD (or 26% of the total sample size in the trial) who exhibited initial aggression still had what can
be described as impulsive aggression at the end of the trial, demonstrating that psychosocial interventions may not work for a large percentage of children with ADHD who exhibit aggressive behaviors. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
response, doctors have also tried to address this group with off-label use of prescription medicines, such as mood stabilizers, stimulants and anti-psychotic
drugs. Results have varied, but anti-psychotic drugs appear to have the best therapeutic potential. Unfortunately, many of these agents are associated with adverse effects including
obesity, lipid abnormalities, and diabetes, which is of particular concern when treating pediatric populations. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Our Psychiatry Portfolio  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our psychiatry portfolio includes three product candidates for the treatment of ADHD or its coexisting conditions and one product
candidate for depression, each of which is designed to bring important advancements in therapy. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B> SPN-810 (molindone hydrochloride)  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are developing SPN-810, which is currently in Phase&nbsp;II, as a novel treatment for impulsive aggression in patients
with ADHD. If approved by the FDA, SPN-810 could be the first product available to address this serious, unmet medical need. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
are studying SPN-810, which contains molindone hydrochloride, as a treatment of impulsive aggression in patients with ADHD. Molindone hydrochloride was previously marketed
in the United States as an anti-psychotic to treat schizophrenia under the trade name Moban. Molindone </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>87</FONT></P>

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<BR>

<P style="font-family:times;"><FONT SIZE=2>hydrochloride
is unusual among anti-psychotics in that it is not associated with weight gain. In addition, we believe the lower doses tested for the proposed indication of impulsive
aggression should be more easily tolerated than the higher doses approved to treat schizophrenia. SPN-810's low potential to cause weight gain leads us to believe that SPN-810
could be an attractive candidate among the anti-psychotic drugs for the effective treatment of impulsive aggression in patients with ADHD. Although initially we are developing
SPN-810 as a treatment of impulsive aggression, if we are successful in demonstrating the effectiveness of SPN-810 for the treatment of impulsive aggresion in patients with
ADHD, we may then look to develop the product candidate for the treatment of other patient populations that have impulsive aggression, such as autism and bipolar disorder. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> SPN-810 Development Program  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have completed four clinical trials for SPN-810, including a Phase&nbsp;IIa trial in which we tested the safety and
tolerability of SPN-810, immediate release molindone hydrochloride, in patients with ADHD who suffer from serious persistent conduct problems. This open-label,
dose-ranging trial randomized 78 children, 6-12&nbsp;years of age, into one of four treatment groups, which were given four different doses of immediate release molindone
hydrochloride, between 10 mg and 40 mg per day, depending on weight, three times a day over a six-week treatment period, after 2-5&nbsp;weeks of titration.
SPN-810 was well tolerated in the trial, with no clinically meaningful changes in standard hematology, clinical chemistry values, vital signs or electrocardiogram (ECG) results. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Besides
safety and tolerability assessments, the primary outcome measure was the change in the Nisonger Child Behavior Rating Form-Typical Intelligence Quotient
(NCBRF-TIQ) conduct problem subscale scores from baseline to endpoint in the intent-to-treat (ITT) population. NCBRF-TIQ is a known instrument that has
been used for assessing child and adolescent behavior. Scores improved after baseline in all treatment groups. By visit 12, after 6&nbsp;weeks of treatment, the mean reduction from baseline for each
treatment group was 7.0, 8.7, 8.2 and 14.3, in groups 1, 2, 3, and 4, respectively, representing decreases of 34%, 34%, 32% and 55%, respectively. In addition, the difference between group 1 and group
4 was statistically significant (p<FONT FACE="SYMBOL">&#163;</FONT>0.041) at all time points except visit 2 and the greatest improvement in scores on the NCBRF-TIQ conduct
problem subscale was seen in group 4, which was the highest-dose group (14.8 mean reduction). The
below chart summarizes the mean change in NCBRF-TIQ conduct problem subscale observed in our Phase&nbsp;IIa trial. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>
<IMG SRC="g1019748.jpg" ALT="GRAPHIC" WIDTH="582" HEIGHT="267">
  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>88</FONT></P>

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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>NCBRF-TIQ Conduct Problem Subscale:<BR>
Mean Change from Baseline in ITT Population  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Secondary outcomes included changes in other ADHD and conduct problem scales, as described in the table below. SPN-810 demonstrated improved scores
over time in all treatment groups, with more marked improvements in higher-dose groups than in lower-dose groups as set out in greater detail in the table below. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> % Improvement from Baseline to Last Visit,<BR>
Secondary Outcome Measures (ITT Population)  </B></FONT></P>
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<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=7 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Treatment Groups </B></FONT></TH>
</TR>
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<TH NOWRAP  COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><DIV style="border-bottom:solid #000000 1.0pt;margin-bottom:0pt;width:65pt;"><FONT SIZE=1><B>Outcome Measure

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<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Group 1<BR>
n=20 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Group 2<BR>
n=19 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Group 3<BR>
n=19 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Group 4<BR>
n=20 </B></FONT></TH>
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<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2><B>CGI-S</B></FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>% Improvement</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>23%</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>21%</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>27%</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>36%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-top:12pt;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2><B>SNAP-IV Subscales</B></FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
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<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2><B>ADHD Inattention</B></FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>% Improvement</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>24%</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>31%</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>34%</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>39%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-top:12pt;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2><B>ADHD Hyperactivity/Impulsivity</B></FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>% Improvement</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>28%</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>27%</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>28%</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>41%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-top:12pt;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2><B>ADHD-Combined</B></FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>% Improvement</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>26%</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>29%</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>31%</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>40%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-top:12pt;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2><B>ODD</B></FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>% Improvement</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>34%</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>33%</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>28%</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>51%</FONT></TD>
</TR>
</TABLE></DIV>
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<DIV style="padding:0pt;position:relative;text-align:left;margin-left:20%;">
<p style="font-family:times;"><font size=1></FONT><FONT SIZE=1>CGI-S=Clinical Global Impression-Severity Scale, an assessment tool to rate the severity of the condition; ODD=Oppositional Defiant Disorder, a
coexisting condition of ADHD; SNAP-IV=Swanson, Nolan and Pelham Questionnaire, a commonly used scale to measure ADHD. </FONT></P>
 </DIV>
 <P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We expect to test SPN-810 in another Phase&nbsp;II trial in 2011. The design and protocol of the trial have not been finalized but
we expect to conduct a multicenter, randomized, double-blind, placebo-controlled trial in pediatric subjects 6&nbsp;to 12&nbsp;years of age with impulsive aggression in ADHD. The primary objective
will be to assess the effectiveness of SPN-810 in reducing impulsive aggression after at least three weeks of treatment. Secondary objectives are likely to include measurement of the
effectiveness of SPN-810 on Clinical Global Impression and ADHD scales as well as evaluation of the safety and tolerability of the drug. In addition, we will be exploring the potential
added advantages of an extended-release formulation, such as greater compliance and, therefore, effectiveness in school-age children and lower unwanted side effects or interpatient
variability. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> SPN-812  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are developing SPN-812, which is currently in Phase&nbsp;II, as a novel non-stimulant treatment for ADHD.
SPN-812 is a selective norepinephrine reuptake inhibitor that we believe could be more effective and have a better side effect profile than other non-stimulant treatments for
ADHD. The active ingredient in SPN-812 has an extensive safety record in Europe, where it was previously marketed for many years as an antidepressant. SPN-812 has not been
developed and marketed in the
United States and, therefore, it would be considered and reviewed by the FDA as a new chemical entity. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SPN-812
would provide an additional option to the few non-stimulant therapies currently available. We believe that SPN-812 could be more effective
than other non-stimulant therapies due to its </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>89</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>different
pharmacological profile. Due to its demonstrated efficacy as an antidepressant, SPN-812 may exhibit increased benefit in up to an estimated 40% of ADHD patients who also suffer
from major depression. We are developing an intellectual property position around the novel synthesis process for this product candidate, its novel use in ADHD and its novel delivery with extended
release. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> SPN-812 Development Program  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We initiated a proof-of-concept Phase&nbsp;IIa trial in mid-2010, and we expect to get the results of this
trial in the first quarter of 2011. The trial is a randomized, double-blind, placebo-controlled trial in approximately 50 adults with a current diagnosis of ADHD (approximately 25 subjects per
treatment group). The subjects in the active arm will be administered SPN-812 at a single dose level three times a day over five weeks, after a one-week titration phase. The
primary endpoint is the safety of SPN-812 and the secondary endpoints include, among others, the efficacy of SPN-812 as measured by Total ADHD Symptom Score on the Conners'
Adult ADHD Rating Scale, a commonly-used measurement for ADHD in adults, as rated by each of the investigators and the subjects, and the effectiveness of SPN-812 when compared
to placebo as determined by changes in the Clinical Global Impressions&#151;Improvement score. Depending on the results of this Phase&nbsp;IIa trial, we expect to focus on potentially
developing an extended release formulation and to commence a Phase&nbsp;IIb trial. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> SPN-809  </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are developing SPN-809 as a novel once-daily product candidate for the treatment of depression.
SPN-809 is based on the same active ingredient as our SPN-812 product candidate. We currently have an open investigational new drug application, or IND, for SPN-809
as a treatment of depression, the indication for which the active ingredient in SPN-809 was approved
and marketed in Europe for many years. Depression is a serious and common disease affecting approximately 121&nbsp;million people worldwide. The worldwide market for antidepressants is approximately
$12&nbsp;billion. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SPN-809
is a norepinepherine reuptake inhibitor that represents an opportunity to offer a differentiated treatment option for patients suffering from depression in the United
States. Initial market research suggests that psychiatrists would like to have such a once-daily option at their disposal to treat various patients. Because SPN-809 contains
the same active ingredient as SPN-812, we expect that many of our activities related to the development of SPN-812 will also benefit the development of SPN-809. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Other Product Candidates  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have additional product candidates in various stages of early development that cover a range of CNS disorders. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Our Proprietary Technology Platforms  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have a long track record of developing novel products by applying proprietary technologies to known drugs to improve existing
therapies and enable the treatment of new indications. Our key proprietary technology platforms include: Microtrol, Solutrol and EnSoTrol. These technologies create customized product profiles
designed to meet efficacy needs, more convenient and less frequent dosing, enhanced patient compliance, and improved tolerability in certain specific applications. Our broad portfolio of technologies
and extensive expertise in this area, which have been built over the past 20&nbsp;years, enable us to develop products that are technically difficult to formulate or by design are made harder to be
copied by others. We have employed our technologies in the development of our legacy products, as well as our current product portfolio. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>90</FONT></P>

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<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Microtrol (multiparticulate delivery platform)  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Microtrol is based on the use of coated and uncoated multi-particulates that can be filled into capsules, administered as a sprinkle,
or compressed into tablets as varying ratios to achieve customized release profiles. The following approved and marketed products incorporate our Microtrol technology: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Sanctura XR (trospium chloride), a treatment for overactive bladder;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Oracea (doxycycline), a treatment for inflammatory lesions of rosacea;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Carbatrol (carbamazepine), an anti-epilepsy treatment;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Equetro (carbamazepine), a treatment for bipolar disorder; and  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Adderall XR (mixed amphetamine salts), a stimulant ADHD treatment. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
do not expect the above products to contribute to our future cash. Carbatrol, Equetro and Adderall XR are legacy products that were developed by us when we were formerly Shire
Laboratories. In addition, in April 2008, we monetized the revenues underlying the future royalty streams relating to Sanctura XR and Oracea by transferring certain of our royalty payment rights and
other license rights for such products to TCD Royalty Sub&nbsp;LLC, our wholly-owned subsidiary, in exchange for $63&nbsp;million. We primarily reinvested the proceeds from this transaction into
our research and development activities. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Solutrol (matrix delivery platform)  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Solutrol is a matrix delivery system that can deliver poorly soluble, highly soluble, and pH dependent compounds in a reproducible and
complete manner. Solutrol has been incorporated into Intuniv (guanfacine), a nonstimulant ADHD treatment, which is currently licensed to and marketed by Shire&nbsp;plc. In April 2009, this license
became fully paid up when we sold to Shire the right to receive royalties and milestone payments owed to us for $36.9&nbsp;million, which we primarily reinvested into our research and development
activities. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> EnSoTrol (osmotic delivery system)  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;EnSoTrol is comprised of a solubility enabled core and other agents surrounded by a semi-permeable membrane with a
laser-drilled hole. When EnSoTrol is introduced to the contents of the gastrointestinal tract, it will induce solubilization of the core contents via fluid intake across the membrane coating. The
solubilized core contents are then released through the laser-drilled hole along the osmotic gradient, thus yielding a surface-area controlled constant release profile. EnSoTrol has been
tested in several clinical trials, including a Phase&nbsp;III trial currently being conducted by United Therapeutics Corporation, or United Therapeutics for an oral formulation of treprostinil
diethanolamine, or treprostinil. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
June 2006, we entered into a license agreement with United Therapeutics for the worldwide development and commercialization of an oral formulation of treprostinil, which utilizes
EnSoTrol for the treatment of pulmonary arterial hypertension, or PAH, as well as for other indications. Under the terms of the license agreement, we have received pre-commercial milestone
payments of $750,000. Remaining milestone payments to us could total up to $6.8&nbsp;million, which includes pre-commercial milestone payments of up to approximately $2.8&nbsp;million for the
satisfaction of development milestones relating to the treatment of PAH and up to $4.0&nbsp;million for the development of each additional product that combines a form of oral treprostinil that
utilizes our technologies with another drug compound. If United Therapeutics receives approval to market and sell an oral formulation of treprostinil, we will be entitled to receive royalties based on
worldwide net sales. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>91</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2><B><I> Other Technologies  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We also have proprietary techniques for identifying lead molecules and optimizing their oral delivery consisting of ProScreen, ProPhile
and OptiScreen technologies. ProScreen is a predictive screen for lead candidates that warrant oral delivery. ProPhile is a suite of in silico modeling tools that enables multivariate analysis and
pharmacokinetic prediction. OptiScreen is a technology for formulation optimization including solubility or permeability enhancement leading to oral bioavailability improvement. We believe that this
suite of technologies enables us to optimize the delivery and the development of existing chemical entities and marketed products. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Sales and Marketing  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are preparing the build-out of our commercial infrastructure to launch both SPN-538 and Epliga in the United States.
Upon approval of SPN-538, we would hire a small specialty sales force, initially consisting of a limited number of field sales representatives to support the launch of the product. We
would then seek to expand our sales force in connection with an approval and commercial launch of Epliga. Having two epilepsy products that can be promoted to the same physician audience would allow
us to leverage our commercial infrastructure with these prescribers. Once we have obtained approval for any of our product candidates in our psychiatry portfolio, we anticipate adding additional sales
force members who will be dedicated towards marketing our psychiatry products. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Manufacturing  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We do not own or operate manufacturing facilities for the production of any of our product candidates, nor do we have plans to develop
our own manufacturing operations in the foreseeable future. We currently depend on third-party contract manufacturing organizations, or CMOs, for all of our required raw materials, active ingredients
and finished product for our preclinical research and clinical trials. We do not have any current contractual relationships for the commercial manufacture of any of our product candidates. In parallel
to seeking marketing approval for our product candidates, we intend to enter into agreements with third-party contract manufacturers for the commercial production of those products. We currently
employ internal resources and as needed third-party consultants to manage our manufacturing contractors. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Manufacturing
partnerships for our two most advanced product candidates, SPN-538 and Epliga, have been secured with leading CMOs headquartered in North America. These CMOs
offer a comprehensive range of contract manufacturing and packaging services and have successfully handled the scale up of the two product candidates to a commercial production scale in preparation
for the commercialization of both product candidates. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Competition  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The biotechnology and pharmaceutical industries are highly competitive. A number of multinational pharmaceutical companies as well as
large biotechnology companies are pursuing the development or are currently marketing pharmaceutical products in the anti-epilepsy and ADHD markets on which we are focusing. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Epilepsy  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There are currently over 15 branded products, as well as their generic counterparts, on the U.S. market indicated to treat some form of
epilepsy. Several NCEs are expected to enter the epilepsy market in the next few years. Based on prescription data from 1994 to 2005 for NCE launches for seizure disorders, such NCEs, on average,
experienced slow market penetration characterized by a 0.58 to 1.1 market share point gain on an annual basis. We believe this is because physicians are often reluctant to change a stable patient's
existing therapy and risk a breakthrough seizure in their patients. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>92</FONT></P>

<HR NOSHADE>
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<P style="font-family:times;"><FONT SIZE=2>If
approved, SPN-538 (extended release topiramate) will compete with all immediate release topiramate products including Topamax and related generic products. We are aware that
Upsher-Smith Laboratories announced the initiation of a Phase&nbsp;III clinical trial for an extended release topiramate product, which it has described as an internally developed program for the
management of epilepsy in adults using its proprietary formulation technology. If this product candidate is approved by the FDA before SPN-538, then Upsher-Smith could obtain three years
of marketing exclusivity, which would significantly delay our entry into the U.S. market. If approved, Epliga (extended release oxcarbazepine) will compete with all immediate release oxcarbazepine
products including Trileptal and related generic products. We are not aware of any other company that is currently developing an extended release oxcarbazepine product in the United States. In
addition, we believe that Epliga's once-daily formulation solves a drug delivery challenge specific to oxcarbazepine that must be overcome by all potential competitors. We are aware of
companies who have modified-release oxcarbazepine products that are marketed outside of the United States but, to our knowledge, such products are not being pursued for the U.S. market. These
modified-release oxcarbazepine products include Apydan, which is developed by Desitin Arzneimittel&nbsp;GmbH and requires twice-daily administration. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> ADHD  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Competition in the U.S. ADHD market has increased with the launch of several products in recent years, including the launch of generic
versions of branded drugs, such as Adderall XR. Shire&nbsp;plc is one of the leaders in the U.S. ADHD market with three products: Adderall XR, an extended release stimulant treatment designed to
provide once-daily dosing; Vyvanse, a stimulant prodrug product launched in 2007; and Intuniv, a non-stimulant treatment launched in November 2009. Other stimulant products for
the treatment of ADHD in the U.S. market include the following once-daily formulations: Concerta; Metadate CD; Ritalin LA; Focalin XR; and Daytrana. Other non-stimulants are
Strattera and Clonicel. We are also aware of clinical development efforts by several large pharmaceutical companies including Shire&nbsp;plc, GlaxoSmithKline plc, Eisai&nbsp;Inc., AstraZeneca plc
and Abbott Laboratories to develop additional treatment options for ADHD. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B> Intellectual Property and Exclusivity  </B></FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Overview  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have been building and continue to build our intellectual property portfolio relating to our product candidates, including
SPN-538 and Epliga. We seek patent protection, where appropriate, in the United States and internationally for our product candidates. Our policy is to actively seek to protect our
proprietary position by, among other things, filing patent applications in the United States and abroad (including Europe, Canada and certain other countries when appropriate) relating to proprietary
technologies that are important to the development of our business. We also rely on trade secrets, know-how, continuing technological innovation and in-licensing opportunities
to develop and maintain our proprietary position. We cannot be sure that patents will be granted with respect to any of our pending patent applications or with respect to any patent applications filed
by us in the future, nor can we be sure that any of our existing patents or any patents that may be granted to us in the future will be commercially useful in protecting our technology. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
success will depend significantly on our ability to obtain and maintain patent and other proprietary protection for the technologies and products we consider important to our
business, defend our patents,
preserve the confidentiality of our trade secrets and operate our business without infringing the patents and proprietary rights of third parties. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have established and continue to build proprietary positions for Epliga, SPN-538, our pipeline product candidates and technologies in the United States and abroad. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>93</FONT></P>

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<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Patent Portfolio  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our Epliga patent portfolio currently includes one issued U.S. Patent, two pending U.S. continuation patent applications, and certain
pending foreign patent applications that relate to the issued U.S. patent or pending U.S. non-provisional patent applications. The issued U.S. patent will expire in 2027. We own the issued
patent and all of the pending applications. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition to the patents and patent applications relating to Epliga, we currently have one pending U.S. non-provisional patent application, two pending U.S. continuation
patent applications and certain pending foreign counterpart patent applications in Europe, Canada and other countries, which are directed to SPN-538. The U.S. patent application, if
issued, could expire in 2027. We own all of these pending applications. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
patent portfolio also contains patent applications relating to our other pipeline products. We have a pending U.S. non-provisional patent application and a pending
international patent application relating to our SPN-810 product candidate. Patents, if issued, from the applications could have terms expiring in 2029. With regard to our
SPN-812 product
candidate we have a pending U.S. non-provisional patent application and a pending international patent application. The U.S. patent application, if issued as a patent, would expire in 2029. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
U.S. patent system permits the filing of provisional and non-provisional patent applications. A non-provisional patent application is examined by the U.S.
Patent and Trademark Office, or USPTO, and can mature into a patent once the USPTO determines that the claimed invention meets the standards for patentability. A provisional patent application is not
examined for patentability, and automatically expires 12&nbsp;months after its filing date. As a result, a provisional patent application cannot mature into a patent. The requirements for filing a
provisional patent application are not as strict as those for filing a non-provisional patent application. Provisional applications are often used, among other things, to establish an
early filing date for a subsequent non-provisional patent application. The term of individual patents depends upon the legal term of the patents in the countries in which they are
obtained. In most countries in which we file, the patent term is 20&nbsp;years from the earliest date of filing a non-provisional patent application. In the United States, a patent's
term may be lengthened by patent term adjustment, or PTA, which compensates a patentee for administrative delays by the USPTO in granting a patent. In view of a recent court decision, the USPTO is
under greater scrutiny regarding its calculations where the USPTO erred in calculating the patent term adjustment for the patents in question denying the patentee a portion of the patent term to which
it was entitled. Alternatively, a patent's term may be shortened if a patent is terminally disclaimed over another patent. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
filing date of a non-provisional patent application is used by the USPTO to determine what information is prior art when it considers the patentability of a claimed
invention. If certain requirements are satisfied, a non-provisional patent application can claim the benefit of the filing date of an earlier filed provisional patent application. As a
result, the filing date accorded by the provisional patent application may supersede information that otherwise could preclude the patentability of an invention. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
term of a patent that covers an FDA-approved drug may also be eligible for patent term extension, or PTE, which permits patent term restoration as compensation for the
patent term lost during the FDA regulatory review process. The Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Amendments, permits a PTE of up to five years beyond
the expiration of the patent. The length of the PTE is related to the length of time the drug is under regulatory review. Patent extension cannot extend the remaining term of a patent beyond a total
of 14&nbsp;years from the date of product approval and only one patent applicable to an approved drug may be extended. Similar provisions are available in Europe and other foreign jurisdictions to
extend the term of a patent that covers an approved drug. In the future, if and when our pharmaceutical products receive FDA or other regulatory approval, we may be able to apply for PTEs on patents
covering those </FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>products.
Depending upon the timing, duration and specifics of FDA approval of Epliga, SPN-538 and our other product candidates, one or more of our U.S. patents may be eligible for limited
patent term restoration. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Other Intellectual Property Rights  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We seek trademark protection in the United States and internationally where available and when appropriate. We have filed for trademark
protection for several marks, which we use in connection with our pharmaceutical research and development collaborations as well as products. We are the owner of various U.S. federal trademark
registrations (&reg;) and registration applications (TM), including the following marks referred to in this prospectus pursuant to applicable U.S. intellectual property laws:
"Supernus&reg;," "Epliga&reg;," "Microtrol&reg;," "Solutrol&reg;," "ProScreen&reg;," "OptiScreen&reg;," "ProPhile&reg;" and the registered
Supernus Pharmaceuticals logo. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;From
time to time, we may find it necessary or prudent to obtain licenses from third party intellectual property holders. Where licenses are readily available at reasonable cost, such
licenses are considered a normal cost of doing business. In other instances, however, we may use the results of freedom-to-operate inquiries and internal analyses to guide our
early-stage research away from areas where we are likely to encounter obstacles in the form of third party intellectual property. For example, where a third party holds relevant intellectual property
and is a direct competitor, a license might not be available on commercially reasonable terms or available at all. We strive to identify potential third party intellectual property issues in the early
stages of research of our research programs, in order to minimize the cost and disruption of resolving such issues. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To
protect our competitive position, it may be necessary to enforce our patent rights through litigation against infringing third parties. Litigation to enforce our own patent rights is
subject to uncertainties that cannot be quantified in advance. In the case of an adverse outcome in litigation, we could be prevented from commercializing a product or using certain aspects of our
technology platforms as a result of patent infringement claims asserted against us. This could have a material adverse effect on our business. In addition, litigation involving our patents carries the
risk that one or more of our patents will be held invalid (in whole or in part, on a claim-by-claim basis) or held unenforceable. Such an adverse court ruling could allow third
parties to commercialize products or use technologies that are similar to ours, and then compete directly with us, without payment to us. See "Risk Factors&#151;If we are sued for infringing
intellectual property rights of third parties, it will be costly and time consuming, and an unfavorable outcome in that litigation would have a material adverse effect on our business." </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> In-Licensing Arrangements  </I></B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><I> Afecta Pharmaceuticals,&nbsp;Inc.  </I></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have entered into two license agreements with Afecta Pharmaceuticals,&nbsp;Inc., or Afecta, pursuant to which we obtained 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. Under the terms of the license
agreements, we have paid Afecta $400,000 in license fees and milestone payments. If a product candidate is successfully developed and commercialized, we will be obligated to pay royalties to Afecta
based on net sales worldwide in the low-single digits. Unless terminated by us or Afecta for material breach or bankruptcy, by Afecta for our discontinuation of development and
commercialization activities, or by us for convenience, the license agreements will continue in full force and effect on a country-by-country basis until six months from the
discontinuation of the commercial sale and collection of revenues for the Afecta product. </FONT></P>

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<P style="font-family:times;"><FONT SIZE=2><I> Rune Healthcare Limited  </I></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June 2006, we entered into a purchase and sale agreement with Rune Healthcare Limited, or Rune, where we obtained the exclusive
worldwide rights to a product concept from Rune for SPN-809. Under the terms of the agreement, we have paid Rune a &pound;25,000 up-front fee. If we receive approval to market and
sell any products based on the Rune product concept, we will be obligated to pay royalties to Rune based on net sales worldwide in the low-single digits. Unless terminated by us or Rune
for material breach, by Rune for our discontinuation of development or commercialization activities relating to a product based on the Rune product concept, we will be obligated to pay royalties to
Rune on a country-by-country basis until the earlier of (a)&nbsp;ten years from the date of first commercial sale of a product based on the Rune product concept or
(b)&nbsp;the market entry in such country of any product utilizing the Rune product by any entity other than us, our affiliates or our licensees. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Confidential Information and Inventions Assignment Agreements  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We require our employees, temporary employees, consultants to execute confidentiality agreements upon the commencement of employment,
consulting or collaborative relationships with us. These agreements provide that all confidential information developed or made known during the course of the relationship with us be kept confidential
and not disclosed to third parties except in specific circumstances. The agreements provide that all inventions resulting from work performed for us or relating to our business and conceived or
completed by the individual during employment or assignment, as applicable, shall be our exclusive property to the extent permitted by applicable law. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
seek to protect our product candidates and our technologies through a combination of patents, trade secrets, proprietary know-how, FDA exclusivity and contractual
restrictions on disclosure. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Government Regulation  </B></FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Product Approval  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Government authorities in the United States at the federal, state and local level, and other countries, extensively regulate, among
other things, the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, marketing, export and
import of products such as those we are developing. Our product candidates, including SPN-538 and Epliga, must be approved by the FDA before they may legally be marketed in the United
States. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> U.S. Drug Development Process  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act, or FDCA, and implementing regulations.
The process of obtaining regulatory approvals and ensuring compliance with appropriate federal, state, local and foreign statutes and regulations require the expenditure of substantial time and
financial resources. Failure to comply with the applicable U.S. requirements at any time during the product development process, approval process, or after approval, may subject an applicant to
administrative or judicial sanctions. These sanctions could include the FDA's refusal to approve pending applications, withdrawal of an approval, a clinical hold, warning letters, product recalls,
product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement or civil or criminal penalties. The process
required by the FDA before a drug may be marketed in the United States generally involves the following: </FONT></P>

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<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>completion of preclinical laboratory tests, animal studies and formulation studies according to Good Laboratory Practices
regulations; </FONT></DD></DL>
</UL>
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<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>submission to the FDA of an IND, which must become effective before human clinical trials may begin; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>performance of adequate and well-controlled human clinical trials according to Good Clinical Practices, or
GCP, to establish the safety and efficacy of the proposed drug for its intended use;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>submission to the FDA of an NDA for a new drug;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the drug is produced to
assess compliance with current Good Manufacturing Practices, or cGMP; and  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>FDA review and approval of the NDA. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
testing and approval process require substantial time, effort and financial resources and we cannot be certain that any approvals for our product candidates will be granted on a
timely basis, if at all. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Once
a pharmaceutical product candidate is identified for development, it enters the preclinical testing stage. Preclinical tests include laboratory evaluations of product chemistry,
toxicity, formulation and stability, as well as animal studies. An IND sponsor must submit the results of the preclinical tests, together with manufacturing information, analytical data and any
available clinical data or literature, to the FDA as part of the IND. The sponsor must also include a protocol detailing, among other things, the objectives of the initial clinical trial, the
parameters to be used in monitoring safety and the effectiveness criteria to be evaluated if the initial clinical trial lends itself to an efficacy evaluation. Some preclinical testing may continue
even after the IND is submitted. The IND automatically becomes effective 30&nbsp;days after receipt by the FDA, unless the FDA places the clinical trial on a clinical hold within that
30-day time period. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. Clinical holds also may be imposed by the FDA at
any time before or during trials due to safety concerns or non-compliance. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All
clinical trials must be conducted under the supervision of one or more qualified investigators in accordance with GCP regulations. These regulations include the requirement that all
research subjects provide informed consent. Further, an institutional review board, or IRB, must review and approve the plan for any clinical trial before it commences at any institution. An IRB
considers, among other things, whether the risks to individuals participating in the trials are minimized and are reasonable in relation to anticipated benefits. The IRB also approves the information
regarding the clinical trial and the consent form that must be provided to each clinical trial subject or his or her legal representative and must monitor the clinical trial until completed. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Once
an IND is in effect, each new clinical protocol and any amendments to the protocol must be submitted to the IND for FDA review, and to the IRBs for approval. Protocols detail, among
other things, the objectives of the clinical trial, dosing procedures, subject selection and exclusion criteria, and the parameters to be used to monitor subject safety. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Human
clinical trials are typically conducted in three sequential phases that may overlap or be combined: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2><I>Phase&nbsp;I.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;The product is initially introduced into
healthy human subjects and tested for safety, dosage tolerance, absorption, metabolism, distribution and excretion. In the case of some products for severe or life-threatening diseases,
especially when the product may be too inherently toxic to ethically administer to healthy volunteers, the initial human testing may be conducted in patients. </FONT></DD></DL>
</UL>
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<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2><I>Phase&nbsp;II.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;Phase&nbsp;II trials involve
investigations in a limited patient population to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to
determine dosage tolerance and optimal dosage and schedule.  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2><I>Phase&nbsp;III.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;Clinical trials are undertaken to
further evaluate dosage, clinical efficacy and safety in an expanded patient population at geographically dispersed clinical trial sites. These trials are intended to establish the overall
risk/benefit ratio of the product and provide an adequate basis for regulatory approval and product labeling. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Progress
reports detailing the results of the clinical trials must be submitted at least annually to the FDA and safety reports must be submitted to the FDA and the investigators for
serious and unexpected side effects. Phase&nbsp;I, Phase&nbsp;II and Phase&nbsp;III testing may not be completed successfully within any specified period, if at all. The FDA or the sponsor may
suspend or terminate a clinical trial at any time on various grounds, including a finding that the research subjects or patients are being exposed to an unacceptable health risk. Similarly, an IRB can
suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB's requirements or if the drug has been associated with
unexpected serious harm to patients. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Concurrent
with clinical trials, companies usually complete additional animal studies and must also develop additional information about the chemistry and physical characteristics of the
product and finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality
batches of the product candidate and, among other things, the manufacturer must develop methods for testing the identity, strength, quality and purity of the final product. Additionally, appropriate
packaging must be selected and tested and stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration over its shelf life. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> U.S. Review and Approval Processes  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The results of product development, preclinical studies and clinical trials, along with descriptions of the manufacturing process,
analytical tests conducted on the drug, proposed labeling and other relevant information, are submitted to the FDA as part of an NDA for a new drug, requesting approval to market the product. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
an alternate path to FDA approval, particularly for modifications to drug products previously approved by the FDA, an applicant may submit an NDA under Section&nbsp;505(b)(2) of the
FDCA. Section&nbsp;505(b)(2) was enacted as part of the Drug Price Competition and Patent Term Restoration Act of 1984, commonly referred to as the Hatch-Waxman Amendments, and permits the
submission of an NDA where at least some of the information required for approval comes from clinical trials not conducted by or for the applicant and for which the applicant has not obtained a right
of reference. The FDA interprets Section&nbsp;505(b)(2) of the FDCA to permit the applicant to rely upon the FDA's previous findings of safety and effectiveness for an approved product. The FDA
requires submission of information needed to support any changes to a previously approved drug, such as published data or new studies conducted by the applicant, including bioavailability or
bioequivalence studies, or clinical trials demonstrating safety and effectiveness. The FDA may then approve the new product candidate for all or some of the label indications for which the referenced
product has been approved, as well as for any new indication sought by the Section&nbsp;505(b)(2) applicant. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
submission of an NDA is subject to the payment of a substantial user fee; a waiver of such fee may be obtained under certain limited circumstances. For example, the agency will waive
the application fee for the first human drug application that a small business or its affiliate submits for review. </FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition, under the Pediatric Research Equity Act of 2003, or PREA, which was reauthorized under the Food and Drug Administration Amendments Act of 2007, an NDA or supplement to an
NDA must contain data to assess the safety and effectiveness of the drug for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each
pediatric subpopulation for which the product is safe and effective. The FDA may grant deferrals for submission of data or full or partial waivers. Unless otherwise required by regulation, PREA does
not apply to any drug for an indication for which orphan designation has been granted. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Section&nbsp;505(b)(2) New Drug Applications.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;To the extent that a Section&nbsp;505(b)(2) NDA relies on clinical trials
conducted for a
previously approved drug product or the FDA's prior findings of safety and effectiveness for a previously approved drug product, the Section&nbsp;505(b)(2) applicant must submit patent
certifications in its 505(b)(2) application with respect to any patents for the approved product on which the application relies that are listed in the FDA's publication, Approved Drug Products with
Therapeutic Equivalence Evaluations, commonly referred to as the Orange Book. Specifically, the applicant must certify for each listed patent that (1)&nbsp;the required patent information has not
been filed; (2)&nbsp;the listed patent has expired; (3)&nbsp;the listed patent has not expired, but will expire on a particular date and approval is not sought until after patent expiration; or
(4)&nbsp;the listed patent is invalid, unenforceable or will not be infringed by the proposed new product. A certification that the new product will not infringe the previously approved product's
listed patent or that such patent is invalid or unenforceable is known as a Paragraph&nbsp;IV certification. If the applicant does not challenge one or more listed patents through a
Paragraph&nbsp;IV certification, the FDA will not approve the Section&nbsp;505(b)(2) NDA application until all the listed patents claiming the referenced product have expired. Further, the FDA
will also not approve, as applicable, a Section&nbsp;505(b)(2) NDA application until any non-patent exclusivity, such as, for example, five-year exclusivity for obtaining
approval of a new chemical entity, three year exclusivity for an approval based on new clinical trials, or pediatric exclusivity, listed in the Orange Book for the referenced product, has expired. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
the Section&nbsp;505(b)(2) NDA applicant has provided a Paragraph&nbsp;IV certification to the FDA, the applicant must also send notice of the Paragraph&nbsp;IV certification to
the owner of the referenced NDA for the previously approved product and relevant patent holders within 20&nbsp;days after the Section&nbsp;505(b)(2) NDA has been accepted for filing by the FDA.
The NDA and patent holders may then initiate a patent infringement suit against the Section&nbsp;505(b)(2) applicant. Under the FDCA, the filing of a patent infringement lawsuit within
45&nbsp;days of receipt of the notification regarding a Paragraph&nbsp;IV certification automatically prevents the FDA from approving the Section&nbsp;505(b)(2) NDA for 30&nbsp;months
beginning on the date the patent holder receives notice, or until a court deems the patent unenforceable, invalid or not infringed, whichever is earlier. Moreover, in cases where a
Section&nbsp;505(b)(2) application containing a Paragraph&nbsp;IV certification is submitted after the fourth year of a previously approved drug's five year exclusivity period and the patent
holder brings suit within 45&nbsp;days of notice of certification, the 30-month period is automatically extended to prevent approval of the Section&nbsp;505(b)(2) application until the date that
is seven and one-half years after approval of the previously approved reference product. The court also has the ability to shorten or lengthen either the 30&nbsp;month or the seven and
one-half year period if either party is found not to be reasonably cooperating in expediting the litigation. Thus, the Section&nbsp;505(b)(2) applicant may invest a significant amount of
time and expense in the development of its product only to be subject to significant delay and patent litigation before its product may be commercialized. Alternatively, if the NDA applicant or
relevant patent holder does not file&nbsp;a patent infringement lawsuit within the specified 45&nbsp;day period, the FDA may approve the Section&nbsp;505(b)(2) application at any time. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Notwithstanding
the approval of many products by the FDA pursuant to Section&nbsp;505(b)(2), over the last few years, some pharmaceutical companies and others have objected to the
FDA's interpretation of Section&nbsp;505(b)(2). If the FDA changes its interpretation of Section&nbsp;505(b)(2), or if the </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>99</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>FDA's
interpretation is successfully challenged in court, this could delay or even prevent the FDA from approving any Section&nbsp;505(b)(2) NDA that we submit. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
the NDA submissions for our product candidates, we intend to follow the development and approval pathway permitted under the FDCA that we believe will maximize the commercial
opportunities for these product candidates. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;FDA Review of New Drug Applications.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The FDA reviews all NDAs submitted to ensure that they are sufficiently complete for
substantive review before
it accepts them for filing. The FDA may request additional information rather than accept an NDA for filing. In this event, the NDA must be re-submitted with the additional information.
The re-submitted application also is subject to review before the FDA accepts it for filing. Once the submission is accepted for filing, the FDA begins an in-depth substantive
review. The FDA reviews an NDA to determine, among other things, whether a product is safe and effective for its intended use and whether its manufacturing is cGMP-compliant to assure and
preserve the product's identity, strength, quality and purity. Before approving an NDA, the FDA will inspect the facility or facilities where the product is manufactured. The FDA will not approve an
application unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required
specifications. The FDA may refer the NDA to an advisory committee for review, evaluation and recommendation as to whether the application should be approved and under what conditions. An advisory
committee is a panel of independent experts who provide advice and recommendations when requested by the FDA on matters of importance that come before the agency. The FDA is not bound by the
recommendation of an advisory committee. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
approval process is lengthy and difficult and the FDA may refuse to approve an NDA if the applicable regulatory criteria are not satisfied or may require additional clinical data or
other data and information. Even if such data and information is submitted, the FDA may ultimately decide that the NDA does not satisfy the criteria for approval. Data obtained from clinical trials
are not always conclusive and the FDA may interpret data differently than we interpret the same data. The FDA will issue a complete response letter if the agency decides not to approve the NDA in its
present form. The complete response letter usually describes all of the specific deficiencies that the FDA identified in the NDA. The deficiencies identified may be minor, for example, requiring
labeling changes, or major, for example, requiring additional clinical trials. Additionally, the complete response letter may include recommended actions that the applicant might take to place the
application in a condition for approval. If a complete response letter is issued, the applicant may either resubmit the NDA, addressing all of the deficiencies identified in the letter, withdraw the
application, or request an opportunity for a hearing. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
a product receives regulatory approval, the approval may be significantly limited to specific diseases and dosages or the indications for use may otherwise be limited, which could
restrict the commercial value of the product. Further, the FDA may require that certain contraindications, warnings or precautions be included in the product labeling. In addition, the FDA may require
Phase&nbsp;4 testing which involves clinical trials designed to further assess a drug's safety and effectiveness after NDA approval and may require testing and surveillance programs to monitor the
safety of approved products that have been commercialized. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Patent Term Restoration and Marketing Exclusivity  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depending upon the timing, duration and specifics of FDA marketing approval of our product candidates, some of our U.S. patents may be
eligible for limited patent term extension under the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent restoration term of up to five years as compensation for patent term lost
during product development and the FDA regulatory review process. However, patent term restoration cannot extend the remaining term of a patent beyond </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>100</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>a
total of 14&nbsp;years from the product's approval date. The patent term restoration period is generally one-half the time between the effective date of an IND and the submission date
of an NDA plus the time between the submission date of an NDA and the approval of that application. Only one patent applicable to an approved drug is eligible for the extension and the application for
the extension must be submitted prior to the expiration of the patent and within sixty days of approval of the drug. The U.S. Patent and Trademark Office, in consultation with the FDA, reviews and
approves the application for any patent term extension or restoration. In the future, we intend to apply for restorations of patent term for some of our currently owned or licensed patents to add
patent life beyond their current expiration dates, depending on the expected length of the clinical trials and other factors involved in the filing of the relevant NDA. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Market
exclusivity provisions under the FDCA can also delay the submission or the approval of certain applications. The FDCA provides a five-year period of
non-patent marketing exclusivity within the United States to the first applicant to gain approval of an NDA for a new chemical entity. A drug is a new chemical entity if the FDA has not
previously approved any other new drug containing the same active moiety, which is the molecule or ion responsible for the action of the drug substance. During the exclusivity period, the FDA may not
accept for review an abbreviated new drug application, or ANDA, or a Section&nbsp;505(b)(2) NDA submitted by another company for another version of such drug where the applicant does not own or have
a legal right of reference to all the data required for approval. However, an application may be submitted after four years if it contains a Paragraph&nbsp;IV certification. The FDCA also provides
three years of marketing exclusivity for an NDA, Section&nbsp;505(b)(2) NDA or supplement to an existing NDA if new clinical investigations, other than bioavailability studies, that were conducted
or sponsored by the applicant are deemed by the FDA to
be essential to the approval of the application. Such clinical trials may, for example, support new indications, dosages or strengths of an existing drug. This three-year exclusivity
covers only the conditions of use associated with the new clinical investigations and does not prohibit the FDA from approving ANDAs for drugs containing the original active agent.
Five-year and three-year exclusivity will not delay the submission or approval of a full NDA. However, an applicant submitting a full NDA would be required to conduct its own
preclinical studies and clinical trials or obtain a right of reference to such studies or trials. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pediatric
exclusivity is another type of exclusivity in the United States. Pediatric exclusivity, if granted, provides an additional six months of exclusivity to be attached to any
existing exclusivity (e.g.,&nbsp;three or five year exclusivity) or patent protection for a drug. This six month exclusivity, which runs from the end of other exclusivity protection or patent delay,
may be granted based on the voluntary completion of a pediatric trial in accordance with an FDA-issued "Written Request" for such a trial. The current pediatric exclusivity provision was
reauthorized in September 2007. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Post-Approval Requirements  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any drugs for which we receive FDA approval are subject to continuing regulation by the FDA, including, among other things,
record-keeping requirements, reporting of adverse experiences with the product, providing the FDA with updated safety and efficacy information, product sampling and distribution requirements,
complying with certain electronic records and signature requirements and complying with FDA promotion and advertising requirements. The FDA strictly regulates labeling, advertising, promotion and
other types of information on products that are placed on the market. Drugs may be promoted only for the approved indications and in accordance with the provisions of the approved label. Further,
manufacturers of drugs must continue to comply with cGMP requirements, which are extensive and require considerable time, resources and ongoing investment to ensure compliance. In addition, changes to
the manufacturing process generally require prior FDA approval before being implemented and other types of changes to the approved product, such as adding new indications and additional labeling
claims, are also subject to further FDA review and approval. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>101</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Drug
manufacturers and other entities involved in the manufacturing and distribution of approved drugs are required to register their establishments with the FDA and certain state
agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP and other laws. The cGMP requirements apply to all stages of the
manufacturing process, including the production, processing, sterilization, packaging, labeling, storage and shipment of the drug. Manufacturers must establish validated systems to ensure that
products meet specifications and regulatory standards, and test each product batch or lot prior to its release. We rely, and expect to
continue to rely, on third parties for the production of clinical quantities of our product candidates. Future FDA and state inspections may identify compliance issues at the facilities of our
contract manufacturers that may disrupt production or distribution or may require substantial resources to correct. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
FDA may withdraw a product approval if compliance with regulatory standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously
unknown problems with a product may result in restrictions on the product or even complete withdrawal of the product from the market. Further, the failure to maintain compliance with regulatory
requirements may result in administrative or judicial actions, such as fines, warning letters, holds on clinical trials, product recalls or seizures, product detention or refusal to permit the import
or export of products, refusal to approve pending applications or supplements, restrictions on marketing or manufacturing, injunctions or civil or criminal penalties. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;From
time to time, legislation is drafted, introduced and passed in Congress that could significantly change the statutory provisions governing the approval, manufacturing and marketing
of products regulated by the FDA. In addition to new legislation, the FDA regulations and policies are often revised or reinterpreted by the agency in ways that may significantly affect our business
and our product candidates. It is impossible to predict whether further legislative or FDA regulation or policy changes will be enacted or implemented and what the impact of such changes, if any, may
be. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Foreign Regulation  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition to regulations in the United States, we will be subject to a variety of foreign regulations governing clinical trials and
commercial sales and distribution of our product candidates to the extent we choose to clinically evaluate or sell any products outside of the United States. Whether or not we obtain FDA approval for
a product, we must obtain approval of a product by the comparable regulatory authorities of foreign countries before we can commence clinical trials or marketing of the product in those countries. The
approval process varies from country to country and the time may be longer or shorter than that required for FDA approval. The requirements governing the conduct of clinical trials, product licensing,
pricing and reimbursement vary greatly from country to country. As in the United States, post-approval regulatory requirements, such as those regarding product manufacture, marketing, or
distribution would apply to any product that is approved outside the Untied States. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Third Party Payor Coverage and Reimbursement  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In both the United States and foreign markets, our ability to commercialize our product candidates successfully, and to attract
commercialization partners for our product candidates, depends in significant part on the availability of adequate financial coverage and reimbursement from third party payors, including, in the
United States, governmental payors such as the Medicare and Medicaid programs, managed care organizations, and private health insurers. Medicare is a federally funded program managed by the Centers
for Medicare and Medicaid Services, or CMS, through local fiscal intermediaries and carriers that administer coverage and reimbursement for certain healthcare items and services furnished to the
elderly and disabled. Medicaid is an insurance program for certain categories of patients whose income and assets fall below state defined levels and who are otherwise uninsured that is both federally
and state funded and managed by each state. The federal government </FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>sets
general guidelines for Medicaid and each state creates specific regulations that govern its individual program. Each payor has its own process and standards for determining whether it will cover
and reimburse a procedure or particular product. Private payors often rely on the lead of the governmental payors in rendering coverage and reimbursement determinations. Therefore, achieving favorable
CMS coverage and reimbursement is usually a significant gating issue for successful introduction of a new product. The competitive position of some of our products will depend, in part, upon the
extent of coverage and adequate reimbursement for such products and for the procedures in which such products are used. Prices at which we or our customers seek reimbursement for our product
candidates can be subject to challenge, reduction or denial by the government and other payors. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
United States Congress and state legislatures may, from time to time, propose and adopt initiatives aimed at cost containment, which could impact our ability to sell our product
candidates profitably. For example, in March 2010, President Obama signed into law the Patient Protection and Affordable Care Act and the associated reconciliation bill, which we refer to collectively
as the Health Care Reform Law, a sweeping law intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new
transparency requirements for healthcare and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms. Effective October&nbsp;1,
2010, the Health Care Reform Law revises the definition of "average manufacturer price" for reporting purposes, which could increase the amount of Medicaid drug rebates to states once the provision is
effective. Further, beginning in 2011, the new law imposes a significant annual fee on companies that manufacture or import branded prescription drug products. Substantial new provisions affecting
compliance have also been enacted, which may require us to modify our business practices with healthcare practitioners. We will not know the full effects of the Health Care Reform Law until applicable
federal and state agencies issue regulations or guidance under the new law. Although it is too early to determine the effect of the Health Care Reform Law, the new law appears likely to continue the
pressure on pharmaceutical pricing, especially under the Medicare program, and may also increase our regulatory burdens and operating costs. Moreover, in the coming years, additional changes could be
made to governmental healthcare programs that could significantly impact the success of our product candidates. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
cost of pharmaceuticals continues to generate substantial governmental and third party payor interest. We expect that the pharmaceutical industry will experience pricing pressures
due to the trend toward managed healthcare, the increasing influence of managed care organizations and additional legislative proposals. Our results of operations could be adversely affected by
current and future healthcare reforms. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Some
third party payors also require pre-approval of coverage for new or innovative devices or drug therapies before they will reimburse healthcare providers that use such
therapies. While we cannot predict whether any proposed cost-containment measures will be adopted or otherwise implemented in the future, the announcement or adoption of these proposals
could have a material adverse effect on our ability to obtain adequate prices for our product candidates and operate profitably. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B> Legal Proceedings  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;From time to time and in the ordinary course of business, we are subject to various claims, charges and litigation. For example, we may
be required to file infringement claims against third parties for the infringement of our patents. For additional information regarding the patent litigation matters in which we are involved, please
see "Risk Factors&#151;We may become involved in lawsuits to protect or enforce our patents, which could be expensive, time consuming and unsuccessful." Although the outcome of litigation
cannot be predicted with certainty and some lawsuits, claims or proceedings may be disposed of unfavorably to us, we do not believe the outcome of any such litigation, individually or in the
aggregate, will have a material adverse effect on our financial condition, results of operations or cash flows. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>103</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2><B> Employees  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of September&nbsp;30, 2010, we employed 69 full-time employees, of which 59 were engaged in research and development,
clinical trials and quality assurance and 10 were engaged in administration, finance, marketing and business development. None of our employees are represented by a labor union. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Facilities  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our principal executive offices are located at 1550 East Gude Drive, Rockville, Maryland 20850, where we occupy approximately 44,500
square feet of laboratory and office space. Our lease term expires in April&nbsp;30, 2018 with an option for a five year extension. We believe that our existing facilities are sufficient for our
present and future operations, and we currently have no plans to lease additional space. </FONT></P>

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<BR></FONT><FONT SIZE=2><B>  MANAGEMENT    <BR>    </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B> Executive Officers, Directors And Key Employees  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth the names and ages of our executive officers, directors and key employees as of September&nbsp;30,
2010. </FONT></P>
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<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Position(s) </B></FONT></TH>
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<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=2>Jack A. Khattar</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>49</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>President&nbsp;&amp; Chief Executive Officer, Director</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=2>Russell P. Wilson</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>50</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>Vice President, Chief Financial Officer</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=2>Jones W. Bryan, Ph.D.&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>46</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>Vice President of Business Development</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Padmanabh P. Bhatt, Ph.D.&nbsp;</FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>53</FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Vice President of Pharmaceutical Sciences</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=2>Paolo Baroldi, M.D., Ph.D.&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>59</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>Senior Vice President of Clinical Development&nbsp;&amp; Chief Medical Officer</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Tami T. Martin, R.N., Esq.&nbsp;</FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>55</FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Vice President of Regulatory Affairs</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>M. James Barrett, Ph.D.&nbsp;</FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>67</FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Director</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=2>Michael Bigham</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>53</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>Director</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=2>Frederick M. Hudson</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>65</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>Director</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=2>Charles W. Newhall, III</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>65</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>Director</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=2>William A. Nuerge</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>58</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>Director</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Michael B. Sheffery, Ph.D.&nbsp;</FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>59</FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>Director</FONT></TD>
</TR>
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 <P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>Jack A. Khattar</I></B></FONT><FONT SIZE=2> is the founder of our company and has served as our President and Chief Executive Officer and Director since 2005. From
1999 to 2005, Mr.&nbsp;Khattar served in various positions during that time as a Board member, President and CEO of Shire Laboratories&nbsp;Inc., the drug delivery subsidiary of Shire&nbsp;plc.
From 1999 to 2004, he also served as a member of Shire&nbsp;plc's Executive Committee. Prior to that, Mr.&nbsp;Khattar served as an Executive Officer and the Chairman of the Management Committee
at CIMA, a drug delivery company that is currently a division of Cephalon. At CIMA, he was also responsible for business development, including the licensing of CIMA's technologies, corporate
alliances and strategic planning. Prior to joining CIMA in 1995, Mr.&nbsp;Khattar held several marketing and business development positions at Merck&nbsp;&amp;&nbsp;Co., Novartis, Playtex and Kodak
in various locations, including the United States, Europe and the Middle East. Mr.&nbsp;Khattar earned his degrees in Marketing with a BBA from American University of Beirut and an MBA from the
Wharton School of the University of Pennsylvania. He is currently a director of Rockville Economic Development&nbsp;Inc. Mr.&nbsp;Khattar's leadership, executive, managerial, business and
pharmaceutical company experience, along with his more than 20&nbsp;years of industry experience in the development and commercialization of pharmaceutical products and drug delivery technologies,
qualify him to be a director. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>Russell P. Wilson</I></B></FONT><FONT SIZE=2> has served as our Vice President, Chief Financial Officer since 2009. From 2000 to 2008, Mr.&nbsp;Wilson served at
Iomai Corporation, which was sold to Intercell AG in August 2008, in various positions. While at Iomai Corporation, Mr.&nbsp;Wilson was responsible at different times for finance, legal, business
development, regulatory affairs and quality systems, and served as Senior Vice President (from May 2005 to 2008), Chief Financial Officer (from June 2002 to 2008), General Counsel (from March 2000 to
2008) and Secretary (from May 2000 to 2008), and Vice President, Business Development (from March 2000 to June 2002). Mr.&nbsp;Wilson earned his B.A. from Princeton University and holds a joint
M.B.A./ J.D. degree from the University of Virginia. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>Jones W. Bryan, Ph.D.,</I></B></FONT><FONT SIZE=2> has served as our Vice President of Business Development since 2005. From 2000 to 2005, he served as Vice President
Business Development for Shire Laboratories&nbsp;Inc. Prior to that, Dr.&nbsp;Bryan was Director of Business Development for Pharmaceutics and Clinical Supply Manufacturing for AAI. He began his
career with Schering Plough in Pharmaceutics and Formulation Development. Dr.&nbsp;Bryan earned his B.S. degree in Zoology from Clemson University, Ph.D. degree in </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>105</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>Pharmaceutics
from the Medical University of South Carolina and Executive Management Certificate from the University of North Carolina Kenan-Flagler Business School. He is a member of the Licensing
Executives Society and serves on Clemson University's Spiro Institute Entrepreneurship Advisory Board. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>Padmanabh P. Bhatt, Ph.D.,</I></B></FONT><FONT SIZE=2> has served as our Vice President of Pharmaceutical Sciences since 2005. From 2003 to 2005, Dr.&nbsp;Bhatt was
Vice President of Advanced Drug Delivery at Shire Laboratories&nbsp;Inc.
From 2001 to 2003, Dr.&nbsp;Bhatt served as Vice President of Research and Development and Chief Technology Officer at Point Biomedical Corporation. From 1996 to 2001, he served at ALZA Corporation
(now a Johnson&nbsp;&amp; Johnson company) in various positions from Product Development Manager to Director of Technical Development. Prior to that time, Dr.&nbsp;Bhatt has held positions as Research
Specialist and Group Leader of Novel Drug Delivery at Dow Corning Corporation (from 1992 to 1996) and Senior Scientist at Hercon Laboratories (from 1989 to 1992). Dr.&nbsp;Bhatt earned his B.Pharm.
and M.Pharm. degrees from the University of Bombay, India. He also holds M.S. and Ph.D. degrees in Pharmaceutical Chemistry from the University of Kansas. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>Paolo Baroldi, M.D., Ph.D.,</I></B></FONT><FONT SIZE=2> has served as our Senior Vice President of Clinical Development&nbsp;&amp; Chief Medical Officer since 2009.
From 2006 to 2009, he served as a Senior Vice President and Chief Medical Officer at Vanda. From 2003 to 2006, Dr.&nbsp;Baroldi served as Vice President-Corporate Drug Development and Chairman of
the R&amp;D Board at Chiesi Farmaceutici SpA, where he led a research and development organization of 350 people across 3 sites in the United States, Italy and France. From 1998 to 2002,
Dr.&nbsp;Baroldi was the Global Head of Clinical Pharmacology at Novartis AG, responsible for a staff of 140 people across five different sites, including France, the United Kingdom, Japan and the
United States. Dr.&nbsp;Baroldi holds degrees in Medicine and Surgery and a Ph.D. in Clinical Pharmacology from the University of Milan and an Executive MBA from Harvard University. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>Tami T. Martin, R.N., Esq.</I></B></FONT><FONT SIZE=2><B>,</B></FONT><FONT SIZE=2> has served as our Vice President of Regulatory Affairs since 2008. She has previously
held positions as Vice President of Regulatory Affairs at Shire Pharmaceuticals (6&nbsp;years), and Manager to Sr. Director of Regulatory Affairs at Otsuka America Pharmaceuticals (7&nbsp;years).
Ms.&nbsp;Martin has also consulted privately for domestic and international clients as President and CEO of Pyramid Regulatory Consulting. Earlier in her career, Ms.&nbsp;Martin held legal
positions at Hogan&nbsp;&amp; Hartson as a member of the Food and Drug Practice Group, and with the Department of Health and Human Services as a staff attorney. Ms.&nbsp;Martin previously served as an
instructor for the Johns Hopkins University Masters of Biotechnology and Regulatory Affairs Graduate Degree program, and teaches a portion of the United States Regulatory Module for TOPRA (The
Organization for Professionals in Regulatory Affairs) leading to a MSc in Regulatory Affairs through the University of Wales. Ms.&nbsp;Martin earned her Bachelor of Science in Nursing from Albright
College and a Juris Doctorate degree from Suffolk University. Ms.&nbsp;Martin is a member of the Pennsylvania Bar. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>M. James Barrett, Ph.D.,</I></B></FONT><FONT SIZE=2> has served as a member of our Board since 2005. Since September 2001, Dr.&nbsp;Barrett has been a general
partner of New Enterprise Associates, or NEA, which is a venture capital firm that focuses on the medical and life sciences and information technology industries. He is currently a member of the board
of directors of each of the publicly-traded companies Amicus Therapeutics,&nbsp;Inc., Inhibitex,&nbsp;Inc. and Targacept,&nbsp;Inc., within the past five years, he served on the board of
directors of each of the publicly-traded companies Iomai Corporation (acquired by Intercell AG), MedImmune,&nbsp;LLC (acquired by AstraZeneca), Pharmion Corporation (acquired by Celgene Corporation)
and YM Biosciences,&nbsp;Inc. As a result of Dr.&nbsp;Barrett's tenure as a general partner of New Enterprise Associates, he has served on numerous boards of directors of both public and private
companies in the healthcare sector and brings to the Board significant first-hand experience in shaping strategic direction as a pharmaceutical company matures from a private
venture-backed company to a development-stage public company and then to a product revenue-generating company. Dr.&nbsp;Barrett's substantial experience with public and private companies in the
healthcare sector and his venture capital, financial and business experience qualify him to serve as a director. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>106</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>Michael Bigham</I></B></FONT><FONT SIZE=2> has served as a member of our Board since 2006. Since 2002, Mr.&nbsp;Bigham has been a general partner of Abingworth
Management, a leading international venture capital firm concentrating in life sciences. From December 2002 to March 2004, he served as Vice Chairman of Corixa Corporation, and was President and Chief
Executive of Coulter Pharmaceuticals from July 1996 until it merged into Corixa in December 2000. Previously, he was an early employee at Gilead Sciences where he spent eight years serving in various
capacities, including Executive Vice President of Operations and Chief Financial Officer. Before joining Gilead, Mr.&nbsp;Bigham was a partner at Hambrecht&nbsp;&amp; Quist where he became
Co-Head of Healthcare Investment Banking. Mr.&nbsp;Bigham earned his B.S. Degree with distinction from the University of Virginia and holds an MBA from Stanford University Graduate
School of Business. Mr.&nbsp;Bigham is also a Certified Public Accountant. Mr.&nbsp;Bigham's significant operational and investment banking experience in life science companies qualify him to
serve as a director. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>Frederick M. Hudson</I></B></FONT><FONT SIZE=2> has served as a member of our Board since 2010. Mr.&nbsp;Hudson retired as a partner in charge of the health care
audit practice for the Washington&#151;Baltimore business unit of the accounting firm of KPMG,&nbsp;LLP on January&nbsp;1, 2006 after a 37-year career with the firm. He is a
graduate of Loyola University Maryland and currently serves in a board capacity with the Board of Financial Administration of the Catholic Archdiocese of Baltimore and the Board of Trustees of the
Maryland Historical Society. He chairs the audit committees of each of the boards of directors of Paradigm Management Services&nbsp;LLC (a provider of catastrophic care services), Woodhaven Holding
Corporation, d/b/a Remedi Senior Care (an institutional pharmacy service provider), GBMC Healthcare,&nbsp;Inc. and its affiliate, the Greater Baltimore Medical Center, and Vicor
Technologies,&nbsp;Inc. He is also a director of Maxim Health Care Services,&nbsp;Inc. Mr.&nbsp;Hudson's extensive accounting and health care audit experience qualify him to serve as a director. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>Charles W. Newhall, III</I></B></FONT><FONT SIZE=2> has served as a member of our Board since 2005. In 1977, Mr.&nbsp;Newhall co-founded NEA, a venture
capital firm that focuses on the medical and life sciences and information technology industries. To date, Mr.&nbsp;Newhall has served as a director of over 40 venture-backed companies. He also
started several healthcare information technology companies like PatientKeeper, TargetRx and LifeMetrix. Some of his current board memberships include Vitae Pharmaceuticals, TargetRx, Sensors for
Medicine and Science, and BrainCells&nbsp;Inc. In 1986, he founded the Mid-Atlantic Venture Capital Association, or MAVA, which now has over 80 venture capital firms that are members,
and is one of the most active regional venture associations in the country. He is Chairman Emeritus of MAVA. Before NEA, Mr.&nbsp;Newhall was a Vice President of T. Rowe Price. He served in Vietnam
commanding an independent platoon including an initial reconnaissance of Hamburger Hill. His decorations include the Silver Star and Bronze Star V (1st&nbsp;OLC). He earned an Honors Degree in
English from the University of Pennsylvania and an MBA from Harvard Business School. Mr.&nbsp;Newhall's substantial experience with companies in the healthcare sector and his venture capital,
financial and business experience qualify him to serve as a director. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>William A. Nuerge</I></B></FONT><FONT SIZE=2> has served as a member of our Board since 2006. Since 2007, Mr.&nbsp;Nuerge has been a managing partner of Fortress
Pharms Advisors,&nbsp;LLC. From 2004 to 2007, Mr.&nbsp;Nuerge served as a director and President and CEO of Xanodyne Pharmaceuticals. From 1997 to 2004, he served as President and CEO of Shire
US,&nbsp;Inc. Prior to that, Mr.&nbsp;Nuerge served as Chief Operating Officer of Richwood Pharmaceuticals Company,&nbsp;Inc., which subsequently merged with Shire&nbsp;plc in 1997.
Mr.&nbsp;Nuerge earned his Bachelor of Science degree from Purdue University and his MBA from Wesleyan University. He has also previously served as a director of Cutanogen Corporation.
Mr.&nbsp;Nuerge's significant operational and business experience with life science companies qualify him to serve as a director. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B><I>Michael B. Sheffery, Ph.D.,</I></B></FONT><FONT SIZE=2> has served as a member of our Board since 2005. Dr.&nbsp;Sheffery is a founding General Partner of OrbiMed
Advisors,&nbsp;LLC, a healthcare investment firm, and Co-Head of Private Equity at Orbimed. Dr.&nbsp;Sheffery was formerly Head of the Laboratory of Gene Structure and </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>107</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>Expression
at Memorial Sloan-Kettering Cancer Center. Dr.&nbsp;Sheffery joined Mehta and Isaly, an investment firm, in 1996 as a Senior Analyst covering the biotechnology industry. He earned both
his Ph.D. in Molecular Biology and his B.A. in Biology from Princeton University. He is currently a Director of Affimed Therapeutics AG and Pieris AG. Dr.&nbsp;Sheffery's background and expertise in
private equity and investment banking, combined with his scientific experience, qualify him to serve as a director. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B> Composition of Our Board of Directors  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our board of directors currently consists of seven members. All of our directors were elected pursuant to the board composition
provisions of our stockholders voting agreement. Our nominating and corporate governance committee and board of directors may consider a broad range of factors relating to the qualifications and
background of nominees, which may include diversity, which is not limited to race, gender or national origin. We have no formal policy regarding board diversity. Our nominating and corporate
governance committee's and board of directors' priority in selecting board members is identification of persons who will further the interests of our stockholders through their established records of
professional accomplishment, the ability to contribute positively to the collaborative culture among board members, and professional and personal experiences and expertise relevant to our growth
strategy. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Director Independence  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We intend to apply to have our common stock listed on the Nasdaq Global Market. Under Rules&nbsp;5605 and 5615 of the Nasdaq
Marketplace Rules, a majority of a listed company's board of directors must be comprised of independent directors within one year of listing. In addition, the Nasdaq Marketplace Rules require that,
subject to specified exceptions, each member of a listed company's audit, compensation and nominating and corporate governance committees be independent and that audit committee members also satisfy
independence criteria set forth in Rule&nbsp;10A-3 under the Securities Exchange Act of 1934, as amended, or the Exchange Act. Under Rule&nbsp;5605(a)(2) of the Nasdaq Marketplace
Rules, a director will only qualify as an "independent director" if, in the opinion of that company's board of directors, that person does not have a relationship that would interfere with the
exercise of independent judgment in carrying out the responsibilities of a director. Upon the completion of this offering, we expect that the composition and functioning of our board of directors and
each of our board committees will comply with all applicable rules and regulations of the Securities and Exchange Commission, or the SEC, and the Nasdaq Global Market. There are no family
relationships among any of our directors or executive officers. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Committees Of Our Board Of Directors  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our board of directors has established a compensation committee, audit committee and governance committee. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Compensation Committee  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The current members of our compensation committee
are&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, who is the chair of the
committee,&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;and
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;. We expect that upon completion
of this offering, each of the members of our compensation committee will be independent under the applicable rules and regulations of the SEC, the
Nasdaq Global Market and the Internal Revenue Service. Our compensation committee reviews and recommends policies relating to compensation and benefits of our officers and employees. The compensation
committee's responsibilities will include: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>reviewing and approving corporate goals and objectives relevant to the compensation of our chief executive officer and
other executive officers; </FONT></DD></DL>
</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>108</FONT></P>

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<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>evaluating the performance of these officers in light of those goals and objectives;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>setting the compensation of these officers based on such evaluations;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>reviewing and approving the terms of any employment agreements with our chief executive officer and other executive
officers;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>administering the issuance of stock options and other awards under our stock plans; and  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>reviewing and evaluating, at least annually, the performance of the compensation committee and its members, including
compliance of the compensation committee with its charter. </FONT></DD></DL>
</UL>
<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Audit Committee  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The current members of our audit committee
are&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, who is the chair of the
committee&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;and&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;.
We expect that upon completion of this offering, all members of our audit committee will meet the requirements for financial literacy under the applicable rules and regulations of the SEC and the
Nasdaq Global Market. Our board has determined
that&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;is an audit committee
financial expert as defined under the applicable rules of the SEC and has the requisite financial
sophistication as defined under the applicable rules and regulations of the Nasdaq Global
Market.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;and&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;are independent directors as defined under the
applicable rules and regulations of the SEC and the Nasdaq
Global Market. The audit committee will operate under a written charter that satisfies the applicable standards of the SEC and the Nasdaq Global Market. Our audit committee's responsibilities will
include: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>overseeing our corporate accounting and financial reporting process;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>evaluating the independent auditors' qualifications, independence and performance;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>determining the engagement of the independent auditors;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>reviewing and approving the scope of the annual audit and the audit fee;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>discussing with management and the independent auditors the results of the annual audit and the review of our quarterly
financial statements;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>approving the retention of the independent auditors to perform any proposed permissible non-audit services; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>monitoring the rotation of partners of the independent auditors on our engagement team as required by law; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>reviewing our critical accounting policies and estimates;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>overseeing our internal audit function; and  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>annually reviewing the audit committee charter and the audit committee's performance. </FONT></DD></DL>
</UL>
<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Governance Committee  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The current members of our governance committee
are&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, who is the chair of the
committee,&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;and
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;. We expect that upon completion
of this offering, each of the members of our governance committee will be independent under the applicable rules and regulations of the SEC and the
Nasdaq Global Market. The governance committee's responsibilities will include: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>making recommendations to our board of directors regarding candidates for directorships and the size and composition of
our board;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>overseeing our corporate governance guidelines; and  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>reporting and making recommendations to our board concerning governance matters. </FONT></DD></DL>
</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>109</FONT></P>

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<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Other Committees  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our board of directors may establish other committees as it deems necessary or appropriate from time to time. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Compensation Committee Interlocks and Insider Participation  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;None of the members of our compensation committee has at any time been one of our officers or employees. None of our executive officers
currently serves, or in the past fiscal year has served, as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our board of
directors or compensation committee. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Code of Business Conduct and Ethics  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have adopted a code of business conduct and ethics that applies to all of our employees, officers and directors, including those
officers responsible for financial reporting. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Executive Compensation  </B></FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Compensation Discussion and Analysis  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> &nbsp;&nbsp;&nbsp;&nbsp;Introduction.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><I>This section discusses our executive compensation policies and arrangements as they relate to our named
executive officers who are listed in the compensation tables set forth below. The following discussion should be read together with the compensation tables and related disclosure set forth
below.</I></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
named executive officers, or NEOs, for the year ended December&nbsp;31, 2009 are listed in the table below. </FONT></P>
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<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Title </B></FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>Jack A. Khattar</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>Chief Executive Officer, President</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>Russell P. Wilson</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>Vice President, Chief Financial Officer</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>Paolo Baroldi, M.D, Ph.D.&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>Senior Vice President, Chief Medical Officer</FONT></TD>
</TR>
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<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>Padmanabh Bhatt, Ph.D.&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>Vice President, Pharmaceutical Sciences</FONT></TD>
</TR>
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<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>Jones W. Bryan, Ph.D.&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>Vice President, Business Development</FONT></TD>
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 <P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;With
respect to these NEOs, our board of directors determined initial compensation for these persons based primarily on negotiations between our board and our NEOs prior to their being
hired and our board's past practices and experiences with companies such as ours. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
expect that following the completion of this offering, our Compensation Committee will undertake a substantial review of our existing compensation programs, objectives and philosophy
and determine whether such programs, objectives, and philosophy are appropriate after we have become a public company. In addition, as we gain experience as a public company, we expect that the
specific direction, emphasis and components of our executive compensation program will continue to evolve. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Executive Compensation Objectives and Philosophy  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The key objectives of our executive compensation programs are (1)&nbsp;to attract, motivate, reward and retain superior executive
officers with the skills necessary to successfully lead and manage our business; (2)&nbsp;to achieve accountability for performance by linking annual cash incentive compensation to the achievement
of measurable performance objectives; and (3)&nbsp;to align the interests of our executive officers and our equity holders through short- and long-term incentive compensation programs.
For our NEOs, these short- and long-term compensation are designed to accomplish these objectives by providing a significant correlation between our results of operations and total
compensation. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>110</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
expect to provide our NEOs with a significant portion of their compensation through cash incentive compensation contingent upon the achievement of operational and personal performance
metrics, as well as through equity compensation. These two elements of executive compensation are aligned with the interests of our stockholders because the amount of compensation ultimately received
will vary with our company's financial and operational performance. Equity compensation derives its value from our equity value, which in the future is likely to fluctuate based on our financial and
operational performance. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
seek to apply a consistent philosophy to compensation for all executive officers. Our compensation philosophy is based on the following core principles. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> To Pay for Performance  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Individuals in leadership roles are compensated based on a combination of total company and individual performance factors. Total
company performance is evaluated primarily on the degree to which pre-established operational objectives are met. Individual performance is evaluated based upon several individualized
leadership factors, including: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>individual contribution to attaining specific operational objectives;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>building and developing individual skills and a strong leadership team; and  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>developing an effective infrastructure to support business development and growth. </FONT></DD></DL>

<P style="font-family:times;"><FONT SIZE=2><B><I> To Pay Competitively  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are committed to providing a total compensation program designed to retain our highest performing employees and attract strong
leaders to our company. We have established compensation levels that we believe are competitive based on our board's experience with pay practices and compensation levels for companies such as ours. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> To Pay Equitably  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe that it is important to apply generally consistent guidelines for all executive officer compensation programs. In order to
deliver equitable pay levels, our board considers depth and scope of accountability, complexity of responsibility, qualifications and executive performance, both individually and collectively as a
team. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition to short- and long-term compensation, we have found it important to provide certain of our executive officers with competitive post-employment
compensation. Post-employment compensation consists primarily of severance pay and benefits continuation. We believe that these benefits are important considerations for our executive
officer compensation package, as they afford a measure of financial security in the event of certain terminations of their employment and also enable us to secure their cooperation following
termination. We have sought to ensure that each combined compensation package is competitive at the time the package is negotiated with the executive officer. We elect to provide
post-employment compensation to our executive officers on a case-by-case basis as the employment market, the qualifications of potential employees and our hiring
needs dictate. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Compensation Committee Review of Compensation  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We expect that following this offering, our Compensation Committee will review compensation elements and amounts for NEOs on an annual
basis and at the time of a promotion or other change in level of responsibilities, as well as when competitive circumstances or business needs may require. We may, but do not currently, use a third
party consultant to assist us with determining compensation levels. We expect that each year our management will compile a report of benchmark data for </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>111</FONT></P>

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<BR>

<P style="font-family:times;"><FONT SIZE=2>executive
positions for similar companies, including summaries of base salary, annual cash incentive plan opportunities and awards and long-term incentive award values. We have not yet
determined the companies that we will benchmark our compensation packages against, but we expect that the Compensation Committee will determine this list after completion of this offering and that it
will compare our pay practices and overall pay levels with other leading industry organizations and, where appropriate, with non-industry organizations when establishing our pay
guidelines. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
expect that the CEO will provide compensation recommendations to the Compensation Committee for executives other than himself based on this data and the other considerations mentioned
in this Compensation Discussion and Analysis. We expect that the Compensation Committee will recommend a compensation package that is consistent with our compensation philosophy, strategically
positioned at the median of the peer group and competitive with other organizations similar to ours. The Compensation Committee will then discuss these recommendations with the CEO and will make a
recommendation to the board, which the board will consider and approve, if appropriate. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
expect that the Compensation Committee will consider input from our CEO and CFO when setting performance objectives for our incentive plans. We also expect that the Compensation
Committee will consider input from our CEO and CFO, regarding benchmarking and recommendations for base salary, annual incentive targets and other compensation awards. The Compensation Committee will
likely give significant weight to our CEO's and CFO's judgment when assessing performance and determining appropriate compensation levels and incentive awards for our other NEOs. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Elements of Compensation  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As discussed throughout this Compensation Discussion and Analysis, the compensation policies applicable to our NEOs are reflective of
our pay-for-performance philosophy and encourage executive officers to enhance equity holder value over the long term. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
elements of our compensation program are: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>base salary;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>performance-based cash incentives;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>equity incentives; and  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>certain additional employee benefits. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Base
salary, performance-based cash incentives and long-term equity-based incentives are the most significant elements of our executive compensation program and, on an
aggregate basis, they are intended to substantially satisfy our program's overall objectives. Historically, our board of directors has, and following the offering, the Compensation Committee will seek
to, set each of these elements of compensation at the same time to enable it to simultaneously consider all of these elements collectively and their impact on compensation as a whole. Taking this
comprehensive view of all compensation components allows us also to make compensation determinations that will reflect the principles of our compensation philosophy with respect to allocation of
compensation among certain of these elements and total compensation. We strive to achieve an appropriate mix between the various elements of our compensation program to meet our compensation
objectives and philosophy; however, we do not apply any rigid allocation formula in setting our executive compensation, and we may make adjustments to this approach for various positions after giving
due consideration to prevailing circumstances, the individuals involved and their responsibilities and performance. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>112</FONT></P>

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</FONT> <FONT SIZE=2>
<A HREF="#bg71101a_main_toc">Table of Contents</A> </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Base Salary  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We provide a base salary to our executive officers to compensate them for their services during the year and to provide them with a
stable source of income. The base salaries for our NEOs in 2009 were established by our board of directors, based in large part on the recommendation of our management and our board's review of other
factors, including: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the individual's performance, results, qualifications and tenure;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the responsibilities associated with the position;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>pay mix (base salary, annual cash incentives, equity incentives and employee benefits);  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>prevailing market conditions; and  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>our financial position. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
annual base salaries in effect for each of our NEOs employed by us as of December&nbsp;31, 2009 and December&nbsp;31, 2010, are as follows. </FONT></P>
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<DIV ALIGN="CENTER"><TABLE width="100%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="45pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="45pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Base Salary ($) </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH NOWRAP  ALIGN="LEFT" style="font-family:times;"><DIV style="border-bottom:solid #000000 1.0pt;margin-bottom:0pt;width:21pt;"><FONT SIZE=1><B>Name

<!-- COMMAND=ADD_SCROPPEDRULE,21pt -->

 </B></FONT></DIV></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2009 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2010 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Jack A. Khattar</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>396,060</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>407,942</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Russell P. Wilson (1)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>260,000</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>265,172</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Paolo Baroldi, M.D., Ph.D. (2)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>285,000</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>293,292</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Padmanabh Bhatt, Ph.D.&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>258,448</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>266,200</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Jones W. Bryan, Ph.D.&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>204,410</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>210,542</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->
 </DIV>
<DIV style="padding:0pt;position:relative;text-align:left;margin-left:20%;">
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<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(1)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Mr.&nbsp;Wilson
joined us as our Vice President, Chief Financial Officer on May&nbsp;4, 2009, and, as a result, his raise in 2010 has been prorated.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(2)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Dr.&nbsp;Baroldi
joined us as our Senior Vice President, Chief Medical Officer on January&nbsp;12, 2009, and, as a result, his raise in 2010 has been
prorated. </FONT></DD></DL>
 </DIV>
 <P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
setting base salaries for 2009, our board considered the prevailing market conditions and our financial position, including our need to raise additional funds, and decided to increase
the base salary of our then-current NEOs by only 2.0% over their 2008 base salaries. In early 2010, in connection with setting the 2010 base salaries for our NEOs, our Compensation
Committee considered the prevailing market conditions and our financial position, including our need to raise additional funds, and decided to increase the base salary of each of our NEOs by 3.0% over
their 2009 base salaries. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
the future, we expect that salaries for executive officers will be reviewed annually, as well as at the time of a promotion or other change in level of responsibilities, or when
competitive circumstances or business needs may require. As noted above, we expect that following completion of the offering, our Compensation Committee will recommend a compensation package that is
consistent with our compensation philosophy, strategically positioned at market median of our to-be-determined peer group. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Performance-Based Cash Incentives  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We pay annual performance-based cash incentives or bonuses in order to align the compensation of our NEOs with our
short-term operational and performance goals and to provide near-term rewards for our NEOs to meet these goals. From time to time, our board has exercised its discretion in
determining cash incentive amounts and making individual awards, but generally our performance-based cash incentives are made under our annual cash incentive plan. Our annual cash incentive plan for
our CEO is based on the attainment by our company of objective operational goals and for all </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>113</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2><A
HREF="#bg71101a_main_toc">Table of Contents</A></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>other
NEOs is based on two components: the attainment by our company of non-financial operational goals and the achievement by each NEO of personal and often subjective performance goals.
The final evaluation made by our board combines often subjective assessments of each of our company's operational goals and each NEO's personal goals and does not necessarily involve a mathematical
analysis or pre-established weighting of each goal. Each of these components allows us to establish appropriately aggressive performance expectations and incentives that align business
performance expectations to the prevailing market and economic conditions. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Currently,
our board has determined that the target bonus for our CEO under our annual cash incentive plan is based 100% on the achievement of our company objectives. The annual
performance bonuses for the other NEOs are currently based 60% on the achievement of company objectives and 40% on the achievement of individual performance objectives. Our board establishes our
company objectives for each fiscal year prior to the end of the first quarter of the year and determines a separate weighting for each of our company objectives. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
do not disclose our company operational goals component of our annual cash incentive plan. We believe that such disclosure would result in serious competitive harm and be detrimental
to our operating performance because the components of our performance goals for 2009 contain highly sensitive data, such as regulatory, strategic partnering and other non-financial
operational goals. These goals are intended to be realistic and reasonable, but challenging, in order to drive performance by our NEOs. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
personal performance goals vary for each NEO whose bonus is based in part on personal performance goals and are based on specific priorities in the NEO's area of responsibility,
which may include, among others, regulatory and operating performance measures, as well as more subjective goals such as achievement of operational goals or implementation of specific plans,
publications or projects in each NEO's area of management. Each year, our CEO and each NEO jointly determine what the NEO's performance priorities will be for the year, and our CEO makes a
recommendation to our Compensation Committee. Our Compensation Committee reviews these recommendations, may have further discussions with our CEO or the NEO and then makes a final determination as to
the personal performance goals. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;After
our fiscal year 2009 ended, our board reviewed the company goals that were attained and were not attained and determined that the company performance component of our annual cash
incentive plan was 100% achieved. This decision was primarily due to the continued progress of SPN-538 and Epliga in the clinic and the non-dilutive financing achieved through
payment of $36.9&nbsp;million as consideration for a royalty-free, fully paid-up license for Intuniv. Concurrently, each of our NEOs prepared an assessment of his or her
performance against his or her personal performance goals and discussed them with our CEO, who then made a recommendation to our board. Our board reviewed these recommendations, undertook a similar
process with our CEO regarding his personal performance goals and made a determination of overall performance against these goals for each NEO. Taking into account the relative weighting of the
corporate and personal performance objectives, with </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>114</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2><A
HREF="#bg71101a_main_toc">Table of Contents</A></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>60%
for corporate objectives and 40% for individual performance objectives for each NEO, other than our CEO, we paid each NEO the following 2009 annual performance bonus in 2010: </FONT></P>
 <DIV style="padding:0pt;position:relative;width:60%;margin-left:20%;">
<p style="font-family:times;"><font size=1></FONT><FONT SIZE=2>


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 </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE width="100%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="37pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="55pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="51pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2009 Annual Performance Bonus </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH NOWRAP  ALIGN="LEFT" style="font-family:times;"><DIV style="border-bottom:solid #000000 1.0pt;margin-bottom:0pt;width:21pt;"><FONT SIZE=1><B>Name

<!-- COMMAND=ADD_SCROPPEDRULE,21pt -->

 </B></FONT></DIV></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Target<BR>
Bonus<BR>
Percent </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Target<BR>
Bonus<BR>
Amount&nbsp;($) </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Actual<BR>
Bonus<BR>
Payout&nbsp;($) </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Jack A. Khattar</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>40</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>158,424</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>158,424</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Russell P. Wilson(1)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>25</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>65,000</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>41,600</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Paolo Baroldi, M.D., Ph.D.(2)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>25</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>71,250</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>69,825</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Padmanabh Bhatt, Ph.D.&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>25</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>64,612</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>64,353</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Jones W. Bryan, Ph.D.&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>25</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>51,103</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>49,876</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
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 </DIV>
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<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(1)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>The
bonus payment for Mr.&nbsp;Wilson, who joined us as our Vice President, Chief Financial Officer on May&nbsp;4, 2009, was prorated for time worked.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(2)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>The
bonus payment for Dr.&nbsp;Baroldi, who joined us as our Senior Vice President, Chief Medical Officer on January&nbsp;12, 2009, was prorated for
time worked. </FONT></DD></DL>
 </DIV>
 <P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
2010, our board has set the following target annual performance bonus amounts: </FONT></P>
 <DIV style="padding:0pt;position:relative;width:60%;margin-left:20%;">
<p style="font-family:times;"><font size=1></FONT><FONT SIZE=2>


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<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="37pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="55pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
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<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2010 Annual<BR>
Performance Bonus </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH NOWRAP  ALIGN="LEFT" style="font-family:times;"><DIV style="border-bottom:solid #000000 1.0pt;margin-bottom:0pt;width:21pt;"><FONT SIZE=1><B>Name

<!-- COMMAND=ADD_SCROPPEDRULE,21pt -->

 </B></FONT></DIV></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Target<BR>
Bonus<BR>
Percent </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Target<BR>
Bonus<BR>
Amount ($) </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Jack A. Khattar</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>40</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>163,177</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Russell P. Wilson</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>25</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>66,293</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Paolo Baroldi, M.D., Ph.D.&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>25</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>73,323</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Padmanabh Bhatt, Ph.D.&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>25</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>66,550</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Jones W. Bryan, Ph.D.&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>25</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>52,636</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->
 </DIV>
 <P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
expect that following this offering, our Compensation Committee will more directly assess the performance of our NEOs. Many of the personal performance goals either are qualitative in
nature or have a single value or accomplishment as the determinant. Accordingly, the final evaluation made by our board often combines subjective assessments of each of the NEO's goals and does not
necessarily involve a mathematical analysis or pre-established weighting of each goal. Our board ultimately determines a single percentage representing overall performance against each
NEO's personal goals in the aggregate. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
target bonus percentages for our NEOs under our annual cash incentive plan for 2010 are the same as under the annual cash incentive plan for 2009. Because the components of our
performance goals for 2010 contain highly sensitive data, such as regulatory, strategic partnering and other non-financial operational goals, we believe that such disclosure would result in serious
competitive harm and be detrimental to our operating performance. Our performance goals are intended to be realistic and reasonable, but challenging, in order to drive performance by our NEOs. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Equity Incentives  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All of our NEOs have received equity incentive grants under our 2005 Stock Plan, which is described below, in the form of restricted
stock and stock options. To date, we have used restricted stock and/or stock option grants as our principal form of equity incentives because we believe they are an effective means to align the
long-term interests of our executive officers with those of our stockholders. The offer of restricted stock and/or options attempts to achieve this alignment by </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>115</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<P style="font-family:times;"><FONT SIZE=2><A
HREF="#bg71101a_main_toc">Table of Contents</A></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>providing
our NEOs with equity incentives that vest over time or upon the occurrence of certain events. The restricted stock and options serve also to reward our NEOs for performance. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prior
to this offering, we have used stock options and, to a very limited degree, restricted stock, as the primary long-term equity incentive vehicle. In 2005, we made our
only grant of restricted stock when the fair value of our stock was lower and the awards had less income tax consequence to the executive upon vesting. Since then, we have made option grants to
executive officers who are newly hired, and generally made stock option grants to existing executives at times when the board deemed appropriate in accordance with the compensation principles outlined
above. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
value of an option is at risk for the NEO and is entirely dependent on the value of a share of our stock above the option's strike price. The value of our stock is dependent in many
ways on management's success in achieving our goals. If the price of our common stock drops, for any reason, over the option's vesting period, the value of the option to the executive will drop and
could become worthless if the price of the underlying stock remains below the option's strike price. In determining the number of stock options to be granted to executives, we take into account the
individual's position, scope of responsibility, ability to affect profits and shareholder value, the individual's historic and recent performance and the value of stock options in relation to other
elements of the individual executive's total compensation. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
may in the future grant other forms of equity incentives, such as restricted stock or performance shares (shares that vest only upon achievement of performance goals established at
the time of grant), subject to the Compensation Committee's discretion, to ensure that our executives are focused on long-term stockholder value. We expect that following completion of the
offering, the Compensation Committee will periodically review the equity awards previously awarded to management, the performance of our business and the performance of our stock. We expect that the
Compensation Committee will establish levels of equity incentive holdings for our NEOs such that the portion of overall compensation that is variable is consistent with our
pay-for-performance philosophy and competitive within our industry. The
Compensation Committee is expected to determine appropriate levels of equity awards based on these factors and may make additional grants. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stock
options granted by us to date have an exercise price equal to or greater than the fair market value of our common stock on the date of grant and generally expire ten years after
the date of grant. Stock options are subject to vesting, and most of our options vest over time at a rate of 25% of the total grant on the each of the first four anniversaries of the vesting start
date, although we have granted some performance options that vest upon attaining certain predetermined company objectives. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
amount of each of these awards was designed to establish a desired percentage ownership level for each of our NEOs that our board believed was commensurate with their respective
roles and responsibilities and based on similarly situated employees of other companies that members of our board had experience with. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Additional Employee Benefits  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We provide our executive officers with employee benefits that the board believes are reasonable and in the best interests of the
company and its stockholders, which consist of the following benefits: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>health insurance;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>vacation and sick days;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>long-term disability; and  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>a 401(k) plan. </FONT></DD></DL>
</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>116</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<P style="font-family:times;"><FONT SIZE=2><A
HREF="#bg71101a_main_toc">Table of Contents</A></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have no structured perquisite benefits, such as club memberships or company vehicles, for any executive officer, including our NEOs. We believe the benefits we provide are generally
equivalent to the benefits provided by comparable companies. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Accounting and Tax Considerations  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In determining which elements of compensation are to be paid, and how they are weighted, we will take into account whether a particular
form of compensation will be deductible under Section&nbsp;162(m) of the Code. Section&nbsp;162(m) generally limits the deductibility of compensation paid to our NEOs to $1&nbsp;million during
any fiscal year unless such compensation is "performance-based" under Section&nbsp;162(m). However, under a Section&nbsp;162(m) transition rule for compensation plans or agreements of corporations
which are privately held and which become publicly held in an initial public offering, compensation paid under a plan or agreement that existed prior to the initial public offering will not be subject
to Section&nbsp;162(m) until the earliest of (1)&nbsp;the expiration of the plan or agreement; (2)&nbsp;a material modification of the plan or agreement; (3)&nbsp;the issuance of all employer
stock and other compensation that has been allocated under the plan; or (4)&nbsp;the first meeting of stockholders at which directors are to be elected that occurs after the close of the third
calendar year following the year of the initial public offering. We refer to the earliest of these events to occur as the "Transition Date." After the Transition Date, rights or awards granted under
the plan will not qualify as "performance-based compensation" for purposes of Section&nbsp;162(m) unless such rights or awards are granted or vest upon pre-established objective
performance goals, the material terms of which are disclosed to and approved by our stockholders. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
compensation program is intended to maximize the deductibility of the compensation paid to our NEOs to the extent that we determine it is in our best interests. Consequently, we may
rely on the exemption from Section&nbsp;162(m) afforded to us by the transition rule described above for compensation paid pursuant to our pre-existing plans. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Many
other Code provisions, SEC regulations and accounting rules affect the payment of executive compensation and are generally taken into consideration as we develop our compensation
programs. Our goal is to create and maintain plans that are efficient, effective and in full compliance with these requirements. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;When
determining our compensation policies and practices, our board considered various matters relative to the development of a reasonable and prudent compensation program, including
whether the policies and practices were reasonably likely to have a material adverse effect on us. We believe that the mix and design of our executive compensation plans and policies do not encourage
management to assume excessive risks and are not reasonably likely to have a material adverse effect on us for the following reasons: we offer an appropriate balance of short and long-term incentives
and fixed and variable amounts; our variable compensation is based on a balanced mix of criteria; and our Compensation Committee has the authority to adjust variable compensation as appropriate. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Compensation Tables  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following tables provide information regarding the compensation earned during our most recently completed fiscal year by our NEOs. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>117</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<A NAME="page_ec71101_1_118"> </A>

<P style="font-family:times;"><FONT SIZE=2><A
HREF="#bg71101a_main_toc">Table of Contents</A></FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Summary compensation table  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table shows the compensation earned by our NEOs during the fiscal year ended December&nbsp;31, 2009. </FONT></P>
 <DIV style="padding:0pt;position:relative;width:57%;margin-left:10%;">
<p style="font-family:times;"><font size=1></FONT><FONT SIZE=2>


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 </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE width="140%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="30pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="51pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="68pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="45pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="67pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="51pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH NOWRAP  ALIGN="LEFT" style="font-family:times;"><DIV style="border-bottom:solid #000000 1.0pt;margin-bottom:0pt;width:102pt;"><FONT SIZE=1><B>Name and Principal Position

<!-- COMMAND=ADD_SCROPPEDRULE,102pt -->

 </B></FONT></DIV></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Year </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Base<BR>
Salary<BR>
($) </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Non-Equity<BR>
Incentive&nbsp;Plan<BR>
Compensation<BR>
Bonus<BR>
($)(3) </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Option<BR>
Awards<BR>
($)(4) </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>All&nbsp;Other<BR>
Compensation<BR>
($)(5) </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Total<BR>
($) </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR bgcolor="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>


<!-- COMMAND=ADD_ROWSHADECOLOR,"#CCEEFF" -->


 Jack A. Khattar</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2009</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>395,737</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>158,424</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>11,931</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>566,092</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR bgcolor="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2><I>


<!-- COMMAND=ADD_ROWSHADECOLOR,"#CCEEFF" -->


 Chief Executive Officer, President</I></FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD style="font-family:times;"><p style="font-family:times;margin-top:12pt;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Russell P. Wilson(1)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
2009</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
161,667</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
41,600</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
262,650</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
7,225</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
473,142</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2><I>Vice President, Chief Financial Officer</I></FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR bgcolor="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><p style="font-family:times;margin-top:12pt;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>


<!-- COMMAND=ADD_ROWSHADECOLOR,"#CCEEFF" -->


 Paolo Baroldi, M.D., Ph.D.(2)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
2009</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
265,635</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
69,825</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
51,750</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
15,001</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
402,211</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR bgcolor="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2><I>


<!-- COMMAND=ADD_ROWSHADECOLOR,"#CCEEFF" -->


 Senior Vice President, Chief Medical Officer</I></FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD style="font-family:times;"><p style="font-family:times;margin-top:12pt;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Padmanabh Bhatt, Ph.D.&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
2009</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
258,237</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
64,353</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
13,334</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
335,924</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2><I>Vice President, Pharmaceutical Sciences</I></FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR bgcolor="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><p style="font-family:times;margin-top:12pt;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>


<!-- COMMAND=ADD_ROWSHADECOLOR,"#CCEEFF" -->


 Jones W. Bryan, Ph.D.&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
2009</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
204,243</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
49,876</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
11,195</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
265,314</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR bgcolor="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2><I>


<!-- COMMAND=ADD_ROWSHADECOLOR,"#CCEEFF" -->


 Vice President, Business Development</I></FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->
 </DIV>
<DIV style="padding:0pt;position:relative;text-align:left;margin-left:10%;">
 <!-- COMMAND=ADD_LINERULETXT,NOSHADE  COLOR="#000000" SIZE="1.0PT" WIDTH="26%" ALIGN="LEFT" -->
<HR NOSHADE  COLOR="#000000" SIZE="1.0PT" WIDTH="26%" ALIGN="LEFT" >


<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(1)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>The
compensation for Mr.&nbsp;Wilson, who joined us on May&nbsp;4, 2009, has been prorated for time worked.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(2)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>The
compensation for Dr.&nbsp;Baroldi, who joined us on January&nbsp;12, 2009, has been prorated for time worked.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(3)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Amounts
represent annual performance bonus compensation earned for the year ended December&nbsp;31, 2009 based on pre-established performance
objectives. Annual performance bonus compensation for 2009 was paid in 2010. Our annual performance bonus program is described in more detail under "&#151;Compensation Discussion and
Analysis&#151;Performance-Based Cash Incentives."
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(4)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>In
accordance with ASC Topic 718, or ASC 718, formerly Statement of Financial Accounting Standards No.&nbsp;123R, our NEOs will only realize compensation
to the extent the market price of our common stock is greater than the exercise price of such stock options. For information regarding assumptions underlying the valuation of equity awards, see
note&nbsp;8 to our financial statements appearing at the end of this prospectus.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(5)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Amounts
include the premium amounts paid by us for life insurance and long-term disability insurance coverage for each NEO, plus the employer
matching contributions made on behalf of each NEO to our 401(k) plan. </FONT></DD></DL>
 </DIV>
 <UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Grants of Plan-Based Awards  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During fiscal year ended December&nbsp;31, 2009, each of our NEOs participated in our performance-based cash incentive plan in which
each officer was eligible for the awards set forth in the following table. For a detailed discussion of our performance-based cash incentive plan, refer to "&#151;Compensation Discussion and
Analysis&#151;Performance-Based Cash Incentives." The following table also sets forth information regarding equity awards granted to our NEOs during the year ended December&nbsp;31, 2009.
Equity awards made to our NEOs are described in more detail under "&#151;Compensation Discussion and Analysis&#151;Equity Incentives" and non-equity incentive plan awards </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>118</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=6,SEQ=121,EFW="2201368",CP="SUPERNUS PHARMACEUTICALS",DN="1",CHK=635394,FOLIO='118',FILE='DISK129:[10ZCU1.10ZCU71101]EC71101A.;54',USER='DHOLBRO',CD='22-DEC-2010;22:45' -->
<A NAME="page_ec71101_1_119"> </A>

<P style="font-family:times;"><FONT SIZE=2><A
HREF="#bg71101a_main_toc">Table of Contents</A></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>made
to our NEOs are described in more detail under "&#151;Compensation Discussion and Analysis&#151;Performance-Based Cash Incentives." </FONT></P>
 <DIV style="padding:0pt;position:relative;width:54%;margin-left:10%;">
<p style="font-family:times;"><font size=1></FONT><FONT SIZE=2>


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 </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE width="150%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="58pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="47pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="49pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="55pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="78pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="65pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH ROWSPAN=3 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=3 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>All Other Options Awards: </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH ROWSPAN=3 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ROWSPAN=3 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Estimated Future Payouts<BR>
Under Non-Equity<BR>
Incentive Plan Awards </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH ROWSPAN=3 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=3 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Grant Date<BR>
Fair Value<BR>
of Stock<BR>
and Options<BR>
Awards(2)&nbsp;($) </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH ROWSPAN=2 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Number of<BR>
Securities<BR>
Underlying<BR>
Options(#) </B></FONT></TH>
<TH ROWSPAN=2 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Exercise or<BR>
Base Price<BR>
of&nbsp;Option<BR>
Awards(1)&nbsp;($/sh) </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH NOWRAP  ALIGN="LEFT" style="font-family:times;"><DIV style="border-bottom:solid #000000 1.0pt;margin-bottom:0pt;width:21pt;"><FONT SIZE=1><B>Name


<!-- COMMAND=ADD_SCROPPEDRULE,21pt -->

 </B></FONT></DIV></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Grant Date </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Target<BR>
($) </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Maximum<BR>
($) </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Jack A. Khattar</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>158,424</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>158,424</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR bgcolor="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-top:12pt;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>


<!-- COMMAND=ADD_ROWSHADECOLOR,"#CCEEFF" -->


 Russell P. Wilson</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><BR>
12/15/2009</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><p align=center style="font-family:times;margin-top:12pt;margin-left:0pt;text-indent:0pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><p align=center style="font-family:times;margin-top:12pt;margin-left:0pt;text-indent:0pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><BR>
230,000</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><BR>
1.76</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><BR>(3)</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><BR>
236,900</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR bgcolor="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>


<!-- COMMAND=ADD_ROWSHADECOLOR,"#CCEEFF" -->


</FONT>
</TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>12/15/2009</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>25,000</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>1.76</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>(3)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>25,750</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR bgcolor="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>



<!-- COMMAND=ADD_ROWSHADECOLOR,"#CCEEFF" -->


</FONT>
</TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>65,000</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>65,000</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD style="font-family:times;"><p style="font-family:times;margin-top:12pt;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Paolo Baroldi, M.D., Ph.D.&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
1/20/2009</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:times;"><p align=center style="font-family:times;margin-top:12pt;margin-left:0pt;text-indent:0pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:times;"><p align=center style="font-family:times;margin-top:12pt;margin-left:0pt;text-indent:0pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
200,000</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
0.40</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
46,000</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>1/20/2009</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>25,000</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>0.40</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>5,750</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>71,250</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>71,250</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR bgcolor="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-top:12pt;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>


<!-- COMMAND=ADD_ROWSHADECOLOR,"#CCEEFF" -->


 Padmanabh Bhatt, Ph.D.&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><p align=center style="font-family:times;margin-top:12pt;margin-left:0pt;text-indent:0pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><BR>
64,612</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><BR>
64,612</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><p align=center style="font-family:times;margin-top:12pt;margin-left:0pt;text-indent:0pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><p align=center style="font-family:times;margin-top:12pt;margin-left:0pt;text-indent:0pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><p align=center style="font-family:times;margin-top:12pt;margin-left:0pt;text-indent:0pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-top:12pt;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Jones W. Bryan, Ph.D.&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><p align=center style="font-family:times;margin-top:12pt;margin-left:0pt;text-indent:0pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><BR>
51,103</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2><BR>
51,103</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><p align=center style="font-family:times;margin-top:12pt;margin-left:0pt;text-indent:0pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><p align=center style="font-family:times;margin-top:12pt;margin-left:0pt;text-indent:0pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><p align=center style="font-family:times;margin-top:12pt;margin-left:0pt;text-indent:0pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>&#151;<BR></FONT>
</TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->
 </DIV>
<DIV style="padding:0pt;position:relative;text-align:left;margin-left:10%;">
 <!-- COMMAND=ADD_LINERULETXT,NOSHADE  COLOR="#000000" SIZE="1.0PT" WIDTH="26%" ALIGN="LEFT" -->
<HR NOSHADE  COLOR="#000000" SIZE="1.0PT" WIDTH="26%" ALIGN="LEFT" >


<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(1)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Amounts
represent the fair value of our common stock as determined in good faith by our board on the date of the grant.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(2)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Amounts
reflect the aggregate grant date fair value of the awards calculated in accordance with ASC 718.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(3)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Stock
option was repriced by our board on November&nbsp;2, 2010. The new exercise price is $0.64 per share. </FONT></DD></DL>
 </DIV>
 <P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>119</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=7,SEQ=122,EFW="2201368",CP="SUPERNUS PHARMACEUTICALS",DN="1",CHK=366023,FOLIO='119',FILE='DISK129:[10ZCU1.10ZCU71101]EC71101A.;54',USER='DHOLBRO',CD='22-DEC-2010;22:45' -->
<A NAME="page_ec71101_1_120"> </A>


<P style="font-family:times;"><FONT SIZE=2><A
HREF="#bg71101a_main_toc">Table of Contents</A></FONT></P>
 <DIV style="padding:0pt;position:relative;text-align:left;margin-left:10%;">
<p style="font-family:times;"></FONT></P>
 </DIV>
 <UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Outstanding Equity Awards at Fiscal Year-End  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The table below sets forth certain information regarding the outstanding equity awards held by our NEOs as of December&nbsp;31, 2009. </FONT></P>
 <DIV style="padding:0pt;position:relative;width:54%;margin-left:10%;">
<p style="font-family:times;"><font size=1></FONT><FONT SIZE=1>


<!-- COMMAND=ADD_TABLEWIDTH,"150%" -->


 </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE width="150%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="30pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="70pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="70pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="78pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="40pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="50pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="78pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="83pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=14 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Option Awards </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Stock Awards </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH NOWRAP  ALIGN="LEFT" style="font-family:times;"><DIV style="border-bottom:solid #000000 1.0pt;margin-bottom:0pt;width:21pt;"><FONT SIZE=1><B>Name

<!-- COMMAND=ADD_SCROPPEDRULE,21pt -->

 </B></FONT></DIV></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Number of<BR>
Securities<BR>
Underlying the<BR>
Unexercised<BR>
Options&nbsp;(#)<BR>
Exercisable </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Number of<BR>
Securities<BR>
Underlying the<BR>
Unexercised<BR>
Options (#)<BR>
Unexercisable </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Equity<BR>
Incentive Plan<BR>
Awards: Number<BR>
of Security<BR>
Underlying<BR>
Unexercisable<BR>
Unearned<BR>
Options (#) </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Option<BR>
Exercise<BR>
Price<BR>
($)(6) </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Option<BR>
Expiration<BR>
Date </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Equity<BR>
Incentive Plan<BR>
Awards: Number<BR>
of Unearned<BR>
Shares That<BR>
Have Not<BR>
Vested (#) </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Equity<BR>
Incentive Plan<BR>
Awards: Market<BR>
or Payout<BR>
Value of<BR>
Unearned Shares<BR>
That Have<BR>
Not Vested (#) </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR bgcolor="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><p style="font-family:times;margin-left:8pt;text-indent:-8pt;"><FONT SIZE=1> </FONT><FONT SIZE=1>


<!-- COMMAND=ADD_ROWSHADECOLOR,"#CCEEFF" -->


 Jack A. Khattar</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>(1)(7)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>411,765</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD style="font-family:times;"><p style="font-family:times;margin-top:10pt;margin-left:8pt;text-indent:-8pt;"><FONT SIZE=1> </FONT><FONT SIZE=1>Russell P. Wilson</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><p align=left style="font-family:times;margin-top:10pt;margin-left:0pt;text-indent:0pt;"><FONT SIZE=1> </FONT><FONT SIZE=1>(2)(3)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:times;"><p align=center style="font-family:times;margin-top:10pt;margin-left:0pt;text-indent:0pt;"><FONT SIZE=1> </FONT><FONT SIZE=1>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1><BR>
230,000</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=1><BR>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1><BR>
1.76</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1><BR>
12/15/2019</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:times;"><p align=center style="font-family:times;margin-top:10pt;margin-left:0pt;text-indent:0pt;"><FONT SIZE=1> </FONT><FONT SIZE=1>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:times;"><p align=center style="font-family:times;margin-top:10pt;margin-left:0pt;text-indent:0pt;"><FONT SIZE=1> </FONT><FONT SIZE=1>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD style="font-family:times;"><p style="font-family:times;margin-left:8pt;text-indent:-8pt;"><FONT SIZE=1> </FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>(1)(3)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>25,000</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1.76</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>12/15/2019</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR bgcolor="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><p style="font-family:times;margin-top:10pt;margin-left:8pt;text-indent:-8pt;"><FONT SIZE=1> </FONT><FONT SIZE=1>


<!-- COMMAND=ADD_ROWSHADECOLOR,"#CCEEFF" -->


 Paolo Baroldi, M.D., Ph.D.&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><p align=left style="font-family:times;margin-top:10pt;margin-left:0pt;text-indent:0pt;"><FONT SIZE=1> </FONT><FONT SIZE=1>(2)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:times;"><p align=center style="font-family:times;margin-top:10pt;margin-left:0pt;text-indent:0pt;"><FONT SIZE=1> </FONT><FONT SIZE=1>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1><BR>
200,000</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:times;"><p align=center style="font-family:times;margin-top:10pt;margin-left:0pt;text-indent:0pt;"><FONT SIZE=1> </FONT><FONT SIZE=1>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=1><BR>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1><BR>
0.40</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1><BR>
1/19/2019</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:times;"><p align=center style="font-family:times;margin-top:10pt;margin-left:0pt;text-indent:0pt;"><FONT SIZE=1> </FONT><FONT SIZE=1>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:times;"><p align=center style="font-family:times;margin-top:10pt;margin-left:0pt;text-indent:0pt;"><FONT SIZE=1> </FONT><FONT SIZE=1>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR bgcolor="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><p style="font-family:times;margin-left:8pt;text-indent:-8pt;"><FONT SIZE=1> </FONT><FONT SIZE=1>


<!-- COMMAND=ADD_ROWSHADECOLOR,"#CCEEFF" -->


</FONT>
</TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>(1)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>25,000</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.40</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1/19/2019</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD style="font-family:times;"><p style="font-family:times;margin-top:10pt;margin-left:8pt;text-indent:-8pt;"><FONT SIZE=1> </FONT><FONT SIZE=1>Padmanabh Bhatt, Ph.D.&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><p align=left style="font-family:times;margin-top:10pt;margin-left:0pt;text-indent:0pt;"><FONT SIZE=1> </FONT><FONT SIZE=1>(2)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1><BR>
200,000</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:times;"><p align=center style="font-family:times;margin-top:10pt;margin-left:0pt;text-indent:0pt;"><FONT SIZE=1> </FONT><FONT SIZE=1>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:times;"><p align=center style="font-family:times;margin-top:10pt;margin-left:0pt;text-indent:0pt;"><FONT SIZE=1> </FONT><FONT SIZE=1>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=1><BR>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1><BR>
0.10</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1><BR>
1/17/2016</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:times;"><p align=center style="font-family:times;margin-top:10pt;margin-left:0pt;text-indent:0pt;"><FONT SIZE=1> </FONT><FONT SIZE=1>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:times;"><p align=center style="font-family:times;margin-top:10pt;margin-left:0pt;text-indent:0pt;"><FONT SIZE=1> </FONT><FONT SIZE=1>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD style="font-family:times;"><p style="font-family:times;margin-left:8pt;text-indent:-8pt;"><FONT SIZE=1> </FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>(4)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>25,000</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.10</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1/17/2016</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD style="font-family:times;"><p style="font-family:times;margin-left:8pt;text-indent:-8pt;"><FONT SIZE=1> </FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>(1)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>25,000</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.10</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1/17/2016</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD style="font-family:times;"><p style="font-family:times;margin-left:8pt;text-indent:-8pt;"><FONT SIZE=1> </FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>(5)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>25,000</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.10</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1/17/2016</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD style="font-family:times;"><p style="font-family:times;margin-left:8pt;text-indent:-8pt;"><FONT SIZE=1> </FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>(2)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>6,000</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>6,000</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.10</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>2/13/2017</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR bgcolor="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><p style="font-family:times;margin-top:10pt;margin-left:8pt;text-indent:-8pt;"><FONT SIZE=1> </FONT><FONT SIZE=1>


<!-- COMMAND=ADD_ROWSHADECOLOR,"#CCEEFF" -->


 Jones W. Bryan, Ph.D.&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><p align=left style="font-family:times;margin-top:10pt;margin-left:0pt;text-indent:0pt;"><FONT SIZE=1> </FONT><FONT SIZE=1>(2)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1><BR>
200,000</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:times;"><p align=center style="font-family:times;margin-top:10pt;margin-left:0pt;text-indent:0pt;"><FONT SIZE=1> </FONT><FONT SIZE=1>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:times;"><p align=center style="font-family:times;margin-top:10pt;margin-left:0pt;text-indent:0pt;"><FONT SIZE=1> </FONT><FONT SIZE=1>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=1><BR>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1><BR>
0.10</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1><BR>
1/17/2016</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:times;"><p align=center style="font-family:times;margin-top:10pt;margin-left:0pt;text-indent:0pt;"><FONT SIZE=1> </FONT><FONT SIZE=1>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:times;"><p align=center style="font-family:times;margin-top:10pt;margin-left:0pt;text-indent:0pt;"><FONT SIZE=1> </FONT><FONT SIZE=1>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR bgcolor="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><p style="font-family:times;margin-left:8pt;text-indent:-8pt;"><FONT SIZE=1> </FONT><FONT SIZE=1>


<!-- COMMAND=ADD_ROWSHADECOLOR,"#CCEEFF" -->


</FONT>
</TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>(4)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>25,000</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.10</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1/17/2016</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR bgcolor="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><p style="font-family:times;margin-left:8pt;text-indent:-8pt;"><FONT SIZE=1> </FONT><FONT SIZE=1>


<!-- COMMAND=ADD_ROWSHADECOLOR,"#CCEEFF" -->


</FONT>
</TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>(1)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>25,000</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.10</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1/17/2016</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR bgcolor="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><p style="font-family:times;margin-left:8pt;text-indent:-8pt;"><FONT SIZE=1> </FONT><FONT SIZE=1>


<!-- COMMAND=ADD_ROWSHADECOLOR,"#CCEEFF" -->


</FONT>
</TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>(5)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>25,000</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>0.10</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>1/17/2016</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR bgcolor="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:8pt;text-indent:-8pt;"><FONT SIZE=1> </FONT><FONT SIZE=1>


<!-- COMMAND=ADD_ROWSHADECOLOR,"#CCEEFF" -->


</FONT>
</TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>(2)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>6,000</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>6,000</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>0.10</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>2/13/2017</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&#151;<BR></FONT>
</TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
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<DL compact>
<DT style='font-family:times;margin-bottom:-9pt;'><FONT SIZE=1>(1)</FONT></DT><DD style="font-family:times;"><FONT SIZE=1>All
of these vested equity awards originally vested based on the achievement of our filing our first NDA prior to December&nbsp;22, 2010. On
November&nbsp;2, 2010, the performance condition for vesting of these non-vested awards was modified by our board to extend the performance date from December&nbsp;22, 2010 to March&nbsp;31,
2011.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-9pt;'><FONT SIZE=1>(2)</FONT></DT><DD style="font-family:times;"><FONT SIZE=1>These
stock options vest over four years in four equal installments of 25% each on the first four anniversaries from the date of grant.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-9pt;'><FONT SIZE=1>(3)</FONT></DT><DD style="font-family:times;"><FONT SIZE=1>On
November&nbsp;2, 2010, this option was repriced from $1.76 to $0.64 per share.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-9pt;'><FONT SIZE=1>(4)</FONT></DT><DD style="font-family:times;"><FONT SIZE=1>These
stock options vested upon the completion of our first clinical trial in humans and was satisfied in 2006.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-9pt;'><FONT SIZE=1>(5)</FONT></DT><DD style="font-family:times;"><FONT SIZE=1>These
stock options vested upon the launch of a partnered product and was satisfied in 2006.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-9pt;'><FONT SIZE=1>(6)</FONT></DT><DD style="font-family:times;"><FONT SIZE=1>The
market value of each equity award is based on the fair value of per share of our common stock as of the date of grant, as determined in good faith by
our board.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-9pt;'><FONT SIZE=1>(7)</FONT></DT><DD style="font-family:times;"><FONT SIZE=1>There
was no public market for our common stock at December&nbsp;31, 2009. Accordingly, the value of unvested equity awards has been estimated based on an
assumed initial public offering price of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share, the midpoint of the range set forth on the cover page of this prospectus. </FONT></DD></DL>
 </DIV>

<P style="font-family:times;"><FONT SIZE=2><B> Option Exercises and Stock Vested  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There were no option awards exercised by any of our NEOs during fiscal year ended December&nbsp;31, 2009. Our CEO had 617,647 shares
of restricted stock vest during fiscal year ended December&nbsp;31, 2009. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>120</FONT></P>

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</FONT> <FONT SIZE=2>
<A HREF="#bg71101a_main_toc">Table of Contents</A> </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Pension Benefits  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our NEOs did not participate in or have account balances in any qualified or nonqualified defined benefit plans sponsored by us. Our
board of directors or Compensation Committee may elect to adopt qualified or nonqualified benefit plans in the future if it determines that doing so is in our best interest. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Deferred Compensation  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We do not currently provide any deferred compensation program or benefits but may elect to do so in the future. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Employment Agreement and Severance Benefits  </B></FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Jack A. Khattar  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On December&nbsp;22, 2005, we entered into an Employment Agreement with Mr.&nbsp;Khattar, our President and Chief Executive
Officer, providing for his continued employment, effective as of the signing date. This employment agreement provides that Mr.&nbsp;Khattar's employment is at-will and may be terminated
by either us or him at any time for any or no reason. Mr.&nbsp;Khattar's base salary was originally set at $359,000 per year, subject to review and increases from time to time by our board based on
Mr.&nbsp;Khattar's and the company's performance. Mr.&nbsp;Khattar is also eligible to receive an annual bonus payment of up to 40% of his annual base salary, based on achievement of certain
performance milestones identified by our board in consultation with Mr.&nbsp;Khattar. Furthermore, he is eligible to participate in our group benefits programs, including but not limited to, medical
insurance, vacation and retirement plans, and will be provided with life insurance and the ability to participate in a 401(k) plan. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
the event Mr.&nbsp;Khattar is terminated by us without cause, as defined in the employment agreement, or he resigns with good reason, as defined in the employment agreement to
include, among other things, any material reduction in base compensation or material diminution in title, duties or responsibilities as President and Chief Executive Officer, Mr.&nbsp;Khattar will
be entitled to receive (i)&nbsp;continued payment of his base salary for 18&nbsp;months, (ii)&nbsp;the most recent annual bonus paid to him, and (iii)&nbsp;continuation of his taxable and
non-taxable benefits for 18&nbsp;months, subject to the limits under applicable law. In the event that Mr.&nbsp;Khattar is terminated for cause or he terminates his employment without
good reason, Mr.&nbsp;Khattar will not be entitled to the payments and benefits described above unless mutually agreed upon in writing. Mr.&nbsp;Khattar's employment agreement also includes a
non-solicitation covenant and a non-compete covenant for at least one year following the termination of Mr.&nbsp;Khattar's employment. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition, the grant agreements for Mr.&nbsp;Khattar's restricted stock provided for 100% acceleration of unvested restricted stock in connection with a change in control because our
board of directors believes that this accelerated vesting provides Mr.&nbsp;Khattar with additional incentive to assist in the successful completion of a change of control transaction. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Other NEOs  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the terms of the offer letters with Dr.&nbsp;Bryan and Dr.&nbsp;Bhatt, they are each entitled to receive six months of
severance pay in connection with a restructuring of Supernus that results in the elimination of their respective positions. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B> Potential Payments Upon Termination and Change in Control  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Assuming Mr.&nbsp;Khattar's employment is terminated without cause or he resigns for good reason, or he resigns for good reason after
a change of control, each such term as defined in Mr.&nbsp;Khattar's </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>121</FONT></P>

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<A NAME="page_ee71101_1_122"> </A>

<P style="font-family:times;"><FONT SIZE=2><A
HREF="#bg71101a_main_toc">Table of Contents</A></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>employment
agreement, on December&nbsp;31, 2009, the estimated values of payments and benefits to Mr.&nbsp;Khattar are set forth in the following table. See "&#151;Employment Agreement and
Severance Benefits." In addition, the following table also sets forth (i)&nbsp;the amounts payable upon a change of control in connection with the acceleration of vesting of Mr.&nbsp;Khattar's
restricted stock assuming the change of control occurred on December&nbsp;31, 2009, and (ii)&nbsp;the amounts payable upon a restructuring of Supernus that results in the elimination of
Dr.&nbsp;Bryan's or Dr.&nbsp;Bhatt's respective positions assuming the restructuring occurred on December&nbsp;31, 2009. </FONT></P>
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<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="65pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="72pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="72pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:times;"></TD>
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<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Benefit </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Termination<BR>
Upon a<BR>
Restructuring </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Termination<BR>
Without<BR>
Cause or<BR>
Resignation for<BR>
Good Reason </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Resignation for<BR>
Good Reason<BR>
After a<BR>
Change of<BR>
Control </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Acceleration<BR>
Upon a<BR>
Change of<BR>
Control </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR bgcolor="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:8pt;text-indent:-8pt;"><FONT SIZE=1> </FONT><FONT SIZE=1>


<!-- COMMAND=ADD_ROWSHADECOLOR,"#CCEEFF" -->


 Jack A. Khattar</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>Base salary continuation</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>594,090</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>594,090</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR bgcolor="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:8pt;text-indent:-8pt;"><FONT SIZE=1> </FONT><FONT SIZE=1>


<!-- COMMAND=ADD_ROWSHADECOLOR,"#CCEEFF" -->


</FONT>
</TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>Bonus(1)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>158,424</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>158,424</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR bgcolor="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:8pt;text-indent:-8pt;"><FONT SIZE=1> </FONT><FONT SIZE=1>


<!-- COMMAND=ADD_ROWSHADECOLOR,"#CCEEFF" -->


</FONT>
</TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>Continuation of benefits(2)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>16,947</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>16,947</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR bgcolor="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:8pt;text-indent:-8pt;"><FONT SIZE=1> </FONT><FONT SIZE=1>


<!-- COMMAND=ADD_ROWSHADECOLOR,"#CCEEFF" -->


</FONT>
</TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>Vesting of restricted stock(3)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR bgcolor="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:8pt;text-indent:-8pt;"><FONT SIZE=1> </FONT><FONT SIZE=1>


<!-- COMMAND=ADD_ROWSHADECOLOR,"#CCEEFF" -->


</FONT>
</TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>Total</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>769,461</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR VALIGN="BOTTOM">
<TD style="font-family:times;"><p style="font-family:times;margin-left:8pt;text-indent:-8pt;"><FONT SIZE=1> </FONT><FONT SIZE=1>Padmanabh Bhatt, Ph.D.&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>Severance</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>129,224</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR VALIGN="BOTTOM">
<TD style="font-family:times;"><p style="font-family:times;margin-left:8pt;text-indent:-8pt;"><FONT SIZE=1> </FONT><FONT SIZE=1>James W. Bryan, Ph.D.&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>Severance</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>102,205</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=1>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->
 </DIV>
<DIV style="padding:0pt;position:relative;text-align:left;margin-left:10%;">
 <!-- COMMAND=ADD_LINERULETXT,NOSHADE  COLOR="#000000" SIZE="1.0PT" WIDTH="26%" ALIGN="LEFT" -->
<HR NOSHADE  COLOR="#000000" SIZE="1.0PT" WIDTH="26%" ALIGN="LEFT" >


<DL compact>
<DT style='font-family:times;margin-bottom:-9pt;'><FONT SIZE=1>(1)</FONT></DT><DD style="font-family:times;"><FONT SIZE=1>Amount
shown for bonus in connection with a change in control represents the bonus payment Mr.&nbsp;Khattar would have earned based on the assumption that
his employment terminated as of the last day of fiscal 2009, in accordance with his employment agreement. The amount set forth in the table reflects the most recent bonus paid to Mr.&nbsp;Khattar
(which was the 2009 bonus paid in early 2010) because this table assumes that he was terminated as of the last day of the fiscal year and we had not yet determined the amount of the bonuses payable to
him under our annual cash incentive plan for fiscal 2010.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-9pt;'><FONT SIZE=1>(2)</FONT></DT><DD style="font-family:times;"><FONT SIZE=1>Amounts
shown for continuation of benefits represent estimates for the continuation of health, medical, life and group life insurance benefits afforded to
Mr.&nbsp;Khattar and eligible family members in accordance with his employment agreement.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-9pt;'><FONT SIZE=1>(3)</FONT></DT><DD style="font-family:times;"><FONT SIZE=1>There
was no public market for our common stock at December&nbsp;31, 2009. Accordingly, the value of accelerated equity awards has been estimated based on
an assumed initial public offering price of $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share, the midpoint of the range set forth on the cover page of this prospectus. </FONT></DD></DL>
 </DIV>
 <P style="font-family:times;"><FONT SIZE=2><B> Director Compensation  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Upon election to our board, each of our non-employee directors who are not affiliated with any 5% or greater stockholder
was granted options to purchase shares of our common stock, subject to an annual vesting over a four-year period from the date of grant. The exercise price of the options was greater than
or equal to the fair market value of a share of our common stock at the time of grant. In addition, our non-employee directors who are not affiliated with any 5% or greater stockholder
receive $20,000 annually. All directors have received and will continue to receive reimbursement for reasonable out-of-pocket expenses incurred in connection with attendance at
meetings of the board. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table sets forth a summary of the compensation we paid to Mr.&nbsp;Nuerge in 2009. None of the other members of our board received any compensation from us for their
service on our board, other than reimbursement for reasonable out-of-pocket expenses as described above. </FONT></P>
 <DIV style="padding:0pt;position:relative;width:50%;margin-left:25%;">
<p style="font-family:times;"><font size=1></FONT><FONT SIZE=2>


<!-- COMMAND=ADD_TABLEWIDTH,"100%" -->


 </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE width="100%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="59pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="39pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH NOWRAP  ALIGN="LEFT" style="font-family:times;"><DIV style="border-bottom:solid #000000 1.0pt;margin-bottom:0pt;width:21pt;"><FONT SIZE=1><B>Name

<!-- COMMAND=ADD_SCROPPEDRULE,21pt -->

 </B></FONT></DIV></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Fees Earned<BR>
or Paid<BR>
in Cash<BR>
($) </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Total<BR>
($) </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>William A. Nuerge</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>20,000</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>20,000</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->
 </DIV>
 <P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>122</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<A NAME="page_ee71101_1_123"> </A>

<P style="font-family:times;"><FONT SIZE=2><A
HREF="#bg71101a_main_toc">Table of Contents</A></FONT></P>
 </DIV>
 <P style="font-family:times;"><FONT SIZE=2><B> Benefit Plans  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our officers, employees, non-employee directors and other key persons (including consultants and prospective employees) are
entitled to participate in various benefit plans as described below, subject to the discretion of the administrators of the plans. Our equity awards are granted under our 2005 Stock Plan. There are an
aggregate of 8,000,000 shares of common stock authorized under this plan. This number is subject to adjustment in the event of a stock split, stock dividend or other change in our capitalization.
Generally, shares that are forfeited or canceled from awards under the 2005 Stock Plan also will be available for future awards. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> 2005 Stock Plan  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Introduction.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Our 2005 Stock Plan was adopted by our board and approved by our stockholders on December&nbsp;21, 2005. The 2005
Stock Plan permits
us to make grants of stock options (both incentive stock options and non-qualified stock options), purchase rights of common stock and awards of common stock to our executives, employees,
directors, consultants and advisors. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Share Reserve.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;8,000,000 shares of common stock are reserved for the issuance of awards under our 2005 Stock Plan. This number
is subject to
adjustment in the event of a stock split, stock dividend or other change in our capitalization. Generally, shares that expire or terminate for any reason without having been exercised in full shall be
available for subsequent grants under our 2005 Stock Plan. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Administration.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Our 2005 Stock Plan is administered by either our board or a committee of our board. The administrator has full
power and authority
to select the participants to whom awards will be granted, to make any combination of awards to participants, to accelerate the exercisability or vesting of any award and to determine the specific
terms and conditions of each award, subject to the provisions of the 2005 Stock Plan. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Eligibility.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;All officers, employees, directors and other key persons (including consultants and advisors) are eligible to
participate in the 2005
Stock Plan, subject to the discretion of the administrator. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Types of Awards.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The types of awards that are available for grant under the 2005 Stock Plan are: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>incentive stock options;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>non-qualified stock options;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>purchase rights; and  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>common stock awards. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
exercise price of stock options awarded under the 2005 Stock Plan may not be less than either (i)&nbsp;100% of the fair market value of our common stock on the date of the option
grant, with the term of each option not exceeding ten years from the date of grant, or (ii)&nbsp;for any employee who is the owner, at the time of the grant of such options, of more than 10% of the
total combined voting power of all classes of stock of the Company (after taking into account the attribution of stock ownership rules of Section&nbsp;424(d) of the Code), 110% of fair market value
of our common stock on the date of the option grant, with the term of each option not exceeding five years from the date of grant. The administrator will determine at what time or times each option
may be exercised and, subject to the provisions of the 2005 Stock Plan, the period of time, if any, after retirement, death, disability or other termination of employment during which options may be
exercised. To qualify as incentive stock options, stock options must meet additional federal tax requirements, including a $100,000 limit on the value of shares subject to incentive options which
first become exercisable in any one calendar year, and a shorter term and higher minimum exercise price in the case of certain large stockholders. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>123</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Purchase
rights allow the recipient the opportunity to make direct purchases of the Company's common stock in accordance with terms and conditions established by the administrator.
Awards of common stock are awards entitling the grantee to receive shares of the Company's common stock in accordance with terms and conditions established by the administrator. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Transferability.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Our 2005 Stock Plan does not allow for the transfer of incentive stock options and all other options granted to
Reporting Persons,
and may be exercisable only by the grant holder during his or her lifetime, except that non-qualified options may be transferred pursuant to a qualified domestic relations order (as
defined in the Code). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Change in Control.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Except as otherwise provided by the administrator and evidenced in a particular award, in the event of a
consolidation or merger
or sale of all or substantially all of the assets of the Company in which outstanding shares of common stock are exchanged for securities, cash or other property of any other corporation or business
entity, or in the event of a liquidation of the Company, the administrator may, in its discretion, terminate all stock options granted under the 2005 Stock Plan
unless the successor entity agrees to assume the awards. In the event the awards are to be terminated, the administrator may provide for payment in exchange for the termination of the awards.
Furthermore, at any time the administrator may provide for the acceleration of exercisability and/or vesting of an award. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Term.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Unless earlier terminated by our board of directors, the 2005 Stock Plan will terminate, with respect to incentive stock
options only, upon the
earlier of (A)&nbsp;the close of business on the day next preceding the tenth anniversary of the date the Board of Directors approved the 2005 Stock Plan, or (B)&nbsp;the date on which all shares
available for issuance under the 2005 Stock Plan shall have been issued. Unless sooner terminated, the 2005 Stock Plan will terminate with respect to options, purchase rights and awards of common
stock which are not incentive stock options on the date specified in (B)&nbsp;above. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B><I> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Amendment or Termination.</I></B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Our board of directors may amend, suspend, or terminate the 2005 Stock Plan in any respect at any time,
 subject to
stockholder approval where such approval is required by applicable law or stock exchange rules. Further, any material amendments to the 2005 Stock Plan will be subject to approval by our stockholders,
including any amendment that increases the number of shares available for issuance under the 2005 Stock Plan or expands the types of awards available under, the eligibility to participate in, or the
duration of, the plan. No amendment to the 2005 Stock Plan may materially impair any of the rights of a participant under any awards previously granted without his or her consent. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Limitation of Liability and Indemnification Arrangements  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As permitted by the Delaware General Corporation Law, we intend to adopt provisions in our amended and restated certificate of
incorporation and amended and restated bylaws, which will be effective upon the completion of this offering, that limit or eliminate the personal liability of our directors. Consequently, a director
will not be personally liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director, except for liability for: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>any breach of the director's duty of loyalty to us or our stockholders;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law; </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>any unlawful payments related to dividends or unlawful stock repurchases, redemptions or other distributions; or </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>any transaction from which the director derived an improper personal benefit. </FONT></DD></DL>
</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>124</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;These
limitations of liability do not alter director liability under the federal securities laws and do not affect the availability of equitable remedies such as an injunction or
rescission. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition, our amended and restated bylaws, which will be effective upon the completion of this offering, provide that: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>we will indemnify our directors, officers and, at the discretion of our board, certain employees to the fullest extent
permitted by the Delaware General Corporation Law; and  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>advance expenses, including attorneys' fees, to our directors and, at the discretion of our board, to our officers and
certain employees, in connection with legal proceedings, subject to limited exceptions. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
also intend to enter into indemnification agreements with each of our executive officers and directors. These agreements will provide that we will indemnify each of our directors to
the fullest extent permitted by the Delaware General Corporation Law and advance expenses to each indemnitee in connection with any proceeding in which indemnification is available. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
also maintain management liability insurance to provide insurance coverage to our directors and officers for losses arising out of claims based on acts or omissions in their
capacities as directors or officers, including liabilities under the Securities Act of 1933, as amended, or the Securities Act. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, or persons controlling the registrant pursuant to the foregoing provisions, we have been informed that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;These
provisions may discourage stockholders from bringing a lawsuit against our directors in the future for any breach of their fiduciary duty. These provisions may also have the effect
of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us and our stockholders. Furthermore, a
stockholder's investment may be adversely affected to the extent we pay the costs of settlement and damage awards against directors, officers and certain employees pursuant to these indemnification
provisions. We believe that these provisions, the indemnification agreements and the insurance are necessary to attract and retain talented and experienced directors and officers. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At
present, there is no pending litigation or proceeding involving any of our directors, officers or employees in which indemnification will be required or permitted. We are not aware of
any threatened litigation or proceeding that might result in a claim for such indemnification. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Rule&nbsp;10b5-1 Sales Plans  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our directors and executive officers may adopt written plans, known as Rule&nbsp;10b5-1 plans, in which they will
contract with a broker to buy or sell shares of our common stock on a periodic basis. Under a Rule&nbsp;10b5-1 plan, a broker executes trades pursuant to parameters established by the
director or officer when entering into the plan, without further direction from them. The director or officer may amend or terminate the plan in some circumstances. Our directors and executive
officers may also buy or sell additional shares outside of a Rule&nbsp;10b5-1 plan when they are not in possession of material, nonpublic information. However, pursuant to the terms of
the lock-up agreements described under "Underwriting," no Rule&nbsp;10b5-1 plan may provide for the transfer of common stock during the restricted period ending 180&nbsp;days after the
date of this prospectus (as such period may be extended under certain circumstances). </FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>
<A HREF="#bg71101a_main_toc">Table of Contents</A> </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="eg71101_certain_relationships_and_related_party_transactions"> </A>
<A NAME="toc_eg71101_1"> </A>
<BR></FONT><FONT SIZE=2><B>  CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other than the compensation agreements and other arrangements described under "Compensation Discussion and Analysis" in this prospectus
and the transaction set forth below, since January&nbsp;1, 2007, there has not been any transaction or series of transactions to which we were or are a party in which the amount involved exceeded or
exceeds $120,000 and in which any director, executive officer, holder of more than 5% of any class of our voting securities or any member of the immediate family of any of the foregoing persons had or
will have a direct or indirect material interest. We believe the transaction set forth below was executed on terms no less favorable to us than we could have obtained from unaffiliated third parties. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
May 2009, we entered into an amendment to a license agreement with Shire&nbsp;LLC, a holder of Series&nbsp;A convertible preferred stock, whereby Shire&nbsp;LLC and its
affiliates paid us a one-time, lump-sum payment of $36.9&nbsp;million in return for a fully paid-up license for one of its products that utilizes our proprietary
technologies. All four criteria necessary to recognize revenue in accordance with ASC 605-10-S25, </FONT><FONT SIZE=2><I>Revenue
Recognition&#151;Overall&#151;Recognition</I></FONT><FONT SIZE=2>, were met during 2009 related to this transaction. Accordingly, the entire amount was recorded as royalty revenue in the
consolidated statement of operations. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Transactions with Our Executive Officers, Directors and 5% Stockholders  </B></FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Indemnification Agreements  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We intend to enter into indemnification agreements with each of our directors and certain of our executive officers. These agreements
will require us to indemnify these individuals and, in certain cases, affiliates of such individuals, to the fullest extent permitted under Delaware law against liabilities that may arise by reason of
their service to us, and to advance expenses incurred as a result of any proceeding against them as to which they could be indemnified. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Registration Rights  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;After the expiration of the 180-day period following the completion of this offering (as may be extended under certain
circumstances), certain of our directors and 5% stockholders are party to an investor rights agreement providing for rights to register under the Securities Act certain shares of our capital stock.
For more information regarding the registration rights granted pursuant to this agreement, see the section entitled "Description of Capital Stock&#151;Registration Rights." </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Employment Agreement and Offer Letters  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have entered into an employment agreement with our chief executive officer and offer letters with certain of our named executive
officers, or NEOs, each of which provides for certain severance benefits, among other things. For more information regarding this agreement and the offer letters with certain of our NEOs, see the
section entitled "Executive Compensation&#151;Employment Agreement and Severance Benefits." </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Stock Option Awards  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our 2005 Stock Plan permits us to make grants of stock options, purchase rights of common stock and awards of common stock to our
executives, employees, directors, consultants and advisors. For more information regarding stock option awards and restricted stock granted to our named executive officers and directors, see the
sections entitled "Executive Compensation&#151;Outstanding Equity Awards at Fiscal Year End" and "Director Compensation." </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B> Procedures for Related Party Transactions  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prior to the effectiveness of the registration statement of which this prospectus forms a part, we plan to adopt formal policies or
procedures for the review, approval, or ratification of certain related party transactions that may be required to be reported under the SEC disclosure rules. Currently, such transactions are reviewed
by management on a case-by-case basis. </FONT></P>

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<A NAME="toc_eg71101_2"> </A>
<BR></FONT><FONT SIZE=2><B>  PRINCIPAL STOCKHOLDERS    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth information regarding the beneficial ownership of our common stock as of September&nbsp;30, 2010,
before and after the completion of this offering, and gives effect to the automatic conversion of all outstanding shares of our preferred stock into 49,000,000 shares of common stock upon the closing
of this offering, by: (i)&nbsp;our named executive officers and our directors individually, (ii)&nbsp;all of our executive officers and directors, as a group, and (iii)&nbsp;any person who, to
our knowledge, owns 5% or more of the common stock on an as-converted basis. Unless otherwise indicated, the address for each of the stockholders listed in the table below is c/o Supernus
Pharmaceuticals,&nbsp;Inc., 1550 East Gude Drive, Rockville, Maryland 20850. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Beneficial
ownership is determined in accordance with the rules and regulations of the United States Securities and Exchange Commission. In computing the number of shares beneficially
owned by a person and the percentage ownership of that person, shares of common stock subject to options held by that person that are currently exercisable or exercisable within sixty (60)&nbsp;days
of September&nbsp;30, 2010 are deemed outstanding. These shares, however, are not deemed outstanding for the purposes of computing the percentage ownership of any other person. Except as indicated
in the footnotes to this table and pursuant to applicable community property laws, we believe each stockholder named in the table has sole voting and investment power with respect to the shares set
forth opposite that stockholders' name. </FONT></P>
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<TH style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH ROWSPAN=2 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ROWSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Percentage of Shares Beneficially Owned </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
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Shares<BR>
Beneficially<BR>
Owned </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
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<TH NOWRAP  ALIGN="LEFT" style="font-family:times;"><DIV style="border-bottom:solid #000000 1.0pt;margin-bottom:0pt;width:139pt;"><FONT SIZE=1><B>Name and Address of Beneficial Owner

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<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Before<BR>
Offering </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>After<BR>
Offering </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
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 </B></FONT><FONT SIZE=2><B>5% Stockholders:</B></FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD VALIGN="TOP" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>New Enterprise Associates 11, Limited Partnership and its affiliates(1)<BR>
c/o New Enterprise Associates<BR>
1954 Greenspring Drive Suite&nbsp;600<BR>
Timonium, MD 21093</FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>25,000,000</FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>44.8</FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR bgcolor="#CCEEFF" VALIGN="BOTTOM">
<TD VALIGN="TOP" style="font-family:times;"><p style="font-family:times;margin-top:12pt;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>


<!-- COMMAND=ADD_ROWSHADECOLOR,"#CCEEFF" -->


 OrbiMed Private Investments II,&nbsp;LP and its affiliates(2)<BR>
c/o OrbiMed Advisors&nbsp;LLC<BR>
767 Third Avenue, 30th&nbsp;Floor<BR>
New York, NY 10017</FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2><BR>
10,000,000</FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2><BR>
17.9</FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2><BR>%</FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD VALIGN="TOP" style="font-family:times;"><p style="font-family:times;margin-top:12pt;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Abingworth Bioventures IV&nbsp;LP and its affiliates(3)<BR>
c/o Abingworth Management Inc<BR>
890 Winter Street, Suite&nbsp;150<BR>
Waltham, MA 02451</FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2><BR>
10,000,000</FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2><BR>
17.9</FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2><BR>%</FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR bgcolor="#CCEEFF" VALIGN="BOTTOM">
<TD VALIGN="TOP" style="font-family:times;"><p style="font-family:times;margin-top:12pt;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>


<!-- COMMAND=ADD_ROWSHADECOLOR,"#CCEEFF" -->


 Shire&nbsp;LLC(4)<BR>
9200 Brookfield Court<BR>
Suites 105 &amp; 108<BR>
Florence, KY 41042</FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2><BR>
4,000,000</FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2><BR>
7.2</FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2><BR>%</FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD VALIGN="TOP" style="font-family:times;"><p style="font-family:times;margin-top:12pt;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->
 </DIV>
 <P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>127</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=2,SEQ=130,EFW="2201368",CP="SUPERNUS PHARMACEUTICALS",DN="1",CHK=376901,FOLIO='127',FILE='DISK129:[10ZCU1.10ZCU71101]EG71101A.;31',USER='DHOLBRO',CD='22-DEC-2010;22:47' -->
<A NAME="page_eg71101_1_128"> </A>

<P style="font-family:times;"><FONT SIZE=2><A
HREF="#bg71101a_main_toc">Table of Contents</A></FONT></P>
 <DIV style="padding:0pt;position:relative;width:80%;margin-left:10%;">
<p style="font-family:times;"><font size=1></FONT><FONT SIZE=2>


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 </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE width="100%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="61pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="41pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="41pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH ROWSPAN=2 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ROWSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Percentage of Shares Beneficially Owned </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH ROWSPAN=2 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Number of<BR>
Shares<BR>
Beneficially<BR>
Owned </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH NOWRAP  ALIGN="LEFT" style="font-family:times;"><DIV style="border-bottom:solid #000000 1.0pt;margin-bottom:0pt;width:139pt;"><FONT SIZE=1><B>Name and Address of Beneficial Owner

<!-- COMMAND=ADD_SCROPPEDRULE,139pt -->

 </B></FONT></DIV></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Before<BR>
Offering </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>After<BR>
Offering </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=2><B>Executive Officers and Directors:</B></FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR bgcolor="#CCEEFF" VALIGN="TOP">
<TD style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>


<!-- COMMAND=ADD_ROWSHADECOLOR,"#CCEEFF" -->


 Jack A. Khattar(5)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6,088,235</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.9</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Russell P. Wilson</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>*</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR bgcolor="#CCEEFF" VALIGN="TOP">
<TD style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>


<!-- COMMAND=ADD_ROWSHADECOLOR,"#CCEEFF" -->


 Paolo Baroldi, M.D., Ph.D(6)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>50,000</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>*</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Padmanabh P. Bhatt, Ph.D.(7)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>259,000</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>*</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR bgcolor="#CCEEFF" VALIGN="TOP">
<TD style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>


<!-- COMMAND=ADD_ROWSHADECOLOR,"#CCEEFF" -->


 Jones W. Bryan, Ph.D.(8)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>259,000</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>*</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>M. James Barrett, Ph.D.(9)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>25,000,000</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>45.1</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR bgcolor="#CCEEFF" VALIGN="TOP">
<TD style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>


<!-- COMMAND=ADD_ROWSHADECOLOR,"#CCEEFF" -->


 Michael Bigham(10)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10,000,000</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>18.1</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Frederick M. Hudson(11)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>*</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR bgcolor="#CCEEFF" VALIGN="TOP">
<TD style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>


<!-- COMMAND=ADD_ROWSHADECOLOR,"#CCEEFF" -->


 Charles&nbsp;W. Newhall,&nbsp;III(12)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>25,000,000</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>45.1</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>William A. Nuerge</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>35,000</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>*</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR bgcolor="#CCEEFF" VALIGN="TOP">
<TD style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>


<!-- COMMAND=ADD_ROWSHADECOLOR,"#CCEEFF" -->


 Michael&nbsp;B. Sheffery,&nbsp;Ph.D.(13)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10,000,000</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>18.1</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD style="font-family:times;">&nbsp;</TD>
<TD style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD style="font-family:times;">&nbsp;</TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>All executive officers and directors as a group (12 persons)(14)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>51,766,235</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>92.4</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>%</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
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<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>*</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Less
than one percent.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(1)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Includes
24,965,000 shares of common stock issuable upon the automatic conversion of 24,965,000 shares of Series&nbsp;A convertible preferred stock held
by New Enterprise Associates 11, Limited Partnership; and 35,000 shares of common stock issuable upon the automatic conversion of 35,000 shares of Series&nbsp;A convertible preferred stock held by
NEA Ventures 2005, L.P.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(2)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Includes
6,673,891 shares of common stock issuable upon the automatic conversion of 6,673,891 shares of Series&nbsp;A convertible preferred stock held by
OrbiMed Private Investments II,&nbsp;LP; 2,498,842 shares of common stock issuable upon the automatic conversion of 2,498,842 shares of Series&nbsp;A convertible preferred stock held by OrbiMed
Private Investments II (QP),&nbsp;LP; and 827,267 shares of common stock issuable upon the automatic conversion of 827,267 shares of Series&nbsp;A convertible preferred stock held by UBS Juniper
Crossover Fund,&nbsp;LLC.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(3)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Includes
9,915,000 shares of common stock issuable upon the automatic conversion of 9,915,000 shares of Series&nbsp;A convertible preferred stock held by
Abingworth Bioventures IV&nbsp;LP, or ABV&nbsp;IV; and 85,000 shares of common stock issuable upon the automatic conversion of 85,000 shares of Series&nbsp;A convertible preferred stock held by
Abingworth Bioventures IV Executives&nbsp;LP, or ABV&nbsp;IV Executives.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(4)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Includes
4,000,000 shares of common stock issuable upon the automatic conversion of 4,000,000 shares of Series&nbsp;A convertible preferred stock held by
Shire&nbsp;LLC.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(5)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Excludes
411,765 shares of non-vested restricted stock held by Mr.&nbsp;Khattar, which are subject to vesting based on the achievement of certain
performance measures.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(6)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Consists
of 50,000 shares of common stock issuable to Dr.&nbsp;Baroldi upon the exercise of options within 60&nbsp;days of September&nbsp;30, 2010.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(7)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Consists
of 259,000 shares of common stock issuable to Dr.&nbsp;Bhatt upon the exercise of options within 60&nbsp;days of September&nbsp;30, 2010. </FONT></DD></DL>
 </DIV>
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<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(8)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Consists
of 259,000 shares of common stock issuable to Dr.&nbsp;Bryan upon the exercise of options within 60&nbsp;days of September&nbsp;30, 2010.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(9)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Includes
25,000,000 shares of common stock issuable upon the automatic conversion of 25,000,000 shares of Series&nbsp;A convertible preferred stock held
by New Enterprise Associates 11, Limited Partnership and its affiliates. Dr.&nbsp;Barrett, a member of our board, is a partner of New Enterprise Associates, or NEA, and disclaims beneficial
ownership of the shares of capital stock held by NEA, except to the extent of his pecuniary interest therein.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(10)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Includes
10,000,000 shares of common stock issuable upon the automatic conversion of 10,000,000 shares of Series&nbsp;A convertible preferred stock held
by ABV&nbsp;IV and ABV&nbsp;IV Executives. Abingworth Management Limited, or AML, serves as investment manager of each of ABV&nbsp;IV and ABV Executives and may be deemed to share voting and
dispositive power with respect to the securities owned by ABV&nbsp;IV and ABV&nbsp;IV Executives. Michael Bigham is a director of AML, and in such capacity may be deemed to beneficially own the
securities owned of record by ABV&nbsp;IV and ABV&nbsp;IV Executives, but disclaims beneficial ownership of such securities except to the extent of his pecuniary interest therein.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(11)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Mr.&nbsp;Hudson
was appointed to our board on November&nbsp;16, 2010.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(12)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Includes
25,000,000 shares of common stock issuable upon the automatic conversion of 25,000,000 shares of Series&nbsp;A convertible preferred stock held
by New Enterprise Associates 11, Limited Partnership and its affiliates. Mr.&nbsp;Newhall, a member of our board, is a partner of NEA and disclaims beneficial ownership of the shares of capital
stock held by NEA, except to the extent of his pecuniary interest therein.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(13)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Includes
10,000,000 shares of common stock issuable upon the automatic conversion of 10,000,000 shares of Series&nbsp;A convertible preferred stock held
by OrbiMed Private Investments II,&nbsp;LP and its affiliates. Dr.&nbsp;Sheffery, a member of our board, is a member of OrbiMed Advisors&nbsp;LLC, or OrbiMed, and disclaims beneficial ownership
of the shares of capital stock held OrbiMed, except to the extent of his pecuniary interest therein.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(14)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Includes
49,000,000 shares of common stock issuable upon the automatic conversion of 49,000,000 shares of Series&nbsp;A convertible preferred stock, and
includes 643,000 shares of common stock issuance to our of directors and executive officers upon the exercise of options within 60&nbsp;days of September&nbsp;30, 2010. </FONT></DD></DL>
 </DIV>
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<P style="font-family:times;"><FONT SIZE=2>
<A HREF="#bg71101a_main_toc">Table of Contents</A> </FONT></P>

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<A NAME="toc_ei71101_1"> </A>
<BR></FONT><FONT SIZE=2><B>  DESCRIPTION OF CAPITAL STOCK    <BR>    </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B> General  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our Amended and Restated Certificate of Incorporation, which will become effective upon the closing of this offering, authorizes the
issuance of up to&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of common stock, par value $0.001 per share, and&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of preferred stock, par
value $0.01 per share. As of September&nbsp;30, 2010, there
were&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of common stock outstanding (after giving effect to the automatic conversion of all outstanding shares of preferred stock into shares of common stock and
the&nbsp;&nbsp;&nbsp;&nbsp;
for&nbsp;&nbsp;&nbsp;&nbsp;reverse stock split). As of September&nbsp;30, 2010, we had approximately&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;record holders of our capital stock. All of our outstanding shares of
preferred stock
will automatically convert into shares of common stock upon the closing of this offering. After the closing of this offering and after giving effect to the conversion of our preferred stock and the
&nbsp;&nbsp;&nbsp;&nbsp;for&nbsp;&nbsp;&nbsp;&nbsp;reverse stock split, we will have&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of common stock and no shares of preferred stock outstanding. In addition, as of
September&nbsp;30, 2010,
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
shares of our common stock were reserved for future grants under our 2005 Stock Plans, and options to purchase&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of our common stock were outstanding. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
description below gives effect to the adoption of our Amended and Restated Bylaws and is qualified in its entirety by reference to these documents, copies of which are filed as
exhibits to the registration statement of which this prospectus is a part. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Common Stock  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Upon the completion of this offering, we will be authorized to issue one class of common stock. Holders of our common stock are
entitled to one vote for each share of common stock held of record for the election of directors and on all matters submitted to a vote of stockholders. Holders of our common stock are entitled to
receive dividends ratably, if any, as may be declared by our board of directors out of legally available funds, subject to any preferential dividend rights of any preferred stock then outstanding.
Upon our dissolution, liquidation or winding up, holders of our common stock are entitled to share ratably in our net assets legally available after the payment of all our debts and other liabilities,
subject to the preferential rights of any preferred stock then outstanding. Holders of our common stock have no preemptive, subscription, redemption or conversion rights. The rights, preferences and
privileges of holders of common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock that we may designate and issue in the
future. Except as described under "&#151;Antitakeover Effects of Delaware Law and Provisions of Our Certificate of Incorporation and Bylaws" below, a majority vote of the holders of common
stock is generally required to take action under our amended and restated certificate of incorporation and amended and restated bylaws. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Preferred Stock  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Upon the completion of this offering, our board of directors will be authorized, without action by the stockholders, to designate and
issue up to an aggregate of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of preferred stock in one or more series. Our board of directors can designate the rights, preferences and privileges of the shares of each series
and any of its qualifications, limitations or restrictions. Our board of directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting
power or other rights of the holders of common stock. The issuance of preferred stock, while providing flexibility in connection with possible future financings and acquisitions and other corporate
purposes, could, under certain circumstances, have the effect of restricting dividends on our common stock, diluting the voting power of our common stock, impairing the liquidation rights of our
common stock, or delaying, deferring or preventing a change in control of our company, which might harm the market price of our common stock. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>130</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
board of directors will make any determination to issue such shares based on its judgment as to our company's best interests and the best interests of our stockholders. Any shares of
our Series&nbsp;A convertible preferred stock outstanding immediately prior to this offering will automatically convert into shares of our common stock on a one-for-one basis
in connection with this offering. Upon the completion of this offering, we will have no shares of preferred stock outstanding and we have no current plans to issue any shares of preferred stock. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Registration Rights  </B></FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Demand Registration Rights  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;After the expiration of the 180-day period following the completion of this offering (as may be extended under certain
circumstances), the holders of approximately&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of our common stock will be entitled to certain demand
registration rights. If holders of registrable securities then outstanding
request a registration having a reasonably anticipated aggregate offering price to the public of at least $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, we may be required to register their shares. After the expiration of
the
180-day period following the completion of this offering (as may be extended under certain circumstances), certain holders have the right to make two requests that we register all or a
portion of their shares of our common stock. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Piggyback Registration Rights  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;After expiration of the 180-day period following the completion of this offering (as may be extended under certain
circumstances), in the event that we propose to register any of our securities under the Securities Act, either for our own account or for the account of other stockholders, the holders of
approximately&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of our common stock will be entitled to certain "piggyback" registration rights
allowing the holders to include their shares in such
registration, subject to certain marketing and other limitations. As a result, whenever we propose to file&nbsp;a registration statement under the Securities Act, other than with respect to a
registration related to the shares issuable upon conversion of debt securities or employee benefit plans, the holders of these shares of our common stock are entitled to notice of the registration and
have the right, subject to limitations that the underwriters may impose on the number of shares included in the registration, to include their shares in the registration. </FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Form S-3 Registration Rights  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;After the expiration of a 180-day period following the completion of this offering (as may be extended under certain circumstances),
the holders of approximately&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares will be entitled to certain Form S-3 registration rights if we are eligible to file a registration statement on Form&nbsp;S-3. As a result,
these
holders will have the right to demand that we file a registration statement on Form&nbsp;S-3 so long as the aggregate value of the securities to be sold under the registration statement on
Form&nbsp;S-3 is at least $500,000, subject to specified exceptions. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Antitakeover Effects Of Delaware Law And Provisions Of Our Certificate Of Incorporation And Bylaws  </B></FONT></P>

<UL>

<P style="font-family:times;"><FONT SIZE=2><B><I> Delaware Takeover Statute  </I></B></FONT></P>

</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are subject to Section&nbsp;203 of the Delaware General Corporation Law. This statute regulating corporate takeovers prohibits a
Delaware corporation from engaging in any business combination with </FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>any
interested stockholder for three years following the date that the stockholder became an interested stockholder, unless: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>prior to the date of the transaction, the board of directors of the corporation approved either the business combination
or the transaction which resulted in the stockholder becoming an interested stockholder;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>upon completion of the transaction that resulted in the interested stockholder becoming an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares
outstanding (a)&nbsp;shares owned by persons who are directors and also officers, and (b)&nbsp;shares owned by employee stock plans in which employee participants do not have the right to
determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>on or subsequent to the date of the transaction, the business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66<SUP>2</SUP>/<SMALL>3</SMALL>% of the outstanding voting stock which is not owned by
the interested stockholder. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Generally,
a business combination includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. An interested stockholder
is any person who, together with such person's affiliates and associates (i)&nbsp;owns 15% or more of a corporation's voting securities or (ii)&nbsp;is an affiliate or associate of a corporation
and was the owner of 15% or more of the corporation's voting securities at any time within the three year period immediately preceding a business combination of the corporation governed by
Section&nbsp;203. We expect the existence of this provision to have an anti-takeover effect with respect to transactions our board does not approve in advance. We also anticipate that
Section&nbsp;203 may discourage takeover attempts that might result in a premium over the market price for the shares of common stock held by our stockholders. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Certificate Of Incorporation And Bylaw Provisions  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Provisions of our certificate of incorporation and bylaws, which will be effective upon the closing of this offering, may have the
effect of making it more difficult for a third party to acquire, or discourage a third party from attempting to acquire, control of our company by means of a tender offer, a proxy contest or
otherwise. These provisions may also make the removal of incumbent officers and directors more difficult. These provisions are intended to discourage certain types of coercive takeover practices and
inadequate takeover bids and to encourage persons seeking to acquire control of our company to first negotiate with us. These provisions could also limit the price that investors might be willing to
pay in the future for shares of our common stock. These provisions may make it more difficult for stockholders to take specific corporate actions and could have the effect of delaying or preventing a
change in control. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Transfer Agent and Registrar  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The transfer agent and registrar for our common stock
is&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B> Listing  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We intend to apply to list our shares of common stock for quotation on The NASDAQ Global Market under the symbol "SUPN." </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>132</FONT></P>

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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="ei71101_shares_eligible_for_future_sale"> </A>
<A NAME="toc_ei71101_2"> </A>
<BR></FONT><FONT SIZE=2><B>  SHARES ELIGIBLE FOR FUTURE SALE    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prior to this offering, there has been no public market for our common stock, and there can be no assurance that a significant public
market for our common stock will develop or be sustained after this offering. Future sales of substantial amounts of our common stock, including shares issued upon exercise of outstanding options, in
the public market following this offering could adversely affect market prices prevailing from time to time and could impair our ability to raise capital through the sale of our equity securities. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Upon
completion of this offering, we will have&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of common stock outstanding, assuming (1)&nbsp;the conversion of all outstanding shares of preferred stock,
(2)&nbsp;no exercise of any options outstanding as of September&nbsp;30, 2010 and (3)&nbsp;no exercise of the underwriters' option to purchase additional shares from us. All shares sold in this
offering, plus any shares issued upon exercise of the underwriters' option to purchase additional shares from us, will be freely tradable without restriction under the Securities Act, unless purchased
by our "affiliates" as that term is defined in Rule&nbsp;144 under the Securities Act. The remaining&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of common stock outstanding are "restricted securities" within the
meaning
of Rule&nbsp;144 under the Securities Act. Restricted securities may be sold in the public market only if
registered or if they qualify for an exemption from registration under Rule&nbsp;701 or meet the safe harbor qualifications under Rule&nbsp;144 under the Securities Act as summarized below. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
holders of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of outstanding common stock as of the closing of this offering and the holders of&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of common stock underlying options as of
the closing of this offering, including all of our officers and directors, have entered into lock-up agreements with the underwriters pursuant to which they have generally agreed, subject
to certain exceptions, not to offer or sell any shares of common stock or securities convertible into or exchangeable or exercisable for shares of common stock for a period of 180&nbsp;days from the
date of this prospectus without the prior written consent of Citigroup Global Markets&nbsp;Inc. and Barclays Capital&nbsp;Inc. At any time and without public notice, Citigroup Global
Markets&nbsp;Inc. and Barclays Capital&nbsp;Inc. may, in their sole discretion, release some or all of the securities from these lock-up agreements. In general, if (i)&nbsp;during
the last 17&nbsp;days of the 180-day restricted period, we issue an earnings release or material news or a material event relating to our company occurs; or (ii)&nbsp;prior to the
expiration of the 180-day restricted period, we announce that we will release earnings results during the 16-day period beginning on the last day of the 180-day
restricted period, the restrictions described above shall continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of
the material news or material event. See "Underwriting." </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Rule&nbsp;144  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In general, under Rule&nbsp;144 under the Securities Act, as in effect on the date of this prospectus, a person who is one of our
affiliates and has beneficially owned shares of our common stock for at least six months would be entitled to sell within any three month period a number of shares that does not exceed the greater
of: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>one percent of the number of shares of common stock then outstanding, which will equal
approximately&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
shares immediately after the completion of this offering; or  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the average weekly trading volume of our common stock on the NASDAQ Global Market during the four calendar weeks preceding
the filing of a notice on Form&nbsp;144 with respect to the sale. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sales
under Rule&nbsp;144 by our affiliates or persons selling shares on behalf of our affiliates are also subject to manner of sale provisions and notice requirements and to the
availability of current public information about us. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>133</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
general, under Rule&nbsp;144 under the Securities Act, as in effect on the date of this prospectus, a person who is not deemed to have been one of our affiliates at any time during
the 90&nbsp;days preceding a sale, and who has beneficially owned the shares proposed to be sold for at least six months, including the holding period of any prior owner other than an affiliate, is
entitled to sell the shares without complying with the manner of sale, volume limitation or notice provisions of Rule&nbsp;144, and will be subject only to the public information requirements of
Rule&nbsp;144. If such a person has beneficially owned the shares proposed to be sold for at least one year, including the holding period of any prior owner other than our affiliates, then such
person is entitled to sell such shares without complying with any of the requirements of Rule&nbsp;144. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Shares
of our common stock will qualify for resale under Rule&nbsp;144 within 180&nbsp;days of the date of this prospectus, subject to the lock-up
agreements as described herein and under "Underwriting" in this prospectus, and to the extent such shares have been released from any repurchase option that we may hold. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Rule&nbsp;701  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any of our employees, officers, directors or consultants who purchased shares under a written compensatory plan or contract may be
entitled to rely on the resale provisions of Rule&nbsp;701. Rule&nbsp;701 permits affiliates to sell their Rule&nbsp;701 shares under Rule&nbsp;144 without complying with the holding period
requirements of Rule&nbsp;144. Rule&nbsp;701 further provides that non-affiliates may sell such shares in reliance on Rule&nbsp;144 without having to comply with the holding period,
public information, volume limitation or notice provisions of Rule&nbsp;144. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Neither
Rule&nbsp;144 nor Rule&nbsp;701 supersedes the contractual obligations of our security holders set forth in the lock-up agreements described above. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Lock-up Agreements  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We,
our officers and directors, and our other stockholders have agreed that, for a period of 180&nbsp;days from the date of this prospectus, we and they will not, without the prior
written consent of Citigroup Global Markets&nbsp;Inc. and Barclays Capital&nbsp;Inc., dispose of or hedge any shares or any securities convertible into or exchangeable for our common stock.
Citigroup Global Markets&nbsp;Inc. and Barclays Capital&nbsp;Inc. in their sole discretion may release any of the securities subject to these lock-up agreements at any time without
notice. Notwithstanding the foregoing, if (i)&nbsp;during the last 17&nbsp;days of the 180-day restricted period, we issue an earnings release or material news or a material event
relating to our company occurs; or (ii)&nbsp;prior to the expiration of the 180-day restricted period, we announce that we will release earnings results during the 16-day
period beginning on the last day of the 180-day restricted period, the restrictions described above shall continue to apply until the expiration of the 18-day period beginning
on the issuance of the earnings release or the occurrence of the material news or material event. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Registration Rights  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;After the expiration of the 180-day period following the completion of this offering (as may be extended under certain circumstances),
holders of our preferred stock convertible into 49,000,000 shares of our common stock have demand and piggyback registration rights with respect to the shares of common stock to be issued upon
conversion of their preferred stock. By exercising their registration rights and causing a large number of shares to be registered and sold in the public market, these holders could cause the price of
our common stock to fall. In addition, any demand to include such shares in our registration statements could have a material adverse effect on our ability to raise needed capital. For more
information about these registration rights, see "Description of Capital Stock&#151;Registration Rights." </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>134</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2><B> Stock Options  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of September&nbsp;30, 2010, under our 2005 Stock Plan, we had outstanding options to purchase&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of common
stock. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
soon as practicable after completion of this offering, we intend to register the shares of our common stock subject to the options outstanding or reserved for issuance under this plan
on a registration statement on Form&nbsp;S-8 under the Securities Act. Subject to the lock-up agreements and the restrictions imposed under the 2005 Stock Plan, shares of
common stock issued pursuant to this plan after the effective date of the registration statement on Form&nbsp;S-8 will be available for sale in the public market without restriction to
the extent that they are held by persons who are not our affiliates. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>135</FONT></P>

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<A HREF="#bg71101a_main_toc">Table of Contents</A> </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
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<A NAME="toc_ek71101_1"> </A>
<BR></FONT><FONT SIZE=2><B>  MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS<BR>  FOR NON-U.S. HOLDERS OF COMMON STOCK    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following is a summary of certain material U.S. federal income tax considerations relating to the purchase, ownership and
disposition of our common stock by Non-U.S. Holders, but does not purport to be a complete analysis of all the potential tax considerations. For purposes of this summary, a
"Non-U.S. Holder" means a beneficial owner of common stock that for U.S. federal income tax purposes is: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>a non-resident alien individual;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized under
the laws of a jurisdiction other than the U.S., any state thereof, or the District of Columbia;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>an estate, other than an estate the income of which is subject to U.S. federal income tax regardless of its source; or </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>a trust, other than a trust (a)&nbsp;the administration of which is subject to the primary supervision of a court within
the United States and which has one or more U.S. persons have the authority to control all substantial decisions of the trust, or (b)&nbsp;that has a valid election to be treated as a U.S. person. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
a partnership (or an entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds our common stock, the tax treatment of a partner will generally depend
upon the status of the partners and the activities of the partnership. Accordingly, we urge partnerships that hold our common stock and partners in such partnerships to consult their tax advisors. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
summary assumes that a Non-U.S. Holder will hold our common stock issued by this offering as a capital asset. This summary is general in nature and thus does not purport
to deal with all aspects of U.S. federal income taxation that might be relevant to a particular Non-U.S. Holder in light of their particular investment circumstances or status, nor does it
address specific tax considerations that may be relevant to particular persons (including, for example, financial institutions, broker-dealers, insurance companies, partnerships or other
pass-through entities, regulated investment companies, real estate investment trusts, grantor trusts, certain U.S. expatriates, pension plans, tax-exempt organizations,
"controlled foreign corporations," "passive foreign investment companies," corporations that accumulate earnings to avoid U.S. federal income tax, persons that receive shares of our common stock in
connection with services provided, or persons in special situations, such as those who have elected to mark securities to market or those who hold common stock as part of a straddle, hedge, conversion
transaction or other integrated investment). In addition, this summary does not address U.S. federal alternative minimum, estate and gift tax considerations (except to the extent discussed below) or
considerations under the tax laws of any state, local or non-U.S. jurisdiction. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
summary is based on the Internal Revenue Code of 1986, as amended (the "Code"), the Treasury regulations promulgated or proposed thereunder and administrative and judicial
interpretations thereof, all as of the date hereof and all of which are subject to change at any time, possibly on a retroactive basis. Any change could alter the tax consequences to
Non-U.S. Holders described in this prospectus. In addition, the Internal Revenue Service, or the IRS, could challenge one or more of the tax consequences described in this prospectus. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>This summary is for general information only. Non-U.S. Holders are urged to consult their tax advisors concerning the U.S. federal, state, local and
non-U.S. taxation and other tax consequences to them of the purchase, ownership and disposition of our common stock, as
well as the application of U.S. federal, state, local and non-U.S. income and other tax laws.</B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>136</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2><B> Distributions  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the event that we do make a distribution of cash or property with respect to our common stock, any such distributions will be
treated as a dividend for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). Any
distribution not treated as a dividend will be treated first as a tax-free return of capital to the extent of the Non-U.S. Holder's tax basis in our common stock and thereafter
as capital gain from the sale or exchange of such stock as described in the next section. Dividends paid to a Non-U.S. Holder generally will be subject to a 30% U.S. federal withholding
tax unless such Non-U.S. Holder provides us, or our agent, as the case may be, with a properly executed: </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IRS
Form&nbsp;W-8BEN (or successor form) claiming, under penalties of perjury, a reduction in withholding under an applicable income tax treaty, or </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IRS
Form&nbsp;W-8ECI (or successor form) stating that a dividend paid on common stock is not subject to withholding tax because it is effectively connected
with a U.S. trade or business of the Non-U.S. Holder (in which case such dividend generally will be subject to regular graduated U.S. tax rates as described below). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
certification requirement described above also may require a Non-U.S. Holder to obtain a U.S. taxpayer identification number. If a Non-U.S. Holder holds stock
through a financial institution or other agent acting on the Non-U.S. Holder's behalf, the Non-U.S. Holder will be required to provide appropriate documentation to such agent.
The agent will then be required to provide certification to us, or our paying agent, as the case may be, either directly or through other intermediaries. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each
Non-U.S. Holder is urged to consult its own tax advisor about the specific methods for satisfying these requirements. A claim for exemption will not be valid if the
person receiving the applicable form has actual knowledge or reason to know that the statements on the form are false. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
a Non-U.S. Holder is eligible for a reduced rate of U.S. federal withholding tax pursuant to an income tax treaty, such holder may obtain a refund or credit of any excess
amount withheld by timely filing an appropriate claim for refund with the IRS. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
dividends are effectively connected with a U.S. trade or business of the Non-U.S. Holder (and, if required by an applicable income tax treaty, attributable to a U.S.
permanent establishment), the Non-U.S. Holder, although exempt from the withholding tax described above (provided that the certifications described above are satisfied), will be subject to
U.S. federal income tax on such dividends on a net income basis in the same manner as if it were a resident of the United States. In addition, if such Non-U.S. Holder is a
non-U.S. corporation and dividends are effectively connected with its U.S. trade or business (and, if required by an applicable income tax treaty, attributable to a U.S. permanent
establishment), such Non-U.S. Holder may be subject to an additional "branch profits tax" equal to 30% (unless reduced by an applicable income treaty) in respect of such
effectively-connected income. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Taxable Disposition of Our Common Stock  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A Non-U.S. Holder generally will not be subject to U.S. federal income tax on gain recognized on a sale, exchange or other
taxable disposition of a share of our common stock, unless: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the gain is effectively connected with a trade or business of the Non-U.S. Holder in the United States (and,
if required by an applicable income tax treaty, attributable to a U.S. permanent establishment);  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>the Non-U.S. Holder is a nonresident alien who is present in the United States for 183&nbsp;days or more in
the taxable year of the disposition and meets certain other conditions; or </FONT></DD></DL>
</UL>
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<UL>
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<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>we are or have been a "United States real property holding corporation," as defined in the Code (a "USRPHC"), at any time
within the shorter of the five-year period preceding the disposition and the Non-U.S. Holder's holding period the share our common stock. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
a Non-U.S. Holder is engaged in a trade or business in the U.S. and gain recognized by the Non-U.S. Holder on a sale or other disposition of our common stock
is effectively connected with the conduct of such trade or business, the Non-U.S. Holder will generally be subject to regular U.S. income tax as if the Non-U.S. Holder were a
U.S. person, subject to an applicable income tax treaty providing otherwise. Additionally, a non-U.S. corporation may also, under certain circumstances, be subject to an additional "branch
profits tax" imposed at a rate of 30% (or, if applicable, a lower income tax treaty rate). Non-U.S. Holders whose gain from dispositions of our common stock may be effectively connected
with the conduct of a trade or business in the United States are urged to consult their own tax advisors with respect to the U.S. tax consequences of the purchase, ownership and disposition of our
common stock. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A
nonresident alien who is subject to U.S. federal income tax because such individual was present in the United States for 183&nbsp;days or more in the taxable year of the taxable
disposition of our common stock will be subject to a flat 30% tax on the gain derived from such disposition, which may be offset by U.S. source capital loss. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
believe that we are not, and do not anticipate becoming, a USRPHC. However, because the determination of whether we are a USRPHC depends on the fair market value of our U.S. real
property relative to the fair market value of other business assets, there can be no assurance that we will not become a USRPHC in the future. Even if we become a USRPHC, a Non-U.S. Holder
would not be subject to U.S. federal income tax on a sale, exchange or other taxable disposition of our common stock so long as our common stock continues to be regularly traded on an established
securities market and such Non-U.S. Holder does not own and is not deemed to own (directly, indirectly or constructively) more than 5% of our common stock at any time during the shorter of
the five year period ending on the date of disposition and the holder's holding period. There can be no assurance that our common stock will qualify as regularly traded on an established market. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Information Reporting and Backup Withholding  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Generally, we must report annually to the IRS and to each Non-U.S. Holder certain information including the
Non-U.S. Holder's name, address and taxpayer identification number, the aggregate amount of distributions on our common stock paid to that Non-U.S. Holder during the calendar
year and the amount
of tax withheld, if any. Pursuant to tax treaties and certain other agreements, the IRS may make its reports available to tax authorities in the recipient's country of residence. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Backup
withholding tax is imposed on dividends and certain other types of payments to certain U.S. persons. Backup withholding tax will not apply to payments of dividends on common stock
or proceeds from the sale of common stock payable to a Non-U.S. Holder if the certification described above in "Distributions" is duly provided by such Non-U.S. Holder or the
Non-U.S. Holder otherwise establishes an exemption, provided that the payor does not have actual knowledge or reason to know that the Holder is a U.S. person or that the conditions of any
claimed exemption are not satisfied. Certain information reporting may still apply to distributions even if an exemption from backup withholding is established. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Backup
withholding is not an additional tax and any amounts withheld under the backup withholding tax rules from a payment to a Non-U.S. Holder will be allowed as a refund or
a credit against such Non-U.S. Holder's U.S. federal income tax liability, provided that the requisite procedures are followed. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>138</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Non-U.S.
Holders are urged to consult their own tax advisors regarding their particular circumstances and the availability of and procedure for obtaining an exemption from
backup withholding. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Recently enacted legislation affecting taxation of our common stock held by or through foreign entities  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Recently enacted legislation generally will impose a U.S. federal withholding tax of 30% on dividends and the gross proceeds of a
disposition of our common stock paid after December&nbsp;31, 2012 to (a)&nbsp;a foreign financial institution unless such institution enters into an agreement with the U.S. government to withhold
on certain payments and to collect and provide to the U.S. tax authorities substantial information regarding U.S. account holders of such institution (which includes certain equity and debt holders of
such institution, as well as certain account holders that are foreign entities with U.S. owners), or (b)&nbsp;a non-financial foreign entity unless such entity provides the withholding
agent with either a certification that it does not have any substantial direct or indirect U.S. owners or provides information regarding direct and indirect U.S. owners of the entity. Under certain
circumstances, a Non-U.S. Holder might be eligible for refunds or credits
of such taxes. Holders are encouraged to consult with their own tax advisors regarding the possible implications of the legislation on their investment in our common stock. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B> U.S. Federal Estate Tax  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Common stock owned or treated as owned by an individual who is a Non-U.S. Holder at the time of death generally will be
included in the individual's gross estate for U.S. federal estate tax purposes and may be subject to U.S. federal estate tax unless an applicable estate tax treaty provides otherwise. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT
SIZE=2><B>THE PRECEDING DISCUSSION OF U.S. FEDERAL INCOME TAX CONSIDERATIONS IS FOR GENERAL INFORMATION ONLY. IT IS NOT TAX ADVICE. EACH PROSPECTIVE INVESTOR SHOULD CONSULT
ITS OWN TAX ADVISOR REGARDING THE TAX CONSEQUENCES OF PURCHASING, HOLDING AND DISPOSING OF OUR COMMON STOCK, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLE
LAW.</B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>139</FONT></P>

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<A HREF="#bg71101a_main_toc">Table of Contents</A> </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
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<A NAME="toc_em71101_1"> </A>
<BR></FONT><FONT SIZE=2><B>  UNDERWRITING    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Citigroup Global Markets&nbsp;Inc. and Barclays Capital&nbsp;Inc. are acting as joint book-running managers of the
offering and as representatives of the underwriters named below. Subject to the terms and conditions stated in the underwriting agreement dated the date of this prospectus, each underwriter named
below has severally agreed to purchase, and we have agreed to sell to that underwriter, the number of shares set forth opposite the underwriter's name. </FONT></P>
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<TH NOWRAP  ALIGN="LEFT" style="font-family:times;"><DIV style="border-bottom:solid #000000 1.0pt;margin-bottom:0pt;width:43pt;"><FONT SIZE=1><B>Underwriter

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<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Number<BR>
of Shares </B></FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Citigroup Global Markets&nbsp;Inc.&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
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<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Barclays Capital&nbsp;Inc.&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
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<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Cowen and Company,&nbsp;LLC</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
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<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Stifel, Nicolaus&nbsp;&amp; Company, Incorporated</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
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<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
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<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
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 <P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
underwriting agreement provides that the obligations of the underwriters to purchase the shares included in this offering are subject to approval of legal matters by counsel and to
other conditions. The underwriters are obligated to purchase all the shares (other than those covered by the over-allotment option described below) if they purchase any of the shares. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Shares
sold by the underwriters to the public will initially be offered at the initial public offering price set forth on the cover of this prospectus. Any shares sold by the
underwriters to securities dealers may be sold at a discount from the initial public offering price not to exceed $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per share. If all the shares are not sold at the initial
offering price, the underwriters may change the offering price and the other selling terms. The representatives have advised us that the underwriters do not intend to make sales to discretionary
accounts. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
the underwriters sell more shares than the total number set forth in the table above, we have granted to the underwriters an option, exercisable for 30&nbsp;days from the date of
this prospectus, to purchase up to&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;additional shares at the public offering price less the underwriting discount. The underwriters may exercise
the option solely for the purpose of
covering over-allotments, if any, in connection with this offering. To the extent the option is exercised, each underwriter must purchase a number of additional shares approximately
proportionate to that underwriter's initial purchase commitment. Any shares issued or sold under the option will be issued and sold on the same terms and conditions as the other shares that are the
subject of this offering. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We,
our officers and directors, and our other stockholders have agreed that, for a period of 180&nbsp;days from the date of this prospectus, we and they will not, without the prior
written consent of Citigroup
Global Markets&nbsp;Inc. and Barclays Capital&nbsp;Inc., dispose of or hedge any shares or any securities convertible into or exchangeable for our common stock. Citigroup Global
Markets&nbsp;Inc. and Barclays Capital&nbsp;Inc. in their sole discretion may release any of the securities subject to these lock-up agreements at any time without notice.
Notwithstanding the foregoing, if (i)&nbsp;during the last 17&nbsp;days of the 180-day restricted period, we issue an earnings release or material news or a material event relating to
our company occurs; or (ii)&nbsp;prior to the expiration of the 180-day restricted period, we announce that we will release earnings results during the 16-day period
beginning on the last day of the 180-day restricted period, the restrictions described above shall continue to apply until the expiration of the 18-day period beginning on the
issuance of the earnings release or the occurrence of the material news or material event. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prior
to this offering, there has been no public market for our shares. Consequently, the initial public offering price for the shares will be determined by negotiations between us and
the representatives. Among the factors considered in determining the initial public offering price will be our results of operations, our current financial condition, our future prospects, our
markets, the </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>140</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>economic
conditions in and future prospects for the industry in which we compete, our management, and currently prevailing general conditions in the equity securities markets, including current market
valuations of publicly traded companies considered comparable to our company. We cannot assure you, however, that the price at which the shares will sell in the public market after this offering will
not be lower than the initial public offering price or that an active trading market in our shares will develop and continue after this offering. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
intend to apply to have our shares listed on the Nasdaq Global Market under the symbol "SUPN." </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table shows the underwriting discounts and commissions that we are to pay to the underwriters in connection with this offering. These amounts are shown assuming both no
exercise and full exercise of the underwriters' over-allotment option. </FONT></P>
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<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Paid by Supernus Pharmaceuticals,&nbsp;Inc. </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
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<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>No Exercise </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Full Exercise </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
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<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Per share</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
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<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
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 <P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
connection with the offering, the underwriters may purchase and sell shares in the open market. Purchases and sales in the open market may include short sales, purchases to cover
short positions, which may include purchases pursuant to the over-allotment option, and stabilizing purchases.  </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Short sales involve secondary market sales by the underwriters of a greater number of shares than they are required to
purchase in the offering.  </FONT> <FONT SIZE=2>
<BR><BR></FONT>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>"Covered" short sales are sales of shares in an amount up to the number of shares represented by the underwriters'
over-allotment option.  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>"Naked" short sales are sales of shares in an amount in excess of the number of shares represented by the underwriters'
over-allotment option.  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD></DL>
</DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Covering transactions involve purchases of shares either pursuant to the over-allotment option or in the open
market after the distribution has been completed in order to cover short positions.  </FONT> <FONT SIZE=2>
<BR><BR></FONT>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>To close a naked short position, the underwriters must purchase shares in the open market after the distribution has been
completed. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the shares in the open market after pricing that
could adversely affect investors who purchase in the offering.  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>To close a covered short position, the underwriters must purchase shares in the open market after the distribution has
been completed or must exercise the over-allotment option. In determining the source of shares to close the covered short position, the underwriters will consider, among other things, the
price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option.  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD></DL>
</DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Stabilizing transactions involve bids to purchase shares so long as the stabilizing bids do not exceed a specified
maximum. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Purchases
to cover short positions and stabilizing purchases, as well as other purchases by the underwriters for their own accounts, may have the effect of preventing or retarding a
decline in the market price of the shares. They may also cause the price of the shares to be higher than the price that would otherwise exist in the open market in the absence of these transactions.
The underwriters may </FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>conduct
these transactions on the Nasdaq Global Market, in the over-the-counter market or otherwise. If the underwriters commence any of these transactions, they may
discontinue them at any time. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain
of the underwriters have performed commercial banking, investment banking and advisory services for us from time to time for which they have received customary fees and
reimbursement of expenses. The underwriters may, from time to time, engage in transactions with and perform services for us in the ordinary course of their business for which they may receive
customary fees and reimbursement of expenses. Cowen Healthcare Royalty Partners (CHRP), an affiliate of Cowen and Company,&nbsp;LLC, holds certain of the Non-recourse Notes issued by our
subsidiary, TCD Royalty Sub&nbsp;LLC. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the underwriters may be required to
make because of any of those liabilities. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Notice to Prospective Investors in the European Economic Area  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In relation to each member state of the European Economic Area that has implemented the Prospectus Directive (each, a relevant member
state), with effect from and including the date on which the Prospectus Directive is implemented in that relevant member state (the relevant implementation date), an offer of shares described in this
prospectus may not be made to the public in that relevant member state prior to the publication of a prospectus in relation to the shares that has been approved by the competent authority in that
relevant member state or, where appropriate, approved in another relevant member state and notified to the competent authority in that relevant member state, all in accordance with the Prospectus
Directive, except that, with effect from and including the relevant implementation date, an offer of securities may be offered to the public in that relevant member state at any
time: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>to any legal entity that is authorized or regulated to operate in the financial markets or, if not so authorized or
regulated, whose corporate purpose is solely to invest in securities;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>to any legal entity that has two or more of (1)&nbsp;an average of at least 250 employees during the last financial
year; (2)&nbsp;a total balance sheet of more than &euro;43,000,000 and (3)&nbsp;an annual net turnover of more than &euro;50,000,000, as shown in its last annual or
consolidated accounts;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>to fewer than 100 natural or legal persons (other than qualified investors as defined below) subject to obtaining the
prior consent of the representatives for any such offer; or  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>in any other circumstances that do not require the publication of a prospectus pursuant to Article&nbsp;3 of the
Prospectus Directive. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each
purchaser of shares described in this prospectus located within a relevant member state will be deemed to have represented, acknowledged and agreed that it is a "qualified investor"
within the meaning of Article&nbsp;2(1)(e) of the Prospectus Directive. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
purposes of this provision, the expression an "offer to the public" in any relevant member state means the communication in any form and by any means of sufficient information on the
terms of the offer and the securities to be offered so as to enable an investor to decide to purchase or subscribe the securities, as the expression may be varied in that member state by any measure
implementing the Prospectus Directive in that member state, and the expression "Prospectus Directive" means Directive 2003/71/EC and includes any relevant implementing measure in each relevant member
state. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
sellers of the shares have not authorized and do not authorize the making of any offer of shares through any financial intermediary on their behalf, other than offers made by the
underwriters with a view to the final placement of the shares as contemplated in this prospectus. Accordingly, no </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>142</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2><A
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<BR>

<P style="font-family:times;"><FONT SIZE=2>purchaser
of the shares, other than the underwriters, is authorized to make any further offer of the shares on behalf of the sellers or the underwriters. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B> Notice to Prospective Investors in the United Kingdom  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This prospectus is only being distributed to, and is only directed at, persons in the United Kingdom that are qualified investors
within the meaning of Article&nbsp;2(1)(e) of the Prospectus Directive that are also (i)&nbsp;investment professionals falling within Article&nbsp;19(5) of the Financial Services and Markets Act
2000 (Financial Promotion) Order 2005 (the "Order") or (ii)&nbsp;high net worth entities, and other persons to whom it may lawfully be communicated, falling within Article&nbsp;49(2)(a) to
(d)&nbsp;of the Order (each such person being referred to as a "relevant person"). This prospectus and its contents are confidential and should not be distributed, published or reproduced (in whole
or in part) or disclosed by recipients to any other persons in the United Kingdom. Any person in the United Kingdom that is not a relevant person should not act or rely on this document or any of its
contents. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Notice to Prospective Investors in France  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Neither this prospectus nor any other offering material relating to the shares described in this prospectus has been submitted to the
clearance procedures of the </FONT><FONT SIZE=2><I>Autorit&eacute; des March&eacute;s Financiers</I></FONT><FONT SIZE=2> or of the competent authority of another member state of the
European Economic Area and notified to the </FONT><FONT SIZE=2><I>Autorit&eacute; des March&eacute;s Financiers.</I></FONT><FONT SIZE=2> The shares have not been offered or sold and
will not be offered or sold, directly or indirectly, to the public in France. Neither this prospectus nor any other offering material relating to the shares has been or will
be: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>released, issued, distributed or caused to be released, issued or distributed to the public in France; or </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>used in connection with any offer for subscription or sale of the shares to the public in France. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Such
offers, sales and distributions will be made in France only: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>to qualified investors (</FONT><FONT SIZE=2><I>investisseurs qualifi&eacute;s</I></FONT><FONT SIZE=2>) and/or to
a restricted circle of investors (</FONT><FONT SIZE=2><I>cercle restreint d'investisseurs</I></FONT><FONT SIZE=2>), in each case investing for their own account, all as defined in, and in accordance
with articles&nbsp;L.411-2, D.411-1, D.411-2, D.734-1, D.744-1, D.754-1 and D.764-1 of the French </FONT> <FONT SIZE=2><I>Code mon&eacute;taire et financier</I></FONT><FONT SIZE=2>;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>to investment services providers authorized to engage in portfolio management on behalf of third parties; or </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>in a transaction that, in accordance with
article&nbsp;L.411-2-II-1&deg;-or-2&deg;-or 3&deg; of the French </FONT><FONT SIZE=2><I>Code
mon&eacute;taire et financier</I></FONT><FONT SIZE=2> and article&nbsp;211-2 of the General Regulations (</FONT><FONT SIZE=2><I>R&egrave;glement
G&eacute;n&eacute;ral</I></FONT><FONT SIZE=2>) of the </FONT><FONT SIZE=2><I>Autorit&eacute; des March&eacute;s Financiers</I></FONT><FONT SIZE=2>, does not constitute
a public offer (</FONT><FONT SIZE=2><I>appel public &agrave; l'&eacute;pargne</I></FONT><FONT SIZE=2>). </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
shares may be resold directly or indirectly, only in compliance with articles&nbsp;L.411-1, L.411-2, L.412-1 and L.621-8 through
L.621-8-3 of the French </FONT><FONT SIZE=2><I>Code mon&eacute;taire et financier</I></FONT><FONT SIZE=2>. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Notice to Prospective Investors in Hong Kong  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The shares may not be offered or sold in Hong Kong by means of any document other than (i)&nbsp;in circumstances which do not
constitute an offer to the public within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong), or (ii)&nbsp;to "professional investors" within the meaning of the Securities and
Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder, or (iii)&nbsp;in other circumstances which do not result in the document being a "prospectus" within the meaning of the
Companies Ordinance (Cap. 32, Laws of Hong Kong) and no advertisement, invitation or document relating to the shares may be issued or may be in the possession of any person for the purpose of issue
(in each case whether in Hong Kong or elsewhere), which is directed at, or the </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>143</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2><A
HREF="#bg71101a_main_toc">Table of Contents</A></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>contents
of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to shares which are or are intended
to be disposed of only to persons outside Hong Kong or only to "professional investors" within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made
thereunder. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Notice to Prospective Investors in Japan  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The shares offered in this prospectus have not been registered under the Securities and Exchange Law of Japan. The shares have not been
offered or sold and will not be offered or sold, directly or indirectly, in Japan or to or for the account of any resident of Japan, except (i)&nbsp;pursuant to an exemption from the registration
requirements of the Securities and Exchange Law and (ii)&nbsp;in compliance with any other applicable requirements of Japanese law. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Notice to Prospective Investors in Singapore  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any
other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the shares may not be circulated or distributed, nor may the shares be offered or sold,
or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i)&nbsp;to an institutional investor under
Section&nbsp;274 of the Securities and Futures Act, Chapter&nbsp;289 of Singapore (the "SFA"), (ii)&nbsp;to a relevant person pursuant to Section&nbsp;275(1), or any person pursuant to
Section&nbsp;275(1A), and in accordance with the conditions specified in Section&nbsp;275 of the SFA or (iii)&nbsp;otherwise pursuant to, and in accordance with the conditions of, any other
applicable provision of the SFA, in each case subject to compliance with conditions set forth in the SFA. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Where
the shares are subscribed or purchased under Section&nbsp;275 of the SFA by a relevant person which is: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>a corporation (which is not an accredited investor (as defined in Section&nbsp;4A of the SFA)) the sole business of
which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary
of the trust is an individual who is an accredited investor, </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>shares,
debentures and units of shares and debentures of that corporation or the beneficiaries' rights and interest (howsoever described) in that trust shall not be transferred within six months after
that corporation or that trust has acquired the shares pursuant to an offer made under Section&nbsp;275 of the SFA except: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>to an institutional investor (for corporations, under Section&nbsp;274 of the SFA) or to a relevant person defined in
Section&nbsp;275(2) of the SFA, or to any person pursuant to an offer that is made on terms that such shares, debentures and units of shares and debentures of that corporation or such rights and
interest in that trust are acquired at a consideration of not less than S$200,000 (or its equivalent in a foreign currency) for each transaction, whether such amount is to be paid for in cash or by
exchange of securities or other assets, and further for corporations, in accordance with the conditions specified in Section&nbsp;275 of the SFA;  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>where no consideration is or will be given for the transfer; or  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>where the transfer is by operation of law. </FONT></DD></DL>
</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>144</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2><A
HREF="#bg71101a_main_toc">Table of Contents</A></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="em71101_legal_matters"> </A>
<A NAME="toc_em71101_2"> </A>
<BR></FONT><FONT SIZE=2><B>  LEGAL MATTERS    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our counsel, Ropes&nbsp;&amp; Gray&nbsp;LLP, Boston, Massachusetts, will pass on the validity of the shares of common stock offered by
this prospectus. Goodwin Procter&nbsp;LLP, Boston, Massachusetts, has acted as counsel for the underwriters in connection with certain legal matters related to this offering. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="em71101_experts"> </A>
<A NAME="toc_em71101_3"> </A>
<BR></FONT><FONT SIZE=2><B>  EXPERTS    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The consolidated financial statements of Supernus Pharmaceuticals,&nbsp;Inc. at December&nbsp;31, 2009 and 2008, and for each of
the three years in the period ended December&nbsp;31, 2009, appearing in this prospectus and Registration Statement have been audited by Ernst&nbsp;&amp; Young&nbsp;LLP, independent registered
public accounting firm, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and
auditing. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="em71101_market_and_industry_data"> </A>
<A NAME="toc_em71101_4"> </A>
<BR></FONT><FONT SIZE=2><B>  MARKET AND INDUSTRY DATA    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Market data and certain industry data and forecasts included in this prospectus were obtained from internal company surveys, market
research, consultant surveys, publicly available information and industry publications and surveys. While we believe that each of these studies and publications is reliable, we have not independently
verified market and industry data from third-party sources. While we believe our internal company research is reliable and the market definitions we use are appropriate, neither such research nor
these definitions have been verified by any independent source. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those
described in "Risk Factors." </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="em71101_where_you_can_find_additional_information"> </A>
<A NAME="toc_em71101_5"> </A>
<BR></FONT><FONT SIZE=2><B>  WHERE YOU CAN FIND ADDITIONAL INFORMATION    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have filed with the Securities and Exchange Commission, or SEC, a registration statement on Form&nbsp;S-1 under the
Securities Act that registers the shares of our common stock to be sold in this offering. This prospectus does not contain all of the information set forth in the registration statement and the
exhibits filed as part of the registration statement. For further information with respect to us and our common stock, we refer you to the registration statement and the exhibits filed as a part of
the registration statement. Statements contained in this prospectus concerning the contents of any contract or any other document are not necessarily complete. If a contract or document has been filed
as an exhibit to the registration statement, we refer you to the copy of the contract or document that has been filed. Each statement in this prospectus relating to a contract or document filed as an
exhibit is qualified in all respects by the filed exhibit. The reports and other information we file with the SEC can be read and copied at the SEC's Public Reference Room at 100&nbsp;F Street,
N.E., Washington D.C. 20549. Copies of these materials can be obtained at prescribed rates from the SEC's Public Reference Room at such address. You may obtain information regarding the operation of
the public reference room by calling 1-800-SEC-0330. The SEC also maintains a web site (http://www.sec.gov) that contains reports, proxy and information statements
and other information regarding issuers that file electronically with the SEC. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Upon
completion of this offering, we will become subject to the reporting and information requirements of the Exchange Act and, as a result, will file periodic reports, proxy statements
and other information with the SEC. These periodic reports, proxy statements and other information will be available for inspection and copying at the SEC's public reference room and the web site of
the SEC referred to above. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>145</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>
<A HREF="#bg71101a_main_toc">Table of Contents</A> </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="fa71101_supernus_pharmaceuticals,_inc.__sup02880"> </A></FONT> <FONT SIZE=2><B><BR>  Supernus Pharmaceuticals,&nbsp;Inc.    <BR>    <BR>    Index to Consolidated Financial Statements    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>
<A NAME="FA71101_TOC"></A> </FONT></P>
 <DIV style="padding:0pt;position:relative;width:80%;margin-left:10%;">
<p style="font-family:times;"><font size=1></FONT><FONT SIZE=2>


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<TR VALIGN="BOTTOM">
<TD VALIGN="TOP" style="font-family:times;"><A HREF="#fc71101_report_of_independent___fc702274"><FONT SIZE=2>Report of Independent Registered Public Accounting Firm</FONT></A></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><A HREF="#fc71101_report_of_independent___fc702274"><FONT SIZE=2>F-2</FONT></A></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD VALIGN="TOP" style="font-family:times;"><A HREF="#page_fe71101_1_3"><FONT SIZE=2>Consolidated Balance Sheets as of December&nbsp;31, 2008 and 2009 and September&nbsp;30, 2010 (unaudited)</FONT></A></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><A HREF="#page_fe71101_1_3"><FONT SIZE=2>F-3</FONT></A></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD VALIGN="TOP" style="font-family:times;"><A HREF="#page_fg71101_1_4"><FONT SIZE=2>Consolidated Statements of Operations for the Years Ended December&nbsp;31, 2007, 2008 and 2009, and the Nine Months Ended September&nbsp;30, 2009 (unaudited) and 2010
(unaudited)</FONT></A></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><A HREF="#page_fg71101_1_4"><FONT SIZE=2>F-4</FONT></A></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD VALIGN="TOP" style="font-family:times;"><A HREF="#page_fi71101_1_5"><FONT SIZE=2>Consolidated Statements of Changes in Stockholders' Equity (Deficit) for the Years Ended December&nbsp;31, 2007, 2008 and 2009 and the Nine Months Ended September&nbsp;30, 2010
(unaudited)</FONT></A></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><A HREF="#page_fi71101_1_5"><FONT SIZE=2>F-5</FONT></A></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD VALIGN="TOP" style="font-family:times;"><A HREF="#page_fk71101_1_6"><FONT SIZE=2>Consolidated Statements of Cash Flows for the Years Ended December&nbsp;31, 2007, 2008 and 2009, and the Nine Months Ended September&nbsp;30, 2009 (unaudited) and 2010
(unaudited)</FONT></A></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><A HREF="#page_fk71101_1_6"><FONT SIZE=2>F-6</FONT></A></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD VALIGN="TOP" style="font-family:times;"><A HREF="#fm71101_supernus_pharmaceuticals,_inc.__sup05423"><FONT SIZE=2>Notes to Consolidated Financial Statements</FONT></A></TD>
<TD VALIGN="TOP" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><A HREF="#fm71101_supernus_pharmaceuticals,_inc.__sup05423"><FONT SIZE=2>F-7</FONT></A></TD>
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<A HREF="#bg71101a_main_toc">Table of Contents</A> </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="fc71101_report_of_independent___fc702274"> </A>
<A NAME="toc_fc71101_1"> </A>
<BR></FONT><FONT SIZE=2><B>  Report of Independent Registered Public Accounting Firm    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>The
Board of Directors<BR>
Supernus Pharmaceuticals,&nbsp;Inc. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have audited the accompanying consolidated balance sheets of Supernus Pharmaceuticals,&nbsp;Inc. as of December&nbsp;31, 2008 and 2009, and the related consolidated statements of
operations, changes in stockholders' equity (deficit), and cash flows for each of the three years in the period ended December&nbsp;31, 2009. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial
reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Supernus Pharmaceuticals,&nbsp;Inc. and
subsidiaries as of December&nbsp;31, 2008 and 2009, and the consolidated results of their operations and their cash flows for the three years in the period ended December&nbsp;31, 2009, in
conformity with U.S. generally accepted accounting principles. </FONT></P>

<P ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>/s/
Ernst&nbsp;&amp; Young&nbsp;LLP </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>McLean,
Virginia<BR>
April&nbsp;28, 2010 </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>F-2</FONT></P>

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<A HREF="#bg71101a_main_toc">Table of Contents</A> </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="fe71101_supernus_pharmaceutica__fe702263"> </A>
<A NAME="toc_fe71101_1"> </A></FONT> <FONT SIZE=2><B><BR>  Supernus Pharmaceuticals,&nbsp;Inc.    <BR>    <BR>    Consolidated Balance Sheets    <BR>    </B></FONT></P>
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<p style="font-family:times;"><font size=1></FONT><FONT SIZE=2>


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<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE width="100%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="9pt" style="font-family:times;"></TD>
<TD WIDTH="" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="65pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="65pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="67pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="72pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH ROWSPAN=4 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=4 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Pro Forma<BR>
Stockholders'<BR>
Deficit at<BR>
September&nbsp;30,<BR>
2010 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH ROWSPAN=2 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ROWSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>December&nbsp;31, </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH ROWSPAN=2 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>September&nbsp;30,<BR>
2010 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2008 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2009 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(unaudited)</B></FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(unaudited)</B></FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2><B>Assets</B></FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Current assets:</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Cash and cash equivalents</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>52,876,864</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>31,405,680</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>25,255,918</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Cash and cash equivalents&#151;restricted</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6,110,718</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,850,912</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,442,101</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Marketable securities</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>7,502,636</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>35,118,047</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>20,566,385</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Marketable securities&#151;restricted</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>169,621</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>224,861</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>237,656</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Accounts receivable</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,276,420</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,407,770</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,033,067</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Interest receivable</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>334,417</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>85,802</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Prepaid expenses</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>252,511</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>266,924</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>351,086</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Deferred financing costs</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>268,560</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>270,934</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>270,934</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total current assets</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>69,457,330</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>72,879,545</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>51,242,949</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Property and equipment, net</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,987,578</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,859,186</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,469,005</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Purchased patents, net</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,599,950</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,370,725</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,198,806</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Other assets</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>108,822</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>82,150</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>63,845</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Deferred financing costs, long-term</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,980,073</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,707,375</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,527,616</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total assets</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>77,133,753</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>79,898,981</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>57,502,221</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2><B>Liabilities and stockholders' deficit</B></FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Current liabilities:</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Accounts payable and accrued expenses</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4,468,426</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6,244,516</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>14,092,113</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Accrued compensation</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,305,572</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,287,620</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>815,598</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Interest payable</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,500,000</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,500,000</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,500,000</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total current liabilities</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8,273,998</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10,032,136</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>17,407,711</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Deferred rent</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>437,439</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>797,145</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>773,664</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Supplemental executive retirement plan</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>169,621</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>224,861</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>237,656</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Non-recourse notes payable</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>75,000,000</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>75,000,000</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>75,000,000</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total liabilities</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>83,881,058</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>86,054,142</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>93,419,031</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Stockholders' deficit:</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Series&nbsp;A convertible preferred stock, $0.001 par value&#151;49,000,000 shares authorized, issued and outstanding at December&nbsp;31, 2008 and 2009
and September&nbsp;30, 2010; aggregate liquidation preference of $59,230,260, $62,660,260 and $65,232,760 at December&nbsp;31, 2008, 2009, and September&nbsp;30, 2010, respectively</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>49,000</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>49,000</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>49,000</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Common stock, $0.001 par value&#151;62,000,000 shares authorized, 5,520,591 and 6,336,061 shares issued and outstanding at December&nbsp;31, 2008 and 2009,
respecively and 6,371,061 shares issued and outstanding at September&nbsp;30, 2010</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5,521</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6,337</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6,372</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>55,372</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Additional paid-in capital</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>48,980,411</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>49,110,087</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>49,237,544</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>49,237,544</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Accumulated deficit</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(55,782,237</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(55,320,585</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(85,209,726</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(85,209,726</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total stockholders' deficit</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(6,747,305</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(6,155,161</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(35,916,810</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(35,916,810</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total liabilities and stockholders' deficit</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>77,133,753</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>79,898,981</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>57,502,221</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->
 </DIV>
 <P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>
See accompanying notes. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>F-3</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<A HREF="#bg71101a_main_toc">Table of Contents</A> </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="fg71101_supernus_pharmaceuticals,_inc.__sup02719"> </A>
<A NAME="toc_fg71101_1"> </A></FONT> <FONT SIZE=2><B><BR>  Supernus Pharmaceuticals,&nbsp;Inc.    <BR>    <BR>    Consolidated Statements of Operations    <BR>    </B></FONT></P>
 <DIV style="padding:0pt;position:relative;width:62%;margin-left:10%;">
<p style="font-family:times;"><font size=1></FONT><FONT SIZE=2>


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<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE width="130%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="9pt" style="font-family:times;"></TD>
<TD WIDTH="" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="65pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="65pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="65pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="61pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="65pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Year Ended December&nbsp;31, </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Nine Months Ended<BR>
September&nbsp;30, </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2007 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2008 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2009 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2009 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2010 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(unaudited)</B></FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Revenues:</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Development and milestone revenue&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,405,098</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,697,048</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,549,886</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,181,058</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>97,174</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Royalty revenue</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,828,313</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6,191,616</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>44,963,260</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>41,883,532</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8,634,848</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total revenues</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4,233,411</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8,888,664</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>46,513,146</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>43,064,590</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8,732,022</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><p style="font-family:times;margin-top:11pt;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Costs and expenses:</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Research and development</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>19,268,757</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>30,462,808</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>29,260,067</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>21,804,118</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>26,079,702</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>General and administrative</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4,011,693</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4,286,501</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4,648,906</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,502,539</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,388,768</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total costs and expenses</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>23,280,450</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>34,749,309</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>33,908,973</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>25,306,657</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>29,468,470</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Income (loss) from operations</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(19,047,039</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(25,860,645</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>12,604,173</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>17,757,933</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(20,736,448</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><p style="font-family:times;margin-top:11pt;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Other income (expense):</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Interest income</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,772,999</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,057,462</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>514,327</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>100,640</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>622,854</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Interest expense</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(8,678,508</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(12,658,262</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(9,209,699</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(9,830,537</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Other</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>53,576</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total other income (expense)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,772,999</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(7,621,046</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(12,143,935</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(9,109,059</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(9,154,107</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Net income (loss)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(17,274,040</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(33,481,691</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>460,238</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8,648,874</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(29,890,555</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><p style="font-family:times;margin-top:11pt;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Cumulative dividends on preferred Series&nbsp;A convertible preferred stock</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
(3,430,000</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
(3,430,000</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
(3,430,000</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
(2,572,500</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
(2,572,500</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Net income (loss) attributable to common stockholders</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(20,704,040</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(36,911,691</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(2,969,762</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6,076,374</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(32,463,055</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><p style="font-family:times;margin-top:11pt;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Net income (loss) per common share:</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Basic</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(4.21</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(6.61</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.53</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.08</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(5.12</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Diluted</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(4.21</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(6.61</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.01</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.15</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(5.12</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Weighted average number of common shares:</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Basic</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4,921,376</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5,587,467</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5,653,506</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5,610,047</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6,345,420</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Diluted</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4,921,376</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5,587,467</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>56,324,761</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>56,282,411</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6,345,420</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><p style="font-family:times;margin-top:11pt;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Net income (loss) used to compute pro forma net income (loss) per common share &#151; basic and diluted (unaudited)(Note&nbsp;2)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
460,238</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
(29,890,555</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><p style="font-family:times;margin-top:11pt;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Weighted-average number of shares used in calculating pro forma net income (loss) per share basic and diluted (unaudited)(Note&nbsp;2)
</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
56,324,761</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
55,345,420</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><p style="font-family:times;margin-top:11pt;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Pro forma net income (loss) per share&#151;basic and diluted (unaudited)(Note 2)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
0.01</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2><BR>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2><BR>
(0.54</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->
 </DIV>
 <P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>See accompanying notes. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>F-4</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=1,SEQ=152,EFW="2201368",CP="SUPERNUS PHARMACEUTICALS",DN="1",CHK=618164,FOLIO='F-4',FILE='DISK129:[10ZCU1.10ZCU71101]FG71101A.;25',USER='DPERRY',CD='22-DEC-2010;18:05' -->
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="fi71101_supernus_pharmaceuticals,_inc.__sup03814"> </A>
<A NAME="toc_fi71101_1"> </A></FONT> <FONT SIZE=2><B><BR>  Supernus Pharmaceuticals,&nbsp;Inc.    <BR>    <BR>    Consolidated Statements of Changes in Stockholders' Equity (Deficit)    <BR>    </B></FONT></P>
 <DIV style="padding:0pt;position:relative;width:54%;margin-left:10%;">
<p style="font-family:times;"><font size=1></FONT><FONT SIZE=2>


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<DIV ALIGN="CENTER"><TABLE width="150%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="9pt" style="font-family:times;"></TD>
<TD WIDTH="" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="55pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="41pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="50pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="39pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="61pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="65pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="67pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH ROWSPAN=3 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ROWSPAN=3 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Series&nbsp;A<BR>
Convertible<BR>
Preferred Stock </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH ROWSPAN=2 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ROWSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Common Stock </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH ROWSPAN=3 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=3 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Total<BR>
Stockholders'<BR>
Equity<BR>
(Deficit) </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH ROWSPAN=2 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Additional<BR>
Paid-in<BR>
Capital </B></FONT></TH>
<TH ROWSPAN=2 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Accumulated<BR>
Deficit </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Shares </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Amount </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Shares </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Amount </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Balance, December&nbsp;31, 2006</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>49,000,000</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>49,000</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4,235,303</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4,235</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>48,803,670</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(5,026,506</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>43,830,399</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Vesting of unvested stock issued to officer</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>617,644</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>618</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>61,146</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>61,764</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Exercise of stock options</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>50,000</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>50</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4,950</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5,000</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Stock-based compensation</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>12,336</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>12,336</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Net loss</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(17,274,040</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(17,274,040</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Balance, December&nbsp;31, 2007</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>49,000,000</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>49,000</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4,902,947</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4,903</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>48,882,102</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(22,300,546</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>26,635,459</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Vesting of unvested stock issued to officer</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>617,644</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>618</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>61,146</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>61,764</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Stock-based compensation</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>37,163</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>37,163</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Net loss</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(33,481,691</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(33,481,691</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Balance, December&nbsp;31, 2008</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>49,000,000</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>49,000</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5,520,591</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5,521</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>48,980,411</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(55,782,237</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(6,747,305</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Vesting of unvested stock issued to officer</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>617,644</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>618</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>61,146</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>61,764</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Exercise of stock options</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>197,826</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>198</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>19,585</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>19,783</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Stock-based compensation</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>48,945</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>48,945</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Net income</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>460,238</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>460,238</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Other comprehensive income</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,414</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,414</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Balance, December&nbsp;31, 2009</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>49,000,000</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>49,000</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6,336,061</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6,337</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>49,110,087</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(55,320,585</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(6,155,161</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Exercise of stock options (unaudited)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>35,000</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>35</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,465</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,500</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Stock-based compensation (unaudited)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>123,992</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>123,992</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Net loss (unaudited)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(29,890,555</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(29,890,555</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Other comprehensive income (unaudited)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,414</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,414</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Balance, September&nbsp;30, 2010 (unaudited)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>49,000,000</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>49,000</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6,371,061</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6,372</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>49,237,544</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(85,209,726</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(35,916,810</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
</TABLE></DIV>
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 <P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>
See accompanying notes </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>F-5</FONT></P>

<HR NOSHADE>
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<A HREF="#bg71101a_main_toc">Table of Contents</A> </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="fk71101_supernus_pharmaceuticals,_inc.__sup02692"> </A>
<A NAME="toc_fk71101_1"> </A></FONT> <FONT SIZE=2><B><BR>  Supernus Pharmaceuticals,&nbsp;Inc.    <BR>    <BR>    Consolidated Statements of Cash Flows    <BR>    </B></FONT></P>
 <DIV style="padding:0pt;position:relative;width:62%;margin-left:10%;">
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<DIV ALIGN="CENTER"><TABLE width="130%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="9pt" style="font-family:times;"></TD>
<TD WIDTH="9pt" style="font-family:times;"></TD>
<TD WIDTH="9pt" style="font-family:times;"></TD>
<TD WIDTH="" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="65pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="67pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="65pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="65pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="65pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH COLSPAN=4 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Year Ended December&nbsp;31, </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Nine Months Ended<BR>
September&nbsp;30, </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=4 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2007 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2008 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2009 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2009 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2010 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=4 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(unaudited)</B></FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=4 style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2><B>Operating activities</B></FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=4 style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Net income (loss)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(17,274,040</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(33,481,691</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>460,238</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>8,648,874</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(29,890,555</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=4 style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Other</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(53,576</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Unrealized gain (loss) on marketable securities</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,414</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(2,778</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,414</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Depreciation and amortization</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>932,211</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,115,853</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,072,102</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>789,597</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>889,648</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Amortization of deferred financing costs</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>178,508</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>270,324</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>202,742</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>179,759</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=2 style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Stock-based compensation expense</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>74,100</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>98,927</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>110,709</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>83,031</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>123,992</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=5 style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2> Changes in operating assets and liabilities:</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Accounts receivable</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(413,853</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1,163,482</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1,131,350</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>857,110</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>374,703</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Interest receivable</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(334,417</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(314,296</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>248,615</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Notes receivable from employee</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(63,250</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>63,250</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Prepaid expenses and other assets</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>88,602</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(72,217</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>12,259</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(183,741</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(65,858</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Accounts payable, accrued expenses, and supplemental executive retirement plan</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,448,174</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,088,129</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,813,378</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,505,631</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>7,375,575</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Interest payable</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,500,000</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Deferred rent</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>227,638</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>21,157</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>359,706</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>408,054</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(23,481</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=4 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=4 style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Net cash provided by (used in) operating activities</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(13,980,418</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(29,651,566</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,634,363</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>11,994,224</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(20,839,764</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=4 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=4 style="font-family:times;"><p style="font-family:times;margin-top:10pt;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2><B>Cash flows from investing activities</B></FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=4 style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Purchases of marketable securities</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(48,380,712</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(89,513,351</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(56,288,673</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(26,616,159</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>45,297,692</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=4 style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Sales and maturities of marketable securities</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>64,297,060</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>105,128,173</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>28,618,022</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>7,510,559</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(30,746,029</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=4 style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Other</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>55,000</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=4 style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Purchases of property and equipment</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(1,062,374</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(134,381</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(714,485</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(512,441</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(328,972</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=4 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=4 style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Net cash provided by (used in) investing activities</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>14,853,974</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>15,480,441</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(28,385,136</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(19,618,041</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>14,277,691</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=4 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=4 style="font-family:times;"><p style="font-family:times;margin-top:10pt;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2><B>Cash flows from financing activities</B></FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=4 style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Change in restricted cash and cash equivalents</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(6,110,718</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4,259,806</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,526,002</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>408,811</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=4 style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Proceeds from issuance of common stock</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5,000</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>19,783</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>19,383</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,500</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=4 style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Proceeds from issuance of note payable</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>75,000,000</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=4 style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Deferred financing costs</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(4,427,141</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=4 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=4 style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Net cash provided by financing activities</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5,000</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>64,462,141</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4,279,589</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,545,385</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>412,311</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=4 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=4 style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Net change in cash and cash equivalents</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>878,556</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>50,291,016</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(21,471,184</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(5,078,432</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(6,149,762</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=4 style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Cash and cash equivalents at beginning of period</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,707,292</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,585,848</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>52,876,864</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>52,876,864</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>31,405,680</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=4 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=4 style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Cash and cash equivalents at end of period</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>2,585,848</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>52,876,864</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>31,405,680</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>47,798,431</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>25,255,918</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=4 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=4 style="font-family:times;"><p style="font-family:times;margin-top:10pt;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Supplemental cash flow information:</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><p style="font-family:times;margin-left:9pt;text-indent:-9pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Cash paid for interest</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6,000,000</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>12,000,000</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>9,000,000</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>9,090,378</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=4 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
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See accompanying notes. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>F-6</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>
<A HREF="#bg71101a_main_toc">Table of Contents</A> </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="fm71101_supernus_pharmaceuticals,_inc.__sup05423"> </A>
<A NAME="toc_fm71101_1"> </A></FONT> <FONT SIZE=2><B><BR>  Supernus Pharmaceuticals,&nbsp;Inc.    <BR>    <BR>    Notes to Consolidated Financial Statements    <BR>    <BR>    December&nbsp;31, 2007, 2008 and 2009 and the unaudited<BR>  nine month
periods ended<BR>  September&nbsp;30, 2009 and 2010    <BR>    </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B> 1. Organization and Nature of Operations  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Supernus Pharmaceuticals,&nbsp;Inc. (the Company) was incorporated in Delaware on March&nbsp;30, 2005, and commenced operations on December&nbsp;22, 2005. The Company is a
specialty pharmaceutical company focused on developing and commercializing products for the treatment of central nervous system diseases, including neurological and psychiatric disorders. The Company
has several proprietary product candidates in clinical development that address large market opportunities in epilepsy and attention deficit hyperactivity disorder. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company is currently focused on attaining regulatory approval and bringing its two late-stage epilepsy product candidates, SPN-538 and Epliga, to market.
Except for a one time profit in 2009, the Company has incurred net losses from operations since its inception. The Company had net income of approximately $0.5&nbsp;million during the year ended
December&nbsp;31, 2009 and a net loss of $29.9&nbsp;million during the nine months ended September&nbsp;30, 2010. The Company has financed its operations primarily through the sale of equity
securities, non-recourse debt arrangements, and payments received under its royalty and development agreements. To date, none of the Company's product candidates have been approved for
sale and therefore the Company has not generated any revenues from product sales. Management
expects operating losses to continue for the foreseeable future. The Company may need to obtain additional capital through equity offerings, debt financings and/or payments under new or existing
licensing and research and development collaboration agreements. The Company expects its progress in the development of its pipeline to provide sufficient value inflection milestones, based on which
the Company can continue to seek additional funding. The type, timing, and terms of financing, if required, selected by the Company will be dependent upon the Company's cash needs, the availability of
financing sources, and the prevailing conditions in the financial markets. There can be no assurance that such financing will be available to the Company at any given time or available on favorable
terms. If sufficient funds on acceptable terms are not available when needed, the Company could be required to significantly reduce operating expenses and delay, reduce the scope of, or eliminate one
or more of its development programs, which may have a material adverse effect on the Company's business, results of operations and financial condition. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company's operations are subject to certain risks and uncertainties. The risks include negative outcome of clinical trials, inability or delay in completing clinical trials or
obtaining regulatory approvals, changing market conditions for products being developed by the Company, more stringent regulatory environment, the need to retain key personnel and protect intellectual
property, product liability, and the availability of additional capital financing on terms acceptable to the Company. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> 2. Summary of Significant Accounting Policies  </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B> Basis of Presentation  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company's consolidated financial statements include the accounts of Supernus Pharmaceuticals,&nbsp;Inc. and its wholly-owned
subsidiary, TCD Royalty Sub&nbsp;LLC, collectively referred to herein as "Supernus" or "the Company". All significant intercompany transactions and balances have been eliminated in consolidation.
The Company's consolidated financial statements have
been prepared in accordance with generally accepted accounting principles in the United States. The Company currently operates in one business segment. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>F-7</FONT></P>

<HR NOSHADE>
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HREF="#bg71101a_main_toc">Table of Contents</A></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B><BR>
Supernus Pharmaceuticals,&nbsp;Inc. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> December&nbsp;31, 2007, 2008 and 2009 and the unaudited<BR>
nine month periods ended<BR>
September&nbsp;30, 2009 and 2010 </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> 2. Summary of Significant Accounting Policies (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Use of Estimates  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The preparation of the financial statements in accordance with U.S. generally accepted accounting principles requires the Company to
make estimates and judgments in certain circumstances that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. In
preparing these consolidated financial statements, management has made its best estimates and judgments of certain amounts included in the financial statements, giving due consideration to
materiality. On an ongoing basis, the Company evaluates its estimates, including those related to revenue recognition, fair values of assets, convertible preferred stock and common stock, income
taxes, preclinical study and clinical trial accruals and other contingencies. Management bases its estimates on historical experience or on various other assumptions that it believes to be reasonable
under the circumstances. Actual results could differ from these estimates. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Unaudited Interim Financial Information  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The accompanying unaudited interim consolidated balance sheet as of September&nbsp;30, 2010, the consolidated statements of
operations and cash flows for the nine months ended September&nbsp;30, 2010 and 2009, the consolidated statement of changes in stockholders' equity (deficit) for the nine months ended
September&nbsp;30, 2010, and the related interim information contained within the notes to the consolidated financial statements have been prepared in accordance with the rules and regulations of
the Securities and Exchange Commission (SEC) for interim financial information. Accordingly, they do not include all of the information and the notes required by U.S. generally accepted accounting
principles for complete financial statements. In the opinion of management, the unaudited interim consolidated financial statements reflect all adjustments, consisting of normal and recurring
adjustments, necessary for the fair presentation of the Company's financial position at September&nbsp;30, 2010 and results of its operations and its cash flows for the nine months ended
September&nbsp;30, 2010 and 2009. The results for the nine months ended September&nbsp;30, 2010 are not necessarily indicative of future results. All references to September&nbsp;30, 2010 or to
the nine months ended September&nbsp;30, 2010 and 2009 in the notes to the consolidated financial statements are unaudited. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Unaudited Pro Forma Balance Sheet Presentation  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The unaudited pro forma balance sheet as of September&nbsp;30, 2010, reflects the expected automatic conversion of the outstanding
shares of Series&nbsp;A convertible preferred stock into 49,000,000 shares of common stock as though the completion of the Company's initial public offering (IPO) had occurred on
September&nbsp;30, 2010. The shares of common stock issued in the IPO and any related estimated net proceeds are excluded from such pro forma information. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Principles of Consolidation  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, TCD Royalty
Sub&nbsp;LLC (TCD). TCD was formed for the purpose of issuing non-recourse notes payable secured by certain royalty payment and license rights (see Note&nbsp;6). All intercompany
balances and transactions have been eliminated in consolidation. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>F-8</FONT></P>

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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B><BR>
Supernus Pharmaceuticals,&nbsp;Inc. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> December&nbsp;31, 2007, 2008 and 2009 and the unaudited<BR>
nine month periods ended<BR>
September&nbsp;30, 2009 and 2010 </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> 2. Summary of Significant Accounting Policies (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Cash and Cash Equivalents and Restricted Cash  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company considers all investments in highly liquid financial instruments with an original maturity of three months or less to be
cash equivalents. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under
the terms of a non-recourse note agreement, TCD is required to maintain a cash account to cover interest payments (see Note&nbsp;6). These cash and cash equivalents
are restricted as to their withdrawal or use and, therefore, are segregated and presented as restricted cash and cash equivalents. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Marketable Securities  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Marketable securities consist of investments in U.S. Treasuries and various government agency debt securities, which mature in one year
or less. At December&nbsp;31, 2008, the Company held approximately $7.5&nbsp;million of auction rate securities which were sold at par value on January&nbsp;2, 2009. Management classifies the
Company's short-term investments as available-for-sale. Such securities are carried at estimated fair value, with any material unrealized holding gains or losses
reported, net of any tax effects, as accumulated other comprehensive income (loss), which is a separate component of stockholders' equity (deficit). Realized gains and losses and declines in value
judged to be other-than-temporary, if any, are included in results of operations. A decline in the market value of any available-for-sale security below
cost that is deemed to be other-than-temporary results in a reduction in fair value, which is charged to earnings in that period, and a new cost basis for the security is
established. Dividend and interest income is recognized as interest income when earned. The cost of securities sold is calculated using the specific identification method. The Company places all
investments with highly rated financial institutions. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B> Marketable Securities&#151;Restricted  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On January&nbsp;21, 2006, the Company established the Supernus Supplemental Executive Retirement Plan (SERP) for the sole purpose of
receiving funds for two executives from the Shire Laboratories,&nbsp;Inc. SERP and providing a continuing deferral program under the Supernus SERP. As of December&nbsp;31, 2008 and 2009, the
estimated fair value of the mutual fund investment securities within the SERP have been recorded as restricted marketable securities. A corresponding non-current liability is also included
in the consolidated balance sheet to reflect the Company's obligation for the SERP. The Company has not made, and has no plans to make, contributions to the SERP. The securities can only be used for
purposes of paying benefits under the SERP. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Accounts Receivable  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts receivable are reported in the balance sheets at outstanding amounts, less an allowance for doubtful accounts. 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 </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>F-9</FONT></P>

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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B><BR>
Supernus Pharmaceuticals,&nbsp;Inc. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> December&nbsp;31, 2007, 2008 and 2009 and the unaudited<BR>
nine month periods ended<BR>
September&nbsp;30, 2009 and 2010 </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B> 2. Summary of Significant Accounting Policies (Continued) </B></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>collections
experience on other accounts, and economic factors or events expected to affect future collections experience. No allowance was recorded as of December&nbsp;31, 2008 and 2009. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Concentration of Credit Risk  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, accounts
receivable and marketable securities. The counterparties are various corporations and financial institutions of high credit standing. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Substantially
all of the Company's cash and cash equivalents are maintained with major financial institutions in the United States. Deposits held with banks may exceed the amount of
insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and, therefore, management believes they bear minimal risk. The Company has not experienced any losses on its
deposits of cash, cash equivalents, short-term investments and restricted investments and management believes that its guidelines for investment of its excess cash maintain safety and
liquidity through diversification and investment maturity. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B> Fair Value of Financial Instruments  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The carrying amounts of financial instruments, including cash and cash equivalents, accounts receivable, and accounts payable and
accrued expenses approximate fair value due to their short-term maturities. The carrying value and the estimated fair value of the non-recourse notes payable, was approximately
$75.0&nbsp;million and $66.0&nbsp;million,
respectively, at December&nbsp;31 2008, December&nbsp;31, 2009, and September&nbsp;30, 2010. The fair value was estimated based on actual trade information as well as quoted prices provided by
bond traders. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for
the asset or liability in an orderly transaction between market participants at the measurement date. 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: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Level&nbsp;1&#151;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. </FONT></DD></DL>
</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>F-10</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2><A
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B><BR>
Supernus Pharmaceuticals,&nbsp;Inc. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> December&nbsp;31, 2007, 2008 and 2009 and the unaudited<BR>
nine month periods ended<BR>
September&nbsp;30, 2009 and 2010 </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> 2. Summary of Significant Accounting Policies (Continued) </B></FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Level&nbsp;2&#151;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).  </FONT> <FONT SIZE=2>
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Level&nbsp;3&#151;Unobservable inputs that reflect the Company's own assumptions, based on the best information
available, including the Company's own data. </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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: </FONT></P>
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<p style="font-family:times;"><font size=1></FONT><FONT SIZE=2>


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<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="69pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="68pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="61pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="64pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
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<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Fair Value Measurements at<BR>
December&nbsp;31, 2008 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Total Carrying<BR>
Value at<BR>
December&nbsp;31,<BR>
2008 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Quoted Prices<BR>
in Active<BR>
Markets<BR>
(Level&nbsp;1) </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Significant<BR>
Other<BR>
Observable<BR>
Inputs<BR>
(Level&nbsp;2) </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Significant<BR>
Unobservable<BR>
Inputs<BR>
(Level&nbsp;3) </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Cash and cash equivalents</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>52,876,864</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>52,876,864</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Cash equivalents&#151;restricted</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>6,110,718</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>6,110,718</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Marketable securities</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>7,502,636</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>7,502,636</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Marketable securities&#151;restricted</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>169,621</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>169,621</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total assets at fair value</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>66,659,839</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>58,987,582</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>7,672,257</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->
 </DIV>
 <P style="font-family:times;"><FONT SIZE=2>&nbsp;<BR></FONT></P>
 <DIV style="padding:0pt;position:relative;width:80%;margin-left:10%;">
<p style="font-family:times;"><font size=1></FONT><FONT SIZE=2>


<!-- COMMAND=ADD_TABLEWIDTH,"100%" -->


 </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE width="100%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="69pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="68pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="53pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="64pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Fair Value Measurements at<BR>
December&nbsp;31, 2009 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Total Carrying<BR>
Value at<BR>
December&nbsp;31,<BR>
2009 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Quoted Prices<BR>
in Active<BR>
Markets<BR>
(Level&nbsp;1) </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Significant<BR>
Other<BR>
Observable<BR>
Inputs<BR>
(Level&nbsp;2) </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Significant<BR>
Unobservable<BR>
Inputs<BR>
(Level&nbsp;3) </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Cash and cash equivalents</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>31,405,680</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>31,405,680</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Cash equivalents&#151;restricted</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>1,850,912</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>1,850,912</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Marketable securities</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>35,118,047</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>35,118,047</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Marketable securities&#151;restricted</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>224,861</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>224,861</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total assets at fair value</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>68,599,500</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>68,374,639</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>224,861</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->
 </DIV>
 <P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>F-11</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=5,SEQ=159,EFW="2201368",CP="SUPERNUS PHARMACEUTICALS",DN="1",CHK=78212,FOLIO='F-11',FILE='DISK129:[10ZCU1.10ZCU71101]FM71101A.;21',USER='BEKUEHE',CD='22-DEC-2010;07:17' -->
<A NAME="page_fm71101_1_12"> </A>

<P style="font-family:times;"><FONT SIZE=2><A
HREF="#bg71101a_main_toc">Table of Contents</A></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B><BR>
Supernus Pharmaceuticals,&nbsp;Inc. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> December&nbsp;31, 2007, 2008 and 2009 and the unaudited<BR>
nine month periods ended<BR>
September&nbsp;30, 2009 and 2010 </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> 2. Summary of Significant Accounting Policies (Continued) </B></FONT></P>
 </DIV>
 <P style="font-family:times;"><FONT SIZE=2>&nbsp;<BR></FONT></P>
 <DIV style="padding:0pt;position:relative;width:80%;margin-left:10%;">
<p style="font-family:times;"><font size=1></FONT><FONT SIZE=2>


<!-- COMMAND=ADD_TABLEWIDTH,"100%" -->


 </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE width="100%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="69pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="68pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="53pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="64pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Fair Value Measurements at<BR>
September&nbsp;30, 2010 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Total Carrying<BR>
Value at<BR>
September&nbsp;30,<BR>
2010 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Quoted Prices<BR>
in Active<BR>
Markets<BR>
(Level&nbsp;1) </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Significant<BR>
Other<BR>
Observable<BR>
Inputs<BR>
(Level&nbsp;2) </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Significant<BR>
Unobservable<BR>
Inputs<BR>
(Level&nbsp;3) </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Cash and cash equivalents</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>25,255,918</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>25,255,918</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Cash equivalents&#151;restricted</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>1,442,101</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>1,442,101</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Marketable securities</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>20,566,385</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>20,566,385</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Marketable securities&#151;restricted</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>237,656</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>237,656</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total assets at fair value</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>47,502,060</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>47,264,404</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>237,656</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
</TABLE></DIV>
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 </DIV>
 <P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company's Level&nbsp;1 assets include money market funds and U.S. Treasuries and government agency debt securities with quoted prices in active markets. At December&nbsp;31,
2008, Level&nbsp;2 assets include auction rate securities and mutual funds the SERP assets are invested in. At December&nbsp;31, 2009 and September&nbsp;30, 2010, Level&nbsp;2 assets include
mutual funds the SERP assets are invested in. Mutual funds and auction rate securities are valued using third-party pricing sources that apply applicable inputs and other relevant data into their
models to estimate fair value. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Property and Equipment  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Property and equipment are stated at cost. Upon retirement or sale, the cost of assets disposed of and the related accumulated
depreciation are removed from the accounts and any resulting gain or loss is credited or charged to operations. Repairs and maintenance costs are expensed as incurred. Depreciation and amortization
are computed using the straight-line method over the following average useful lives: </FONT></P>
 <DIV style="padding:0pt;position:relative;width:60%;margin-left:20%;">
<p style="font-family:times;"><font size=1></FONT><FONT SIZE=2>


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 </FONT></P>

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<DIV ALIGN="CENTER"><TABLE width="100%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="197pt" style="font-family:times;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Computer equipment</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>3&nbsp;years</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Software</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>3&nbsp;years</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Furniture</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>7&nbsp;years</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Lab and office equipment</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>5&nbsp;years</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Leasehold improvements</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>Shorter of lease term or useful life</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->
 </DIV>
 <P style="font-family:times;"><FONT SIZE=2><B> Intangible Assets  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Intangible assets consist primarily of patents. Patents are carried at cost less accumulated amortization which is calculated on a
straight-line basis over the estimated useful lives of the patents, estimated to be 10&nbsp;years. The carrying value of the patents is assessed for impairment annually during the fourth quarter of
each year, or more frequently if impairment indicators exist. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>F-12</FONT></P>

<HR NOSHADE>
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</FONT> <FONT SIZE=2>
<A HREF="#bg71101a_main_toc">Table of Contents</A> </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B><BR>
Supernus Pharmaceuticals,&nbsp;Inc.  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued)  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> December&nbsp;31, 2007, 2008 and 2009 and the unaudited<BR>
nine month periods ended<BR>
September&nbsp;30, 2009 and 2010  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> 2. Summary of Significant Accounting Policies (Continued)  </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B> Impairment of Long-Lived Assets  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Long-lived assets consist primarily of patents and property and equipment. The Company assesses the recoverability of its
long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If indications of impairment exist, projected future
undiscounted cash flows associated with the asset are compared to the carrying amount to determine whether the asset's value is recoverable. Evaluating for impairment requires judgment, including the
estimation of future cash flows, future growth rates and profitability and the expected life over which cash flows will occur. Changes in the Company's business strategy or adverse changes in market
conditions could impact impairment analyses and require the recognition of an impairment charge equal to the excess of the carrying value of the intangible asset over its estimated fair value. For the
years ended December&nbsp;31, 2007, 2008 and 2009, the Company determined that there was no impairment of the Company's intangible assets. Assets to be disposed of are reported at the lower of the
carrying amount or fair value, less costs to sell. As of December&nbsp;31, 2008 and 2009, and September&nbsp;30, 2010, the Company determined that there were no impaired assets and had no assets
intended for disposal. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Preclinical Study and Clinical Trial Accruals and Deferred Advance Payments  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company estimates preclinical study and clinical trial expenses based on the services performed pursuant to contracts with research
institutions and clinical research organizations that conduct these activities on its behalf. In recording service fees, the Company estimates the time period over which the related services will be
performed and compares the level of effort expended through the end of each period to the cumulative expenses recorded and payments made for such services and, as appropriate, accrues additional
service fees or defers any non-refundable advance payments until the related services are performed. If the actual timing of the performance of services or the level of effort varies from
the estimate, the Company will adjust its accrual or deferred advance payment accordingly. If the Company later determines that it no longer expects the services associated with a deferred
non-refundable advance payment to be rendered, the deferred advance payment will be charged to expense in the period that such determination is made. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Income Taxes  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 when necessary to reduce deferred tax assets to the amounts expected to be realized. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company accounts for uncertain tax positions in the 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 adoption had no impact on the Company's </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>F-13</FONT></P>

<HR NOSHADE>
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<A NAME="page_fo71101_1_14"> </A>

<P style="font-family:times;"><FONT SIZE=2><A
HREF="#bg71101a_main_toc">Table of Contents</A></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B><BR>
Supernus Pharmaceuticals,&nbsp;Inc. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> December&nbsp;31, 2007, 2008 and 2009 and the unaudited<BR>
nine month periods ended<BR>
September&nbsp;30, 2009 and 2010 </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> 2. Summary of Significant Accounting Policies (Continued) </B></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>results
of operations, financial position or cash flows. The Company's policy is to recognize any interest and penalties related to income taxes in income tax expense. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Revenues  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company's revenues have been generated through research and development agreements. These agreements included fees for development
services provided to customers and payments for achievement of specified development, regulatory and sales milestones, which comprise our development and milestone revenues, as well as royalties on
product sales of licensed products, Oracea&reg;, SancturaXR&reg;, and Intuniv&reg;, which comprise our royalty revenues. For multiple element arrangements, the Company
evaluates the components of each arrangement as separate elements based on certain criteria. Accordingly, revenues from collaboration agreements are recognized based on the performance requirements of
the agreements. The Company recognizes revenue when persuasive evidence of an arrangement exists; delivery has occurred or services have been rendered; the fee is fixed and determinable; and
collection is reasonably assured. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company recognizes development revenue as the related costs are incurred. Milestone payments are recognized as revenue when the collaborative partner acknowledges completion of the
milestone and substantive effort was necessary to achieve the milestone. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company records royalty revenues based on estimates of the sales that occurred during the relevant period. The relevant period estimates of sales are based on interim data provided
by licensees and analysis of historical royalties received (adjusted for any changes in facts and circumstances, as appropriate). Supernus maintains regular communication with licensees in order to
obtain information to develop reasonable estimates. Differences between actual royalty revenues and estimated royalty revenues are reconciled and adjusted for in the period which they are collected,
typically the following quarter. Historically, adjustments have not been material based on actual amounts received from licensees. To the extent the Company does not have sufficient ability to
accurately estimate revenue, it records revenue on a cash basis. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Research and Development Costs  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Research and development expenditures are expensed as incurred. Research and development costs primarily consist of employee related
expenses, including salaries and benefits, expenses incurred under agreements with contract research organizations, investigative sites and consultants that conduct the Company's clinical trials, the
cost of acquiring and manufacturing clinical trial materials, facilities 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, stock-based compensation expense, and costs associated with non-clinical activities and regulatory approvals. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Stock-Based Compensation  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Employee stock-based compensation is measured based on the estimated fair value on the grant date. The grant date fair value of options
granted is calculated using the Black-Scholes option-pricing model, which requires the use of subjective assumptions including volatility, expected term, and the fair </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>F-14</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=2,SEQ=162,EFW="2201368",CP="SUPERNUS PHARMACEUTICALS",DN="1",CHK=746272,FOLIO='F-14',FILE='DISK129:[10ZCU1.10ZCU71101]FO71101A.;27',USER='CMCELRO',CD='22-DEC-2010;18:13' -->
<A NAME="page_fo71101_1_15"> </A>

<P style="font-family:times;"><FONT SIZE=2><A
HREF="#bg71101a_main_toc">Table of Contents</A></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B><BR>
Supernus Pharmaceuticals,&nbsp;Inc. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> December&nbsp;31, 2007, 2008 and 2009 and the unaudited<BR>
nine month periods ended<BR>
September&nbsp;30, 2009 and 2010 </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B> 2. Summary of Significant Accounting Policies (Continued) </B></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>value
of the underlying common stock. For awards that vest based on service conditions, the Company recognizes expense using the straight-line method less estimated forfeitures. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company has awarded non-vested stock. The estimated fair value of these awards is determined at the date of grant based upon the estimated fair value of the Company's
common stock. The Company recognizes the estimated fair value on a straight-line basis over the requisite service period as the awards vest. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company records the expense for stock option grants and non-vested stock subject to performance-based milestone vesting over the remaining service period when management
determines that achievement of the milestone is probable. Management evaluates when the achievement of a performance-based milestone is probable based on the relative satisfaction of the performance
conditions as of the applicable reporting date. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company records the expense of services rendered by non-employees based on the estimated fair value of the stock option using the Black-Scholes option-pricing model. The
fair value of non-employee awards are remeasured at each reporting period. As a result, stock compensation expense for non-employee awards with vesting is affected by changes
in the fair value of the Company's common stock. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Net Earnings (Loss) Per Share  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Basic net income (loss) per common share is determined by dividing the net 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 net income (loss) per share is computed by dividing the net 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 and the if-converted method is used to determine the dilutive effect of the Company's Series&nbsp;A convertible preferred stock. With the exception of
the year ended December&nbsp;31, 2009 and the nine month period ended September&nbsp;30, 2009, the weighted-average shares used to calculate both basic and diluted loss per share are the same. The
following common stock equivalents were excluded in the calculation of diluted net income (loss) per share because their effect would be anti-dilutive: </FONT></P>
 <DIV style="padding:0pt;position:relative;width:80%;margin-left:10%;">
<p style="font-family:times;"><font size=1></FONT><FONT SIZE=2>


<!-- COMMAND=ADD_TABLEWIDTH,"100%" -->


 </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE width="100%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="61pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="61pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="25pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="25pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="61pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>December&nbsp;31, </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>September&nbsp;30, </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2007 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2008 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2009 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2009 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2010 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Series&nbsp;A convertible preferred stock</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>49,000,000</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>49,000,000</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>49,000,000</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Stock options and non-vested stock</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>2,382,389</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>2,183,152</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>1,791,290</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->
 </DIV>
 <P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
pro forma net income (loss) per share is computed using the weighted-average number of common shares outstanding and assumes the conversion of all outstanding shares of the Company's
Series&nbsp;A convertible preferred stock into an aggregate of 49,000,000 shares of common stock upon completion of the Company's planned IPO, as if they had converted at the beginning of the
period. The Company believes the unaudited pro forma net income (loss) per share provides material information to investors, as the conversion of the Company's Series&nbsp;A convertible preferred
stock to </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>F-15</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=3,SEQ=163,EFW="2201368",CP="SUPERNUS PHARMACEUTICALS",DN="1",CHK=886023,FOLIO='F-15',FILE='DISK129:[10ZCU1.10ZCU71101]FO71101A.;27',USER='CMCELRO',CD='22-DEC-2010;18:13' -->
<A NAME="page_fo71101_1_16"> </A>

<P style="font-family:times;"><FONT SIZE=2><A
HREF="#bg71101a_main_toc">Table of Contents</A></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B><BR>
Supernus Pharmaceuticals,&nbsp;Inc. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> December&nbsp;31, 2007, 2008 and 2009 and the unaudited<BR>
nine month periods ended<BR>
September&nbsp;30, 2009 and 2010 </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B> 2. Summary of Significant Accounting Policies (Continued) </B></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>common
stock is expected to occur upon the closing of an IPO, and the disclosure of pro forma net income (loss) per share thus provides an indication of net income (loss) per share that is comparable
to what will be reported by the Company as a public company. </FONT></P>
 <DIV style="padding:0pt;position:relative;width:80%;margin-left:10%;">
<p style="font-family:times;"><font size=1></FONT><FONT SIZE=2>


<!-- COMMAND=ADD_TABLEWIDTH,"100%" -->


 </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE width="100%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="10pt" style="font-family:times;"></TD>
<TD WIDTH="" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="72pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="72pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>December&nbsp;31,<BR>
2009 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>September&nbsp;30,<BR>
2010 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(unaudited)</B></FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2><B>Pro forma net income (loss) per common share</B></FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Numerator:</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Net income (loss) used to compute pro forma net income (loss) per common share:</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Basic</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>460,238</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(29,890,555</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Diluted</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>460,238</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(29,890,555</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><p style="font-family:times;margin-top:12pt;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Denominator:</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Weighted-average number of common shares, used to calculate net income (loss) per common share:</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Basic</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5,653,506</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6,345,420</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Diluted</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2> *56,324,761</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>6,345,420</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Add: Pro forma adjustments to reflect assumed weighted-average effect of conversion of Series&nbsp;A convertible preferred stock</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>49,000,000</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>49,000,000</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Weighted-average number of common shares used in calculating pro forma net income (loss) per common share:</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Basic</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>56,324,761</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>55,345,420</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Diluted</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>56,324,761</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>55,345,420</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2 style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Pro forma net income (loss) per common share:</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Basic</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.01</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.54</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Diluted</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>0.01</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(0.54</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
</TABLE></DIV>
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 </DIV>
<DIV style="padding:0pt;position:relative;text-align:left;margin-left:10%;">
 <!-- COMMAND=ADD_LINERULETXT,NOSHADE  COLOR="#000000" SIZE="1.0PT" WIDTH="26%" ALIGN="LEFT" -->
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<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>*</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>The
weighted-average number of common shares used to calculate diluted income (loss) per share at December&nbsp;31, 2009 includes the following common stock
equivalents, which were not included in the calculation of basic net income (loss) per share because their effect would be anti-dilutive: </FONT></DD></DL>
 </DIV>
<DIV style="padding:0pt;position:relative;width:70%;margin-left:15%;">
<p style="font-family:times;"><font size=1></FONT><FONT SIZE=2>


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 </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE width="100%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="68pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Series&nbsp;A convertible preferred stock</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>49,000,000</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Stock options and non-vested stock</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,671,255</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
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 </DIV>
<DIV style="padding:0pt;position:relative;text-align:left;margin-left:10%;">

 </DIV>
 <P style="font-family:times;"><FONT SIZE=2><B> Recently Issued Accounting Pronouncements  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In April 2010, the FASB issued ASU No.&nbsp;2010-17, </FONT><FONT SIZE=2><I>Revenue Recognition&#151;Milestone
Method</I></FONT><FONT SIZE=2> (ASU 2010-017). ASU 2010-017 provides guidance in applying the milestone method of revenue recognition to research or development arrangements.
This guidance concludes that the milestone method is a valid application of the proportional performance model when applied to research or development arrangements. Accordingly, an entity can make an
accounting policy election to recognize a payment that is contingent upon the achievement of a substantive milestone in its entirety in the period in which the milestone is achieved. The guidance is
effective for fiscal years, and interim periods within those years, beginning on or after June&nbsp;15, 2010. The adoption of this accounting standard is not expected to impact the Company's
financial position or results of operations. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>F-16</FONT></P>

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</FONT> <FONT SIZE=2>
<A HREF="#bg71101a_main_toc">Table of Contents</A> </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B><BR>
Supernus Pharmaceuticals,&nbsp;Inc.  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued)  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> December&nbsp;31, 2007, 2008 and 2009 and the unaudited<BR>
nine month periods ended<BR>
September&nbsp;30, 2009 and 2010  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> 2. Summary of Significant Accounting Policies (Continued)  </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In February 2010, the FASB issued amended guidance on subsequent events. Under this amended guidance, SEC filers are no longer required to disclose the date through which subsequent
events have been evaluated in originally issued and revised financial statements. This guidance was effective immediately and the Company adopted these new requirements upon issuance of this guidance. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
January 2010, the FASB issued Accounting Standards Update (ASU) No.&nbsp;2010-06, </FONT><FONT SIZE=2><I>Fair Value Measurements and Disclosures (Topic
820)&#151;Improving Disclosures about Fair Value Measurements</I></FONT><FONT SIZE=2> (ASU No.&nbsp;2010-06). ASU No.&nbsp;2010-06 requires: (1)&nbsp;fair value
disclosures of assets and liabilities by class; (2)&nbsp;disclosures about significant transfers in and out of Levels&nbsp;1 and 2 on the fair value hierarchy, in addition to Level&nbsp;3;
(3)&nbsp;purchases, sales, issuances, and settlements be disclosed on gross basis on the reconciliation of beginning and ending balances of Level&nbsp;3 assets and liabilities; and
(4)&nbsp;disclosures about valuation methods and inputs used to measure the fair value of Level&nbsp;2 assets and liabilities. ASU No.&nbsp;2010-06 becomes effective for the first
financial reporting period beginning after December&nbsp;15, 2009, except for disclosures about purchases, sales, issuances, and settlements of Level&nbsp;3 assets and liabilities which will be
effective for fiscal years beginning after December&nbsp;15, 2010. The Company is currently assessing what impact, if any, ASU No.&nbsp;2010-06 will have on its fair value disclosures.
However, the Company does not expect the adoption of the guidance provided in this codification update to have any material impact on its consolidated financial statements. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
October 2009, the FASB issued ASU No.&nbsp;2009-13, </FONT><FONT SIZE=2><I>Revenue Recognition (Topic 605)&#151;Multiple-Deliverable Revenue Arrangements: a
consensus of the FASB Emerging Issues Task Force</I></FONT><FONT SIZE=2> (ASU 2009-13). ASU 2009-13 establishes a selling-price hierarchy for determining the selling price of
each element within a multiple-deliverable arrangement. Specifically, the selling price assigned to each deliverable is to be based on vendor-specific objective evidence (VSOE) if available,
third-party evidence, if VSOE is unavailable, and estimated selling prices if neither VSOE or third-party evidence is available. In addition, ASU 2009-13 eliminates the residual method of
allocating arrangement consideration and instead requires allocation using the relative selling price method. ASU 2009-13 will be effective prospectively for multiple-deliverable revenue
arrangements entered into, or materially modified, in fiscal years beginning on or after June&nbsp;15, 2010. Presently, the Company is assessing what impact, if any, the adoption of ASU
2009-13 may have on its consolidated financial statements. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
August 2009, the FASB issued ASU No.&nbsp;2009-05, </FONT><FONT SIZE=2><I>Fair Value Measurements and Disclosures (Topic 820)&#151;Measuring Liabilities at Fair
Value</I></FONT><FONT SIZE=2> (ASU 2009-05). ASU 2009-05 provides guidance in measuring the fair value of a liability when a quoted price in an active market does not exist for
an identical liability or when a liability is subject to restrictions on its transfer. ASU 2009-15 was effective for the Company beginning with the quarter ended December&nbsp;31, 2009.
The adoption of ASU 2009-05 had no impact on the fair value measurements of the Company's liabilities. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>F-17</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2><A
HREF="#bg71101a_main_toc">Table of Contents</A></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B><BR>
Supernus Pharmaceuticals,&nbsp;Inc. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> December&nbsp;31, 2007, 2008 and 2009 and the unaudited<BR>
nine month periods ended<BR>
September&nbsp;30, 2009 and 2010 </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B> 3. Marketable Securities  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Marketable securities held by the Company were as follows: </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At
December&nbsp;31, 2008: </FONT></P>
 <DIV style="padding:0pt;position:relative;width:60%;margin-left:20%;">
<p style="font-family:times;"><font size=1></FONT><FONT SIZE=2>


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<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="61pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="69pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="61pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
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<TR VALIGN="BOTTOM">
<TH NOWRAP  ALIGN="LEFT" style="font-family:times;"><DIV style="border-bottom:solid #000000 1.0pt;margin-bottom:0pt;width:62pt;"><FONT SIZE=1><B>Available-for-Sale

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 </B></FONT></DIV></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Amortized<BR>
Cost </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Unrealized<BR>
Gains/(Losses) </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Fair<BR>
Value </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Auction rate securities</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>7,502,636</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>7,502,636</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Mutual funds for SERP</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>169,621</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>169,621</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>7,672,257</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>7,672,257</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
</TABLE></DIV>
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 <P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At
December&nbsp;31, 2009: </FONT></P>
 <DIV style="padding:0pt;position:relative;width:60%;margin-left:20%;">
<p style="font-family:times;"><font size=1></FONT><FONT SIZE=2>


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<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE width="100%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="68pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="69pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="68pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH NOWRAP  ALIGN="LEFT" style="font-family:times;"><DIV style="border-bottom:solid #000000 1.0pt;margin-bottom:0pt;width:62pt;"><FONT SIZE=1><B>Available-for-Sale

<!-- COMMAND=ADD_SCROPPEDRULE,62pt -->

 </B></FONT></DIV></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Amortized<BR>
Cost </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Unrealized<BR>
Gains/(Losses) </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Fair<BR>
Value </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>U.S. Treasuries and agencies</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>35,116,363</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>1,414</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>35,118,047</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Mutual funds for SERP</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>224,861</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>224,861</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>35,341,224</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>1,414</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>35,342,908</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->
 </DIV>
 <P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At
September&nbsp;30, 2010: </FONT></P>
 <DIV style="padding:0pt;position:relative;width:60%;margin-left:20%;">
<p style="font-family:times;"><font size=1></FONT><FONT SIZE=2>


<!-- COMMAND=ADD_TABLEWIDTH,"100%" -->


 </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE width="100%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="68pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="69pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="68pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH NOWRAP  ALIGN="LEFT" style="font-family:times;"><DIV style="border-bottom:solid #000000 1.0pt;margin-bottom:0pt;width:62pt;"><FONT SIZE=1><B>Available-for-Sale

<!-- COMMAND=ADD_SCROPPEDRULE,62pt -->

 </B></FONT></DIV></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Amortized<BR>
Cost </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Unrealized<BR>
Gains/(Losses) </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Fair<BR>
Value </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>U.S. Treasuries and agencies</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>20,564,971</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>1,414</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>20,566,385</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Mutual funds for SERP</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>237,656</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>237,656</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>20,802,627</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>1,414</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>20,804,041</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->
 </DIV>
 <P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gross
realized gains (losses) that were included in earnings as a result of sales of securities are $0, $(10,265) and $0 for the years ended December&nbsp;31, 2007, 2008, and 2009, and
$0 for each of the nine-month periods ended September&nbsp;30, 2009 and 2010, respectively. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>F-18</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<P style="font-family:times;"><FONT SIZE=2><A
NAME="page_ft71101_1_19"> </A>


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</FONT> <FONT SIZE=2>
<A HREF="#bg71101a_main_toc">Table of Contents</A> </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B><BR>
Supernus Pharmaceuticals,&nbsp;Inc.  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued)  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> December&nbsp;31, 2007, 2008 and 2009 and the unaudited<BR>
nine month periods ended<BR>
September&nbsp;30, 2009 and 2010  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> 4. Property and Equipment  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Property and equipment consists of the following: </FONT></P>
 <DIV style="padding:0pt;position:relative;width:60%;margin-left:20%;">
<p style="font-family:times;"><font size=1></FONT><FONT SIZE=2>


<!-- COMMAND=ADD_TABLEWIDTH,"100%" -->


 </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE width="100%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="65pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="65pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="67pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH ROWSPAN=2 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ROWSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>December&nbsp;31, </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH ROWSPAN=2 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ROWSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>September&nbsp;30,<BR>
2010 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2008 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2009 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(unaudited)</B></FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Computer equipment</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>511,483</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>531,757</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>548,060</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Software</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>148,305</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>174,078</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>174,078</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Lab equipment and furniture</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,149,977</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,327,632</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3,471,465</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Leasehold improvements</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>324,377</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>815,160</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>973,314</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4,134,142</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4,848,627</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5,166,917</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Less accumulated depreciation and amortization</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(2,146,564</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(2,989,441</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>(3,697,912</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,987,578</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,859,186</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1,469,005</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->
 </DIV>
 <P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depreciation
expense on property and equipment for the years ended December&nbsp;31, 2007, 2008 and 2009 was $702,985, $886,629 and $842,877, respectively, and $789,597 and $889,648
for the nine months ended September&nbsp;30, 2009 and 2010, respectively. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> 5. Purchased Patents  </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with a purchase agreement with Shire Laboratories,&nbsp;Inc., the Company acquired certain patents in 2005. The following sets forth the gross carrying amount and related
accumulated amortization of the patents: </FONT></P>
 <DIV style="padding:0pt;position:relative;width:54%;margin-left:10%;">
<p style="font-family:times;"><font size=1></FONT><FONT SIZE=1>


<!-- COMMAND=ADD_TABLEWIDTH,"150%" -->


 </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE width="150%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="51pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="64pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="54pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="64pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="54pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="64pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="6pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="54pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>December&nbsp;31, 2008 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>December&nbsp;31, 2009 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>September&nbsp;30, 2010 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Weighted-<BR>
Average Life </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Gross Carrying<BR>
Amount </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Accumulated<BR>
Amortization </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Gross Carrying Amount </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Accumulated<BR>
Amortization </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Gross Carrying<BR>
Amount </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Accumulated<BR>
Amortization </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(unaudited)</B></FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:8pt;text-indent:-8pt;"><FONT SIZE=1> </FONT><FONT SIZE=1>Purchased patents</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>10.0</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>2,292,253</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>692,303</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>2,292,253</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>921,528</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>2,292,253</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>1,093,447</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->
 </DIV>
 <P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Amortization expense for the years ended December&nbsp;31, 2007, 2008 and 2009 was $229,225 each year as is the estimated annual aggregate
amortization expense through December&nbsp;31, 2015. The net book value of intangible assets as of December&nbsp;31, 2008 and 2009 and September&nbsp;30, 2010 was approximately
$1.6&nbsp;million, $1.4&nbsp;million and $1.2&nbsp;million, respectively. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B> 6. Non-Recourse Notes Payable  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In April 2008, certain royalty payment rights and other license rights of the Company that it had under license agreements with two unrelated companies were transferred to TCD, a
100%-owned subsidiary in exchange for approximately $63.3&nbsp;million. TCD raised funds for the transaction from a completed private placement of $75.0&nbsp;million in Secured 16% Notes; due
April&nbsp;15, 2024 (the Notes). The Notes are non-recourse to the Company and are secured by TCD's assets including the royalty payment rights and other related rights of the
transferred license agreements. While the Notes are outstanding, all royalty payments under these license agreements go to the payment of interest. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>F-19</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=1,SEQ=167,EFW="2201368",CP="SUPERNUS PHARMACEUTICALS",DN="1",CHK=174944,FOLIO='F-19',FILE='DISK129:[10ZCU1.10ZCU71101]FT71101A.;19',USER='DHOLBRO',CD='22-DEC-2010;22:49' -->
<A NAME="page_ft71101_1_20"> </A>

<P style="font-family:times;"><FONT SIZE=2><A
HREF="#bg71101a_main_toc">Table of Contents</A></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B><BR>
Supernus Pharmaceuticals,&nbsp;Inc. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> December&nbsp;31, 2007, 2008 and 2009 and the unaudited<BR>
nine month periods ended<BR>
September&nbsp;30, 2009 and 2010 </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B> 6. Non-Recourse Notes Payable (Continued) </B></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>Royalties
earned in excess of the stated interest rate will be applied to the principal on such Notes. Interest expense related to the Notes for the years ended December&nbsp;31, 2007, 2008 and 2009
was $0.0&nbsp;million, $8.5&nbsp;million, $12.0&nbsp;million, respectively, and $9.0&nbsp;million and $9.1&nbsp;million for the nine months ended September&nbsp;30, 2009 and 2010,
respectively. As of December&nbsp;31, 2008, 2009 and September&nbsp;30, 2010 TCD had interest payable of $2.5&nbsp;million. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
conjunction with the issuance of the Notes, TCD initially placed $8.0&nbsp;million into a restricted cash interest reserve account to cover payments required when the initial
royalties are not sufficient to meet the interest payments due. At December&nbsp;31, 2008 and 2009 and September&nbsp;30, 2010, the remaining interest reserve balance was approximately
$6.1&nbsp;million, $1.9&nbsp;million and $1.4&nbsp;million, respectively, and is recorded as restricted cash and cash equivalents on the consolidated balance sheets. Any excess in the interest
reserve account will be used as additional principal payments. The syndication costs to complete the transaction were approximately $4.4&nbsp;million for investment banking, legal, consulting,
accounting, and printing fees. These costs were capitalized as deferred financing costs and are being amortized over the term of the related debt using the effective interest method. Amortization of
deferred financing costs for the years ended December&nbsp;31, 2007, 2008 and 2009 approximated $0, $179,000 $270,000, respectively, and $203,000 and $202,000 for the nine month periods ended
September&nbsp;30, 2009 and 2010, respectively. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
the first quarter of 2010, the $8.0&nbsp;million interest reserve was exhausted. As of September&nbsp;30, 2010, TCD had approximately $1.4&nbsp;million available for the
quarterly interest payment of $3.0&nbsp;million due on October&nbsp;15, 2010. In December 2010, TCD has paid the interest shortfall of $1.6&nbsp;million and had $0.8&nbsp;million available for
future interest payments. Under the terms of the Notes, TCD is not in default for payment of interest unless it fails to make payment in full on the interest payment by the next succeeding payment
date. To date, TCD has been able to make payment in full of all interest payments before the next succeeding payment date. In the event of a default for failure to pay interest timely, the noteholders
do not have recourse to the Company as the Notes are non-recourse beyond TCD and non-convertible into any other securities of the Company, and have not been guaranteed by the
Company. The Company has pledged all equity interests of TCD to the noteholders so, upon an event of default, the noteholders could elect to exercise their rights to acquire those equity interests in
TCD. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> 7. Stockholders' Equity (Deficit)  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2005 and 2006, the Company issued an aggregate of 49,000,000 shares of its Series&nbsp;A convertible preferred stock (Series&nbsp;A Preferred Stock), which includes
4.0&nbsp;million shares issued in connection with the purchase of certain assets from Shire Laboratories,&nbsp;Inc. The offering price per share was $1.00, resulting in aggregate gross cash
proceeds of $45.0&nbsp;million. The Company incurred approximately $286,000 in expenses directly related to these offerings, and these expenses were charged to additional paid-in
capital. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dividends
are cumulative and accrue at a rate per annum of $0.07 per share, subject to adjustment for certain dilutive events. The Company is not obligated to pay the dividends unless it
declares or pays dividends on any other shares of capital stock or in the event of a liquidation, dissolution or winding up </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>F-20</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=2,SEQ=168,EFW="2201368",CP="SUPERNUS PHARMACEUTICALS",DN="1",CHK=522067,FOLIO='F-20',FILE='DISK129:[10ZCU1.10ZCU71101]FT71101A.;19',USER='DHOLBRO',CD='22-DEC-2010;22:49' -->
<A NAME="page_ft71101_1_21"> </A>

<P style="font-family:times;"><FONT SIZE=2><A
HREF="#bg71101a_main_toc">Table of Contents</A></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B><BR>
Supernus Pharmaceuticals,&nbsp;Inc. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> December&nbsp;31, 2007, 2008 and 2009 and the unaudited<BR>
nine month periods ended<BR>
September&nbsp;30, 2009 and 2010 </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B> 7. Stockholders' Equity (Deficit) (Continued) </B></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>of
the Company. As of December&nbsp;31, 2007, 2008 and 2009 dividends of approximately $6.8&nbsp;million, $10.2&nbsp;million and $13.7&nbsp;million, respectively, have been accumulated. In
liquidation, the holders of Series&nbsp;A Preferred Stock are entitled to receive $1.00 per share plus an amount equal to all accrued
unpaid dividends plus any dividends declared but unpaid before any distribution to the holders of any shares of common stock or any other class or series of stock ranking on liquidation junior to the
Series&nbsp;A Preferred Stock. A merger or consolidation in which the Company is a constituent party is deemed to be a liquidation. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
holders of the Series&nbsp;A Preferred Stock are entitled to cast the number of votes equal to the number of whole shares of common stock into which the shares of Series&nbsp;A
Preferred Stock held are convertible as of the specified record date. The holders of the Series&nbsp;A Preferred Stock are entitled to elect four directors of the Company. Without the affirmative
vote of two-thirds of then outstanding shares of Series&nbsp;A Preferred Stock, the Company shall not, among other things, change the number of directors from nine; create any additional
shares of preferred stock; liquidate or dissolve the business affairs of the Company; create or issue any security or obligation that is convertible or exchangeable into securities of the Company; pay
dividends or distributions on any shares of stock; or incur any liability for indebtedness that exceeds $500,000. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At
any time, the Series&nbsp;A Preferred Stockholders may convert their Series&nbsp;A shares into shares of common stock. The initial conversion is
one-for-one. The conversion ratio is subject to adjustment should specified dilutive events occur. The Company has reserved 49,000,000 shares of common stock for the potential
conversion of its Series&nbsp;A Preferred Stock. Each share of Series&nbsp;A Preferred Stock automatically converts into shares of the Company's common stock upon closing of a firm commitment
underwritten public offering of common stock registered under the Securities Act of 1933 at a price of at least $3.00 per share (adjusted to reflect stock splits, stock dividends, stock combinations,
recapitalizations, and like occurrences), and which generates gross proceeds to the Company of at least $35.0&nbsp;million. The holders of the Series&nbsp;A Preferred Stock have the right to elect
to convert all outstanding shares of their stock into shares of common stock upon a two-thirds vote. The Series&nbsp;A Preferred Stock is not redeemable or contingently redeemable. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> Common Stock  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The holders of the common stock are entitled to one vote for each share of common stock held. Except for certain matters specified in
the Company's amended and restated certificate of incorporation, the holders of common stock shall vote together as a single class on all matters with the holders of the Series&nbsp;A Preferred
Stock. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> 8. Share-Based Payments  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of September&nbsp;30, 2010, the Company had one share-based compensation plan. The Supernus Pharmaceuticals,&nbsp;Inc. 2005 Stock Plan (the Plan), which is stockholder-approved,
permits the grant of options, purchase rights, and awards to its employees, officers, directors, consultants, or advisors for up to 8.0&nbsp;million shares of common stock. The Company believes that
such awards better align the interest of its employees with those of its stockholders. Option awards are generally granted with an exercise </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>F-21</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=3,SEQ=169,EFW="2201368",CP="SUPERNUS PHARMACEUTICALS",DN="1",CHK=625519,FOLIO='F-21',FILE='DISK129:[10ZCU1.10ZCU71101]FT71101A.;19',USER='DHOLBRO',CD='22-DEC-2010;22:49' -->
<A NAME="page_ft71101_1_22"> </A>

<P style="font-family:times;"><FONT SIZE=2><A
HREF="#bg71101a_main_toc">Table of Contents</A></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B><BR>
Supernus Pharmaceuticals,&nbsp;Inc. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> December&nbsp;31, 2007, 2008 and 2009 and the unaudited<BR>
nine month periods ended<BR>
September&nbsp;30, 2009 and 2010 </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B> 8. Share-Based Payments (Continued) </B></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>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. The Plan provides for the issuance of common stock of the Company upon the exercise of stock options. A portion of the grants to certain
employees vests upon the achievement of specified Company milestones. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
an optionee is terminated for cause, the Company has the right and option to purchase, for a period of 180&nbsp;days from the termination date, the shares of common stock the
optionee obtained through the exercise of a stock option. The purchase price will equal the estimated fair market value of the common stock determined by mutual agreement between the Company and the
optionee. There were no shares subject to repurchase at December&nbsp;31, 2008, December&nbsp;31, 2009, or September&nbsp;30, 2010. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stock-based
compensation recognized related to the grant of employee and non-employee stock options, and non-vested stock was as follows: </FONT></P>
 <DIV style="padding:0pt;position:relative;width:80%;margin-left:10%;">
<p style="font-family:times;"><font size=1></FONT><FONT SIZE=2>


<!-- COMMAND=ADD_TABLEWIDTH,"100%" -->


 </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE width="100%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="45pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="45pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="51pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="45pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="51pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>December&nbsp;31, </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>September&nbsp;30, </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2007 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2008 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2009 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2009 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2010 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(unaudited)</B></FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Research and development</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>9,252</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>27,872</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>28,059</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>21,044</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>32,213</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>General and administrative</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>64,848</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>71,055</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>82,650</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>61,987</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>91,779</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>74,100</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>98,927</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>110,709</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>83,031</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>123,992</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->
 </DIV>
 <P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model using the assumptions in the following table: </FONT></P>
 <DIV style="padding:0pt;position:relative;width:62%;margin-left:10%;">
<p style="font-family:times;"><font size=1></FONT><FONT SIZE=2>


<!-- COMMAND=ADD_TABLEWIDTH,"130%" -->


 </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE width="130%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="87pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="87pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="87pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="93pt" style="font-family:times;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH ROWSPAN=2 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ROWSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Year Ended December&nbsp;31, </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH ROWSPAN=2 style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH ROWSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>September&nbsp;30,<BR>
2010 </B></FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2007 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2008 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2009 </B></FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH ALIGN="CENTER" style="font-family:times;"><FONT SIZE=1><B>(unaudited)</B></FONT><BR></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Fair value of common stock</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$0.10 &#150; $0.40</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$0.40</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$0.40 &#150; $1.76</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$0.84</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Expected volatility</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>60%</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>60%</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>60.3% &#150; 61.5%</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>59.1% &#150; 60.70%</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Expected dividends</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>0%</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>0%</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>0%</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>0%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Expected term</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>6.25&nbsp;years</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>6.25&nbsp;years</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>6.25&nbsp;years</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>6.25&nbsp;years</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Risk-free rate</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>3.81% &#150; 5.25%</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>3.70% &#150; 3.94%</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>1.65% &#150; 2.72%</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>1.78% &#150; 2.93%</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Expected forfeiture rate</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>5%</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>5%</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>5%</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>5%</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->
 </DIV>
 <P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Fair Value of Common Stock</B></FONT><FONT SIZE=2>&#151;For all option grants the fair value of the Common Stock underlying the option grants was determined by the Company's Board
of Directors (Board), with the assistance of management, which intended all options granted to be exercisable at a price per share not less than the per share fair value of the Company's Common Stock
underlying those options on the date of grant. The Company utilized methodologies, approaches and assumptions as set forth by the American Institute of Certified Public Accountants, or the AICPA, in
the AICPA Technical Practice </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>F-22</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<P style="font-family:times;"><FONT SIZE=2><A
HREF="#bg71101a_main_toc">Table of Contents</A></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B><BR>
Supernus Pharmaceuticals,&nbsp;Inc. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> December&nbsp;31, 2007, 2008 and 2009 and the unaudited<BR>
nine month periods ended<BR>
September&nbsp;30, 2009 and 2010 </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> 8. Share-Based Payments (Continued) </B></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>Aid,
"</FONT><FONT SIZE=2><I>Valuation of Privately-Held-Company Equity Securities Issued as Compensation,"</I></FONT><FONT SIZE=2> referred to herein as the AICPA Practice
Aid, when estimating the fair value of common stock at each grant date. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Given
the lack of an active public market for the common stock, the Board employed a third-party valuation firm to assist in the determination of fair value by completing contemporaneous
valuations. In the absence of a public market, and as a clinical stage company with no significant revenues from product sales, the Company considered a range of factors to determine the fair market
value of the common stock at each grant date. The factors include: (1)&nbsp;the achievement of clinical and operational milestones by the Company, (2)&nbsp;the status of strategic relationships
with collaborators, (3)&nbsp;the significant risks associated with the Company's stage of development, (4)&nbsp;capital market conditions for life science companies, particularly similarly
situated privately held, early-stage life science companies, (5)&nbsp;the Company's available cash, financial condition, and results of operations, (6)&nbsp;the most recent sales of the Company's
preferred stock, and (7)&nbsp;the preferential rights of the outstanding preferred stock. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Expected Volatility</B></FONT><FONT SIZE=2>&#151;Volatility is a measure of the amount by which a financial variable such as a share price has fluctuated (historical volatility)
or is expected to fluctuate (expected volatility) during a period. The Company does not maintain an internal market for its shares and its shares are not traded privately. The Company has identified
several public entities of similar size, complexity, and stage of development and, accordingly, historical volatility has been calculated using the volatility of these companies. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dividend Yield</B></FONT><FONT SIZE=2>&#151;The Company has never declared or paid dividends and has no plans to do so in the foreseeable future. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Expected Term</B></FONT><FONT SIZE=2>&#151;This is the period of time that the options granted are expected to remain unexercised. Options granted have a maximum term of ten
years. The Company determines the average expected life of stock options according the "simplified method" ad described in Staff Accounting Bulletin 110, which is the mid-point between the
vesting date and the end of the contractual term. The Company estimates the expected life of the option term to be 6.25&nbsp;years. Over time, management will track estimates of the expected life of
the option term so that estimates will approximate actual behavior for similar options. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Risk-Free Interest Rate</B></FONT><FONT SIZE=2>&#151;This is the U.S. Treasury rate for the week of each option grant during the year, having a term that most closely
resembles the expected life of the option. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Expected Forfeiture Rate</B></FONT><FONT SIZE=2>&#151;The forfeiture rate is the estimated percentage of options granted that are expected to be forfeited or canceled on an annual
basis before becoming fully vested. The Company estimates the forfeiture rate based on turnover data with further consideration given to the class of employees to whom the options were granted. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>F-23</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
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<P style="font-family:times;"><FONT SIZE=2><A
NAME="page_fv71101_1_24"> </A>


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</FONT> <FONT SIZE=2>
<A HREF="#bg71101a_main_toc">Table of Contents</A> </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B><BR>
Supernus Pharmaceuticals,&nbsp;Inc.  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued)  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> December&nbsp;31, 2007, 2008 and 2009 and the unaudited<BR>
nine month periods ended<BR>
September&nbsp;30, 2009 and 2010  </B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B> 8. Share-Based Payments (Continued)  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Information with respect to stock options granted to employees and nonemployees from January&nbsp;1, 2009 through September&nbsp;30, 2010 was as follows: </FONT></P>
 <DIV style="padding:0pt;position:relative;width:80%;margin-left:10%;">
<p style="font-family:times;"><font size=1></FONT><FONT SIZE=2>


<!-- COMMAND=ADD_TABLEWIDTH,"100%" -->


 </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE width="100%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="79pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="40pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="49pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="41pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH NOWRAP  ALIGN="LEFT" style="font-family:times;"><DIV style="border-bottom:solid #000000 1.0pt;margin-bottom:0pt;width:40pt;"><FONT SIZE=1><B>Grant Date

<!-- COMMAND=ADD_SCROPPEDRULE,40pt -->

 </B></FONT></DIV></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Number of<BR>
Options Granted </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Exercise<BR>
Price </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Estimated<BR>
Fair Value </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Intrinsic<BR>
Value </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>01/19/2009</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>225,000</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>0.40</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>0.23</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>12/15/2009</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>257,200</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>1.76</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>1.03</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>02/10/2010</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>52,500</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>0.84</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>0.49</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>04/16/2010</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>32,750</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>0.84</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>0.49</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>07/20/2010</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>38,500</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>0.84</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>0.48</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->
 </DIV>
 <P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table summarizes stock option activity under the Plan during the year then ended: </FONT></P>
 <DIV style="padding:0pt;position:relative;width:80%;margin-left:10%;">
<p style="font-family:times;"><font size=1></FONT><FONT SIZE=2>


<!-- COMMAND=ADD_TABLEWIDTH,"100%" -->


 </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE width="100%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="10pt" style="font-family:times;"></TD>
<TD WIDTH="" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="55pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="67pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="83pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Number of<BR>
Options </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Weighted-<BR>
Average<BR>
Exercise Price </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Weighted-Average<BR>
Remaining<BR>
Contractual Term </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Outstanding, December&nbsp;31, 2008</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>1,737,219</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>0.14</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>7.62</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Granted</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>482,200</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>1.13</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>9.53</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Exercised</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>(197,826</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>0.10</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>6.11</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Forfeited or expired</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>(372,485</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>0.11</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Outstanding, December&nbsp;31, 2009</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>1,649,108</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>0.44</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>7.53</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Granted</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>123,750</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>0.84</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>9.55</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Exercised</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>(35,000</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>0.10</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>5.73</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Forfeited or expired</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>(8,400</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>0.37</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Outstanding, September&nbsp;30, 2010</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>1,729,458</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>0.48</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>7.00</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>December&nbsp;31, 2009:</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Vested and expected to vest</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>1,598,334</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>0.44</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>7.51</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Exercisable</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>709,061</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>0.13</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>6.38</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>September&nbsp;30, 2010:</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Vested and expected to vest</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>1,686,232</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>0.47</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>6.97</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Exercisable</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>940,324</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>0.15</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>5.86</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->
 </DIV>
 <P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
aggregate intrinsic value of options outstanding and exercisable as of September&nbsp;30, 2010 is approximately $857,000 and $646,000 respectively. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
weighted-average, grant-date fair value of options granted for the years ended December&nbsp;31, 2007, 2008 and 2009, was $0.08, $0.24 and $0.66 per share,
respectively. The total fair value of the underlying common stock related to shares that vested during the years ended December&nbsp;31, 2007, 2008 and 2009, was $12,336, $37,163 and $48,945,
respectively. As of December&nbsp;31, 2009, the total unrecognized compensation expense, net of related forfeiture estimates, was $318,747 which the Company expects to recognize over a
weighted-average period of approximately 2.27&nbsp;years. As of September&nbsp;30, 2010, the total unrecognized compensation expense, net of related forfeiture estimates, </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>F-24</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=1,SEQ=172,EFW="2201368",CP="SUPERNUS PHARMACEUTICALS",DN="1",CHK=587259,FOLIO='F-24',FILE='DISK129:[10ZCU1.10ZCU71101]FV71101A.;16',USER='CMCELRO',CD='22-DEC-2010;22:18' -->
<A NAME="page_fv71101_1_25"> </A>

<P style="font-family:times;"><FONT SIZE=2><A
HREF="#bg71101a_main_toc">Table of Contents</A></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B><BR>
Supernus Pharmaceuticals,&nbsp;Inc. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> December&nbsp;31, 2007, 2008 and 2009 and the unaudited<BR>
nine month periods ended<BR>
September&nbsp;30, 2009 and 2010 </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> 8. Share-Based Payments (Continued) </B></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>was
$283,095 which the Company expects to recognize over a weighted-average period of approximately 2.19&nbsp;years (see Note&nbsp;13). </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
December&nbsp;22, 2005, the Company granted an officer a restricted award for 3.5&nbsp;million shares of common stock. Approximately 2.5&nbsp;million shares of the award vested
on a quarterly basis over a four-year period through 2009. The remaining 1.0&nbsp;million shares of the award vest upon the achievement of specified clinical and regulatory milestones,
of which there are 411,765 shares remaining to vest as of September&nbsp;30, 2010, pending successful completion of one last milestone. Failure to achieve this milestone will result in cancellation
of that portion of the award. As of December&nbsp;31, 2008 and 2009, 1,029,409 and 411,765 shares, respectively, related to this award remained unvested. On the grant date, the Company estimated the
fair value of unrestricted common stock to be $0.10. The total estimated fair value of $350,000 is being attributed a)&nbsp;to the requisite service period ratably over four years and b)&nbsp;the
portion subject to the achievement of the specified performance conditions is being recognized when achievement of those conditions is considered probable. For the years ended December&nbsp;31,
2007, 2008 and 2009 the Company recognized $61,764, $61,764 and $61,764, respectively, in stock compensation related to this arrangement. The following table summarizes activity related to these
non-vested shares: </FONT></P>
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<p style="font-family:times;"><font size=1></FONT><FONT SIZE=2>


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<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="10pt" style="font-family:times;"></TD>
<TD WIDTH="" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="55pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="49pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Number of<BR>
Shares </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Weighted-<BR>
Average<BR>
Fair Value </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Non-vested shares, January&nbsp;1, 2009</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>1,029,409</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>0.10</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Granted</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Vested</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>(617,644</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>0.10</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Forfeited</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Non-vested shares, December&nbsp;31, 2009</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>411,765</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>0.10</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Granted</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Vested</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Forfeited</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Non-vested shares, December&nbsp;31, 2010</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>411,765</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>0.10</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->
 </DIV>
 <P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of September&nbsp;30, 2010, total stock compensation expense for non-vested awards not yet recognized is approximately $10,000. The remaining stock compensation expense
related to non-vested awards will be recorded during 2010. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B> 9. Income Taxes  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For the years ended December&nbsp;31, 2007, 2008 and 2009 there was no current provision or benefit for federal or state income taxes. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>F-25</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=2,SEQ=173,EFW="2201368",CP="SUPERNUS PHARMACEUTICALS",DN="1",CHK=513354,FOLIO='F-25',FILE='DISK129:[10ZCU1.10ZCU71101]FV71101A.;16',USER='CMCELRO',CD='22-DEC-2010;22:18' -->
<A NAME="page_fv71101_1_26"> </A>

<P style="font-family:times;"><FONT SIZE=2><A
HREF="#bg71101a_main_toc">Table of Contents</A></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B><BR>
Supernus Pharmaceuticals,&nbsp;Inc. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> December&nbsp;31, 2007, 2008 and 2009 and the unaudited<BR>
nine month periods ended<BR>
September&nbsp;30, 2009 and 2010 </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> 9. Income Taxes (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A
reconciliation of the expected income tax benefit computed using the federal statutory income tax rate to the Company's effective income tax rate is as follows: </FONT></P>
 <DIV style="padding:0pt;position:relative;width:80%;margin-left:10%;">
<p style="font-family:times;"><font size=1></FONT><FONT SIZE=2>


<!-- COMMAND=ADD_TABLEWIDTH,"100%" -->


 </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE width="100%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="65pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="72pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="61pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Year Ended December&nbsp;31, </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2007 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2008 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2009 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Income tax (benefit) computed at federal statutory tax rate</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>(5,873,173</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>(11,383,775</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>156,481</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Permanent items</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>9,402</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>25,665</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>37,845</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>State taxes</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>(939,066</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>(1,818,968</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>33,135</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Change in valuation allowance</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>8,054,810</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>15,233,582</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>(666,690</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Other</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>(84,254</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>414,166</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>1,424,790</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Research and development credits</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>(1,167,719</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>(2,470,670</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>(985,561</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->
 </DIV>
 <P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
deferred tax benefit has been entirely offset by valuation allowances. The significant components of the Company's estimated deferred tax assets (liabilities) were as follows: </FONT></P>
 <DIV style="padding:0pt;position:relative;width:80%;margin-left:10%;">
<p style="font-family:times;"><font size=1></FONT><FONT SIZE=2>


<!-- COMMAND=ADD_TABLEWIDTH,"100%" -->


 </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE width="100%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="10pt" style="font-family:times;"></TD>
<TD WIDTH="" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="72pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="72pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="72pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=8 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>December&nbsp;31, </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2007 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2008 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>2009 </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Deferred tax assets:</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Net operating loss carryforward</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>8,794,582</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>21,900,173</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>21,334,641</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Deferred rent credit</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>164,202</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>172,547</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>314,434</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Accrued compensation and nonqualified stock options</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>26,638</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Deferred financing costs</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>(6,303</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Depreciation and amortization</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>(286,679</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>(227,863</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>(93,724</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Research and development credits</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>1,491,310</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>3,552,102</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>3,138,434</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Other</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>395</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>434</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>16,583</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Net deferred tax asset before valuation allowance</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>10,163,810</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>25,397,393</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>24,730,703</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Valuation allowance</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>(10,163,810</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>(25,397,393</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>(24,730,703</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Net deferred tax asset</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->
 </DIV>
 <P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company has reported losses, except for a small, one-time gain in 2009, since inception and expects to continue to incur losses in the near term. These losses have not
resulted in reported tax benefits because of increases in the valuation allowance for deferred tax assets that result from the inability to determine the realizability of the net operating loss
carryforwards. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At
December&nbsp;31, 2009, the Company had net operating loss carryforwards of approximately $54.1&nbsp;million, which begin to expire in 2025 if not utilized. The Company also had
research and development tax credit carryforwards of approximately $3.1&nbsp;million, which expire in 2025 if not utilized. The research and development tax credit reduces the Company's tax
liability based on the amount spent on research and development activities on a new product or to improve existing products. Internal Revenue Code Section&nbsp;382 places a limitation (the
Section&nbsp;382 Limitation) on the amount of </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>F-26</FONT></P>

<HR NOSHADE>
<P style='font-family:times;page-break-before:always'></p>
<!-- ZEQ.=3,SEQ=174,EFW="2201368",CP="SUPERNUS PHARMACEUTICALS",DN="1",CHK=661853,FOLIO='F-26',FILE='DISK129:[10ZCU1.10ZCU71101]FV71101A.;16',USER='CMCELRO',CD='22-DEC-2010;22:18' -->
<A NAME="page_fv71101_1_27"> </A>


<P style="font-family:times;"><FONT SIZE=2><A
HREF="#bg71101a_main_toc">Table of Contents</A></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B><BR>
Supernus Pharmaceuticals,&nbsp;Inc. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> December&nbsp;31, 2007, 2008 and 2009 and the unaudited<BR>
nine month periods ended<BR>
September&nbsp;30, 2009 and 2010 </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> 9. Income Taxes (Continued) </B></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>taxable
income, that can be offset by net operating loss carryforwards after a change in control (generally, a greater than 50% change in ownership). Typically, after a control change, a company
cannot deduct operating loss carryforwards in excess of the Section&nbsp;382 Limitation. Due to these changes in ownership provisions, utilization of the net operating loss and tax credit
carryforwards may be subject to an annual limitation regarding their utilization against taxable income in future periods. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If
applicable, the Company would classify interest and penalties related to uncertain tax positions in income tax expense. The tax years 2005 through 2009 remain open to examination by
one or more major taxing jurisdictions to which the Company is subject. There are no income tax examinations currently in progress. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B> 10. Commitments and Contingencies  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company leases office and lab space over periods extending through April 2013. The lease contains provisions for operating expense reimbursement as well as an annual 3% rent
escalation. The lease also contains tenant and capital improvement allowances in the aggregate of $1.1&nbsp;million. Through December&nbsp;31, 2009, $774,464 of the allowance has been utilized and
included in fixed assets and deferred rent. Rent expense for each of the years ended December&nbsp;31, 2007, 2008 and 2009, was $921,000. The Company incurred $690,750 and $690,750 of rent expense
for the nine month periods ending September&nbsp;30, 2009 and 2010, respectively. Future minimum lease payments under noncancelable operating leases at December&nbsp;31, 2009, are as follows: </FONT></P>
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<p style="font-family:times;"><font size=1></FONT><FONT SIZE=2>


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<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="10pt" style="font-family:times;"></TD>
<TD WIDTH="" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="61pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
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<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Operating<BR>
Leases </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Year ending December&nbsp;31:</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>2010</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>953,000</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>2011</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>982,000</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>2012</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>1,011,000</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>2013</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>340,000</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=0>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Thereafter</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&#151;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>3,286,000</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD COLSPAN=2 VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
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 </DIV>
 <P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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,&nbsp;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 and earlier stage product candidates of the Company. The Company does not owe any future milestone payments for SPN-810. However if
the other product candidate is successfully developed and commercialized, the Company could be required to pay up $350,000 in total in potential future milestone payments through product approval and
issuance of the U.S. patent for this product. The Company will also be 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 </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>F-27</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2><A
HREF="#bg71101a_main_toc">Table of Contents</A></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B><BR>
Supernus Pharmaceuticals,&nbsp;Inc. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> December&nbsp;31, 2007, 2008 and 2009 and the unaudited<BR>
nine month periods ended<BR>
September&nbsp;30, 2009 and 2010 </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> 10. Commitments and Contingencies (Continued) </B></FONT></P>

<BR>

<P style="font-family:times;"><FONT SIZE=2>worldwide
rights to a product concept from Rune. There are no future milestone payments owing 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 will be obligated to pay royalties to Rune based on net sales worldwide in the low single digits. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> 11. Employee Benefit Plan  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On January&nbsp;2, 2006, the Company established the Supernus Pharmaceuticals,&nbsp;Inc. 401(k) Profit Sharing Plan (the Plan) for its employees under Section&nbsp;401(k) of the
Internal Revenue Code (Code). Under this Plan, all full-time employees who are at least 21&nbsp;years old are eligible to participate in the Plan. Employees may participate starting on
the first day of each month following their employment. Employees may contribute up to the lesser of 90% of eligible compensation or the applicable limit established by the Code. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Employees
are 100% vested in their contributions to the Plan. The Company matches 100% of a participant's contribution for the first 3% of their salary deferral and matches 50% of the
next 2% of their salary deferral. As determined by the Board, the Company may elect to make a discretionary contribution not exceeding 60% of the annual compensation paid to all participating
employees. The Company's contributions to the Plan approximated $205,000 and $204,000 for the nine months ended September&nbsp;30, 2009 and 2010, respectively, and $210,000, $273,000 and $255,000
for the years ended December&nbsp;31, 2007, 2008 and 2009, respectively. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B> 12. Related-Party Transactions  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In May 2009, the Company entered into an amendment to a license agreement with Shire&nbsp;LLC, a holder of Series&nbsp;A convertible preferred stock, whereby Shire&nbsp;LLC and its
affiliates paid the Company a one-time, lump-sum payment of $36.9 million in return for a fully paid-up license for one of its products that utilizes the Company's
proprietary technologies. All four criteria necessary to recognize revenue in accordance with ASC 605-10-S25, </FONT><FONT SIZE=2><I>Revenue
Recognition&#151;Overall&#151;Recognition</I></FONT><FONT SIZE=2>, were met during 2009 related to this transaction. Accordingly, the entire amount was recorded as royalty revenue in the
consolidated statement of operations. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2><B> 13. Subsequent Events  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December 2010, the Company amended its lease arrangement for its office and lab space in order to extend the expiration of the term from April 2013 to April 2018. Commencing in
November 2013, the basic annual rent will be increased 2% per annum for the remaining term. The Company may elect to extend the term of the lease for an additional five year period on the same terms
and conditions. In addition, the lease amendment provides for a tenant improvement allowance of $1,250,000. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
November 2010, the Board repriced 255,000 of the options granted on December&nbsp;15, 2009 from a per share exercise price of $1.76 to $0.64. In addition, the Board approved the
modification of the performance vesting requirements related to 157,697 employee stock options and 411,765 shares of </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>F-28</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2><A
HREF="#bg71101a_main_toc">Table of Contents</A></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B><BR>
Supernus Pharmaceuticals,&nbsp;Inc. </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> Notes to Consolidated Financial Statements (Continued) </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> December&nbsp;31, 2007, 2008 and 2009 and the unaudited<BR>
nine month periods ended<BR>
September&nbsp;30, 2009 and 2010 </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><B> 13. Subsequent Events (Continued) </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>non-vested
stock awarded to the Company's chief executive officer. The vesting of these share-based awards were contingent upon the filing of the Company's first new drug application on or
before December&nbsp;22, 2010, and the Board extended the deadline for the achievement of this performance condition to March&nbsp;31, 2011. As a result of these actions, there is no immediate
charge related to the repriced and modified options, and the Company will recognize additional stock based compensation of approximately $50,000 over the remaining vesting periods for these options. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>F-29</FONT></P>

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</FONT> <FONT SIZE=2>
<A HREF="#bg71101a_main_toc">Table of Contents</A> </FONT></P>

<P style="font-family:times;"><FONT SIZE=5><B> <div style="width:100%;border-top:solid #000000 3.0pt;padding:0in 0in 0in 0in;font-size:3.0pt;"></div>
<div style="width:100%;border-top:solid #000000 1.0pt;padding:0in 0in 0in 0in;font-size:4.0pt;"></div>  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=5><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Shares  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=6><B>SUPERNUS PHARMACEUTICALS,&nbsp;INC.  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=5><B>Common Stock  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=5><B>
<IMG SRC="g203884.jpg" ALT="GRAPHIC" WIDTH="364" HEIGHT="78">
  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>

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<BR>  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> PRELIMINARY PROSPECTUS  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2011  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><B>

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 </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=5><B>Citi<BR>
Barclays Capital  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=3><B>Cowen and Company  </B></FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=3><B> Stifel Nicolaus Weisel  </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Until&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;, 2011 (25&nbsp;days after the date
of this prospectus), all dealers that buy, sell or trade shares of our common stock,
whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with
respect to their unsold allotments or subscriptions. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><div
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<div style="width:100%;border-top:solid #000000 3.0pt;padding:0in 0in 0in 0in;font-size:4.0pt;"></div> </FONT></P>

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 </FONT></P>

<!-- TOC_END -->

<P style="font-family:times;"><FONT SIZE=2>
<A HREF="#bg71101a_main_toc">Table of Contents</A> </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="ja71101_part_ii_information_not_required_in_prospectus"> </A>
<A NAME="toc_ja71101_1"> </A>
<BR></FONT><FONT SIZE=2><B>  PART II<BR>  <BR>    INFORMATION NOT REQUIRED IN PROSPECTUS    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2><A
NAME="ja71101_item_13._other_expense__ja701983"> </A>
<A NAME="toc_ja71101_2"> </A></FONT> <FONT SIZE=2><B>  ITEM 13.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2><B><I>Other Expenses of Issuance and Distribution.    <BR>    </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth the costs and expenses, other than underwriting discounts and commissions, payable by us in connection
with the sale of the common stock being registered hereby. All amounts are estimates except the SEC Registration Fee, the FINRA filing fee and NASDAQ Global Market listing fee. </FONT></P>
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<p style="font-family:times;"><font size=1></FONT><FONT SIZE=2>


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 </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE width="100%"  BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR><!-- TABLE COLUMN WIDTHS SET -->
<TD WIDTH="" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<TD WIDTH="7pt" ALIGN="RIGHT" style="font-family:times;"></TD>
<TD WIDTH="49pt" style="font-family:times;"></TD>
<TD WIDTH="12pt" style="font-family:times;"></TD>
<!-- TABLE COLUMN WIDTHS END --></TR>

<TR VALIGN="BOTTOM">
<TH ALIGN="LEFT" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Amount to be Paid </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>SEC registration fee</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>7,130</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>FINRA filing fee</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>10,500</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>NASDAQ Global Market initial listing fee</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>*</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Blue Sky fees and expenses</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>*</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Printing and engraving expenses</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>*</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Legal fees and expenses</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>*</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Accounting fees and expenses</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>*</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Transfer agent and registrar fees</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>*</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Miscellaneous</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>*</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:solid #000000 1.0pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;"><p style="font-family:times;margin-left:10pt;text-indent:-10pt;"><FONT SIZE=2> </FONT><FONT SIZE=2>Total</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT"  VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>$</FONT></TD>
<TD ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>*</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR style="font-size:1.5pt;" VALIGN="TOP">
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
<TD COLSPAN=2 ALIGN="RIGHT" VALIGN="BOTTOM" style="font-family:times;border-bottom:double #000000 2.25pt;">&nbsp;</TD>
<TD VALIGN="BOTTOM" style="font-family:times;">&nbsp;</TD>
</TR>
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<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>*</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>To
be completed by amendment. </FONT></DD></DL>
 </DIV>
 <P style="font-family:times;"><FONT SIZE=2><A
NAME="ja71101_item_14._indemnification_of_directors_and_officers."> </A>
<A NAME="toc_ja71101_3"> </A></FONT> <FONT SIZE=2><B>  ITEM 14.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2><B><I>Indemnification of Directors and Officers.    <BR>    </I></B></FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On completion of this offering, our amended and restated certificate of incorporation will contain provisions that eliminate, to the
maximum extent permitted by the General Corporation Law of the State of Delaware, the personal liability of directors and executive officers for monetary damages for breach of their fiduciary duties
as a director or officer. Our amended and restated certificate of incorporation and bylaws will provide that we shall indemnify our directors and executive officers and may indemnify our employees and
other agents to the fullest extent permitted by the General Corporation Law of the State of Delaware. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sections&nbsp;145
and 102(b)(7) of the General Corporation Law of the State of Delaware provide that a corporation may indemnify any person made a party to an action by reason of the
fact that he or she was a director, executive officer, employee or agent of the corporation or is or was serving at the request of the corporation against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action if he or she acted in good faith and in a manner he or she reasonably
believed to be in, or not opposed to, the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful,
except that, in the case of an action by or in right of the corporation, no indemnification may generally be made in respect of any claim as to which such person is adjudged to be liable to the
corporation. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
are entering into indemnification agreements with each of our directors and executive officers, in addition to the indemnification provided for in our amended and restated certificate
of incorporation and bylaws, and intend to enter into indemnification agreements with any new directors and executive officers in the future. </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>II-1</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2><A
HREF="#bg71101a_main_toc">Table of Contents</A></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
intend to purchase and maintain insurance on behalf of any person who is or was a director or officer of our company against any loss arising from any claim asserted against him or
her and incurred by him or her in any such capacity, subject to certain exclusions. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Underwriting Agreement (to be filed as Exhibit&nbsp;1.1 hereto) provides for indemnification by the underwriters of us and our executive officers and directors, and by us of the
underwriters, for certain liabilities, including liabilities arising under the Securities Act. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;See
also the undertakings set out in response to Item&nbsp;17 herein.  </FONT></P>

<P style="font-family:times;"><FONT SIZE=2><A
NAME="ja71101_item_15._recent_sales_of_unregistered_securities."> </A>
<A NAME="toc_ja71101_4"> </A></FONT> <FONT SIZE=2><B>  ITEM 15.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2><B><I>Recent Sales of Unregistered Securities.    <BR>    </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following sets forth information regarding all unregistered securities sold during the last three fiscal
years: </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(a)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Within
the last three years, we have issued and sold the following securities:
<BR><BR></FONT>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(1)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>From
December&nbsp;21, 2007 to July&nbsp;20, 2010, we issued 282,826 shares of common stock upon the exercise of options to purchase shares of our
common stock under the 2005 Stock Plan, all at $0.10 per share.  </FONT>
<BR>

<P style="font-family:times;"><FONT SIZE=2>The
sales and issuances of restricted securities in the transactions described in the paragraph above were deemed to be exempt from registration under the Securities Act in reliance upon the following
exemptions: Rule&nbsp;701 promulgated under Section&nbsp;3(b) of the Securities Act, as transactions pursuant to a written compensation benefit plan and contracts relating to compensation as
provided under Rule&nbsp;701.  </FONT></P>

</DD></DL>
</DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(b)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>From
April&nbsp;16, 2008 to November&nbsp;16, 2010, we granted to our employees and consultants options to purchase an aggregate of 1,748,050 shares of
our common stock under the 2005 Stock Plan at prices ranging from $0.40 to $1.76 per share.  </FONT>
<BR>

<P style="font-family:times;"><FONT SIZE=2>The
sales and issuances of securities in the transactions described in the above paragraph&nbsp;(b) were deemed to be exempt from registration under the Securities Act in reliance upon
Rule&nbsp;701 promulgated under Section&nbsp;3(b) of the Securities Act, as transactions pursuant to a written compensation benefit plan and contracts relating to compensation as provided under
Rule&nbsp;701.  </FONT></P>

</DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(c)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>There
were no underwritten offerings employed in connection with any of the transactions set forth in Item&nbsp;15.  </FONT></DD></DL>
</UL>

<P style="font-family:times;"><FONT SIZE=2><A
NAME="ja71101_item_16._exhibits_and_financial_statement_schedules."> </A>
<A NAME="toc_ja71101_5"> </A></FONT> <FONT SIZE=2><B>  ITEM 16.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2><B><I>Exhibits and Financial Statement Schedules.    <BR>    </I></B></FONT></P>

<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(a)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Exhibits&#151;The
exhibits to the registration statement are listed in the Exhibit Index to this Registration Statement beginning on
page&nbsp;E-1 and are incorporated herein by reference.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(b)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>Financial
Statements Schedules&#151;All schedules are omitted because they are not applicable or the required information is shown in the
consolidated financial statements or notes thereto.  </FONT></DD></DL>

<P style="font-family:times;"><FONT SIZE=2><A
NAME="ja71101_item_17._undertakings."> </A>
<A NAME="toc_ja71101_6"> </A></FONT> <FONT SIZE=2><B>  ITEM 17.&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT><FONT SIZE=2><B><I>Undertakings.    <BR>    </I></B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The undersigned Registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement
certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser. </FONT></P>


<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Insofar
as indemnification by the Registrant for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant
to the provisions described in Item&nbsp;14 or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>II-2</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2><A
HREF="#bg71101a_main_toc">Table of Contents</A></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>Act
and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
undersigned Registrant hereby undertakes that:  </FONT></P>

<UL>
<DL compact>
<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(1)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>For
purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule&nbsp;430A and contained in a form of prospectus filed by the Registrant pursuant to Rule&nbsp;424(b)(1) or (4), or 497(h) under the Securities Act of
1933, shall be deemed to be part of this Registration Statement as of the time it was declared effective.
<BR><BR></FONT></DD><DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>(2)</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>For
the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities offered therein, and this offering of such securities at that time shall be deemed to be the initial </FONT> <FONT SIZE=2><I>bona fide</I></FONT><FONT SIZE=2> offering
thereof. </FONT></DD></DL>
</UL>
<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>II-3</FONT></P>

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</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>
<A HREF="#bg71101a_main_toc">Table of Contents</A> </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="jc71101_signatures"> </A>
<A NAME="toc_jc71101_1"> </A>
<BR></FONT><FONT SIZE=2><B>  SIGNATURES    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Registration Statement on
Form&nbsp;S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Rockville, State of Maryland, on the 22<SUP>nd</SUP> day of December, 2010. </FONT></P>
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<p style="font-family:times;"><font size=1></FONT><FONT SIZE=2>


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<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=3 style="font-family:times;"><FONT SIZE=2><B>SUPERNUS PHARMACEUTICALS,&nbsp;INC.</B></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD style="font-family:times;"><BR><FONT SIZE=2>  By:</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD VALIGN="BOTTOM" style="font-family:times;"><BR><FONT SIZE=2>/s/&nbsp;JACK A. KHATTAR<BR>


<HR NOSHADE SIZE="1.0pt" WIDTH="100%" COLOR="#000000">

</FONT> <FONT SIZE=2> Name:&nbsp;&nbsp;Jack A. Khattar<BR>
Title:&nbsp;&nbsp;&nbsp;&nbsp;President and Chief Executive Officer</FONT></TD>
</TR>
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 <P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="jc71101_power_of_attorney"> </A>
<A NAME="toc_jc71101_2"> </A>
<BR></FONT><FONT SIZE=2><B>  POWER OF ATTORNEY    <BR>    </B></FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Jack Khattar and
Russell Wilson, and each of them acting individually, as such person's true and lawful attorneys-in-fact and agents, with full power of each to act alone, with full powers of
substitution and resubstitution, for such person and in such person's name, place and stead, in any and all capacities, to sign the Registration Statement filed herewith and any and all amendments to
said Registration Statement (including post-effective amendments and any related registration statements thereto filed pursuant to Rule&nbsp;462 and otherwise), and file the same, with
all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, with full power
of each to act alone, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully for all intents and purposes as such
person might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or such person's or their substitutes, may lawfully do or cause
to be done by virtue hereof. </FONT></P>

<P style="font-family:times;"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant
to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated
below: </FONT></P>
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<TH NOWRAP  ALIGN="CENTER" style="font-family:times;"><DIV style="border-bottom:solid #000000 1.0pt;margin-bottom:0pt;width:34pt;"><FONT SIZE=1><B>Signature

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 </B></FONT></DIV></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH NOWRAP  ALIGN="CENTER" style="font-family:times;"><DIV style="border-bottom:solid #000000 1.0pt;margin-bottom:0pt;width:17pt;"><FONT SIZE=1><B>Title

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 </B></FONT></DIV></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH NOWRAP  ALIGN="CENTER" style="font-family:times;"><DIV style="border-bottom:solid #000000 1.0pt;margin-bottom:0pt;width:17pt;"><FONT SIZE=1><B>Date


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 </B></FONT></DIV></TH>
</TR>
<TR VALIGN="TOP">
<TD ALIGN="CENTER" VALIGN="CENTER" style="font-family:times;"><BR><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD ALIGN="CENTER" VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>/s/&nbsp;JACK A. KHATTAR<BR>


<HR NOSHADE SIZE="1.0pt" WIDTH="100%" COLOR="#000000">

</FONT> <FONT SIZE=2> Jack A. Khattar</FONT></TD>
<TD VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>President and Chief Executive Officer and Director<BR>
(Principal Executive Officer)</FONT></TD>
<TD VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>December&nbsp;22, 2010</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD ALIGN="CENTER" VALIGN="CENTER" style="font-family:times;"><BR><FONT SIZE=2>/s/&nbsp;RUSSELL P. WILSON<BR>


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</FONT> <FONT SIZE=2> Russell P. Wilson</FONT></TD>
<TD VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD VALIGN="CENTER" style="font-family:times;"><BR><FONT SIZE=2>Vice President, Chief Financial Officer<BR>
(Principal Financial Officer and Principal Accounting Officer)</FONT></TD>
<TD VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="CENTER" style="font-family:times;"><BR><FONT SIZE=2>December&nbsp;22, 2010</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD ALIGN="CENTER" VALIGN="CENTER" style="font-family:times;"><BR><FONT SIZE=2>/s/&nbsp;M. JAMES BARRETT, PH.D.<BR>


<HR NOSHADE SIZE="1.0pt" WIDTH="100%" COLOR="#000000">

</FONT> <FONT SIZE=2> M. James Barrett, Ph.D.</FONT></TD>
<TD VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD VALIGN="CENTER" style="font-family:times;"><BR><FONT SIZE=2>Director</FONT></TD>
<TD VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="CENTER" style="font-family:times;"><BR><FONT SIZE=2>December&nbsp;22, 2010</FONT></TD>
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<P style="font-family:times;"><FONT SIZE=2><A
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<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
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<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
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<TD ALIGN="CENTER" VALIGN="CENTER" style="font-family:times;"><BR><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD ALIGN="CENTER" VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>/s/&nbsp;MICHAEL F. BIGHAM<BR>


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</FONT> <FONT SIZE=2> Michael F. Bigham</FONT></TD>
<TD VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>Director</FONT></TD>
<TD VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>December&nbsp;22, 2010</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD ALIGN="CENTER" VALIGN="CENTER" style="font-family:times;"><BR><FONT SIZE=2>/s/&nbsp;FREDERICK M. HUDSON<BR>


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</FONT> <FONT SIZE=2> Frederick M. Hudson</FONT></TD>
<TD VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD VALIGN="CENTER" style="font-family:times;"><BR><FONT SIZE=2>Director</FONT></TD>
<TD VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="CENTER" style="font-family:times;"><BR><FONT SIZE=2>December&nbsp;22, 2010</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD ALIGN="CENTER" VALIGN="CENTER" style="font-family:times;"><BR><FONT SIZE=2>/s/&nbsp;CHARLES W. NEWHALL, III<BR>


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</FONT> <FONT SIZE=2> Charles W. Newhall, III</FONT></TD>
<TD VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD VALIGN="CENTER" style="font-family:times;"><BR><FONT SIZE=2>Director</FONT></TD>
<TD VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="CENTER" style="font-family:times;"><BR><FONT SIZE=2>December&nbsp;22, 2010</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD ALIGN="CENTER" VALIGN="CENTER" style="font-family:times;"><BR><FONT SIZE=2>/s/&nbsp;WILLIAM A. NUERGE<BR>


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</FONT> <FONT SIZE=2> William A. Nuerge</FONT></TD>
<TD VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD VALIGN="CENTER" style="font-family:times;"><BR><FONT SIZE=2>Director</FONT></TD>
<TD VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="CENTER" style="font-family:times;"><BR><FONT SIZE=2>December&nbsp;22, 2010</FONT></TD>
</TR>
<TR VALIGN="BOTTOM">
<TD ALIGN="CENTER" VALIGN="CENTER" style="font-family:times;"><BR><FONT SIZE=2>/s/&nbsp;MICHAEL B. SHEFFERY, PH.D.<BR>



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</FONT> <FONT SIZE=2> Michael B. Sheffery, Ph.D.</FONT></TD>
<TD VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD VALIGN="CENTER" style="font-family:times;"><BR><FONT SIZE=2>Director</FONT></TD>
<TD VALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD ALIGN="CENTER" VALIGN="CENTER" style="font-family:times;"><BR><FONT SIZE=2>December&nbsp;22, 2010</FONT></TD>
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 <P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>II-5</FONT></P>

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<P style="font-family:times;"><FONT SIZE=2>
<A HREF="#bg71101a_main_toc">Table of Contents</A> </FONT></P>

<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2><A
NAME="ka71101_exhibit_index"> </A>
<A NAME="toc_ka71101_1"> </A>
<BR></FONT><FONT SIZE=2><B>  EXHIBIT INDEX    <BR>    </B></FONT></P>
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<TH COLSPAN=2 ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Exhibit<BR>
Number </B></FONT></TH>
<TH style="font-family:times;"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH ALIGN="CENTER" style="font-family:times;border-bottom:solid #000000 1.0pt;"><FONT SIZE=1><B>Description </B></FONT></TH>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>1.1*</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>Form of Underwriting Agreement</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.1</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>Amended and Restated Certificate of Incorporation of the Registrant (as currently in effect)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.2*</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>Form of Second Amended and Restated Certificate of Incorporation (to be effective upon the closing of this offering)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.3</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>By-laws of the Registrant (as currently in effect)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>3.4*</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>Form of Amended and Restated By-laws of the Registrant (to be effective upon the closing of this offering)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>4.1*</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>Specimen Stock Certificate evidencing the shares of common stock</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>5.1*</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>Opinion of Ropes&nbsp;&amp; Gray&nbsp;LLP</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.1</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>2005 Stock Plan and form agreements thereunder</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.2</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>Supplemental Executive Retirement Plan</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.3</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>Employment Agreement, dated as of December&nbsp;22, 2005, by and between the Registrant and Jack Khattar</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.4</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>Stock Restriction Agreement, dated December&nbsp;22, 2005, by and between the Registrant and Jack Khattar</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.5</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>Lease, dated as of April&nbsp;19, 1999, by and between ARE Acquisitions,&nbsp;LLC and Shire Laboratories&nbsp;Inc.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.6</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>First Amendment to Lease, dated as of November&nbsp;1, 2002, by and between ARE Acquisitions,&nbsp;LLC and Shire Laboratories&nbsp;Inc.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.7</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>Second Amendment to Lease, dated as of December&nbsp;22, 2005, by and among ARE-East Gude Lease,&nbsp;LLC, Shire Laboratories&nbsp;Inc. and Supernus Pharmaceuticals,&nbsp;Inc.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.8</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>Third Amendment to Lease, dated as of November&nbsp;24, 2010, by and between ARE-East Gude Lease,&nbsp;LLC and the Registrant (successor-in-interest to Shire Laboratories&nbsp;Inc.)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.9</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>Investor Rights Agreement, dated as of December&nbsp;22, 2005, by and among the Registrant and the holders of shares of Series&nbsp;A convertible preferred stock identified therein, as amended</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.10*</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>Asset Purchase and Contribution Agreement, dated as of December&nbsp;22, 2005, among the Registrant, Shire Laboratories&nbsp;Inc. and Shire&nbsp;plc</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.11*</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>Exclusive License Agreement, dated as of June&nbsp;6, 2006, by and between the Registrant and United Therapeutics Corporation</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.12*</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>Purchase and Sale Agreement, dated as of June&nbsp;9, 2006, by and between the Registrant and Rune Healthcare Limited</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.13*</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>Exclusive License Agreement, dated as of November&nbsp;2, 2007, by and between the Registrant and Afecta Pharmaceuticals,&nbsp;Inc.</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.14*</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>Offer Letter, dated June&nbsp;7, 2005, to Dr. Jones W. Bryan from the Registrant</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>10.15*</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>Offer Letter, dated June&nbsp;10, 2005, to Dr.&nbsp;Padmanabh P. Bhatt from the Registrant</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>21.1</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>Subsidiaries of the Registrant</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>23.1</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>Consent of Ernst&nbsp;&amp; Young&nbsp;LLP</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>23.2*</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>Consent of Ropes&nbsp;&amp; Gray&nbsp;LLP (included in 5.1)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD ALIGN="RIGHT" style="font-family:times;"><FONT SIZE=2>24.1</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD style="font-family:times;"><FONT SIZE=2>Power of Attorney (included on signature page)</FONT></TD>
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<DT style='font-family:times;margin-bottom:-11pt;'><FONT SIZE=2>*</FONT></DT><DD style="font-family:times;"><FONT SIZE=2>To
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<P ALIGN="CENTER" style="font-family:times;"><FONT SIZE=2>E-1</FONT></P>

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TABLE OF CONTENTS
Supernus Pharmaceuticals, Inc. Index to Consolidated Financial Statements
Table of Contents
As filed with the Securities and Exchange Commission on December 23, 2010
Registration No. 333-
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
SUPERNUS PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
2834
(Primary Standard Industrial
Classification Code Number)
20-2590184
(I.R.S. Employer
Identification Number)
1550 East Gude Drive
Rockville, MD 20850
(301) 838-2500
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
Jack A. Khattar
President and Chief Executive Officer
1550 East Gude Drive
Rockville, MD 20850
(301) 838-2500
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
Paul M. Kinsella
Ropes & Gray LLP
Prudential Tower
800 Boylston Street
Boston, MA 02199-3600
Telephone: (617) 951-7921
Facsimile: (617) 235-0822
Russell P. Wilson
Supernus Pharmaceuticals, Inc.
Vice President, Chief Financial Officer
1550 East Gude Drive
Rockville, MD 20850
Telephone: (301) 838-2500
Facsimile: (301) 424-1364
Mitchell S. Bloom
Edward A. King
Goodwin Procter LLP
Exchange Place
Boston, MA 02109
Telephone: (617) 570-1000
Facsimile: (617) 523-1231
Approximate date of commencement of proposed sale to public:
As soon as practicable after this Registration Statement becomes effective.
If
any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended (the
"Securities Act"), check the following box.
o
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and
list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
o
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective registration statement for the same offering.
o
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective registration statement for the same offering.
o
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 the definitions 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
o
Non-accelerated filer
ý
(Do not check if a
smaller reporting company)
Smaller reporting company
o
CALCULATION OF REGISTRATION FEE
Title of Each Class of Securities to be Registered
Proposed Maximum
Aggregate Offering Price(1)
Amount of
Registration Fee
Common stock, $0.001 par value per share
$100,000,000
$7,130.00
(1)
Estimated
solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act. The proposed maximum aggregate
offering price includes amounts attributed to shares of common stock that the underwriters may purchase if they exercise their option to purchase additional shares.
The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the
Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
Table of Contents
The information in this preliminary prospectus is not complete and may be changed. We may not sell
these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not
soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED DECEMBER 23, 2010
PRELIMINARY PROSPECTUS
Shares
Supernus Pharmaceuticals, Inc.
Common Stock
$            per share
This is the initial public offering of our common stock. We are selling                  shares
of our common stock. We currently expect the
initial public offering price to be between $            and $            per share of common stock.
We
have granted the underwriters an option to purchase up
to                                    additional shares of common
stock to cover over-allotments.
We
intend to apply to list our common stock on the Nasdaq Global Market under the symbol "SUPN."
Investing in our common stock involves risks. See "Risk Factors" on page 9.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined
if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
Per Share
Total
Public Offering Price
$
$
Underwriting Discount
$
$
Proceeds to Supernus (before expenses)
$
$
The
underwriters expect to deliver the shares to purchasers on or
about                                    , 2011 through the book-entry
facilities of The Depository Trust Company.
Joint Book-Running Managers
Citi
Barclays Capital
Co-Managers
Cowen and Company
Stifel Nicolaus Weisel
,
2011.
Table of Contents
You should rely only on the information contained in this prospectus. We have not, and the underwriters have not, authorized
anyone to
provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell
these securities in any jurisdiction where the offer or sale is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than the date on
the front of this prospectus.
TABLE OF CONTENTS
Page
Summary
1
The Offering
6
Summary Financial Data
7
Risk Factors
9
Special Note Regarding Forward-Looking Statements
41
Use of Proceeds
43
Dividend Policy
43
Capitalization
44
Dilution
46
Selected Consolidated Financial Data
48
Management's Discussion and Analysis of Financial Condition and Results of
Operations
51
Business
74
Management
105
Certain Relationships and Related Party Transactions
126
Principal Stockholders
127
Description of Capital Stock
130
Shares Eligible for Future Sale
133
Material U.S. Federal Income Tax Considerations for Non-U.S. Holders of Common
Stock
136
Underwriting
140
Legal Matters
145
Experts
145
Market and Industry Data
145
Where You Can Find Additional Information
145
Index to Consolidated Financial Statements
F-1
i
Table of Contents
SUMMARY
This summary highlights selected information appearing elsewhere in this prospectus. While this summary
highlights what we consider to be the most important information about us, you should carefully read this prospectus and the registration statement of which this prospectus is a part in their entirety
before investing in our common stock, especially the risks of investing in our common stock which we discuss under "Risk Factors," the information set forth in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our consolidated financial statements and related notes beginning on page F-1.
Unless the context requires otherwise, the words "Supernus," "we," "us" and "our" refer to Supernus Pharmaceuticals, Inc. and its
subsidiaries.
Supernus Pharmaceuticals, Inc.
We are a specialty pharmaceutical company focused on developing and commercializing products for the treatment of central nervous
system, or CNS, diseases. Our extensive expertise in product development has been built over the past 20 years: initially as a stand alone development organization, then as a U.S. subsidiary of
Shire plc and, upon our acquisition of substantially all the assets of Shire Laboratories Inc. in late 2005, as Supernus Pharmaceuticals. We are developing several product candidates in
neurology and psychiatry to address large market opportunities in epilepsy and attention deficit hyperactivity disorder, or ADHD. We intend to market our product candidates in the United States
through our own focused sales force targeting specialty physicians, including neurologists and psychiatrists.
We
use our proprietary technologies to enhance the therapeutic benefits of approved antiepileptic drugs, or AEDs, through advanced extended release formulations. Our two epilepsy product
candidates are SPN-538 (extended release topiramate), for which we expect to file a new drug application, or NDA, in the first quarter of 2011, and Epliga (extended release
oxcarbazepine), which is in Phase III clinical trials. Our ADHD product candidates include SPN-810 (molindone hydrochloride), a novel treatment for impulsive aggression in patients
with ADHD, and SPN-812, a novel non-stimulant treatment for ADHD. Both of these programs are in Phase II. In addition to these four lead product candidates, we have
several additional product candidates in various stages of development, including SPN-809, which would represent a novel mechanism of action for the U.S. antidepressant market. We believe
our broad and diversified portfolio of product candidates provides us with multiple opportunities to achieve our goal of becoming a leading specialty pharmaceutical company focused on CNS diseases.
The
table below summarizes our current pipeline of novel product candidates.
Product
Indication
Status
SPN-538
Epilepsy
NDA to be filed Q1 2011
Epliga
Epilepsy
Phase III
SPN-810
Impulsive Aggression in ADHD
Phase II
SPN-812
ADHD
Phase II
SPN-809
Depression
IND filed
Our Late-Stage Neurology Portfolio
Epilepsy is a chronic neurological disorder characterized by recurrent convulsive seizures resulting from hyperactivity in the brain
cells. It is estimated to affect 50 million people worldwide. Achieving reliable seizure control for patients, and avoiding the serious health and life dangers that can be associated with
sudden unexpected, or breakthrough, seizures depends on patients being compliant and
1
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diligent
in taking their medications. We believe there are a number of benefits associated with extended release products in epilepsy that create a significant market opportunity for us.
•
Extended release products have been shown to improve compliance and reduce breakthrough seizures.
•
Extended release products have been shown to reduce side effects and improve tolerability.
•
Managed care plans have not limited the success of extended release products.
•
Extended release products have performed well in the market.
SPN-538 (extended release topiramate)
Our most advanced product candidate, SPN-538, is a novel oral once-daily extended release topiramate product for the
treatment of epilepsy. Topiramate is marketed by Johnson & Johnson under the brand name Topamax and is available in a generic form. Topiramate is currently available only in immediate
release form and is indicated for monotherapy and adjunctive therapy of epilepsy and for the treatment of migraine. It works by enhancing the inhibitory effect of the GABA (Gamma-Aminobutyric Acid)
neurotransmitter that regulates neuronal excitability throughout the nervous system, blocking the excitatory effect of the glutamate neurotransmitter, blocking the sodium channel and inhibiting the
carbonic anhydrase enzyme. The side effects associated with taking topiramate, which have tended to limit its use, include, among others, dizziness, fatigue, somnolence and slowing of certain
cognitive functions.
SPN-538
is designed to improve patient compliance and to have a better tolerability profile compared to the current immediate release products that are taken multiple times
per day. SPN-538's pharmacokinetic profile delivers lower peak plasma concentrations and lower input rate over an extended time period, resulting in smoother and more consistent blood
levels of topiramate during the day compared to immediate release Topamax. We have completed ten clinical trials in support of our NDA, which we expect to file in the first quarter of 2011. We are
pursuing a regulatory strategy under Section 505(b)(2) of the Federal Food, Drug and Cosmetic Act, which would allow us to rely in our filing on the existing data and knowledge the U.S. Food
and Drug Administration, or FDA, has from the NDA of Topamax.
Epliga (extended release oxcarbazepine)
Our second late-stage product candidate, Epliga, is a novel oral once-daily extended release formulation of
oxcarbazepine and is currently in Phase III trials. Oxcarbazepine is marketed by Novartis under the brand name Trileptal and is available in a generic form. Trileptal is indicated for
monotherapy and adjunctive therapy of epilepsy. Oxcarbazepine is an active voltage-dependent sodium channel blocker that, despite its effectiveness in treating epilepsy, is associated with many side
effects that tend to limit its use. The side effects associated with taking oxcarbazepine include, among others, dizziness, double vision, somnolence, nausea and vomiting.
With
a novel pharmacokinetic profile that delivers lower peak plasma concentrations, a slower rate of input, smoother and more consistent blood levels compared to immediate release
products such as Trileptal, we believe Epliga has the potential of improving the tolerability of oxcarbazepine by reducing the side effects experienced by patients. We have completed eight clinical
trials to support filing the NDA in the second half of 2011. We are pursuing a Section 505(b)(2) regulatory strategy, which would allow us to rely in our filing on the existing data and
knowledge the FDA has from the NDA of Trileptal.
2
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Our Psychiatry Portfolio
ADHD is a common CNS disorder characterized by developmentally inappropriate levels of inattention, hyperactivity, and impulsivity.
ADHD affects an estimated 6.9% of all school-age children and 4.4% of adults in the United States. An estimated 60% to 80% of children with ADHD continue to meet the criteria for ADHD into
adolescence. As many as 67% of children who have ADHD may have coexisting conditions such as oppositional defiant disorder, conduct disorder, anxiety disorder and depression. Approximately 25% of
children with ADHD also exhibit persistent conduct problems, such as impulsive aggression.
SPN-810 (molindone hydrochloride)
We are developing SPN-810, which is currently in Phase II, as a novel treatment for impulsive aggression in patients
with ADHD. If approved by the FDA, SPN-810 could be the first product available to address this serious, unmet medical need. SPN-810 is based on molindone hydrochloride, which
was previously marketed in the United States as an anti-psychotic to treat schizophrenia under the trade name Moban. Molindone hydrochloride is unusual among anti-psychotics in
that it is not associated with weight gain.
We
have completed four clinical trials for SPN-810, including a Phase IIa trial in which we tested the safety and tolerability of immediate release molindone
hydrochloride in children with ADHD who suffer from serious persistent conduct problems. This open-label, dose-ranging trial randomized 78 children,
6-12 years of age, into one of four treatment groups, which were given four different doses of immediate release molindone hydrochloride, between 10 mg and 40 mg per day, depending
on weight, three times a day over a six-week treatment period, after 2-5 weeks of titration. SPN-810 was well tolerated in the trial with no clinically
meaningful changes in standard hematology, clinical chemistry values, vital signs or electrocardiogram results. SPN-810 also showed improvements on the primary and secondary outcome
measures, such as conduct problem and ADHD scales, across all four treatment groups.
SPN-812
We are developing SPN-812, which is currently in Phase II, as a novel non-stimulant treatment for ADHD.
SPN-812 is a selective norepinephrine reuptake inhibitor that we believe could be more effective and have a better side effect profile than other non-stimulant treatments for
ADHD. We initiated a proof-of-concept Phase IIa trial in mid-2010, and expect the results of this trial in the first quarter of 2011. The trial is a randomized,
double-blind, placebo-controlled trial in approximately 50 adults with a current diagnosis of ADHD, with approximately 25 subjects per treatment group. SPN-812 has not been developed and marketed in
the United States and, therefore, it would be considered and reviewed by the FDA as a new chemical entity.
Our Proprietary Technology Platforms
We have a long track record of developing novel products by applying proprietary technologies to known drugs to improve existing
therapies and to enable the treatment of new indications. Our key proprietary technology platforms include: Microtrol (multiparticulate delivery platform), Solutrol (matrix delivery platform) and
EnSoTrol (osmotic delivery system). These technologies create customized product profiles designed to meet efficacy needs, permit more convenient and less frequent dosing, enhance patient compliance
and improve tolerability in certain specific applications. Our proprietary technologies have been used in the following approved and marketed products: Carbatrol (carbamazepine), Equetro
(carbamazepine), Adderall XR (mixed amphetamine salts), Sanctura XR (trospium chloride), Oracea (doxycycline) and Intuniv (guanfacine). We do not expect these products to contribute to our future cash
position as we have either monetized the future revenues associated with
3
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them
or we developed them when we were formerly Shire Laboratories. In addition, we have used our proprietary technologies to develop an oral formulation of treprostinil diethanolamine which is
currently in Phase III trials for pulmonary arterial hypertension.
Our Strategy
Our goal is to be a leading specialty pharmaceutical company developing and commercializing new medicines in neurology and psychiatry.
Key elements of our strategy to achieve this goal are to:
•
Build in-house sales and marketing capabilities, focused on specialty markets in the
United States, to promote SPN-538 and Epliga.
We are currently focused on attaining regulatory approval for, and bringing our two late-stage epilepsy
product candidates, SPN-538 and Epliga, to market. As SPN-538 and Epliga progress towards U.S. regulatory approval, we intend to build our own targeted, specialty sales force
to promote, if approved, SPN-538 and Epliga in the United States. We intend to direct our marketing efforts to high potential prescribers of both product candidates.
•
Continue to advance our product candidates in our psychiatry portfolio, including
SPN-810 and SPN-812.
As part of our longer term strategy, we intend to further develop our product candidates in our psychiatry portfolio to enable
further diversification of our pipeline and future growth. For example, we are currently preparing to initiate a Phase IIb trial of SPN-810.
•
Develop differentiated products by applying our technologies to known drug
compounds.
We intend to continue to focus our development activities on known drug compounds and compounds with established mechanisms of action and thereby reduce the risks,
costs and time typically associated with pharmaceutical product development. We intend to leverage our proprietary and in-licensed technologies and expand our patent portfolio to further
develop and protect our diverse pipeline of product candidates.
•
Establish strategic partnerships to accelerate and maximize the potential of our product
candidates worldwide.
We intend to continue to seek strategic collaborations with other pharmaceutical companies to commercialize our product candidates outside the United
States. We believe that we are an attractive collaborator for pharmaceutical companies due to our broad portfolio of proprietary technologies and our product development track record.
•
Leverage our management team's expertise to develop and commercialize our broad portfolio of
product candidates.
We intend to leverage the expertise of our executive management team in developing and commercializing innovative therapeutic products. We plan to continue
to evaluate and develop additional CNS product candidates that we believe have significant commercial potential through our internal research and development efforts or, if appropriate, external
collaborations.
Risks Associated With Our Business
Our ability to implement our business strategy is subject to numerous risks and uncertainties. As an early stage pharmaceutical
company, we face many risks inherent in our business and our industry, as more fully described in the section entitled "Risk Factors" immediately following this summary, including the
following:
•
We are dependent on the success of our product candidates, which may never receive regulatory approval or be successfully
commercialized.
•
Final marketing approval of SPN-538, Epliga or any of our other product candidates by the FDA or other
regulatory authorities may be delayed, limited, or denied, any of which would adversely affect our ability to generate operating revenues.
4
Table of Contents
•
We have never generated any revenues from the sales of our own products, and we may never achieve or maintain
profitability.
•
If other versions of extended or controlled release topiramate or oxcarbazepine are approved and successfully
commercialized, especially if approved before SPN-538 or Epliga, our business would be materially harmed.
•
If the FDA or other applicable regulatory authorities approve generic products that compete with any of our product
candidates, the sales of those product candidates may be adversely affected.
You
should carefully consider all of the information set forth in this prospectus and, in particular, the information under the heading "Risk Factors," prior to making an investment in
our common stock.
Corporate Information
We were incorporated in Delaware in 2005. Our principal executive office is located at 1550 East Gude Drive, Rockville, Maryland 20850.
Our telephone number is (301) 838-2500.
We
are the owner of various U.S. federal trademark registrations (®) and registration applications (TM), including the following marks referred to in this prospectus pursuant
to applicable U.S. intellectual property laws: "Supernus®," "Epliga®," "Microtrol®," "Solutrol®," "ProScreen®," "OptiScreen®,"
"ProPhile®," and the registered Supernus Pharmaceuticals logo. All other trademarks or trade names referred to in this prospectus are the property of their respective owners.
5
Table of Contents
THE OFFERING
Common stock we are offering
shares
Common stock to be outstanding after this offering
shares
Over-allotment option
We have granted the underwriters an option for a period of up to 30 days to purchase up to             additional shares of common
stock at the initial public offering price.
Use of proceeds after expenses
We estimate that the net proceeds from this offering will be approximately $             million, or approximately
$             million if the underwriters exercise their over-allotment option in full. We expect to use the net proceeds from this offering to fund our clinical trials and for other
general corporate purposes.
Risk factors
You should read the "Risk Factors" section of this prospectus beginning on page 9 for a discussion of factors to consider carefully before deciding to invest in shares of our common
stock.
Proposed NASDAQ Global Market symbol
SUPN
The
number of shares of our common stock to be outstanding after this offering is based on 55,371,061 shares of common stock outstanding as of September 30, 2010 after giving
effect to the conversion of 49,000,000 shares of our preferred stock outstanding as of September 30, 2010 into 49,000,000 shares of our common stock at the closing of this offering.
The
number of shares of our common stock outstanding immediately after this offering excludes:
•
1,729,458 shares of common stock issuable upon the exercise of options outstanding as of September 30, 2010,
with exercise prices ranging from $0.10 to $1.76 per share and a weighted average exercise price of $0.48 per share (of which options to acquire 940,324 shares of common stock were vested as of
September 30, 2010);
•
411,765 shares of common stock remaining to vest under a restricted stock award; and
•
2,487,716 additional shares of common stock reserved for future grants under our 2005 Stock Plan as of
September 30, 2010.
Unless
otherwise indicated, all information in this prospectus:
•
assumes the issuance and sale of                        shares of our common
stock in the offering at the initial public offering
price of $            per share;
•
assumes our planned         -for-         reverse stock split of our
common stock to be effected in connection with this offering;
•
gives effect to the automatic conversion of all outstanding shares of our preferred stock into 49,000,000 shares of common
stock upon the closing of this offering; and
•
assumes no exercise by the underwriters of their option to purchase up to            shares of our common stock in
this offering to cover over-allotments.
6
Table of Contents
SUMMARY FINANCIAL DATA
We have derived our statement of operations data for the years ended December 31, 2007, 2008 and 2009 from our
audited consolidated financial statements included in this prospectus. We have derived our balance sheet data as of September 30, 2010 and statement of operations data for each of the nine
months ended September 30, 2009 and 2010 from our unaudited consolidated financial statements included in this prospectus. The unaudited consolidated financial statement data include, in our
opinion, all adjustments (consisting only of normal recurring adjustments) that are necessary for a fair presentation of our consolidated financial position and consolidated results of operations for
these periods.
Our historical results are not necessarily indicative of future operating results, and the results for the first nine months of 2010 are not necessarily
indicative of results expected for the full year or for any other period. You should read this summary consolidated financial data in conjunction with the sections entitled "Risk Factors,"
"Capitalization," "Selected Consolidated Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and
related notes, all included elsewhere in this prospectus.
Year Ended December 31,
Nine Months Ended
September 30,
2007
2008
2009
2009
2010
(unaudited)
(in thousands of dollars, except share and per share data)
Consolidated Statement of Operations Data:
Revenues
Development and milestone revenues
$
1,405
$
2,697
$
1,550
$
1,181
$
97
Royalty revenues
2,828
6,192
44,963
41,884
8,635
Total revenues
4,233
8,889
46,513
43,065
8,732
Costs and expenses
Research and development
19,269
30,463
29,260
21,804
26,080
General and administrative
4,011
4,287
4,649
3,503
3,388
Total costs and expenses
23,280
34,750
33,909
25,307
29,468
Income (loss) from operations
(19,047
)
(25,861
)
12,604
17,758
(20,736
)
Other income (expense):
Interest income
1,773
1,057
514
101
623
Interest expense
—
(8,678
)
(12,658
)
(9,210
)
(9,831
)
Other
—
—
—
—
54
Total other income (expense)
1,773
(7,621
)
(12,144
)
(9,109
)
(9,154
)
Net income (loss)
$
(17,274
)
$
(33,482
)
$
460
$
8,649
$
(29,890
)
Cumulative dividends on Series A convertible preferred stock
$
(3,430
)
$
(3,430
)
$
(3,430
)
$
(2,573
)
$
(2,573
)
Net income (loss) attributable to common stockholders
$
(20,704
)
$
(36,912
)
$
(2,970
)
$
6,076
$
(32,463
)
Net income (loss) per common share
Basic
$
(4.21
)
$
(6.61
)
$
(0.53
)
$
1.08
$
(5.12
)
Diluted
$
(4.21
)
$
(6.61
)
$
0.01
$
0.15
$
(5.12
)
Weighted average number of common shares
Basic
4,921,376
5,587,467
5,653,506
5,610,047
6,345,420
Diluted
4,921,376
5,587,467
56,324,761
56,282,411
6,345,420
Net income (loss) used to compute pro forma net income (loss) per common share — basic and diluted (unaudited)(1)
$
460
$
(29,890
)
Weighted-average number of shares used in calculating pro forma net income (loss) per share — basic and diluted (unaudited)(1)
56,324,761
55,345,420
Pro forma net income (loss) per share — basic and diluted(1)
$
0.01
$
(0.54
)
(1)
Pro
forma net loss per share basic and diluted have been calculated assuming the conversion of all outstanding shares of the Company's Series A
convertible preferred stock into an aggregate of 49,000,000 shares of common stock upon completion of this offering, as if they had converted at the beginning of the period. Pro forma net loss per
share basic and diluted do not give effect to the sale of                shares of common stock that we are offering pursuant to this prospectus or any related estimated
net proceeds therefrom. See
Note 2 to our audited consolidated financial statements for an explanation of the method used to calculate the pro forma basic and diluted net income (loss) per common share and the number of
the per share amounts.
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As of September 30, 2010
Actual
Pro Forma
Pro Forma as
Adjusted
(unaudited)
(in thousands of dollars)
Consolidated Balance Sheet Data:
Unrestricted cash and cash equivalents, and marketable securities
$
45,822
$
45,822
$
Restricted cash and cash equivalents, and marketable securities
1,680
1,680
Working capital
33,835
33,835
Total assets
57,502
57,502
Accumulated deficit
(85,210
)
(85,210
)
Total stockholders' deficit
(35,917
)
(35,917
)
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RISK FACTORS
Investing in our common stock involves a high degree of risk. You should carefully consider the risks described
below with all of the other information included in this prospectus before deciding to invest in our common stock. 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.
Risks Related to Our Business and Industry
We are dependent on the success of our product candidates, which may never receive regulatory approval or be successfully commercialized.
To date, we have expended significant time, resources, and effort on the development of our product candidates, and a substantial
majority of our resources are now focused on seeking marketing approval for and planning for potential commercialization of our two most advanced product candidates, SPN-538 and Epliga, in the United
States. All of our other product candidates are in earlier stages of development and subject to the risks of failure inherent in developing drug products. Accordingly, our ability to generate
significant product revenues in the near term will depend almost entirely on our ability to successfully obtain marketing approval for and commercialize SPN-538 and Epliga. Neither
SPN-538 nor Epliga are approved for marketing in any jurisdiction and, therefore, unless they obtain regulatory approval, they may never be commercialized.
Our
ability to successfully commercialize any of our products candidates will depend, among other things, on our ability to:
•
successfully complete our clinical trials;
•
produce, through a validated process, sufficiently large quantities of our product candidates to permit successful
commercialization;
•
receive marketing approvals from the U.S. Food and Drug Administration, or FDA, and similar foreign regulatory
authorities;
•
establish commercial manufacturing arrangements with third-party manufacturers;
•
build and maintain strong sales, distribution and marketing capabilities sufficient to launch commercial sales of our
product candidates;
•
establish collaborations with third parties for the commercialization of our product candidates in countries outside the
United States, and such collaborators' ability to obtain regulatory and reimbursement approvals in such countries;
•
secure acceptance of our product candidates from physicians, health care payors, patients and the medical community; and
•
manage our spending as costs and expenses increase due to clinical trials, regulatory approvals and commercialization.
There
are no guarantees that we will be successful in completing these tasks. If we are unable to successfully complete these tasks, we may not be able to commercialize
SPN-538, Epliga or any of our other product candidates in a timely manner, or at all, in which case we may be unable to generate sufficient revenues to sustain and grow our business. In
addition, although we believe that we have already incurred the majority of the costs related to the development of SPN-538 and Epliga, if we experience unanticipated delays or problems,
these costs could substantially increase and our business, financial condition and results of operations will be adversely affected.
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Final marketing approval of SPN-538, Epliga or any of our other product candidates by the FDA or other regulatory authorities may be delayed, limited, or denied,
any of which would adversely affect our ability to generate operating revenues.
Our business depends on the successful development and commercialization of our product candidates. We are not permitted to market any
of our product candidates in the United States until we receive approval of a new drug application, or NDA, from the FDA, or in any foreign jurisdiction until we receive the requisite approvals from
such jurisdiction. Satisfaction of regulatory requirements typically takes many years, is dependent upon the type, complexity and novelty of the product and requires the expenditure of substantial
resources. We cannot predict whether or when we will obtain regulatory approval to commercialize our product candidates and we cannot, therefore, predict the timing of any future revenues from these
product candidates, if any.
With
respect to our two most advanced product candidates, SPN-538 (extended release topiramate) and Epliga (extended release oxcarbazepine), we are pursuing a regulatory
strategy pursuant to Section 505(b)(2) of the Federal Food, Drug and Cosmetic Act, or FDCA, which would allow us to rely in our filings on the existing data from the NDAs of Topamax and
Trileptal, respectively. Section 505(b)(2) was enacted as part of the Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Amendments, and permits the submission
of an NDA where at least some of the information required for approval comes from clinical trials not conducted by or for the applicant and for which the applicant has not obtained a right of
reference. The FDA interprets Section 505(b)(2) of the FDCA to permit the applicant to rely upon the FDA's previous findings of safety and effectiveness for an approved product. The FDA
requires submission of information needed to support any changes to a previously approved drug, such as published data or new studies conducted by the applicant or clinical trials demonstrating safety
and effectiveness. The FDA has substantial discretion in the drug approval process, including the ability to delay, limit or deny approval of a product candidate for many reasons. For example, the
FDA:
•
could determine that we cannot rely on Section 505(b)(2) for SPN-538 or Epliga;
•
could determine that the information provided by us was inadequate, contained clinical deficiencies or otherwise failed to
demonstrate the safety and effectiveness of SPN-538, Epliga or any of our product candidates for any indication;
•
may not find the data from bioequivalence studies and/or clinical trials sufficient to support the submission of an NDA or
to obtain marketing approval in the United States, including any findings that the clinical and other benefits of our product candidates outweigh their safety risks;
•
may disagree with our trial design or our interpretation of data from preclinical studies, bioequivalence studies and/or
clinical trials, or may change the requirements for approval even after it has reviewed and commented on the design for our trials;
•
may determine that we have identified the wrong reference listed drug or drugs or that approval of our
Section 505(b)(2) application for SPN-538, Epliga or any of our other product candidates is blocked by patent or non-patent exclusivity of the reference listed drug or
drugs;
•
may identify deficiencies in the manufacturing processes or facilities of third party manufacturers with which we enter
into agreements for the manufacturing of our product candidates;
•
may approve our product candidates for fewer or more limited indications than we request, or may grant approval contingent
on the performance of costly post-approval clinical trials;
•
may change its approval policies or adopt new regulations; or
•
may not approve the labeling claims that we believe are necessary or desirable for the successful commercialization of our
product candidates.
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Notwithstanding
the approval of many products by the FDA pursuant to Section 505(b)(2), over the last few years, some pharmaceutical companies and others have objected to the
FDA's interpretation of Section 505(b)(2). If the FDA changes its interpretation of Section 505(b)(2), or if the FDA's interpretation is successfully challenged in court, this could
delay or even prevent the FDA from approving any Section 505(b)(2) application that we submit. Any failure to obtain regulatory approval of our product candidates would significantly limit our
ability to generate revenues, and any failure to obtain such approval for all of the indications and labeling claims we deem desirable could reduce our potential revenues.
Our trials may fail to demonstrate acceptable levels of safety and efficacy of our product candidates, which could prevent or significantly delay regulatory approval.
We may be unable to sufficiently demonstrate the safety and efficacy of our product candidates to obtain regulatory approval. We must
demonstrate with substantial evidence gathered in well-controlled studies, and to the satisfaction of the FDA with respect to approval in the United States (and to the satisfaction of
similar regulatory authorities in other jurisdictions with respect to approval in those jurisdictions), that each product candidate is safe and effective for use in the target indication. The FDA may
require us to conduct or perform additional studies or trials to adequately demonstrate safety and efficacy, which could prevent or significantly delay our receipt of regulatory approval and,
ultimately, the commercialization of that product candidate.
In
addition, the results from the trials that we have completed for our product candidates may not be replicated in future trials, or we may be unable to demonstrate sufficient safety
and efficacy to obtain the requisite regulatory approvals for our product candidates. A number of companies in the pharmaceutical industry have suffered significant setbacks in advanced development,
even after promising results in earlier trials. If our product candidates are not shown to be safe and effective, our clinical development programs could be delayed or might be terminated.
Our product candidates may cause undesirable side effects or have other properties that delay or prevent their regulatory approval or limit their commercial potential.
Undesirable side effects caused by any of our product candidates could cause us or regulatory authorities to interrupt, delay or halt
development and could result in the denial of regulatory approval by the FDA or other regulatory authorities, and potential products liability claims. Immediate release topiramate and oxcarbazepine,
drug compounds upon which our SPN-538 and Epliga product candidates are based, respectively, are known to cause various side effects, including dizziness, paresthesia, headaches, cognitive
deficiencies such as memory loss and speech impediment, digestive problems, somnolence, double vision, gingival enlargement, nausea, weight gain, and fatigue. The use of SPN-538 and Epliga may cause
similar side effects as compared to their reference products, or may cause additional or different side effects. Any undesirable side effects that are caused by any of our product candidates could
have a material adverse effect upon that product candidate's development program and our business as a whole.
In
addition, if any of our product candidates receive marketing approval, and we or others later identify undesirable side effects caused by the product candidate, a number of
potentially significant negative consequences could result, including:
•
regulatory authorities may withdraw approvals of the product candidate or otherwise require us to take the approved
product off the market;
•
regulatory authorities may require additional warnings, or a narrowing of the indication, on the product label;
•
we may be required to create a medication guide outlining the risks of such side effects for distribution to patients;
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•
we may be required to modify the product in some way;
•
the FDA may require us to conduct additional clinical trials or costly post-marketing testing and surveillance
to monitor the safety or efficacy of the product;
•
sales of approved product candidates may decrease significantly;
•
we could be sued and held liable for harm caused to patients; and
•
our reputation may suffer.
Any
of these events could prevent us from achieving or maintaining the commercial success of our product candidates and could substantially increase commercialization costs.
If other versions of extended or controlled release topiramate or oxcarbazepine are approved and successfully commercialized, especially if approved before SPN-538 or
Epliga, our business would be materially harmed.
Other third parties may seek approval to manufacture and market their own versions of extended release topiramate or oxcarbazepine in
the United States. If any of these parties obtain FDA approval before we do, they may be entitled to three years of marketing exclusivity. Such exclusivity would delay the commercialization of
SPN-538 and Epliga and, as a result, we may never achieve significant market share for these product candidates. Consequently, revenues from product sales of these product candidates would
be similarly delayed and our business, including our development programs, and growth prospects would suffer. For example, we are aware that Upsher-Smith Laboratories, or Upsher-Smith, is currently
conducting a Phase III clinical trial for USL255 (extended release topiramate). If Upsher-Smith's USL255 product is approved by the FDA before SPN-538, then Upsher-Smith may obtain
three years of marketing exclusivity based on its Phase III clinical trial, which would significantly delay our entry into the U.S. market. Even if SPN-538 is approved before
USL255, we may not be entitled to any marketing exclusivity and, other than under circumstances in which third parties may infringe or are infringing our patents, we may not be able to prevent the
submission or approval of another full NDA for any competitor's extended or controlled release topiramate product candidate, including USL255. In addition, we are aware of companies who are marketing
outside of the United States modified-release oxcarbazepine products, such as Apydan, which is developed by Desitin Arzneimittel GmbH and requires twice-daily administration. If companies with
modified-release oxcarbazepine products outside of the United States pursue or obtain approval of their products within the United States before we do, such competing products may be granted three
year marketing exclusivity, which would significantly delay Epliga's entry into the U.S. market. Such a delay would limit the potential success of Epliga in the United States, and our business and
growth prospects would be materially impaired. Accordingly, if any third party is successful in obtaining approval to manufacture and market their own versions of extended release topiramate or
oxcarbazepine in the United States, we may not be able to recover expenses incurred in connection with the development of our product candidates or realize revenues from SPN-538 or Epliga.
Delays or failures in the completion of testing of our product candidates would increase our costs and delay or limit our ability to generate revenues.
Delays or failures in the completion of clinical trials for our product candidates could significantly raise our product development
costs. We do not know whether current or planned trials will be completed on schedule, if at all. The commencement and completion of clinical development can be delayed or halted for a number of
reasons, including:
•
difficulties obtaining regulatory approval to commence a clinical trial or complying with conditions imposed by a
regulatory authority regarding the scope or term of a clinical trial;
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•
delays in reaching or failure to reach agreement on acceptable terms with prospective clinical research organizations, or
CROs, and trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;
•
insufficient or inadequate supply or quantity of a product candidate for use in trials;
•
difficulties obtaining institutional review board approval to conduct a trial at a prospective site;
•
challenges recruiting and enrolling patients to participate in clinical trials for a variety of reasons, including
competition from other programs for the treatment of similar conditions;
•
severe or unexpected drug-related side effects experienced by patients in a clinical trial; and
•
difficulty retaining patients who have initiated a clinical trial but may be prone to withdraw due to side effects from
the therapy, lack of efficacy or personal issues.
Clinical
trials may also be delayed as a result of ambiguous or negative interim results. In addition, clinical trials may be suspended or terminated by us, an institutional review board
overseeing the clinical trial at a trial site (with respect to that site), the FDA or other regulatory authorities due to a number of factors, including:
•
failure to conduct the clinical trial in accordance with regulatory requirements or the trial protocols;
•
observations during inspection of the clinical trial operations or trial sites by the FDA or other regulatory authorities
that ultimately result in the imposition of a clinical hold;
•
unforeseen safety issues; or
•
lack of adequate funding to continue the trial.
In
addition, failure to conduct the clinical trial in accordance with regulatory requirements or the trial protocols may also result in the inability to use the data to support product
approval. Additionally, changes in regulatory requirements and guidance may occur, and we may need to amend clinical trial protocols to reflect these changes. Amendments may require us to resubmit our
clinical trial protocols to institutional review boards for reexamination, which may impact the costs, timing or successful completion of a clinical trial. In addition, many of the factors that cause,
or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates. If we experience delays in completion
of, or if we terminate any of our clinical trials, our ability to obtain regulatory approval for our product candidates may be materially harmed, and our commercial prospects and ability to generate
product revenues will be diminished.
If we do not obtain marketing exclusivity for our product candidates, our business may suffer.
Under the Hatch-Waxman Amendments, three years of marketing exclusivity may be granted for the approval of new and supplemental NDAs,
including Section 505(b)(2) applications, for, among other things, new indications, dosage forms, routes of administration, or strengths of an existing drug, or for a new use, if new clinical
investigations that were conducted or sponsored by the applicant are determined by the FDA to be essential to the approval of the application. This exclusivity, which is sometimes referred to as
clinical investigation exclusivity, prevents the FDA from approving an application under Section 505(b)(2) for the same conditions of use associated with the new clinical investigations before
the expiration of three years from the date of approval. Such exclusivity, however, would not prevent the approval of another application if the applicant submits a Section 505(b)(1) NDA and
has conducted its own adequate, well-controlled clinical trials demonstrating safety and efficacy, nor would it prevent approval of a generic product or Section 505(b)(2) product
that did not incorporate the exclusivity-protected changes of the approved drug product. Under the Hatch-Waxman Amendments, newly-approved drugs and indications may also benefit from a statutory
period of non-patent marketing exclusivity. The Hatch-Waxman Amendments provides five-year marketing
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exclusivity
to the first applicant to gain approval of an NDA for a new chemical entity, or NCE, meaning that the FDA has not previously approved any other drug containing the same active
pharmaceutical ingredient, or active moiety. Although protection under the Hatch-Waxman Amendments will not prevent the submission or approval of another full Section 505(b)(1) NDA, such an NDA
applicant would be required to conduct its own preclinical and adequate, well-controlled clinical trials to demonstrate safety and effectiveness. If we are unable to obtain marketing
exclusivity for our product candidates including SPN-538, our competitors may obtain approval of competing products more easily than if we had such marketing exclusivity, and our future
revenues could be reduced, possibly materially.
We expect intense competition and, if our competitors develop or market alternatives for treatments of our target indications, our commercial opportunities will be reduced
or eliminated.
The
pharmaceutical industry is characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary therapeutics. We face competition from a number
of sources, some of which may target the same indications as our product candidates, including large pharmaceutical companies, smaller pharmaceutical companies, biotechnology companies, academic
institutions,
government agencies and private and public research institutions. The availability of competing products will limit the demand and the price we are able to charge for any of our product candidates
that are commercialized unless we are able to differentiate them. We anticipate that we will face intense competition when and if our product candidates are approved by regulatory authorities and we
begin the commercialization process. For instance, there are over 15 branded products, as well as their generic counterparts, on the U.S. market indicated to treat epilepsy. In addition, competition
in the attention deficit hyperactivity disorder, or ADHD, market in the United States has increased with the launch of several products in recent years, including the launch of generic versions of
branded drugs such as Adderall XR. As a result, we may not be able to recover expenses incurred in connection with the development of our product candidates or realize revenues from any commercialized
product.
In
addition to already marketed competing products, we believe certain companies are developing other products which could compete with our product candidates should they be approved by
regulatory authorities. For example, according to Datamonitor, as of April 2010, there were 47 compounds in preclinical and clinical development for epilepsy across the United States, Japan, France,
Germany, Italy, Spain and the United Kingdom. Of these, 15 are currently in late-stage (Phase II or later) clinical trials. We are also aware that Upsher-Smith announced the
initiation of a Phase III clinical trial for USL255 (extended release topiramate) for the management of epilepsy in adults. If successful, such competing product could limit the potential
success of SPN-538, and our growth prospects would be materially impaired. In addition, we are aware of companies who are marketing outside of the United States modified-release
oxcarbazepine products, such as Apydan which is developed by Desitin Arzneimittel GmbH and requires twice-daily administration. If companies with modified-release oxcarbazepine products outside
of the United States obtain approval for their products within the United States prior to us, such competing products may obtain three years of marketing exclusivity, which would significantly delay
our entry into the U.S. market and limit the potential success of Epliga. Further, new developments, including the development of other drug technologies, may render our product candidates obsolete or
noncompetitive. As a result, our product candidates may become obsolete before we recover expenses incurred in connection with their development or realize revenues from any commercialized product.
Further,
many competitors have substantially greater:
•
capital resources;
•
research and development resources and experience, including personnel and technology;
•
drug development, clinical trial and regulatory resources and experience;
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•
sales and marketing resources and experience;
•
manufacturing and distribution resources and experience;
•
name recognition; and
•
resources, experience and expertise in prosecution and enforcement of intellectual property rights.
As
a result of these factors, our competitors may obtain regulatory approval of their products more rapidly than we are able to or may obtain patent protection or other intellectual
property rights that limit or block us from developing or commercializing our product candidates. Our competitors may also develop drugs that are more effective, more useful, better tolerated, subject
to fewer or less severe side effects, more widely prescribed or accepted or less costly than ours and may also be more successful than us in manufacturing and marketing their products. If we are
unable to compete effectively with the products of our competitors or if such competitors are successful in developing products that compete with any of our product candidates that are approved, our
business, results of operations, financial condition and prospects may be materially adversely affected. Mergers and acquisitions in the pharmaceutical industry may result in even more resources being
concentrated at competitors. Competition may increase further as a result of advances made in the commercial applicability of technologies and greater availability of capital for investment.
If the FDA or other applicable regulatory authorities approve generic products that compete with any of our product candidates, the sales of those product candidates would
be adversely affected.
Once an NDA, including a Section 505(b)(2) application, is approved, the product covered thereby becomes a "listed drug" which
can, in turn, be cited by potential competitors in support of approval of an abbreviated new drug application, or ANDA. The FDCA, FDA regulations and other applicable regulations and policies provide
incentives to manufacturers to create modified, non-infringing versions of a drug to facilitate the approval of an ANDA or other application for generic substitutes. These manufacturers
might only be required to conduct a relatively inexpensive study to show that their product has the same active ingredient(s), dosage form, strength, route of administration, and conditions of use, or
labeling, as our product candidate and that the generic product is bioequivalent to ours, meaning it is absorbed in the body at the same rate and to the same extent as our product candidate. These
generic equivalents, which must meet the same quality standards as branded pharmaceuticals, would be significantly less costly than ours to bring to market and companies that produce generic
equivalents are generally able to offer their products at lower prices. Thus, after the introduction of a generic competitor, a significant percentage of the sales of any branded product is typically
lost to the generic product. Accordingly, competition from generic equivalents to our product candidates would materially adversely impact our revenues, profitability and cash flows and substantially
limit our ability to obtain a return on the investments we have made in our product candidates.
We have limited sales and marketing experience and resources, and we may not be able to effectively market and sell our product candidates in the United States, if approved.
We are preparing the build-out of our commercial infrastructure to launch our product candidates within the United States. We have
limited sales or marketing experience. To develop internal sales and marketing capabilities, we will have to invest significant amounts of financial and management resources, some of which will be
committed prior to any confirmation that SPN-538, Epliga or any other of our product candidates will be approved. If the commercial launch of SPN-538 or Epliga is delayed for a
protracted period of time as a result of FDA requirements or other reasons, we would
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incur
significant expenses prior to being able to realize any revenues. Further, we could face a number of additional risks in establishing internal sales and marketing capabilities,
including:
•
we may not be able to attract talented and qualified personnel to build an effective marketing or sales force;
•
the cost of establishing a marketing or sales force may not be justifiable in light of the revenues generated by any of
our product candidates, if approved; and
•
our direct sales and marketing efforts may not be successful.
If
we are unable to establish adequate sales and marketing capabilities, we may not be able to generate product revenues and may never become profitable.
We intend to rely on third party collaborators to market and commercialize our product candidates outside of the United States, who may fail to effectively commercialize our
product candidates.
Outside of the United States we currently plan to utilize strategic partners or contract sales forces, where appropriate, to assist in
the commercialization of our product candidates, if approved. We currently possess limited resources and may not be successful in establishing collaborations or co-promotion arrangements
on acceptable terms, if at all. We also face competition in our search for collaborators and co-promoters. By entering into strategic collaborations or similar arrangements, we will rely
on third parties for financial resources and for development, commercialization, sales and marketing and regulatory expertise. Any collaborators may fail to develop or effectively commercialize our
product candidates because they cannot obtain the necessary regulatory approvals, they lack adequate financial or other resources or they decide to focus on other initiatives. Any failure of our third
party collaborators to successfully market and commercialize our product candidates outside of the United States would diminish our revenues and harm our results of operations.
Limitations on our patent rights relating to our product candidates may limit our ability to prevent third parties from competing against us.
Our success will depend on our ability to obtain and maintain patent protection for our proprietary technologies and our product
candidates, preserve our trade secrets, prevent third parties from infringing upon our proprietary rights and operate without infringing upon the proprietary rights of others. To that end, we seek
patent protection in the United States and internationally for our product candidates. Our policy is to actively seek to protect our proprietary
position by, among other things, filing patent applications in the United States and abroad (including Europe, Canada and certain other countries when appropriate) relating to proprietary technologies
that are important to the development of our business.
The
strength of patents in the pharmaceutical industry involves complex legal and scientific questions and can be uncertain. Patent applications in the United States and most other
countries are confidential for a period of time until they are published, and publication of discoveries in scientific or patent literature typically lags actual discoveries by several months or more.
As a result, we cannot be certain that we were the first to conceive inventions covered by our patents and pending patent applications or that we were the first to file patent applications for such
inventions. In addition, we cannot be certain that our patent applications will be granted, that any issued patents will adequately protect our intellectual property or that such patents will not be
challenged, narrowed, invalidated or circumvented.
We
also rely upon unpatented trade secrets, unpatented know-how and continuing technological innovation to develop and maintain our competitive position, which we seek to
protect, in part, by confidentiality agreements with our employees and our collaborators and consultants. We also have agreements with our employees and selected consultants that obligate them to
assign their inventions to us. It is possible that technology relevant to our business will be independently developed by a person
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that
is not a party to such an agreement. Furthermore, if the employees and consultants that are parties to these agreements breach or violate the terms of these agreements, we may not have adequate
remedies, and we could lose our trade secrets through such breaches or violations. Further, our trade secrets could otherwise become known or be independently discovered by our competitors. Any
failure to adequately prevent disclosure of our trade secrets and other proprietary information could have a material adverse impact on our business.
In
addition, the laws of certain foreign countries do not protect proprietary rights to the same extent or in the same manner as the United States, and therefore, we may encounter
problems in protecting and defending our intellectual property in certain foreign jurisdictions.
If we are sued for infringing intellectual property rights of third parties, it will be costly and time consuming, and an unfavorable outcome in that litigation would have a
material adverse effect on our business.
Our commercial success depends upon our ability and the ability of our collaborators to develop, manufacture, market and sell their
approved products and our product candidates and use our proprietary technologies without infringing the proprietary rights of third
parties. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we and our collaborators are developing product
candidates. As the pharmaceutical industry expands and more patents are issued, the risk increases that our collaborators' approved products and our product candidates may give rise to claims of
infringement of the patent rights of others. There may be issued patents of third parties of which we are currently unaware, that may be infringed by our collaborators' approved products or our
product candidates including SPN-538 and Epliga, which could prevent us from being able to commercialize these product candidates. Because patent applications can take many years to issue, there may
be currently pending applications which may later result in issued patents that our collaborators' approved products or our product candidates may infringe.
We
may be exposed to, or threatened with, future litigation by third parties alleging that our collaborators' approved products and product candidates infringe their intellectual
property rights. If one of our collaborators' approved products and product candidates is found to infringe the intellectual property rights of a third party, we or our collaborators could be enjoined
by a court and required to pay damages and could be unable to commercialize the applicable approved products and product candidates unless we obtain a license to the patent. A license may not be
available to us on acceptable terms, if at all. In addition, during litigation, the patent holder could obtain a preliminary injunction or other equitable relief which could prohibit us from making,
using or selling our approved product candidates, pending a trial on the merits, which may not occur for several years.
There
is a substantial amount of litigation involving patent and other intellectual property rights in the pharmaceutical industry generally. If a third party claims that we or our
collaborators infringe its intellectual property rights, we may face a number of issues, including, but not limited to:
•
infringement and other intellectual property claims which, regardless of merit, may be expensive and
time-consuming to litigate and may divert our management's attention from our core business;
•
substantial damages for infringement, which we may have to pay if a court decides that the product at issue infringes on
or violates the third party's rights, and, if the court finds that the infringement was willful, we could be ordered to pay treble damages and the patent owner's attorneys' fees;
•
a court prohibiting us from selling our approved product candidate, if any, unless the third party licenses its rights to
us, which it is not required to do;
•
if a license is available from a third party, we may have to pay substantial royalties, fees or grant cross-licenses to
our intellectual property rights; and
•
redesigning our product candidates so they do not infringe, which may not be possible or may require substantial monetary
expenditures and time.
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We may become involved in lawsuits to protect or enforce our patents, which could be expensive, time consuming and unsuccessful.
Competitors may infringe our patents. To counter infringement or unauthorized use, we may be required to file infringement claims,
which can be expensive and time consuming. For example, we are involved in the following matters related to Paragraph IV Certification Notice Letters that we have received in connection with
our collaborators' products. In connection with an ANDA, a Paragraph IV Certification Notice Letter notifies the FDA that one or more patents listed in the FDA's Approved Drug Product List
(Orange Book) is alleged invalid, unenforceable or will not be infringed by the ANDA product.
•
Sanctura XR Litigation.
We are involved in a patent
infringement matter filed in response to three Paragraph IV Certification Notice Letters that we received in June 2009, November 2009 and April 2010 regarding an ANDA submitted to the FDA by
each of Watson Laboratories, Inc., Sandoz, Inc. and Paddock Laboratories, Inc., respectively, requesting approval to market and sell generic versions of Sanctura XR trospium
chloride extended release capsules, a product that is manufactured and sold by Allergan, Inc., which is the marketing partner of Endo Pharmaceuticals Solutions Inc. The ANDA filers alleged in
their respective original notice letters that the U.S. Patent Number 7,410,978 issued to us is invalid, unenforceable and/or will not be infringed by the respective company's manufacture, use
or sale of the product described in its ANDA submission. Our patent covers extended-release formulations containing trospium chloride and expires on February 1, 2025, and is licensed to Endo
Pharmaceuticals Solutions Inc. Each of the ANDA filers subsequently amended their respective notice letters to include other U.S. patents related to Sanctura XR trospium chloride (specifically,
U.S. Patent Nos. 7,759,359; 7,763,635; 7,781,448; and 7,781,449). We intend to support Allergan, Inc. and Endo Pharmaceuticals Solutions Inc. in their efforts to contest this
matter.
•
Oracea Litigation.
We are involved in a patent
infringement action filed in response to a Paragraph IV Certification Notice Letter that we received in November 2010 regarding an ANDA, submitted to the FDA by Lupin Limited, requesting
approval to market and sell generic versions of Oracea doxycycline, a product that is manufactured and sold by Galderma Laboratories, L.P. The ANDA filer, Lupin, alleged in the original notice
letter that the U.S. Patent Number 7,749,532 issued to us is invalid, unenforceable and/or will not be infringed by the manufacture, use or sale of the product described in its ANDA submission.
In addition, we have received in October 2010, a complaint for Declaratory Judgment from Mylan alleging invalidity of the 7,749,532 patent. Our patent covers once-daily formulations of
doxycycline, including methods of their use in treating rosacea and processes regarding their preparation, and expires on December 19, 2027, and is licensed to Galderma
Laboratories, L.P. In both cases, we intend to support Galderma Laboratories, L.P. in its efforts to contest this matter.
•
Intuniv Litigation.
We are involved in several patent
infringement actions filed in response to Paragraph IV Certification Notice Letters that we received in March, April and October 2010 regarding ANDAs submitted to the FDA requesting approval to
market and sell generic versions of Intuniv, a product that is manufactured and sold by Shire plc. The defendants in these cases are Teva Pharmaceuticals USA, Inc. and Teva
Pharmaceutical Industries, Ltd; Actavis Elizabeth LLC and Actavis Inc.; Anchen Pharmaceuticals, Inc. and Anchen, Inc.; Watson Pharmaceuticals, Inc., Watson
Laboratories, Inc. - Florida Watson Pharma, Inc. and ANDA, Inc.; and Impax Laboratories, Inc. The ANDA filers allege that our U.S. Patent Numbers 6,287,599 and 6,811,794 are invalid,
unenforceable and/or will not be infringed by the manufacture, use or sale of the product described in its ANDA submissions. Our patents cover extended-release formulations containing guanfacine
hydrochloride, with the latest patent expiration in 2022. Both of these patents are licensed to Shire plc. We intend to support Shire plc in its efforts to contest this matter.
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Unless
a court determines that our patents are invalid or unenforceable, we do not expect an adverse decision in any of the foregoing matters will have a material adverse effect on our
business as we have monetized the future revenues associated with each of Sanctura XR, Oracea and Intuniv. However, in any infringement proceeding including the foregoing, a court may decide that a
patent of ours is not valid or is unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An
adverse result in any litigation or defense proceedings could put one or more of our patents at risk of being invalidated or interpreted narrowly and could put our patent application at risk of not
issuing.
Interference
proceedings brought by the U.S. Patent and Trademark Office, or USPTO, may be necessary to determine the priority of inventions with respect to our patents and patent
applications or those of our collaborators. An unfavorable outcome could require us to cease using the technology or to attempt to license rights to it from the prevailing party. Our business could be
harmed if a prevailing party does not offer us a license on terms that are acceptable to us. Litigation or interference proceedings may fail and, even if successful, may result in substantial costs
and distraction of our management and other employees. We may not be able to prevent, alone or with our collaborators, misappropriation of our proprietary rights, particularly in countries where the
laws may not protect those rights as fully as in the United States.
Furthermore,
because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could
be compromised by disclosure during this type of litigation. In addition, there could be public announcements of the results of hearings, motions or other interim proceeding or developments. If
securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock. There can be no assurance that our product
candidate will not be subject to same risks.
The commercial success of our product candidates, if approved, depends upon attaining market acceptance by physicians, patients, third party payors and the medical
community.
Even if our product candidates are approved for sale by the appropriate regulatory authorities, physicians may not prescribe our
approved product candidates, in which case we would not generate the revenues we anticipate. Market acceptance of any of our product candidates by physicians, patients, third party payors and the
medical community depends on, among other things:
•
our ability to provide acceptable evidence of safety and efficacy;
•
acceptance by physicians and patients of each product candidate as a safe and effective treatment;
•
perceived advantages of our product candidates over alternative treatments;
•
relative convenience and ease of administration of our product candidates compared to existing treatments;
•
any labeling restrictions placed upon each product candidate in connection with its approval;
•
the prevalence and severity of the adverse side effects of each of our product candidates;
•
the clinical indications for which each of our product candidates is approved, including any potential additional
restrictions placed upon each product candidate in connection with its approval;
•
prevalence of the disease or condition for which each product candidate is approved;
•
the cost of treatment in relation to alternative treatments, including generic products;
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•
the extent to which each product is approved for inclusion on formularies of hospitals and managed care organizations;
•
any negative publicity related to our or our competitors' products, including as a result of any related adverse side
effects;
•
the effectiveness of our or any current or future collaborators' sales, marketing and distribution strategies;
•
pricing and cost effectiveness; and
•
the availability of adequate reimbursement by third parties.
For
example, new AEDs that were introduced in the market as new chemical entities, or NCEs, historically have not quickly gained significant market share against existing molecules in
the epilepsy market, because physicians are often reluctant to change a stable patient's existing therapy (even for a NCE) and risk a breakthrough seizure in their patients. Although our epilepsy
product candidates are not NCEs, if approved, they would be subject to the risk that they will not be able to gain significant market share against existing AEDs. If our product candidates do not
achieve an adequate level of acceptance by physicians, third-party payors and patients, we may not generate sufficient revenues from these product candidates to become or remain profitable on a timely
basis, if at all.
Even if our product candidates receive regulatory approval, they may be subject to restrictions or withdrawal from the market and we may be subject to penalties if we fail
to comply with regulatory requirements.
Even if U.S. regulatory approval is obtained, the FDA may still impose significant restrictions on a product's indicated uses or
marketing or impose ongoing requirements for potentially costly post-approval studies. Our product candidates would also be, and our collaborators' approved products are, subject to
ongoing FDA requirements governing the labeling, packaging, storage, advertising, promotion, recordkeeping and submission of safety and other post-market information. In addition,
manufacturers of drug products and their facilities are subject to continual review and periodic inspections by the FDA and other regulatory authorities for compliance with current good manufacturing
practices, or GMP, regulations. If we, our collaborators or a regulatory authority discovers previously unknown problems with a product, such as side effects of unanticipated severity or frequency, or
problems with the facility where the product is manufactured, a regulatory authority may impose restrictions on that product or the manufacturer, including requiring withdrawal of the product from the
market or suspension of manufacturing. If we, our collaborators, our collaborators' approved products or our product candidates, or the manufacturing facilities for our collaborators' approved
products or our product candidates fail to comply with applicable regulatory requirements, a regulatory authority may:
•
issue warning letters or untitled letters;
•
impose civil or criminal penalties;
•
suspend regulatory approval;
•
suspend any ongoing bioequivalence and/or clinical trials;
•
refuse to approve pending applications or supplements to applications filed by us;
•
impose restrictions on operations, including costly new manufacturing requirements, or suspension of production; or
•
seize or detain products or require us to initiate a product recall.
In
addition, if any of our product candidates are approved, our product labeling, advertising and promotion would be subject to regulatory requirements and continuing regulatory review.
The FDA strictly regulates the promotional claims that may be made about prescription products. In particular, a
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product
may not be promoted for uses that are not approved by the FDA as reflected in the product's approved labeling. If we receive marketing approval for our product candidates, physicians may
nevertheless prescribe our product candidates to their patients in a manner that is inconsistent with the approved label. The FDA and other authorities actively enforce the laws and regulations
prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant sanctions. The federal
government has levied large civil and criminal fines against companies for alleged improper promotion and has enjoined several companies from engaging in off-label promotion. If we are
found to have promoted off-label uses, we may be enjoined from such off-label promotion and become subject to significant liability, which would have an adverse effect on our
reputation, business and revenues, if any.
If we fail to produce our product candidates in the volumes that we require on a timely basis, or fail to comply with stringent regulations applicable to pharmaceutical drug
manufacturers, we may face delays in the development and commercialization of our product candidates.
As we do not currently own or operate manufacturing facilities for the commercial production of any of our product candidates, we
currently depend on third-party contract manufacturers for the supply of the active pharmaceutical ingredients for our product candidates, including drug substance and final product. Any future
curtailment in the availability of raw materials could result in production or other delays with consequent adverse effects on us. In addition, because regulatory authorities must generally approve
raw material sources for pharmaceutical products, changes in raw material suppliers may result in production delays or higher raw material costs.
The
manufacture of pharmaceutical products requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls.
Pharmaceutical companies often encounter difficulties in production, particularly in scaling up production, of their products. These problems include manufacturing difficulties relating to production
costs and yields, quality control, including stability of the product and quality assurance testing, shortages of qualified personnel, as well as compliance with federal, state and foreign
regulations. If we are unable to demonstrate stability in accordance with commercial requirements, or if our manufacturers were to encounter difficulties or otherwise fail to comply with their
obligations to us, our ability to obtain FDA approval and market our product candidates would be jeopardized. In addition, any delay or interruption in the supply of clinical trial supplies could
delay or prohibit the completion of our bioequivalence and/or clinical trials, increase the costs associated with conducting our bioequivalence and/or clinical trials and, depending upon the period of
delay, require us to commence new trials at significant additional expense or to terminate a trial.
Manufacturers
of pharmaceutical products need to comply with GMP requirements enforced by the FDA through their facilities inspection programs. These requirements include, among other
things, quality control, quality assurance and the maintenance of records and documentation. Manufacturers of our product candidates may be unable to comply with these GMP requirements and with other
FDA and foreign regulatory requirements. A failure to comply with these requirements may result in fines and civil penalties, suspension of production, suspension or delay in product approval, product
seizure or recall, or withdrawal of product approval. If the safety of any of our product candidates is compromised due to failure to adhere to applicable laws or for other reasons, we may not be able
to obtain regulatory approval for such product candidate or successfully commercialize such product candidate, and we may be held liable for any injuries sustained as a result. Any of these factors
could cause a delay in clinical developments, regulatory submissions, approvals or commercialization of our product candidates, entail higher costs or result in our being unable to effectively
commercialize our product candidates. Furthermore, if we fail to obtain the required commercial quantities on a timely basis and at commercially reasonable prices, we may be unable to meet demand for
our approved product candidates, if any, and would lose potential revenues.
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We depend on collaborators to work with us to develop, manufacture and commercialize their and our product candidates.
We have a license agreement with United Therapeutics to use one of our proprietary technologies for an oral formulation of treprostinil
diethanolamine, or treprostinil, for the treatment of pulmonary arterial hypertension, or PAH, as well as for other indications. This oral formulation is currently being evaluated by United
Therapeutics in Phase III trials for PAH. If United Therapeutics receives approval to market and sell this product candidate, we are entitled to receive single digit gross royalties based on
worldwide net sales. We are also entitled to receive milestones and royalties for use of this formulation in other indications. If we materially breach any of our obligations under the license
agreement, however, we could lose the potential to receive any future royalty payments thereunder, which could be financially significant to us.
In
addition, we may enter into additional collaborations in the future. Our future collaboration agreements may have the effect of limiting the areas of research and development that we
may pursue, either alone or in collaboration with third parties. Much of the potential revenues from these future collaborations may consist of contingent payments, such as payments for achieving
development milestones and royalties payable on sales of developed products. The milestone and royalty revenues that we may receive under these collaborations will depend upon our collaborators'
ability to successfully develop, introduce, market and sell new products. Future collaboration partners may fail to develop or effectively commercialize products using our product candidates or
technologies because they, among other things:
•
may change the focus of their development and commercialization efforts or may have insufficient resources to effectively
develop our product candidates. Pharmaceutical and biotechnology companies historically have re-evaluated their development and commercialization priorities following mergers and
consolidations, which have been common in recent years in these industries. The ability of some of our product candidates to reach their potential could be limited if our future collaborators decrease
or fail to increase development or commercialization efforts related to those product candidates;
•
may decide not to devote the necessary resources due to internal constraints, such as limited personnel with the requisite
scientific expertise or limited cash resources, or the belief that other drug development programs may have a higher likelihood of obtaining marketing approval or may potentially generate a greater
return on investment;
•
may develop and commercialize, either alone or with others, drugs that are similar to or competitive with the product
candidates that are the subject of their collaborations with us;
•
may not have sufficient resources necessary to carry the product candidate through clinical development, marketing
approval and commercialization;
•
may fail to comply with applicable regulatory requirements;
•
may not be able to obtain the necessary marketing approvals; or
•
may breach or terminate their arrangement with us.
If
collaboration partners fail to develop or effectively commercialize our product candidates for any of these reasons, we may not be able to replace the collaboration partner with
another partner to develop and commercialize the product candidate under the terms of the collaboration. Further, even if we are able to replace the collaboration partner, we may not be able to do so
on commercially favorable terms. As a result, the development and commercialization of the affected product candidate could be delayed, curtailed or terminated because we may not have sufficient
financial resources or capabilities to continue development and commercialization of the product candidate on our own, which could adversely affect our results of operations.
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We rely and will continue to rely on outsourcing arrangements for certain of our activities, including clinical research of our product candidates and manufacturing of our
compounds and product candidates for our preclinical research and clinical trials.
We rely on outsourcing arrangements for some of our activities, including manufacturing, preclinical and clinical research, data
collection and analysis. We may have limited control over these third parties and we cannot guarantee that they will perform their obligations in an effective and timely manner. Our reliance on third
parties, including third-party CROs, and contract manufacturing organizations, or CMOs, entails risks including, but not limited to:
•
non-compliance by third parties with regulatory and quality control standards;
•
sanctions imposed by regulatory authorities if compounds supplied or manufactured by a third party supplier or
manufacturer fail to comply with applicable regulatory standards;
•
the possible breach of the agreements by the CROs or CMOs because of factors beyond our control or the insolvency of any
of these third parties or other financial difficulties, labor unrest, natural disasters or other factors adversely affecting their ability to conduct their business; and
•
termination or non-renewal of an agreement by the third parties, at a time that is costly or inconvenient for
us, because of our breach of the manufacturing agreement or based on their own business priorities.
We
do not own or operate manufacturing facilities for the production of any of our product candidates, nor do we have plans to develop our own manufacturing operations in the foreseeable
future. We currently depend on third-party contract manufacturers for all of our required raw materials, drug substance and drug product for our preclinical research and clinical trials. For
SPN-538 and Epliga, we are currently relying on single suppliers for raw materials including drug substance and single manufacturers for the final product. If any of these vendors is
unable to perform its obligations to us, including due to violations of the FDA's requirements, our ability to meet regulatory requirements or projected timelines and necessary quality standards for
successful manufacturing of the various required lots of material for our development and commercialization efforts would be adversely affected. Further, if we were required to change vendors, it
could result in delays in our regulatory approval efforts and significantly increase our costs. Accordingly, the loss of any of our current or future third-party manufacturers or suppliers could have
a material adverse effect on our business, results of operations, financial condition and prospects.
We
do not have any current contractual relationships for the manufacture of commercial supplies of any of our product candidates. In connection with any approval, we intend to enter into
agreements with third-party contract manufacturers for the commercial production of those products. The number of third-party manufacturers with the expertise, required regulatory approvals and
facilities to manufacture bulk drug substance on a commercial scale is limited. Therefore, we may not be able to enter into such arrangements with third-party manufacturers in a timely manner, on
acceptable terms or at all. Failure to secure such contractual arrangements would harm the commercial prospects for our product candidates, our costs could increase and our ability to generate
revenues could be delayed.
We have in-licensed or acquired a portion of our intellectual property necessary to develop certain of our psychiatry product candidates, and if we fail to
comply with our obligations under any of these arrangements, we could lose such intellectual property rights.
We are a party to and rely on several arrangements with third parties, such as those with Afecta Pharmaceuticals, Inc., or
Afecta, and Rune Healthcare Limited, or Rune, which give us rights to intellectual property that is necessary for the development of certain of our product candidates including SPN-810 and
SPN-809, respectively. In addition, we may enter into similar arrangements in the future. Our current arrangements impose various development, royalty and other obligations on us.
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If
we materially breach these obligations or if Afecta or Rune fail to adequately perform their respective obligations, these exclusive arrangements could be terminated, which would result in our
inability to develop, manufacture and sell products that are covered by such intellectual property.
Even if our product candidates receive regulatory approval in the United States, we or our collaborators may never receive approval to commercialize our product candidates
outside of the United States.
In order to market any products outside of the United States, we must establish and comply with numerous and varying regulatory
requirements of other jurisdictions regarding safety and efficacy. Approval procedures vary among jurisdictions and can involve product testing and administrative review periods different from, and
greater than, those in the United States. The time required to obtain approval in other jurisdictions might differ from that required to obtain FDA approval. The regulatory approval process in other
jurisdictions may include all of the risks detailed above regarding FDA approval in the United States as well as other risks. For example, legislation analogous to Section 505(b)(2) of the FDCA
in the United States, which relates to the ability of an NDA applicant to use published data not developed by such applicant, may not exist in other countries. In territories where data is not freely
available, we may not have the ability to commercialize our products without negotiating rights from third parties to refer to their clinical data in our regulatory applications, which could require
the expenditure of significant additional funds.
In
addition, regulatory approval in one jurisdiction does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one jurisdiction may have
a negative effect on the regulatory processes in others. Failure to obtain regulatory approvals in other jurisdictions or any delay or setback in obtaining such approvals could have the same adverse
effects detailed above regarding FDA approval in the United States. As described above, such effects include the risks that any of our product candidates may not be approved for all indications
requested, which could limit the uses of our product candidates and have an adverse effect on their commercial potential or require costly post-marketing studies.
Guidelines and recommendations published by various organizations can reduce the use of our product candidates.
Government agencies promulgate regulations and guidelines directly applicable to us and to our product candidates. In addition,
professional societies, practice management groups, private health and science foundations and organizations involved in various diseases from time to time may also publish guidelines or
recommendations to the health care and patient communities. Recommendations of government agencies or these other groups or organizations may relate to such matters as usage, dosage, route of
administration and use of concomitant therapies. Recommendations or guidelines suggesting the reduced use of our product candidates or the use of competitive or alternative products that are followed
by patients and health care providers could result in decreased use of our product candidates.
We are subject to uncertainty relating to payment or reimbursement policies which, if not favorable for our product candidates, could hinder or prevent our commercial
success.
Our ability or our collaborators' ability to commercialize our product candidates, including SPN-538 and Epliga, successfully will
depend in part on the coverage and reimbursement levels set by governmental authorities, private health insurers, managed care organizations and other third-party payors. As a threshold for coverage
and reimbursement, third-party payors generally require that drug products have been approved for marketing by the FDA. Third-party payors also are increasingly challenging the effectiveness of and
prices charged for medical products and services. Government authorities and these third-party payors have attempted to control costs, in some instances, by limiting coverage and the amount of
reimbursement for particular medications or encouraging the use of
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lower-cost
generic AEDs. We cannot be sure that reimbursement will be available for any of the products that we develop and, if reimbursement is available, the level of reimbursement.
Reduced or partial payment or reimbursement coverage could make our product candidates, including SPN-538 and Epliga, less attractive to patients and prescribing physicians. We also may be
required to sell our product candidates at a discount, which would adversely affect our ability to realize an appropriate return on our investment in our product candidates or compete on price.
We
expect that private insurers and managed care organizations will consider the efficacy, cost effectiveness and safety of our product candidates, including SPN-538 and Epliga, in
determining whether to approve reimbursement for such product candidates and at what level. Because each third-party payor individually approves payment or reimbursement, obtaining these approvals can
be a time consuming and expensive process that could require us to provide scientific or clinical support for
the use of each of our product candidates separately to each third-party payor. In some cases it could take several months or years before a particular private insurer or managed care organization
reviews a particular product, and we may ultimately be unsuccessful in obtaining coverage. Our competitors generally have larger organizations, as well as existing business relationships with
third-party payors relating to their products. Our business would be materially adversely affected if we do not receive approval for reimbursement of our product candidates from private insurers on a
timely or satisfactory basis. Our approved product candidates, if any, may not be considered cost-effective, and coverage and reimbursement may not be available or sufficient to allow us
to sell our product candidates on a profitable basis. Our business would also be adversely affected if private insurers, managed care organizations, the Medicare program or other reimbursing bodies or
payors limit the indications for which our product candidates will be reimbursed to a smaller set than we believe they are effective in treating.
In
some foreign countries, particularly Canada and the countries of Europe, the pricing of prescription pharmaceuticals is subject to strict governmental control. In these countries,
pricing negotiations with governmental authorities can take six to 12 months or longer after the receipt of regulatory approval and product launch. To obtain favorable reimbursement for the
indications sought or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidates to other available
therapies. If reimbursement for our product candidates is unavailable in any country in which reimbursement is sought, limited in scope or amount, or if pricing is set at unsatisfactory levels, our
business could be materially harmed.
In
addition, many managed care organizations negotiate the price of products and develop formularies which establish pricing and reimbursement levels. Exclusion of a product from a
formulary can lead to its sharply reduced usage in the managed care organization's patient population. If our product candidates are not included within an adequate number of formularies or adequate
payment or reimbursement levels are not provided, or if those policies increasingly favor generic products, our market share and gross margins could be negatively affected, which would have a material
adverse effect on our overall business and financial condition.
We
expect to experience pricing pressures due to the potential healthcare reforms discussed elsewhere in this prospectus, as well as the trend toward programs aimed at reducing health
care costs, the increasing influence of health maintenance organizations and additional legislative proposals.
We face potential product liability exposure, and, if successful claims are brought against us, we may incur substantial liabilities.
The use of our product candidates in clinical trials and the sale of any of our product candidates for which we may obtain marketing
approval expose us to the risk of product liability claims. Product liability claims might be brought against us by consumers, healthcare providers or others selling or otherwise coming into contact
with our product candidates. If we cannot successfully defend ourselves
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against
product liability claims, we could incur substantial liabilities. In addition, product liability claims may result in:
•
decreased demand for any product candidate that has received approval and is being commercialized;
•
impairment of our business reputation and exposure to adverse publicity;
•
withdrawal of bioequivalence and/or clinical trial participants;
•
initiation of investigations by regulators;
•
costs of related litigation;
•
distraction of management's attention from our primary business;
•
substantial monetary awards to patients or other claimants;
•
loss of revenues; and
•
the inability to commercialize any of our product candidates for which we obtain marketing approval.
Our
product liability insurance coverage for our clinical trials is limited to $5 million per occurrence, and $10 million in the aggregate, and covers bodily injury and
property damage arising from our clinical trials, subject to industry-standard terms, conditions and exclusions. Our insurance coverage may not be sufficient to reimburse us for any expenses or losses
we may suffer. Moreover, insurance coverage is becoming increasingly expensive, and, in the future, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to
protect us against losses. If and when we obtain marketing approval for any of our product candidates, we intend to expand our insurance coverage to include the sale of commercial products; however,
we may be unable to obtain this product liability insurance on commercially reasonable terms. On occasion, large judgments have been awarded in class action lawsuits based on drugs that had
unanticipated side effects. A successful product liability claim or series of claims brought against us could cause our stock price to decline and, if judgments exceed our insurance coverage, could
decrease our cash and adversely affect our business.
Our failure to successfully develop and market product candidates would impair our ability to grow.
As part of our growth strategy, we intend to develop and market additional product candidates. We are pursuing various therapeutic
opportunities through our pipeline. We may spend several years completing our development of any particular current or future internal product candidate, and failure can occur at any stage. The
product candidates to which we allocate our resources may not end up being successful. In addition, because our internal research capabilities are limited, we may be dependent upon pharmaceutical
companies, academic scientists and other researchers to sell or license products or technology to us. The success of this strategy depends partly upon our ability to identify, select, discover and
acquire promising pharmaceutical product candidates and products.
The
process of proposing, negotiating and implementing a license or acquisition of a product candidate or approved product is lengthy and complex. Other companies, including some with
substantially
greater financial, marketing and sales resources, may compete with us for the license or acquisition of product candidates and approved products. We have limited resources to identify and execute the
acquisition or in-licensing of third-party products, businesses and technologies and integrate them into our current infrastructure. Moreover, we may devote resources to potential
acquisitions or in-licensing opportunities that are never completed, or we may fail to realize the anticipated benefits of such efforts. We may not be able to acquire the rights to
additional product candidates on terms that we find acceptable, or at all.
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In addition, future acquisitions may entail numerous operational and financial risks, including:
•
exposure to unknown liabilities;
•
disruption of our business and diversion of our management's time and attention to develop acquired products or
technologies;
•
incurrence of substantial debt, dilutive issuances of securities or depletion of cash to pay for acquisitions;
•
higher than expected acquisition and integration costs;
•
difficulty in combining the operations and personnel of any acquired businesses with our operations and personnel;
•
increased amortization expenses;
•
impairment of relationships with key suppliers or customers of any acquired businesses due to changes in management and
ownership; and
•
inability to motivate key employees of any acquired businesses.
Further,
any product candidate that we acquire may require additional development efforts prior to commercial sale, including extensive clinical testing and approval by the FDA and
applicable foreign regulatory authorities. All product candidates are prone to risks of failure typical of pharmaceutical product development, including the possibility that a product candidate will
not be shown to be sufficiently safe and effective for approval by regulatory authorities.
Healthcare reform measures could hinder or prevent our product candidates' commercial success.
The U.S. government and other governments have shown significant interest in pursuing healthcare reform. Any government-adopted reform
measures could adversely impact the pricing of healthcare products and services in the United States or internationally and the amount of reimbursement available from governmental agencies or other
third party payors. The continuing efforts of the U.S. and foreign governments, insurance companies, managed care organizations and other payors of health care services to contain or reduce healthcare
costs may adversely affect our ability to set prices for any approved product candidate which we believe are fair, and our ability to generate revenues and achieve and maintain profitability.
In
both the United States and some foreign jurisdictions, there have been a number of legislative and regulatory proposals and initiatives to change the health care system in ways that
could affect our ability to sell any approved product candidate profitably. Some of these proposed and implemented reforms could result in reduced reimbursement rates for our potential products, which
would adversely affect our business strategy, operations and financial results. For example, in March 2010, President Obama signed into law a legislative overhaul of the U.S. healthcare system, known
as the Patient Protection and Affordable Care Act of 2010, as amended by the Healthcare and Education Affordability Reconciliation Act of 2010. This law, which we refer to as the PPACA, may have far
reaching consequences for biopharmaceutical companies like us. As a result of this new legislation, substantial changes could be made to the current system for paying for healthcare in the United
States, including changes made in order to extend medical benefits to those who currently lack insurance coverage. Extending coverage to a large population could substantially change the structure of
the health insurance system and the methodology for reimbursing medical services and drugs. These structural changes could entail modifications to the existing system of private payors and government
programs, such as Medicare and Medicaid, creation of a government-sponsored healthcare insurance source, or some combination of both, as well as other changes. Restructuring the coverage of medical
care in the United States could impact the reimbursement for prescribed drugs, including our product
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candidates.
If reimbursement for our approved product candidates, if any, is substantially less that we expect in the future, or rebate obligations associated with them are substantially increased,
our business could be materially and adversely impacted.
In
September 2007, the Food and Drug Administration Amendments Act of 2007 was enacted, giving the FDA enhanced post-marketing authority, including the authority to require
post-marketing studies and clinical trials, labeling changes based on new safety information, and compliance with risk evaluations and mitigation strategies approved by the FDA. The FDA's
exercise of this authority could result in delays or increased costs during product development, clinical trials and regulatory review, increased costs to assure compliance with
post-approval regulatory requirements, and potential restrictions on the sale and/or distribution of any approved product candidates.
Future
federal and state proposals and health care reforms could limit the prices that can be charged for the product candidates that we develop and may further limit our commercial
opportunity. Our results of operations could be materially adversely affected by the PPACA by the possible effect of such current or future legislation on amounts that private insurers will pay and by
other health care reforms that may be enacted or adopted in the future.
We will need to increase the size of our organization, and we may experience difficulties in managing growth.
We will need to manage our anticipated growth and increased operational activity. Our personnel, systems and facilities currently in
place may not be adequate to support this future growth. Our need to effectively execute our growth strategy requires that we:
•
manage our regulatory approval trials effectively;
•
manage our internal development efforts effectively while complying with our contractual obligations to licensors,
licensees, contractors, collaborators and other third parties;
•
develop internal sales and marketing capabilities;
•
commercialize our product candidates;
•
improve our operational, financial and management controls, reporting systems and procedures; and
•
attract and motivate sufficient numbers of talented employees.
This
future growth could place a strain on our administrative and operational infrastructure and may require our management to divert a disproportionate amount of its attention away from
our day-to-day activities. We may not be able to effectively manage the
expansion of our operations or recruit and train additional qualified personnel, which may result in weaknesses in our infrastructure, give rise to operational mistakes, loss of business
opportunities, loss of employees and reduced productivity among remaining employees. We may not be able to make improvements to our management information and control systems in an efficient or timely
manner and may discover deficiencies in existing systems and controls. If our management is unable to effectively manage our expected growth, our expenses may increase more than expected, our ability
to generate or increase our revenues could be reduced and we may not be able to implement our business strategy. Our future financial performance and our ability to compete effectively will depend, in
part, on our ability to effectively manage any future growth.
We may not be able to manage our business effectively if we are unable to attract and motivate key personnel or if we lose any of our current management team.
We may not be able to attract or motivate qualified management and scientific and clinical personnel in the future due to the intense
competition for qualified personnel among biotechnology,
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pharmaceutical
and other businesses. Our industry has experienced a high rate of turnover of management personnel in recent years. If we are not able to attract and motivate necessary personnel to
accomplish our business objectives, we may experience constraints that will significantly impede the achievement of our objectives.
We
are highly dependent on the development, regulatory, commercial and financial expertise of our management, particularly Jack A. Khattar, our President and Chief Executive Officer. We
do not have any employment agreements with any member of our senior management team except Mr. Khattar. Although no member of our management team has informed us to date that he or she intends
to resign or retire, if we lose any members of our management team in the future, we may not be able to find suitable replacements in a timely fashion, if at all, which may serve to impede the
achievement of our research, development and commercialization objectives. In addition to the competition for personnel, the greater Washington D.C. metropolitan area in particular is characterized by
a high cost of living. As such, we could have difficulty attracting experienced personnel to our company and may be required to expend significant financial resources in our employee recruitment
efforts.
We
also have scientific and clinical advisors who assist us in formulating our product development and clinical strategies. These advisors are not our employees and may have commitments
to, or consulting or advisory contracts with, other entities that may limit their availability to us, or may have arrangements with other companies to assist in the development of products that may
compete with ours.
We will need to obtain FDA approval of any proposed product names, and any failure or delay associated with such approval may adversely impact our business.
Any name we intend to use for our product candidates will require approval from the FDA regardless of whether we have secured a formal
trademark registration from the U.S. Patent and Trademark Office. The FDA typically conducts a review of proposed product names, including an evaluation of potential for confusion with other product
names. The FDA may object to any product name we submit if it believes the name inappropriately implies medical claims. We have in the past been required to change a proposed product name. If the FDA
objects to any of our proposed product names, we may be required to adopt an alternative name for our product candidates. If we adopt an alternative name, we would lose the benefit of our existing
trademark applications for such product candidate, and may be required to expend significant additional resources in an effort to identify a suitable product name that would qualify under applicable
trademark laws, not infringe the existing rights of third parties and be acceptable to the FDA. We may be unable to build a successful brand identity for a new trademark in a timely manner or at all,
which would limit our ability to commercialize our product candidates.
If we fail to comply with healthcare regulations, we could face substantial penalties and our business, operations and financial condition could be adversely affected.
As a manufacturer of pharmaceuticals, certain federal and state healthcare laws and regulations pertaining to fraud and abuse and
patients' rights are and will be applicable to our business. We could be subject to healthcare fraud and abuse and patient privacy regulation by both the federal government and the states in which we
conduct our business. The regulations include:
•
the federal healthcare program anti-kickback law, which prohibits, among other things, persons from
soliciting, receiving or providing remuneration, directly or indirectly, to induce either the referral of an individual, for an item or service or the purchasing or ordering of a good or service, for
which payment may be made under federal healthcare programs such as the Medicare and Medicaid programs;
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•
federal false claims laws which prohibit, among other things, individuals or entities from knowingly presenting, or
causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payors that are false or fraudulent, and which may apply to entities like us which provide coding and billing
advice to customers;
•
the federal Health Insurance Portability and Accountability Act of 1996, which prohibits executing a scheme to defraud any
healthcare benefit program or making false statements relating to healthcare matters and which also imposes certain requirements relating to the privacy, security and transmission of individually
identifiable health information;
•
the federal transparency requirements under the PPACA requires manufacturers of drugs, devices, biologics, and medical
supplies to report to the Department of Health and Human Services information related to physician payments and other transfers of value and physician ownership and investment interests;
•
the FDCA, which among other things, strictly regulates drug product marketing, prohibits manufacturers from marketing drug
products for off-label use and regulates the distribution of drug samples; and
•
state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may
apply to items or services reimbursed by any third-party payor, including commercial insurers, and state laws governing the privacy and security of health information in certain circumstances, many of
which differ from each other in significant ways and often are not preempted by federal laws, thus complicating compliance efforts.
Efforts
to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations could be costly. If our operations are found to be in
violation of any of the laws described above or any governmental regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines and the
curtailment or restructuring of our operations. Any penalties, damages, fines, curtailment or restructuring of our operations could adversely affect our ability to operate our business and our
financial results. Although compliance programs can mitigate the risk of investigation and prosecution for violations of these laws, the risks cannot be entirely eliminated. Any action against us for
violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management's attention from the operation of our business.
Moreover, achieving and sustaining compliance with applicable federal and state privacy, security and fraud laws may prove costly.
Our business involves the use of hazardous materials, and we must comply with environmental laws and regulations, which can be expensive and restrict how we do business.
Our activities and our third-party manufacturers' and suppliers' activities involve the controlled storage, use and disposal of
hazardous materials owned by us. We and our manufacturers and suppliers are subject to federal, state, city and local laws and regulations governing the use, manufacture, storage, handling and
disposal of these hazardous materials. Although we believe that the safety procedures we use for handling and disposing of these materials comply with the standards prescribed by these laws and
regulations, we cannot eliminate the risk of accidental contamination or injury from these materials. In the event of an accident, local, city, state or federal authorities may curtail the use of
these materials and interrupt our business operations, including our commercialization and research and development efforts. Although we believe that the safety procedures utilized by our third-party
manufacturers for handling and disposing of these materials generally comply with the standards prescribed by these laws and regulations, we cannot guarantee that this is the case or eliminate the
risk of accidental contamination or injury from these materials. In such an event, we may be held liable for any resulting damages and such liability could exceed our resources. We do not currently
maintain biological or hazardous materials insurance coverage.
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Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by
governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.
The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and
other provisions during the patent process. There are situations in which noncompliance can result in abandonment or lapse of a patent or patent application, resulting in partial or complete loss of
patent rights in the relevant jurisdiction. In such an event, competitors might be able to enter the market earlier than would otherwise have been the case.
We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.
We employ individuals who were previously employed at other pharmaceutical companies, including our competitors or potential
competitors and, as such, we may be subject to claims that we or these employees have used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be
necessary to defend against these claims. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.
Our business and operations would suffer in the event of system failures.
Despite the implementation of security measures, our internal computer systems and those of our contractors and consultants are
vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. Such an event could cause interruption of our
operations. For example, the loss of trial data from completed or ongoing bioequivalence and/or clinical trials for our product candidates could result in delays in our regulatory approval efforts and
significantly increase our costs. To the extent that any disruption or security breach were to result in a loss of or damage to our data, or inappropriate disclosure of confidential or proprietary
information, we could incur liability and the development of our product candidates could be delayed.
Provisions in our agreement with Shire impose restrictive covenants on us, which could limit our ability to operate effectively in the future.
In 2005, we purchased substantially all of the assets of Shire Laboratories Inc. Pursuant to this agreement, we agreed to
perpetually refrain from engaging in any research, formulation development, analytical testing, manufacture, technology assessment or oral bioavailability screening that relate to five specific drug
compounds (amphetamine, carbamazepine, guanfacine, lanthanum and mesalamine) and any derivative thereof. In addition, we have agreed not to provide any services to, license any intellectual property
rights to, or otherwise perform any work for certain pharmaceutical companies primarily engaged in the development and marketing of generic products through 2012. Although these various restrictions
and covenants on us do not currently impact our product candidates or business, they could in the future limit or delay our ability to take advantage of business opportunities that may relate to such
compounds or such companies.
Risks Related to Our Finances and Capital Requirements
We have incurred significant operating losses since our inception and anticipate that we will incur continued losses for the foreseeable future.
In recent years, we have focused primarily on developing our current product candidates, with the goal of supporting regulatory
approval for these product candidates. We have financed our operations primarily through private placements of convertible preferred stock, our collaboration and license
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arrangements,
and non-recourse debt that is secured by our royalty rights related to sales of Oracea under our agreement with Galderma and our royalty rights related to sales of Sanctura
XR under our agreement with Allergan. We have incurred significant operating losses since our inception in 2005. We incurred net losses of approximately $17.3 million and $33.5 million
in the years ended December 31, 2007 and 2008, respectively, and approximately $29.9 million in the nine months ended September 30, 2010. We incurred net income of approximately
$0.5 million in the year ended December 31, 2009. As of September 30, 2010, we had an accumulated deficit of approximately $85.2 million. Substantially all of our operating
losses resulted from costs incurred in connection with our development programs and from general and administrative costs associated with our operations. For example, the expenses that we have
incurred relating to the research and development of SPN-538 and Epliga from inception to September 30, 2010 are approximately $18.2 million and $35.4 million,
respectively. We expect our research and development costs to continue to be substantial and to increase with respect to our product candidates as we advance those product candidates through
preclinical studies, clinical trials, manufacturing scale-up and other pre-approval activities. As a result, we expect to continue to incur significant and increasing operating
losses for the foreseeable future.
Our
prior losses, combined with expected future losses, have had and will continue to have an adverse effect on our stockholders' equity and working capital. Furthermore, upon the
closing of this offering, we expect to incur additional costs associated with operating as a public company. As a result, we expect to continue to incur significant and increasing operating losses for
the foreseeable future. Because of the numerous risks and uncertainties associated with developing pharmaceutical products, we are unable to predict the extent of any future losses or when, or if, we
will become profitable.
We may need additional funding and may be unable to raise capital when needed, which would force us to delay, reduce or eliminate our product development programs or
commercialization efforts.
Developing product candidates, conducting clinical trials, establishing manufacturing relationships and marketing drugs are expensive
and uncertain processes. Although it is difficult to predict future liquidity requirements, we believe that the net proceeds from this offering, together with our existing unrestricted cash, cash
equivalents and marketable securities and anticipated future product revenues will be sufficient to fund our operations for at least the next            months. We may need to obtain
additional
capital through equity offerings, debt financing and/or payments under new or existing licensing and research and development collaboration agreements. If sufficient funds on acceptable terms are not
available when needed, we could be required to significantly reduce operating expenses and delay, reduce the scope of, or eliminate one or more of our development programs, which may have a material
adverse effect on our business, results of operations and financial condition.
In
addition, unforeseen circumstances may arise, or our strategic imperatives could change, causing us to consume capital significantly faster than we currently anticipate, requiring us
to seek to raise additional funds sooner than expected. We have no committed external sources of funds.
The
amount and timing of our future funding requirements will depend on many factors, including, but not limited to:
•
the rate of progress and cost of our trials and other product development programs for our product candidates;
•
the costs and timing of in-licensing additional product candidates or acquiring other complementary companies;
•
the timing of any regulatory approvals of our product candidates;
•
the costs of establishing sales, marketing and distribution capabilities; and
•
the status, terms and timing of any collaborative, licensing, co-promotion or other arrangements.
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Additional
financing may not be available when we need it or may not be available on terms that are favorable to us. In addition, we may seek additional capital due to favorable market
conditions or strategic considerations, even if we believe we have sufficient funds for our current or future operating plans. If adequate funds are not available to us on a timely basis, or at all,
we may be required to delay, reduce the scope of or eliminate one or more of our development programs or our commercialization efforts.
We have never generated any revenues from the sales of our own products, and we may never achieve or maintain profitability.
Our ability to become profitable depends upon our ability to generate revenues from sales of our product candidates. To date, we have
not generated any revenues from sales of our own product candidates and have incurred significant operating losses. Our historical revenues have been generated through fees for development services
and payment for the achievement of specified development, regulatory and sales milestones, as well as royalty, on product sales of Oracea, Sanctura XR and Intuniv licensed products. We have
non-recourse debt outstanding that is secured by our royalty rights related to sales of Oracea under our agreement with Galderma and our royalty rights related to sales of Sanctura XR
under our agreement with Allergan and we expect that all or substantially all of our future royalty revenues under these agreements will be used to satisfy this debt. In May 2009, we received a
one-time payment of approximately $36.9 million from Shire plc as consideration for a royalty-free, fully paid-up license to Shire plc for
Intuniv. Accordingly, we will not receive any future royalties payments from Shire plc with respect to the net sales of Intuniv.
Our
ability to generate product revenues is dependent on our ability to receive regulatory approval of our product candidates, including SPN-538 and Epliga, and to
successfully commercialize these products. Our ability to successfully commercialize our product candidates depends on, among other things:
•
our successful completion of ongoing and planned bioequivalence and clinical trials for our product candidates;
•
our obtaining regulatory approvals for our product candidates, including SPN-538 and Epliga; and
•
if regulatory approvals are received, our manufacturing of commercial quantities of our product candidates at acceptable
cost levels.
Even
if any of our product candidates are approved for commercial sale, we anticipate incurring significant costs associated with commercialization. It is possible that we will never
have sufficient product sales revenues to achieve profitability.
Our quarterly operating results may fluctuate significantly.
We expect our operating results to be subject to quarterly fluctuations. Prior to commercializing any of our product candidates, we
expect that any revenues we generate will fluctuate from quarter to quarter as a result of the timing and amount of development and milestones and royalty revenues received under our collaboration
license agreements, as our revenues from these arrangements are principally based on the achievement of clinical and commercial milestones outside of our control. To date, we have monetized the future
royalties due to us from our existing license agreements for Oracea, Sanctura XR and Intuniv.
Once
we commercialize one or more of our product candidates, our net loss and other operating results will be affected by numerous factors, including:
•
variations in the level of expenses related to our development programs;
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•
the success of our bioequivalence and clinical trials through all phases of clinical development;
•
any delays in regulatory review and approval of product candidates in clinical development;
•
potential side effects of our future products that could delay or prevent commercialization or cause an approved drug to
be taken off the market;
•
any intellectual property infringement lawsuit in which we may become involved;
•
our ability to establish an effective sales and marketing infrastructure;
•
our dependency on third-party manufacturers to supply or manufacture our product candidates;
•
competition from existing products or new products that may emerge;
•
regulatory developments affecting our product candidates;
•
our execution of any collaborative, licensing or similar arrangements, and the timing of payments we may make or receive
under these arrangements;
•
the achievement and timing of milestone payments under our existing collaboration and license agreements; and
•
the level of market acceptance for any approved product candidates and underlying demand for that product and wholesalers'
buying patterns.
Due
to the various factors mentioned above, and others, the results of any prior quarterly periods should not be relied upon as an indication of our future operating performance. If our
quarterly operating results fall below the expectations of investors or securities analysts, the price of our common stock could decline substantially. Furthermore, any quarterly fluctuations in our
operating results may, in turn, cause the price of our stock to fluctuate substantially.
Raising additional funds through borrowing or licensing arrangements may restrict our operations or require us to relinquish proprietary rights.
We do not expect to be profitable in the near-term, if at all. Accordingly, we may need to raise additional funds through equity
offerings, debt financings and/or payments under new or existing licenses and research and development collaborations. If we seek to raise capital through debt financing, if available, such
transactions would result in increased fixed payment obligations and typically require covenants that restrict operating activities. Such restricted operating activities may include restrictions on
our ability to take specific actions such as incurring additional debt, making capital expenditures or declaring dividends. Any borrowings under debt financing will need to be repaid, which creates
additional financial risk, particularly if our business or prevailing financial market conditions are not conducive to paying-off or refinancing our outstanding debt obligations at
maturity.
If
we raise additional funds through collaboration, licensing or other similar arrangements, it may be necessary to relinquish potentially valuable rights to our product candidates or
technologies, or to grant
licenses on terms that are not favorable to us. If adequate funds are not available when and if needed, our ability to achieve profitability or to respond to competitive pressures would be
significantly limited, and we may be required to delay, significantly curtail or eliminate one or more of our programs.
We have operated as a private company and have no experience attempting to comply with public company obligations. Attempting to comply with these requirements will increase
our costs and require additional management resources, and we still may fail to comply.
We will face increased legal, accounting, administrative and other costs and expenses as a public company. Compliance with the
Sarbanes-Oxley Act of 2002, the Dodd-Frank Act of 2010, as well as
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rules
of the Securities and Exchange Commission and Nasdaq, for example, will result in significant initial cost to us as well as ongoing increases in our legal, audit and financial compliance costs.
The Exchange Act will require, among other things, that we file annual, quarterly and current reports with respect to our business and financial condition. Our management and other personnel will need
to devote a substantial amount of time to these compliance initiatives. Moreover, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and
officer liability insurance, and we may be required to incur substantial costs to maintain the same or similar coverage.
As
a public company, we expect to become subject to Section 404 of the Sarbanes-Oxley Act relating to internal controls over financial reporting. We expect to incur significant
expense and devote substantial management effort toward ensuring compliance with Section 404. We currently do not have an internal audit group, and we will need to hire additional accounting
and financial staff with appropriate public company experience and technical accounting knowledge. Implementing any appropriate changes to our internal controls may require specific compliance
training for our directors, officers and employees, entail substantial costs to modify our existing accounting systems, and take a significant period of time to complete. Such changes may not,
however, be effective in maintaining the adequacy of our internal controls, and any failure to maintain that adequacy, or consequent inability to produce accurate consolidated financial statements or
other reports on a timely basis, could increase our operating costs and could materially impair our ability to operate our business. Although we have not identified any material weaknesses in our
internal controls over financial reporting to date, we cannot assure you that our internal controls over financial reporting will prove to be effective.
If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As a
result, stockholders could lose confidence in our financial and other public reporting, which would harm our business and the trading price of our common stock.
Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and, together with
adequate disclosure controls and procedures, are designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation could cause
us to fail to meet our reporting obligations. In addition, any testing by us conducted in connection with Section 404 of the Sarbanes-Oxley Act, or the subsequent testing by our independent
registered public accounting firm, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive
changes to our consolidated financial statements or identify other areas for further attention or improvement. Inferior internal controls could also cause investors to lose confidence in our reported
financial information, which could have a negative effect on the trading price of our common stock.
Our ability to use net operating loss and tax credit carryforwards and certain built-in losses to reduce future tax payments is limited by provisions of the
Internal Revenue Code, and may be subject to further limitation as a result of the transactions contemplated by this offering.
Section 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, contain rules that limit the ability of a
company that undergoes an ownership change, which is generally any change in ownership of more than 50% of its stock over a three-year period, to utilize its net operating loss and tax
credit carryforwards and certain built-in losses recognized in years after the ownership change. These rules generally operate by focusing on ownership changes involving stockholders
owning directly or indirectly 5% or more of the stock of a company and any change in ownership arising from a new issuance of stock by the company. Generally, if an ownership change occurs, the yearly
taxable income limitation on the use of net operating loss and tax credit carryforwards and certain built-in losses is equal to the product of the applicable long term tax exempt rate and
the value of the
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company's
stock immediately before the ownership change. We may be unable to offset our taxable income with losses, or our tax liability with credits, before such losses and credits expire and
therefore would incur larger federal income tax liability.
In
addition, it is possible that the transactions described in this offering, either on a standalone basis or when combined with future transactions, including issuances of new shares of
our common stock, will cause us to undergo one or more additional ownership changes. In that event, we generally would not be able to use our pre-change loss or credit carryovers or
certain built-in
losses prior to such ownership change to offset future taxable income in excess of the annual limitations imposed by Sections 382 and 383 and those attributes already subject to limitations as
a result of our prior ownership changes may be subject to more stringent limitations. As of December 31, 2009, we had approximately $54.1 million of federal net operating loss
carryforwards. We also had federal and state research and development tax credit carryforwards of approximately $3.1 million available to offset future taxable income. These federal and state
net operating loss and federal and state tax credit carryforwards will begin to expire at various dates beginning in 2025, if not utilized. We have not completed a study to assess whether an ownership
change has occurred, or whether there have been multiple ownership changes since our inception, due to the significant costs and complexities associated with such study. Accordingly, our ability to
utilize the aforementioned carryforwards and tax credits may be limited. As a result, we may not be able to take full advantage of these carryforwards or tax credits for federal and state tax
purposes.
Royalties under our agreement with Endo Pharmaceuticals and Galderma may not be sufficient for our subsidiary to meet its payment obligations under the
non-recourse notes.
While our subsidiary, TCD Royalty Sub LLC, or Royalty Sub, will be entitled to receive the royalties related to the sales of
Santura XR under our agreement with Endo Pharmaceuticals as successor-in-interest to Indevus Pharmaceuticals, Inc. and its marketing partner, Allergan, Inc., and the
royalties related to the sales of Oracea under our agreement with Galderma Pharma S.A., as successor-in-interest to CollaGenex Pharmaceuticals, Inc., such
royalties may not be sufficient for it to meet its payment obligations under the non-recourse notes issued by Royalty Sub. As a result, Royalty Sub will be dependent on Allergan's and
Galderma's respective sales and marketing efforts to receive royalties in sufficient amounts to meet its payment obligations. Any royalty modifications could result in Royalty Sub receiving
significantly reduced or no royalties under the license agreements with Endo Pharmaceuticals and Galderma Pharma S.A., which would delay repayment of the non-recourse notes.
In certain circumstances we could be required to pay damages if we fail to perform our obligations in connection with the non-recourse notes issued by Royalty Sub and we may
lose the potential to receive future royalty payments after the non-recourse notes are repaid in full.
In April 2008, Royalty Sub issued $75.0 million in aggregate principal amount of non-recourse notes, which are
secured principally by royalty payments from future sales of Sanctura XR and Oracea, and by a pledge by us of all the outstanding equity interest in Royalty Sub. If the royalty payments from Sanctura
XR and Oracea are insufficient to repay the non-recourse notes or if an event of default occurs under the indenture governing the non-recourse notes, in certain circumstances,
the royalty payments and our equity interest in Royalty Sub may be foreclosed upon and we would lose the potential to receive any future royalty payments, which could be financially significant after
the non-recourse notes are repaid in full.
In
addition, if we fail to perform our obligations under the purchase and sale agreement with Royalty Sub we may be required to indemnify Royalty Sub for damages arising due to such
failure. For example, pursuant to this agreement, we have an obligation to use commercially reasonable efforts to preserve, maintain, and maximize the commercial value of our licensed patents covering
Sanctura XR and Oracea, which includes the obligation to pay patent office maintenance fees in order to keep these
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patents
in force. If we fail to pay such patent office maintenance fees, these patents may expire and the royalty stream from such patents may terminate. In such a scenario, we may be called upon to
pay damages to Royalty Sub due to the loss of patent licensing revenue that Royalty Sub would have received from the sale of Santura XR and Oracea.
Risks Related to Securities Markets and Investment in Our Stock
The concentration of our capital stock ownership with our founders, directors, executives, employees and current holders of our preferred stock (and their affiliates) will
limit your ability to influence certain corporate matters.
Upon completion of this offering and after giving effect to the conversion of the Series A convertible preferred stock into
common stock, the current holders of our preferred stock will, in the aggregate, beneficially own        % of our outstanding common stock (or approximately        % if
the underwriters
exercise their over-allotment option in full). As a result, these stockholders will collectively be able to significantly influence and may be able to control all matters requiring
approval of our stockholders, including the election of directors and approval of significant corporate transactions such as mergers, consolidations or the sale of all or substantially all of our
assets. The concentration of ownership may delay, prevent or deter a change in control of our company even when such a change may be in the best interests of some stockholders, impede a merger,
consolidation, takeover or other business combination involving us, or could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company or
our assets and might adversely affect the prevailing market price of our common stock. Participation in this offering by existing holders of our Series A convertible preferred stock will
further concentrate voting rights and may negatively impact liquidity for shares of our common stock.
Anti-takeover provisions under our charter documents and Delaware law could delay or prevent a change of control which could negatively impact the market price
of our common stock.
Provisions in our certificate of incorporation and bylaws, as amended and restated upon the completion of this offering, may have the
effect of delaying or preventing a change of control. These provisions include the following:
•
Our board of directors is divided into three classes serving staggered three-year terms, such that not all
members of the board will be elected at one time. This staggered board structure prevents stockholders from replacing the entire board at a single stockholders' meeting.
•
Our board of directors has the right to elect directors to fill a vacancy created by the expansion of the board of
directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors.
•
Our board of directors may issue, without stockholder approval, shares of preferred stock. The ability to authorize
preferred stock makes it possible for our board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to acquire us.
•
Stockholders must provide advance notice to nominate individuals for election to the board of directors or to propose
matters that can be acted upon at a stockholders' meeting. Furthermore, stockholders may only remove a member of our board of directors for cause. These provisions may discourage or deter a potential
acquiror from conducting a solicitation of proxies to elect such acquiror's own slate of directors or otherwise attempting to obtain control of our company.
•
Our stockholders may not act by written consent. As a result, a holder, or holders, controlling a majority of our capital
stock would not be able to take certain actions outside of a stockholders' meeting.
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•
Special meetings of stockholders may be called only by the chairman of our board of directors, our chief executive
officer, our president or a majority of our board of directors. As a result, a holder, or holders, controlling a majority of our capital stock would not be able to call a special meeting.
•
A majority of the outstanding shares of common stock are required to amend our certificate of incorporation and a super
majority (75%) of the outstanding shares of common stock are required to amend our by-laws, which make it more difficult to change the provisions described above.
In
addition, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which may prohibit certain business combinations with stockholders owning
15% or more of our outstanding voting stock. These and other provisions in our certificate of incorporation, our bylaws and in the Delaware General Corporation Law could make it more difficult for
stockholders or potential acquirers to obtain control of our board of directors or initiate actions that are opposed by the then-current board of directors.
There may not be a viable public market for our common stock.
Prior to this offering, there has been no public market for our common stock, and a regular trading market may not develop and continue
after this offering. Furthermore, the market price of our common stock may decline below the initial public offering price. The initial public offering price has been determined through negotiations
between us and the representatives of the underwriters and may not be indicative of the market price of our common stock following this offering. Among the factors considered in such negotiations were
prevailing market conditions, certain of our financial information, market valuations of other companies that we and the representatives of the underwriters believed were comparable to us, estimates
of our business potential and the present state of our business. See "Underwriting" for additional information.
If
you purchase shares of our common stock, you may not be able to resell those shares at or above the initial public offering price. We cannot predict the extent to which investor
interest in our company will lead to the development of an active trading market on the Nasdaq Global Market or otherwise or how liquid that market might become. An active public market for our common
stock may not develop or be sustained after the offering. If an active public market does not develop or is not sustained, it may be difficult for you to sell your shares of common stock at a price
that is attractive to you, or at all. Further, an inactive market may also impair our ability to raise capital by selling shares of our common stock and may impair our ability to enter into strategic
partnerships or acquire companies or products, product candidates or technologies by using our shares of common stock as consideration.
As a new investor, you will experience immediate and substantial dilution in the net tangible book value of your shares.
The initial public offering price of our common stock in this offering is considerably more than the net tangible book value per share
of our common stock. Investors purchasing shares of common stock in this offering will pay a price that substantially exceeds the value of our tangible assets after subtracting liabilities. As a
result, investors will, as of September 30, 2010:
•
incur immediate dilution of $            per share of common stock, based on the initial public offering price of
$            per share of common stock; and
•
contribute        % of the total amount invested to date to fund our company based on the initial offering price of
$            per share of common stock, but will own only        % of the outstanding shares of common stock after the offering.
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To the extent outstanding stock options are exercised, there will be further dilution to new investors.
As of September 30, 2010, we had options to purchase 1,729,458 shares of common stock outstanding, with exercise prices ranging
from $0.10 to $1.76 per share and a weighted average exercise price of $0.48 per share. Upon the vesting of each of these options, the holder may exercise his or her options, which would result in
further dilution to investors.
The price of our common stock may fluctuate substantially.
Following this offering, the market price for our common stock is likely to be volatile, in part because our common stock has not been
previously traded publicly. In addition, the market price of our common stock may fluctuate significantly in response to a number of factors, including:
•
plans for, progress in and results from clinical trials of our product candidates generally;
•
the results from our bioequivalence trials for SPN-538 and our bioequivalence and/or clinical trials,
including our current and planned Phase III clinical trials for Epliga;
•
FDA or international regulatory actions, including actions on regulatory applications for any of our product candidates;
•
the commercial performance of any of our product candidates that receive marketing approval;
•
announcements of new products, services or technologies, commercial relationships, acquisitions or other events by us or
our competitors;
•
market conditions in the pharmaceutical and biotechnology sectors;
•
fluctuations in stock market prices and trading volumes of similar companies;
•
variations in our quarterly operating results;
•
changes in accounting principles;
•
litigation or public concern about the safety of our potential products;
•
actual and anticipated fluctuations in our quarterly operating results;
•
deviations in our operating results from the estimates of securities analysts;
•
additions or departures of key personnel;
•
sales of large blocks of our common stock, including sales by our executive officers, directors and significant
stockholders;
•
any third-party coverage and reimbursement policies for our product candidates, and
•
discussion of us or our stock price in the financial or scientific press or in online investor communities.
The
realization of any of the risks described in these "Risk Factors" could have a dramatic and material adverse impact on the market price of our common stock. In addition, class action
litigation has often been instituted against companies whose securities have experienced periods of volatility. Any such litigation brought against us could result in substantial costs and a diversion
of management attention, which could hurt our business, operating results and financial condition.
Our management team may invest or spend the proceeds of this offering in ways with which you may not agree or in ways which may not yield a significant return, if any.
The net proceeds from this offering will be used to fund the continued development, commercialization and research and development of
our product candidates and other general corporate purposes. Because of the number and variability of factors that will determine our use of the proceeds from the offering, their ultimate use may vary
substantially from their currently intended use. You will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. The net proceeds
may be used for corporate purposes that do not
39
Table of Contents
increase
our operating results or market value. Until the net proceeds are used, they may be placed in investments that do not produce significant income or investments that lose value. For a further
description of our intended use of the proceeds of this offering, see "Use of Proceeds."
Future sales of our common stock may depress our stock price.
While we do not currently anticipate making additional offers of common stock, such sales, or the perception in the market that the
holders of a large number of shares intend to sell shares, could reduce the market price of our common stock and impair out ability to raise adequate capital through the sale of additional equity
securities. Immediately after this offering, we will have outstanding                        shares of common stock, based on the
number of outstanding shares of common stock as of September 30, 2010
and after giving effect to the conversion of                        shares of our preferred stock outstanding as of
September 30, 2010 into            shares of our common stock at the completion
of this offering. Of these outstanding shares,                        shares are being sold in this offering and will be freely
tradable immediately after this offering, except for shares purchased by
affiliates, and the remaining shares may be sold upon expiration of lock-up agreements 180 days after the date of this offering. In addition, as of September 30, 2010, we had
outstanding options to purchase 1,729,458 shares of common stock that, if exercised, will result in these additional shares becoming available for sale upon expiration of the lock-up
agreements. A large portion of these shares and options are held by a small number of persons and investment funds. Moreover, after this offering, the holders of shares of common stock will have
rights, subject to some conditions, to require us to file registration statements covering the shares they currently hold, or to include these shares in registration statements that we may file for
ourselves or other stockholders.
We
also intend to register all common stock that we may issue under our 2005 Stock Plan. Effective upon the closing of this offering, an aggregate
of                        shares of our common
stock will be reserved for future issuance under this plan. Once we register these shares, which we plan to do shortly after the closing of this offering, they can be freely sold in the public market
upon issuance, subject to the lock-up agreements referred to above. If a large number of these shares are sold in the
public market, the sales could reduce the trading price of our common stock. See "Shares Eligible for Future Sale" for a more detailed description of sales that may occur in the future.
We have never paid dividends on our capital stock, and because we do not anticipate paying any cash dividends in the foreseeable future, capital appreciation, if any, of our
common stock will be your sole source of gain on an investment in our common stock.
We have paid no cash dividends on any of our classes of capital stock to date, and we currently intend to retain our future earnings,
if any, to fund the development and growth of our business. We do not anticipate paying any cash dividends on our common stock in the foreseeable future. As a result, capital appreciation, if any, of
our common stock will be your sole source of gain for the foreseeable future. There is no guarantee that shares of our common stock will appreciate in value or even maintain the price at which our
stockholders have purchased their shares.
If securities or industry analysts do not publish research or reports or publish unfavorable research or reports about our business, our stock price and trading volume could
decline.
The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish
about us, our business, our market or our competitors. We do not currently have and may never obtain research coverage by securities and industry analysts. If no securities or industry analysts
commence coverage of our company, the trading price for our stock would be negatively impacted. In the event we obtain securities or industry analyst coverage, if one or more of the analysts who
covers us downgrades our stock, our stock price would likely decline. If one or more of these analysts ceases to cover us or fails to regularly publish reports on us, interest in our stock could
decrease, which could cause our stock price or trading volume to decline.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus, including the sections titled "Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business," contains forward-looking statements. Forward-looking statements convey our current expectations or forecasts of future events. All statements contained in
this prospectus other than statements of historical fact are forward-looking statements. Forward-looking statements include statements regarding our future financial position, business strategy,
budgets, projected costs, plans and objectives of management for future operations. The words "may," "continue," "estimate," "intend," "plan," "will," "believe," "project," "expect," "seek,"
"anticipate," "should," "could," "would," "potential," or the negative of those terms and similar expressions may identify forward-looking statements, but the absence of these words does not
necessarily mean that a statement is not forward-looking. These forward-looking statements include, among other things, statements about:
•
our ability to achieve profitability;
•
the implementation of our corporate strategy;
•
our future financial performance and projected expenditures;
•
our ability to enter into future collaborations with pharmaceutical companies and academic institutions or to obtain
funding from government agencies;
•
our product research and development activities, including the timing and progress of our clinical trials, and projected
expenditures;
•
our ability to receive, and the timing of any receipt of, regulatory approvals to develop and commercialize our product
candidates;
•
our ability to protect our intellectual property and operate our business without infringing upon the intellectual
property rights of others;
•
our expectations regarding federal, state and foreign regulatory requirements;
•
the therapeutic benefits, effectiveness and safety of our product candidates;
•
the accuracy of our estimates of the size and characteristics of the markets that may be addressed by our product
candidates;
•
our ability to increase our manufacturing capabilities for our product candidates;
•
our projected markets and growth in markets;
•
our product formulations and patient needs and potential funding sources;
•
our staffing needs;
•
our use of the proceeds from this offering; and
•
our plans for sales and marketing.
Any
or all of our forward-looking statements in this prospectus may turn out to be inaccurate. We have based these forward-looking statements largely on our current expectations and
projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. They may be affected by
inaccurate assumptions we might make or by known or unknown risks and uncertainties, including the risks, uncertainties and assumptions described in "Risk Factors" and elsewhere in this prospectus. In
light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this prospectus may not occur as contemplated, and actual results could differ materially
from those anticipated or implied by the forward-looking statements.
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You
should not unduly rely on these forward-looking statements, which speak only as of the date of this prospectus. Unless required by law, we undertake no obligation to publicly update
or revise any forward-looking statements to reflect new information or future events or otherwise. You should, however, read this prospectus and the documents that we reference in this prospectus and
have filed with the Securities and Exchange Commission as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future
results may be materially different from any future results expressed or implied by these forward-looking statements. You should also review the factors and risks we describe in the reports we will
file from time to time with the Securities and Exchange Commission after the date of this prospectus. See "Where You Can Find Additional Information."
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USE OF PROCEEDS
We estimate that we will receive net proceeds from the sale of shares of our common stock in this offering of approximately
$            , based upon an assumed initial public offering price of $          per share, the mid-point of the price range set forth on
the cover of this preliminary prospectus, and after
deducting underwriting discounts and commissions and estimated offering expenses payable by us. A $1.00 increase (decrease) in the assumed initial public offering price of $            per
share
would increase (decrease) the net proceeds to us from this offering by $             million, assuming that the number of shares offered by us, as set forth on the cover page of this
preliminary prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
The
principal purposes of this offering are to fund our clinical trials, to fund operations, and to provide working capital. We intend to use the net proceeds of this offering for
general corporate purposes including to fund the development and commercialization of SPN-538 and Epliga, as well as development of our other product candidates, general and administrative
expenses, working capital, prosecution and maintenance of our intellectual property and the potential investment in or acquisition of technologies or products that complement our business. We have no
current agreements or commitments with respect to such investment or acquisition.
As
of the date of this prospectus, we cannot specify with certainty all of the particular uses for the net proceeds from this offering. The amounts and timing of our actual expenditures
may vary significantly from our expectations depending upon numerous factors, including the progress of our research, development and commercialization efforts, the progress of our clinical trials,
and our operating costs and capital expenditures. Accordingly, we will retain the discretion to allocate the net proceeds of this offering among the identified uses described above, and we reserve the
right to change the allocation of the net proceeds among the uses described above as a result of contingencies such as the progress and results of our clinical trials and our research and development
activities, the results of our commercialization efforts, competitive developments and our manufacturing requirements.
Pending
use of proceeds from this offering, we intend to invest the proceeds in a variety of capital preservation investments, including short-term, investment-grade,
interest-bearing instruments.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock and we do not currently anticipate declaring or paying cash
dividends on our capital stock in the foreseeable future. We currently intend to retain all of our future earnings, if any, to finance operations. Additionally, our ability to pay dividends on our
common stock is limited by restrictions on the ability of our subsidiaries and us to pay dividends or make distributions, including restrictions under the terms of the agreements governing our
indebtedness. For additional information, see "Management's Discussion and Analysis of Financial Condition and Results of Operations." Any future determination relating to our dividend policy will be
made at the discretion of our board of directors and will depend on a number of factors, including future earnings, capital requirements, financial conditions, future prospects, contractual
restrictions and covenants and other factors that our board of directors may deem relevant.
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CAPITALIZATION
The following table sets forth our cash and capitalization as of September 30, 2010:
•
on an actual basis;
•
on a pro forma basis, reflecting the conversion of all of our preferred stock into an aggregate of 49,000,000 shares of
common stock upon the closing of this offering; and
•
on a pro forma as adjusted basis to further reflect our receipt of the estimated net proceeds from our sale of
                        shares of common stock offered hereby at an assumed initial public offering price of
$            per share, the mid-point of the price range reflected on the cover of
this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
You
should read this table in conjunction with the sections of this prospectus entitled "Selected Consolidated Financial Data" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and with our consolidated financial statements and related notes appearing elsewhere in this prospectus.
As of September 30, 2010
Actual
Pro Forma
Pro Forma
as Adjusted(1)
(unaudited)
(in thousands of dollars, except share data)
Balance Sheet Data:
Unrestricted cash and cash equivalents and marketable securities
$
45,822
$
45,822
$
Restricted cash and cash equivalents and marketable securities
1,680
1,680
Non-recourse Notes
$
75,000
$
75,000
$
Redeemable Series A convertible preferred stock, $0.001 par value—49,000,000 shares authorized, issued and outstanding, actual; none, pro forma and pro forma as adjusted
49
—
—
Stockholders' deficit:
Common stock, $0.001 par value—62,000,000 shares authorized, 6,371,061 shares issued and outstanding, actual;
6
55
Additional paid-in capital
49,238
49,238
Accumulated deficit
(85,210
)
(85,210
)
Total stockholders' deficit
(35,917
)
(35,917
)
Total capitalization
$
39,083
$
39,083
$
(1)
Each
$1.00 increase (decrease) in the assumed initial public offering price of $            per share, the mid-point of the price range
reflected on the cover page of this prospectus, would increase (decrease) each of additional paid-in capital, total stockholders' equity and total capitalization by approximately
$             million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting
discounts and commissions and offering expenses payable by us. We may also increase or decrease the number of shares we are offering. Each increase (decrease) of one million shares in the number of
shares offered by us would increase (decrease) each of additional paid-in capital, total stockholders' equity and total capitalization by approximately $             million,
assuming that the assumed initial public offering price remains the same.
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The
table above does not include:
•
1,729,458 shares of common stock issuable upon the exercise of options outstanding as of September 30, 2010 at a
weighted average exercise price of $0.48 per share;
•
411,765 shares of common stock remaining to vest under a restricted stock award; and
•
2,487,716 additional shares of common stock reserved for future issuance under our 2005 Stock Plan.
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DILUTION
If you invest in our common stock, your interest will be diluted to the extent of the difference between the public offering price per
share you will pay in this offering and the pro forma net tangible book value per share of our common stock immediately after this offering.
Our
net tangible book value as of                    , 2010 was approximately $            ,
or $            per share of common stock. Net tangible book value per share is equal to
our total tangible assets minus total liabilities, all divided by the number of shares of common stock outstanding as of September 30, 2010.
Our
pro forma net tangible book value per share as of                    , 2010 was approximately
$            per share. Pro forma net tangible book value per share gives effect to the
conversion of all outstanding shares of our preferred stock as
of                        into                
        shares of our common stock, upon the closing of this offering.
After
giving effect to the sale of the            shares of common stock we are offering based on an assumed initial public offering price of
$            per share, the
mid-point of the price range set forth on the cover of this prospectus, less underwriting discounts and commissions and our estimated offering expenses, our pro forma as adjusted net
tangible book value as of                    , 2010 would have been approximately
$            , or $            per share. This represents an immediate increase in pro forma net tangible book
value of $            per share and an immediate dilution of $            per share to new investors. Dilution per share to new
investors is determined by subtracting pro forma as adjusted net
tangible book value per share after this offering from the assumed initial public offering price per share paid by a new investor. The following table illustrates this calculation on a per share basis
(without giving effect to the over-allotment option granted to the underwriters):
Assumed initial public offering price per share(1)
$
Net tangible book value per share as of                    , 2010
$
Pro forma increase in net tangible book value per share attributable to conversion of preferred stock outstanding
at                    , 2010
Pro forma net tangible book value per share of common stock as of                    , 2010
$
Increase per share attributable to the offering
Pro forma as adjusted net tangible book value per share of common stock after this offering
Pro forma dilution per share to new investors
$
(1)
The
mid-point of the price range set forth on the cover of this prospectus.
A
$1.00 increase (decrease) in the assumed initial public offering price of $            per share, the mid-point of the price range set forth on the cover of this
prospectus, would increase
(decrease) the pro forma as adjusted net tangible book value per share after giving effect to this offering by $            per share and would increase (decrease) the dilution in pro forma
net
tangible book value per share to investors in this offering by $            per share. This calculation assumes that the number of shares offered by us, as set forth on the cover page of
this
prospectus, remains the same and is after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
If
the underwriters exercise their over-allotment option in full, pro forma as adjusted net tangible book value will increase to $            per share, representing an
increase to existing holders of $            per share, and there will be an immediate dilution of $            per share to new
investors.
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The
following table summarizes, on a pro forma as adjusted basis as of September 30, 2010, after giving effect to this offering and the pro forma adjustments referred to above,
the total number of shares of our common stock purchased from us and the total consideration and average price per share paid by existing stockholders and by new investors:
Total Shares
Total Consideration
Average
Price Per
Share
Number
Percent
Amount
Percent
(in thousands of dollars, except share and per share data)
Existing stockholders
%
$
%
$
New Investors
Total
%
$
%
If
the underwriters exercise their over-allotment option in full, the following will occur:
•
the pro forma as adjusted percentage of shares of our common stock held by existing stockholders will decrease to
approximately        % of the total number of pro forma as adjusted shares of our common stock outstanding after this offering; and
•
the pro forma as adjusted number of shares of our common stock held by new public investors will increase to or
approximately        % of the total pro forma as adjusted number of shares of our common stock outstanding after this offering.
The
tables and calculations above are based on 6,371,061 shares of our common stock outstanding as of September 30, 2010 after giving effect to the conversion of 49,000,000 shares
of our preferred stock outstanding as of September 30, 2010 into 49,000,000 shares of our common stock at the closing of this offering and exclude:
•
shares of common stock issuable upon the exercise of options outstanding as of September 30, 2010 with exercise
prices ranging from $0.10 to $1.76 per share and a weighted average exercise price of $0.48 per share (of which options to acquire 940,324 shares of common stock were vested as of September 30,
2010); and
•
shares of our common stock available for future grants under our 2005 Stock Plan as of September 30, 2010.
If
all of our outstanding options as of September 30, 2010 were exercised, the pro forma as adjusted net tangible book value per share after this offering would be
$            per share, representing an increase to existing holders of $            per share, and there will be an immediate
dilution of $            per share to new investors. In
addition, we will need to obtain additional capital, and we may choose to raise such additional capital through equity offerings, debt financing and/or payments under new or existing licensing and
research and development collaboration agreements. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of these securities would
result in further dilution to our stockholders.
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SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data that is qualified in its entirety by and
should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and notes thereto appearing
elsewhere in this prospectus. The consolidated financial data as of December 31, 2009 and for the fiscal years ended December 31, 2007, 2008 and 2009 are derived from our audited
consolidated financial statements appearing elsewhere in this prospectus. The consolidated financial data for the fiscal year ended December 31, 2006 are derived from our audited consolidated
financial statements not included in this prospectus. The consolidated financial data for the nine month periods ended September 30, 2009 and 2010, is derived from our unaudited consolidated
financial statements which are presented elsewhere in this prospectus, but has been prepared on the same basis as the audited consolidated financial statements and the notes thereto, which include, in
the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the information for the unaudited interim periods. The operating results
for the nine month period ended September 30, 2010 may not be indicative of the operating results for the full year.
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Table of Contents
Year Ended December 31,
Nine Months Ended
September 30,
2006
2007
2008
2009
2009
2010
(unaudited)
(in thousands of dollars, except share and per share data)
Consolidated Statement of Operations Data:
Revenue:
Development and milestone revenue
$
5,616
$
1,405
$
2,697
$
1,550
$
1,181
$
97
Royalty revenue
652
2,828
6,192
44,963
41,884
8,635
Total revenues
6,268
4,233
8,889
46,513
43,065
8,732
Operating Expenses:
Research and development
8,958
19,269
30,463
29,260
21,804
26,080
General and administrative
3,945
4,011
4,287
4,649
3,503
3,388
Total operating expenses
12,903
23,280
34,750
33,909
25,307
29,468
Income (loss) from operations
(6,635
)
(19,047
)
(25,861
)
12,604
17,758
(20,736
)
Other income (expense):
Interest income
1,712
1,773
1,057
514
101
623
Interest expense
—
—
(8,678
)
(12,658
)
(9,210
)
(9,831
)
Other
40
—
—
—
—
54
Total other income (expense)
1,752
1,773
(7,621
)
(12,144
)
(9,109
)
(9,154
)
Net income (loss)
$
(4,883
)
$
(17,274
)
$
(33,482
)
$
460
$
8,649
$
(29,890
)
Cumulative dividends on Series A convertible preferred stock
(3,316
)
(3,430
)
(3,430
)
(3,430
)
(2,573
)
(2,573
)
Net income (loss) attributable to common stockholders
$
(8,253
)
$
(20,704
)
$
(36,912
)
$
(2,970
)
$
6,076
$
(32,463
)
Basic net income (loss) per share
$
(2.39
)
$
(4.21
)
$
(6.61
)
$
(0.53
)
$
1.08
$
(5.12
)
Diluted net income (loss) per share
$
(2.39
)
$
(4.21
)
$
(6.61
)
$
0.01
$
0.15
$
(5.12
)
Weighted average number of common shares:
Basic
3,455,762
4,921,376
5,587,467
5,653,506
5,610,047
6,345,420
Diluted
3,455,762
4,921,376
5,587,467
56,324,761
56,282,411
6,345,420
Net income (loss) used to compute pro forma net income (loss) per common share — basic and diluted (unaudited)(1)
$
460
$
(29,890
)
Weighted-average number of shares used in calculating pro forma net income (loss) per share — basic and diluted (unaudited):(1)
56,324,761
55,345,420
Pro forma net income (loss) per share — basic and diluted (unaudited)(1)
$
0.01
$
(0.54
)
(1)
Pro
forma net loss per share basic and diluted have been calculated assuming the conversion of all outstanding shares of the Company's Series A
convertible preferred stock into an aggregate of 49,000,000 shares of common stock upon completion of this offering, as if they had converted at the beginning of the period. Pro forma net loss per
share basic and diluted do not give effect to the sale of                  shares of common stock that we are offering pursuant to this prospectus or any
related estimated net proceeds therefrom. See
Note 2 to our audited financial statements for an explanation of the method used to calculate the pro forma basic and diluted net income (loss) per common share and the number of the per share
amounts.
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Year Ended December 31,
As of
September 30,
2010
2006
2007
2008
2009
(unaudited)
(in thousands of dollars)
Consolidated Balance Sheet Data:
Unrestricted cash and cash equivalents and marketable securities
$
40,655
$
25,592
$
60,380
$
66,524
$
45,822
Restricted cash and cash equivalents and marketable securities
256
281
6,281
2,076
1,680
Working capital
39,746
22,674
61,183
62,847
33,835
Total assets
46,426
31,907
77,134
79,899
57,502
Long-term debt
—
—
75,000
75,000
75,000
Series A convertible preferred stock
49
49
49
49
49
Accumulated deficit
(5,027
)
(22,301
)
(55,782
)
(55,321
)
(85,210
)
Total stockholders' equity (deficit)
43,830
26,635
(6,747
)
(6,155
)
(35,917
)
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations
together with our consolidated financial statements and related notes appearing at the end of this prospectus. In addition to historical information, some of the information in this discussion and
analysis contains forward-looking statements reflecting our current expectations and involves risk and uncertainties. For example, statements regarding our expectations as to our plans and strategy
for our business, future financial performance, expense levels and liquidity sources are forward-looking statements. 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 and elsewhere in this prospectus.
Overview
We are a specialty pharmaceutical company focused on developing and commercializing products for the treatment of central nervous
system, or CNS, diseases. Our extensive expertise in product development has been built over the past 20 years: initially as a stand alone development organization, then as a U.S. subsidiary of
Shire plc and, upon our acquisition of substantially all the assets of Shire Laboratories, Inc. in late 2005, as Supernus Pharmaceuticals. We are developing several product candidates in
neurology and psychiatry to address large market opportunities in epilepsy and attention deficit hyperactivity disorder, or ADHD. Our two epilepsy product candidates are SPN-538 (extended
release topiramate), for which we expect to file a new drug application, or NDA, in the first quarter of 2011, and Epliga (extended release oxcarbazepine), which is in Phase III clinical
trials. Our ADHD product candidates include SPN-810 (molindone hydrochloride), a novel treatment for impulsive aggression in patients with ADHD, and SPN-812, a novel
non-stimulant treatment for ADHD. Both of these programs are in Phase II. In addition to these four lead product candidates, we have several additional product candidates in various
stages of development. We intend to market our product candidates in the United States through our own focused sales force targeting specialty physicians, including neurologists and psychiatrists. We
believe our broad and diversified portfolio of product candidates provides us with multiple opportunities to achieve our goal of becoming a leading specialty pharmaceutical company focused on CNS
diseases.
We
use our proprietary technologies to enhance the therapeutic benefits of approved anti-epileptic drugs, or AEDs through advanced extended release formulations. Our most advanced
product candidates, SPN-538 and Epliga, are novel oral once-daily extended release formulations of topiramate and oxcarbazepine, respectively, for the treatment of epilepsy. Immediate
release formulations of topiramate and oxcarbazepine, are available in generic form and are marketed under the brand names of Topamax and Trileptal, respectively. According to IMS Health, peak sales
of Topamax and Trileptal represented an estimated 25.8% and 8.1% of the total seizure disorder market in 2008 and 2006, respectively. We are pursuing a Section 505(b)(2) regulatory strategy for
SPN-538 and Epliga, which would allow us to rely on the existing data from the NDAs of Topamax and Trileptal, respectively. The once-per-day dosing of each of
SPN-538 and Epliga is designed to improve patient compliance and to have a better tolerability profile compared to the current immediate release AEDs that are taken multiple times per day
to maintain therapeutic drug concentrations over the dosing interval. We believe there is a significant unmet need for extended release products, such as SPN-538 and Epliga, for the
treatment of epilepsy. Extended release products have been shown to improve compliance, increase seizure control, reduce side effects and improve tolerability as compared to immediate release
products.
We
are also developing treatments for new indications in diseases such as ADHD and its coexisting disorders. We are developing SPN-810, which is currently in Phase II,
as a novel treatment for impulsive aggression in patients with ADHD. If approved by the U.S. Food and Drug Administration, or FDA, SPN-810 could be the first product available to address
this serious, unmet medical need. SPN-810 is based on molindone hydrochloride, which was previously marketed in the
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United
States as an anti-psychotic to treat schizophrenia under the trade name Moban. In addition, SPN-812, which is currently in Phase II, is being developed as a novel
non-stimulant treatment for ADHD. SPN-812 is a selective norepinephrine reuptake inhibitor that we believe could be more effective and have a better side effect profile than
other non-stimulant treatments for ADHD. In addition, because the active ingredient of SPN-812 has demonstrated efficacy as an antidepressant in Europe, this product candidate
may provide increased benefit to an estimated 40% of ADHD patients who suffer from depression. In addition to these four lead product candidates, we have a number of other product candidates in
various stages of development such as SPN-809, which would represent a novel mechanism of action for the U.S. antidepressant market.
Historically,
our revenues have been generated through research and development agreements, which included fees for development services provided to customers and payments for
achievement of specified development, regulatory and sales milestones, as well as royalties on product sales of licensed products, Oracea, Sanctura XR, and Intuniv. Since our inception in 2005, we
have generated $0 in revenue from product sales and have incurred significant operating losses. As of September 30, 2010, we had an accumulated deficit of $85.2 million. We expect to
continue to incur net losses and negative cash flow from operating activities for the foreseeable future as we continue to develop our product candidates and seek marketing approval and, subject to
obtaining such approval, the eventual commercialization of SPN-538 and Epliga, as well as our other product candidates.
History of our Company
We have a long track record of developing novel products by applying proprietary technologies to known drugs to improve existing
therapies and to enable the treatment of new indications. We have a broad portfolio of drug development technologies consisting of six platforms that include the following: Microtrol (multiparticulate
delivery platform), Solutrol (matrix delivery platform) and EnSoTrol (osmotic delivery system). Our proprietary technologies have been used in the following approved products: Carbatrol
(carbamazepine), Adderall XR (mixed amphetamine salts), and Intuniv (guanfacine), marketed by Shire; Equetro (carbamazepine), marketed by Validus Pharmaceuticals Inc.; Sanctura XR (trospium chloride),
marketed by Allergan; and Oracea (doxycycline), marketed by Galderma. Throughout our 20 year history, we have continued our commitment to innovation with a focus for the past five years on
developing our own product candidates in neurology and psychiatry.
We
have historically raised capital through the monetization of certain future royalty streams under our existing licenses for Oracea, Sanctura XR and Intuniv. We raised approximately
$63.3 million in net proceeds in April 2008 through the monetization of future royalty payment rights and other license rights for both Oracea and Sanctura XR. In that deal, we transferred the
license rights to both Oracea and Sanctura XR to TCD Royalty Sub LLC, our wholly-owned subsidiary ("Royalty Sub"), which issued $75.0 million in non-recourse notes in a
private placement. All milestone and royalty revenues due from net sales of Oracea and Sanctura XR are required to be used to satisfy the payment of principal and interest on the
non-recourse notes. The non-recourse notes are non-recourse to us and are secured by our Royalty Sub's assets, which include the royalty payment rights and other
rights related to net sales of Oracea and Sanctura XR. In addition, we entered into an agreement with an affiliate of Shire plc in May 2009, whereby the Shire affiliate paid us a
one-time, lump-sum payment of approximately $36.9 million as consideration for a royalty-free, fully paid-up license for Intuniv.
We
also have a license agreement with United Therapeutics Corporation, or United Therapeutics, to use one of our proprietary technologies for an oral formulation of treprostinil for the
treatment of pulmonary arterial hypertension, or PAH, as well as for other indications. This oral formulation is currently being evaluated by United Therapeutics in Phase III trials for PAH.
Remaining milestone payments to us could total up to approximately $6.8 million, which includes milestone payments of up to approximately $2.8 million for the satisfaction of development
milestones relating to the product candidate for the treatment of PAH. If United Therapeutics receives approval to market and sell this
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product
candidate, we are entitled to receive single digit royalties based on worldwide net sales. We are also entitled to receive milestones and royalties for use of this formulation in other
indications.
See
"Liquidity and Capital Resources—Financing History and Future Capital Requirements" for additional details regarding the foregoing transactions.
Financial Overview
Revenue
Our historical revenues have been generated through research and development agreements. These agreements included fees for development
services provided to customers and payments for achievement of specified development, regulatory and sales milestones, which comprise our development and milestone revenues, as well as royalties on
product sales of licensed products, Oracea, Sanctura XR, and Intuniv, which comprise our royalty revenues. Until such time that we begin generating revenues from the sales of our own approved product
candidates, we expect that development and milestone revenues and royalty revenues will continue to represent our primary sources of revenues.
We
recognize development and milestone revenues related to research and development agreements pursuant to which various third parties have accessed our proprietary technologies. These
arrangements generally provided for fees for research and development services rendered, including milestone payments at the conclusion of the research period upon achieving specified events. Over
time, we do not expect these historical revenues relating to development and milestone revenues to be significant as we continue to focus on the development and potential commercialization of our own
product candidates.
We
recognize royalty revenues from our collaboration agreements. Royalty revenues consist of payments received from our various collaborative partners related to the sales of products
that utilize our proprietary technologies under these collaboration agreements.
The
table below summarizes the revenues that we received from our collaboration arrangements.
Year Ended
December 31,
Nine Months Ended
September 30,
2007
2008
2009
2009
2010
(unaudited)
(in thousands of dollars)
Development and milestone revenues
Oracea & Sanctura XR
$
400
$
1,500
$
500
$
500
$
—
Other collaboration arrangements
1,005
1,197
1,050
681
97
Total development and milestone revenues
1,405
2,697
1,550
1,181
97
Royalty revenues:
Oracea & Sanctura XR
2,828
6,192
8,088
5,009
8,635
Intuniv
—
—
36,875
36,875
—
Total royalty revenues
2,828
6,192
44,963
41,884
8,635
Total revenues
$
4,233
$
8,889
$
46,513
$
43,065
$
8,732
From
and after April 15, 2008, all development and milestone revenues and royalty revenues due from net sales of Oracea and Sanctura XR are required to be used to satisfy the
payment of principal and interest on the non-recourse notes of Royalty Sub. We also received in May 2009 a one-time payment of approximately $36.9 million from
Shire plc as consideration for a royalty-free, fully paid-up license to Shire plc for Intuniv and, as a result, we will not receive any future royalty payments
with respect to the net sales of Intuniv.
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If
we obtain regulatory approval for SPN-538, Epliga or any of our other product candidates, we would expect to begin to generate revenues from product sales and, over time,
we expect that our future revenues would begin to be principally derived from product sales as compared to development and milestone revenues and royalty revenues.
Prior
to commercializing any of our product candidates, we expect that any revenues we generate will fluctuate from quarter to quarter as a result of the timing and amount of development
and milestone revenues and royalty revenues received under our collaboration license agreements, as our revenues from these arrangements are principally based on the achievement of clinical and
commercial milestones outside of our control. If we fail to complete the development of our product candidates in a timely manner or obtain regulatory approval for them, our ability to generate future
revenues, and our results of operations and financial position, would be materially adversely affected.
Research and Development Expense
Research and development expenses consist of costs incurred in connection with the development of our and our collaborators' product
candidates. These expenses consist primarily of:
•
employee-related expenses, which include salaries and benefits;
•
expenses incurred under agreements with contract research organizations, investigative sites and consultants that conduct
our clinical trials and a substantial portion of our preclinical studies;
•
the cost of acquiring and manufacturing clinical trial materials;
•
costs related to facilities, depreciation and other allocated expenses;
•
license fees for and milestone payments related to in-licensed products and technology;
•
stock-based compensation expense to employees and consultants; and
•
costs associated with non-clinical activities and regulatory approvals.
We
expense research and development costs as incurred. Non-refundable advance payments for goods and services that will be used in future research and development activities
are initially recorded as prepaid expenses and expensed as the activity is performed or when the goods have been received.
Since
our founding, we have developed and evaluated a series of CNS product candidates through Phase I pharmacokinetic trials. In 2008, we conducted a review of our portfolio of
product candidates and rationalized the programs based on clinical profiles, expected required resources to complete development, intellectual property, existing treatment options and commercial
opportunity. As a result of that review, we elected to concentrate on our two epilepsy product candidates and the product candidates that comprise our psychiatry portfolio. We intend to continue to
strategically invest in our pipeline, and the commitment of funding for each subsequent stage of our development programs is dependent upon, among other things, the receipt of clear, positive data.
The
majority of our external costs relate to later-stage product candidates, as costs associated with later-stage clinical trials are, in most cases, more significant than those incurred
in earlier stages of our pipeline. For example, the external costs related to our Epliga program have been higher than our other programs in recent years because Epliga is undergoing a
Phase III clinical trial that began in late 2008.
We
track external development expenses and direct personnel expense on a program-by-program basis. Costs related to facilities, depreciation, employee benefits
and bonuses, stock-based compensation, research and development management and research and development support services and supplies are not charged to specific programs, because the number of
clinical and preclinical product candidates or development projects tends to vary from period to period and internal resources are utilized across and benefit multiple programs over any given period
of time. The following table is
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a
summary of our research and development expenses for the years ended December 31, 2007, 2008 and 2009, and the nine months ended September 30, 2009 and 2010.
Year Ended
December 31,
Nine Months Ended
September 30,
From
Inception to
September 30,
2007
2008
2009
2009
2010
2010
(unaudited)
(in thousands of dollars)
SPN-538
$
1,044
$
4,098
$
6,464
$
5,013
$
5,923
$
18,232
Epliga
3,845
10,834
10,027
7,352
10,190
35,360
SPN-810
2,192
2,199
3,333
2,265
1,705
9,429
SPN-812 and SPN-809
2,392
2,923
680
370
1,684
7,721
Other research and development programs
2,796
1,822
426
312
538
7,564
Development expenses—general
7,000
8,587
8,331
6,492
6,041
35,821
Total research and development expenses
$
19,269
$
30,463
$
29,261
$
21,804
$
26,081
$
114,127
The
successful development of our product candidates is highly uncertain and subject to a number of risks including, but not limited to:
•
The duration of clinical trials varies substantially according to the type, complexity and novelty of the product
candidate;
•
The FDA and comparable agencies in foreign countries impose substantial requirements on the introduction of therapeutic
pharmaceutical products, typically requiring lengthy and detailed laboratory and clinical testing procedures, sampling activities and other costly and time-consuming procedures;
•
Data obtained from nonclinical and clinical activities at any step in the testing process may be adverse and lead to
discontinuation or redirection of development activity. Data obtained from these activities also are susceptible to varying interpretations, which could delay, limit or prevent regulatory approval;
•
The duration and cost of nonclinical studies and clinical trials may vary significantly over the life of a product
candidate and are difficult to predict;
•
The costs, timing and outcome of regulatory review of a product candidate are uncertain; and
•
The emergence of competing technologies and products and other adverse market developments could impede our commercial
efforts.
Development
timelines, probability of success and development costs vary widely. As a result of the uncertainties discussed above, we anticipate that we will make determinations as to
which additional programs to pursue and how much funding to direct to each program on an ongoing basis in response to the scientific and clinical data of each product candidate, as well as ongoing
assessments of such product candidate's commercial potential. Accordingly, we cannot currently estimate with any degree of certainty the amount of time or money that we will be required to expend in
the future on SPN-538, Epliga or other product candidates to complete current or future clinical stages prior to their regulatory approval, if such approval is ever granted. As a result of
these uncertainties surrounding the timing and outcome of any approvals, we are currently unable to estimate precisely when, if ever, SPN-538, Epliga or any of our other product candidates
will generate revenues and cash flows.
We
expect our research and development costs to continue to be substantial for the foreseeable future and to increase with respect to our product candidates as we advance those product
candidates through preclinical studies, clinical trials, manufacturing scale-up and other pre-approval activities. We
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may
elect to expand existing collaborative relationships or to seek new partnerships in order to provide us with a diversified revenue stream and to help facilitate the development and
commercialization of our product candidate pipeline.
General and Administrative Expenses
General and administrative expenses consist principally of salaries and related costs for personnel in executive, finance, business
development, marketing, information technology, legal and human resources functions. Other general and administrative expenses include facility costs not otherwise included in research and development
expenses, patent filing, prosecution and defense costs, professional fees for legal, consulting, auditing and tax services, and stock compensation expense.
We
expect that our general and administrative expenses in 2011 will be higher than in 2010 as a result of greater expenses relating to our operations as a public company, including
increased payroll and increased consulting, legal and compliance, accounting, insurance and investor relations costs. Additionally, we plan to increase spending related to the build-out of our
commercial infrastructure for the anticipated launch of both SPN-538 and Epliga in the United States in 2012. Upon approval of SPN-538, we would hire a small specialty sales
force, initially consisting of a limited number of field sales representatives to support the launch of the product. We would then seek to expand our sales force in connection with an approval and
commercial launch of Epliga. Having two epilepsy products that can be promoted to the same physician audience would allow us to leverage our commercial infrastructure with these prescribers.
Other Income and Expense
Other income and expense is comprised of interest income, gain on sales of equipment and interest expense. Interest income consists of
interest earned on our cash and cash equivalents and marketable securities. The primary objective of our investment policy is capital preservation.
Interest
expense consists primarily of interest on the $75.0 million non-recourse notes of Royalty Sub and the amortization of the related deferred financing costs.
The non-recourse notes have a final stated maturity date of April 15, 2024. Until any portion of the principal on the non-recourse notes is paid down, the annual
interest expense is $12.0 million, or $3.0 million per quarter.
Net Operating Losses and Tax Carryforwards
As of December 31, 2009, we had approximately $54.1 million of federal net operating loss carryforwards. We also had
federal and state research and development tax credit carryforwards of approximately $3.1 million available to offset future taxable income. These federal and state net operating loss and
federal and state tax credit carryforwards will begin to expire at various dates beginning in 2025, if not utilized. The Tax Reform Act of 1986 provides for a limitation on the annual use of net
operating loss and research and development tax credit carryforwards following certain ownership changes that could limit our ability to utilize these carryforwards. We have not completed a study to
assess whether an ownership change has occurred, or whether there have been multiple ownership changes since our inception, due to the significant costs and complexities associated with such study.
Accordingly, our ability to utilize the aforementioned carryforwards may be limited. Additionally, U.S. tax laws limit the time during which these carryforwards may be utilized against future taxes.
As a result, we may not be able to take full advantage of these carryforwards for federal and state tax purposes.
Net Income and Loss
We have incurred significant net losses since our inception in 2005, with the exception of 2009 when we generated net income of
$0.5 million principally because of the one-time payment of $36.9 million that we received from Shire plc as consideration for a royalty-free,
fully-paid-up license to
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Shire plc
for Intuniv. We expect to continue to incur net losses for the foreseeable future as we continue to develop our product portfolio, seek regulatory approval, and, if such approval is
obtained, commercialize SPN-538 and Epliga as well as our other product candidates.
Results of Operations
Comparison of Nine Months Ended September 30, 2010 and Nine Months Ended September 30, 2009
Nine Months Ended
September 30,
Increase/
(decrease)
2009
2010
(unaudited)
(in thousands of dollars)
Revenues:
Development and milestone revenues
$
1,181
$
97
$
(1,084
)
Royalty revenues
41,884
8,635
(33,249
)
Total revenues
43,065
8,732
Operations Expenses:
Research and development
21,804
26,080
4,276
General and administrative
3,503
3,388
(115
)
Total operating expenses
25,307
29,468
Income (loss) from operations
17,758
(20,736
)
Interest income
101
623
522
Interest expense
(9,210
)
(9,831
)
621
Net income (loss)
$
8,649
$
(29,890
)
Revenues.
Our revenues were $8.7 million for the nine months ended September 30, 2010 compared to $43.1 million
for the same
period in 2009, representing a decrease of $34.3 million or approximately 80%. This decrease was principally attributable to the one-time, lump-sum payment of
approximately $36.9 million that we received in May 2009 from Shire plc as consideration for a royalty-free, fully paid-up license to Shire plc for
Intuniv. We also generated lower development and milestone revenues for the nine months ended September 30, 2010 period as compared to same period in 2009 due to our focus on the development of
our own product candidates as opposed to developing product candidates for third parties.
Research and Development.
Our research and development expenses were $26.1 million for the nine months ended
September 30, 2010
compared to $21.8 million for the same period in 2009, representing an increase of $4.3 million or approximately 20%. The $4.3 million increase in research and development expense
is primarily attributable to an increase in clinical trial costs of approximately $3.2 million, the largest portion of which was due to the continuing costs for our Phase III clinical
trial for Epliga and higher manufacturing costs of approximately $0.8 million principally associated with pre-validation work done at our commercial manufacturers for both
SPN-538 and Epliga.
General and Administrative.
Our general and administrative expenses were $3.4 million for the nine months ended
September 30, 2010
compared to $3.5 million for the same period in 2009, representing a decrease of $0.1 million or approximately 3%. The $0.1 million decrease in general and administrative expense
is primarily the result of lower patent and outside consulting fees incurred during the nine months ended September 30, 2010.
Interest and Other Income.
Interest income was $0.6 million for the nine months ended September 30, 2010 compared to
$0.1 million for the same period in 2009, representing an increase of $0.5 million. The $0.5 million increase is primarily because we invested a larger portion of our cash in
marketable securities during the nine months ended September 30, 2010, which yielded higher returns
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than
in the prior period. For the nine months ended September 30, 2010, we also had a one-time net gain of approximately $54,000 on the sale of certain laboratory equipment.
Interest Expense.
Interest expense was $9.8 million for the nine months ended September 30, 2010 compared to
$9.2 million for
the same period in 2009, representing an increase of $0.6 million or approximately 7%. Interest expense is comprised primarily of interest payable on the non-recourse notes of
Royalty Sub at $3.0 million per quarter, or approximately $9.0 million for both nine month periods reported here, together with amortization of the related deferred financing costs
related to the non-recourse notes. The $0.6 million increase in interest expense in the nine months ended September 30, 2010 is largely because of amortization expense
associated with marketable securities purchased at a premium.
Net Income (Loss).
Net loss was $29.9 million for the nine months ended September 30, 2010 compared to net income of
$8.6 million for the same period in 2009, representing a decrease of $38.6 million. The $38.6 million decrease is principally a result of the higher royalty revenues recognized in
the nine months ended September 30, 2009, including in connection with our sale to Shire plc of a fully paid-up license for Intuniv and also due to the higher research and
development costs incurred for the same period in 2010.
Comparison of Year Ended December 31, 2009 and Year Ended December 31, 2008
Year Ended
December 31,
Increase/
(decrease)
2008
2009
(in thousands of dollars)
Revenues:
Development and milestone revenues
$
2,697
$
1,550
$
(1,147
)
Royalty revenues
6,192
44,963
38,771
Total revenues
8,889
46,513
Operations Expenses:
Research and development
30,463
29,260
(1,203
)
General and administrative
4,287
4,649
362
Total operating expenses
34,750
33,909
Income (loss) from operations
(25,861
)
12,604
Interest income
1,057
514
(543
)
Interest expense
(8,678
)
(12,658
)
3,980
Net income (loss)
$
(33,482
)
$
460
Revenues.
Our revenues were $46.5 million for the year ended December 31, 2009 compared to $8.9 million for the
same period in
2008, representing an increase of $37.6 million. This increase was principally due to the one-time, lump-sum payment from Shire plc of approximately
$36.9 million as consideration for a royalty-free, fully paid-up license for Intuniv. We also received increased royalty revenues of approximately $1.9 million
from Oracea and Sanctura XR. These gains were offset by a decrease in development and milestone revenues of approximately $1.1 million as we continue to increase our focus on the development of
our own product candidates, as opposed to earning revenues from developing collaborators' product candidates.
Research and Development.
Our research and development expenses were $29.3 million for the year ended December 31,
2009 compared to
$30.5 million for the same period in 2008, representing a decrease of $1.2 million or approximately 4%. The decrease was primarily attributable to an approximately $0.9 million
decrease in salaries, benefits and laboratory supplies associated with a
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reduction
in the average number of research and development employees from 69 for the year ended December 31, 2008 as compared to 56 for the year ended December 31, 2009 as part of our
business strategy to improve our operating efficiencies and reduce our operating costs.
General and Administrative.
Our general and administrative expenses were $4.7 million for the year ended December 31,
2009 compared to
$4.3 million for the same period in 2008, representing an increase of $0.4 million or approximately 8%. This increase in general and administrative expense was primarily a result of
increases in consulting expenses associated with market research and partnering opportunities as well as higher patent and legal costs.
Interest Income.
Interest income was $0.5 million for the year ended December 31, 2009 compared to $1.1 million
for the same
period in 2008, representing a decrease of $0.5 million or approximately 51%. Although average cash balances were higher for the year ended December 31, 2009, the decrease in interest
income was principally a result of lower prevailing interest rates during the period.
Interest Expense.
Interest expense was $12.7 million for the year ended December 31, 2009 compared to $8.7 million
for the same
period in 2008, representing an increase of $4.0 million or approximately 46%. The increase in interest expense was primarily due to interest payments on the non-recourse notes of
Royalty Sub, together with amortization of related deferred financing costs, for the year ended December 31, 2009 compared with the eight and one-half months that the
non-recourse notes were outstanding in 2008.
Net Income (Loss).
Net income was $0.5 million for the year ended December 31, 2009 compared to a net loss of
$33.5 million for
the same period in 2008, representing a decrease of $34.0 million. The $34.0 million change between the net loss of $33.5 million for the year ended December 31, 2008 and
the net income of $0.5 million for the same period in 2009 is primarily due to higher royalty revenues recognized in the year ended December 31, 2009, offset by the higher interest
expense related to the
non-recourse notes in 2009 because the non-recourse notes were outstanding for the full year.
Comparison of Year Ended December 31, 2008 and Year Ended December 31, 2007
Year Ended
December 31,
Increase/
(decrease)
2007
2008
(in thousands of dollars)
Revenues:
Development and milestone revenues
$
1,405
$
2,697
$
1,292
Royalty revenues
2,828
6,192
3,364
Total revenues
4,233
8,889
Operations Expenses:
Research and development
19,269
30,463
11,194
General and administrative
4,011
4,287
276
Total operating expenses
23,280
34,750
Income (loss) from operations
(19,047
)
(25,861
)
Interest income
1,773
1,057
(716
)
Interest expense
—
(8,678
)
8,678
Net income (loss)
$
(17,274
)
$
(33,482
)
Revenues.
Our revenues were $8.9 million for the year ended December 31, 2008 compared to $4.2 million for the
same period in
2007, representing an increase of $4.7 million. The increase in revenues relates primarily to an increase in royalties received from Oracea and the receipt of royalty
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revenues
related to the product launch of Sanctura XR in the second half of 2008. The increase in development and milestone revenues was due to a $1.3 million milestone payment related to the
FDA approval of Sanctura XR that we received.
Research and Development.
Our research and development expenses were $30.5 million for the year ended December 31,
2008 compared to
$19.3 million for the same period in 2007, representing an increase of $11.2 million or approximately 58%. The increase in research and development expense is primarily attributable to
an increase in clinical trial expenses of approximately $9.4 million, principally due to outside costs associated with the Phase III clinical trial for Epliga that began in second half
of 2008, as well as an increase in compensation costs of approximately $1.7 million, primarily related to an increase in clinical and regulatory personnel hired to run and support the
Phase III program for Epliga.
General and Administrative.
Our general and administrative expenses were $4.3 million for the year ended December 31,
2008 compared to
$4.0 million for the same period in 2007, representing an increase of $0.3 million or approximately 7%. The increase in general and administrative expense was primarily a result of an
increase in salaries and benefits costs of $0.2 million due to an increase in personnel to support our expanded clinical operations.
Interest Income.
Interest income was $1.1 million for the year ended December 31, 2008 compared to $1.8 million
for the same
period in 2007, representing a decrease of $0.7 million or approximately 40%. The decrease in interest income for the year ended December 31, 2008 was principally the result of
significantly lower prevailing interest rates during the period, notwithstanding higher average cash balances.
Interest Expense.
Interest expense was $8.7 million for the year ended December 31, 2008 compared to $0 for the same
period in 2007,
representing an increase of $8.7 million. The increase in interest expense was due to interest on the non-recourse notes of Royalty Sub, which were issued by it in April 2008,
together with amortization of the related deferred financing costs.
Net Income (Loss).
Net loss was $33.5 million for the year ended December 31, 2008 compared to $17.3 million for
the same period
in 2007, representing an increase of $16.2 million or approximately 94%. This change was principally the result of the higher research and development expenses associated with initiating the
Phase III program for Epliga, and the higher interest expense for the year ended December 31, 2008 associated with the issuance of the non-recourse notes of Royalty Sub.
These expenses were slightly offset by higher royalty revenues from product sales of Oracea and Sanctura XR.
Liquidity and Capital Resources
In December 2005, we acquired substantially all of the assets of Shire Laboratories, Inc. from Shire plc in exchange for
a cash payment of approximately $0.8 million and the issuance of 4 million shares of our Series A convertible preferred stock at a value of $1.00 per share. In connection with the
commencement of our operations, in December 2005 and February 2006, we raised approximately $45.0 million through the sale of 45 million shares of Series A convertible preferred
stock. To date, we have not generated any revenues from the product sales. Since our inception in 2005, we
have funded our operations largely through venture capital equity and other financings, such as the monetization of future royalties due to us from existing license agreements with Endo
Pharmaceuticals Solutions Inc., Galderma Laboratories, L.P. and Shire plc pursuant to which we have received net proceeds of approximately $100.2 million through September 30, 2010. As
of September 30, 2010, we had unrestricted cash, cash equivalents and marketable securities of approximately $45.8 million.
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Financing History and Future Capital Requirements
Non-recourse Notes.
In April 2008, we raised approximately $63.3 million in net proceeds through a private placement of
$75.0 million aggregate principal amount of 16% non-convertible, non-recourse, secured promissory notes due April 15, 2024 (the "Non-recourse Notes")
by Royalty Sub. As part of the transaction, we transferred to Royalty Sub our payment rights and other license rights related to two products that utilize our proprietary technologies: Oracea, which
is marketed by Galderma as a treatment for rosacea; and Sanctura XR, which is marketed by Allergan as a treatment for overactive bladder. The Non-recourse Notes are secured by these
payment and other license rights, as well as by the pledge of all our outstanding equity interest in Royalty Sub. While the Non-recourse Notes are outstanding, all royalty and milestone
payments due from net sales of Oracea and Sanctura XR go to the payment of interest, and when available, to the principal on such Non-recourse Notes. Accordingly, unless and until the
Non-recourse Notes are fully paid, future royalties and milestone payments due from net sales of Oracea and Sanctura XR will not be available to fund our operations. Annual interest
expense related to the Non-recourse Notes is $12.0 million.
Royalty
Sub began making quarterly debt service payments on the Non-recourse Notes beginning on July 15, 2008. Applicable royalties received by Royalty Sub on net
sales of Oracea and Sanctura XR for any quarter that exceed the interest payments and expenses due for that quarter are applied to the repayment of principal on the Non-recourse Notes. Any
portion of the principal amount of the Non-recourse Notes not repaid on or before the legal final maturity date of April 15, 2024, will be payable on that date. As of
September 30, 2010, no principal payments have been made. Upon payment of the Non-recourse Notes in full, any residual rights to the royalty payments will revert to us. In addition,
the Non-recourse Notes may be redeemed at our option on any quarterly payment date, subject to the payment of a redemption premium if repaid on or before April 15, 2012. After
April 15, 2012, the Non-recourse Notes may be redeemed without premium.
In
connection with the Non-recourse Note transaction, an $8.0 million interest reserve was established to fund potential interest shortfalls or, if none, for repayment
of principal due under the Non-recourse Notes. These funds came out of the debt proceeds and are restricted. Deferred financing costs of approximately $4.4 million were paid by
Royalty Sub to complete the transaction. These costs were funded from the debt proceeds and will be amortized to interest expense over 16.2 years, which is the expected term of
Non-recourse Notes.
In
the first quarter of 2010, the $8.0 million interest reserve was exhausted. As of September 30, 2010, the Royalty Sub had approximately $1.4 million available for
the quarterly interest payment of $3.0 million due on October 15, 2010. As of December 1, 2010, the Royalty Sub paid the interest shortfall of $1.6 million and had
$0.8 million available for future interest payments. Under the terms of the Non-recourse Notes, the Royalty Sub is not in default for payment of interest unless it fails to make
payment in full on the interest payment by the next succeeding payment date. To date, the Royalty Sub has been able to make payment in full of all interest payments before the next succeeding payment
date. In the event of a default for failure to pay interest timely, the noteholders do not have recourse to us as the Non-recourse Notes are non-recourse beyond Royalty Sub and
non-convertible into any other of our securities, and have not been guaranteed by us. However, we have pledged all of our equity interests in Royalty Sub to secure the
Non-recourse Notes and, upon an event of default, the noteholders could elect to exercise their rights to acquire those equity interests in the Royalty Sub.
Sale of Intuniv Royalties.
In May 2009, we entered into an agreement with an affiliate of Shire plc, whereby a Shire
affiliate paid us a
one-time, lump-sum payment of approximately $36.9 million as consideration for a royalty-free, fully paid-up license for Intuniv, which is a
novel ADHD product marketed by Shire plc and utilizes one of our proprietary technologies. As a result, we will not receive any future royalty payments from Shire plc with respect to
Intuniv.
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United Therapeutics License
We have a license agreement with United Therapeutics to use one of our proprietary technologies for an oral formulation of Remodulin
for the treatment of PAH, and potentially for additional indications. This oral formulation of treprostinil diethanolamine, or treprostinil, is currently being evaluated by United Therapeutics in
Phase III trials for PAH. Through September 30, 2010, we have received approximately $750,000 in pre-commercial milestone payments under the agreement. Remaining milestone
payments to us could total up to approximately $2.8 million based on satisfaction of development milestones of oral treprostinil and up to approximately $4.0 million for the development
of each additional product that combines a form of oral treprostinal that utilizes our technologies with another drug compound. If United Therapeutics receives approval to market and sell oral
treprostinil for additional indications and/or any additional combination products that utilizes our technologies, we will receive royalties based on net sales worldwide in the single digits. Any
revenues received under this license will fluctuate as a result of the timing and amount of milestone and other payments received under this license, and the amount and timing of payments that we
receive upon the sale of covered products, to the extent any are successfully commercialized by United Therapeutics or its sublicensees.
Funding Requirements
As of September 30, 2010, we had unrestricted cash, cash equivalents and marketable securities of $45.8 million, and
$1.4 million in restricted cash and cash equivalents reserved for interest payments by the Royalty Sub. Although it is difficult to predict future liquidity requirements, we believe that the
net proceeds from this offering, together with our existing unrestricted cash, cash equivalents and marketable securities and anticipated future product revenues, will be sufficient to fund our
operations for at least the next            months. However, successful transition to profitability is dependent upon achieving a level of revenues adequate to support our cost structure,
which
we do not expect in the near term, if at all. We cannot assure you that we will ever be profitable or generate positive cash flow from operating activities.
We
expect to continue to incur substantial additional operating losses for at least the foreseeable future as we continue to develop our product candidates and seek marketing approval
and, subject to obtaining such approval, the eventual commercialization of SPN-538, Epliga and our other product candidates. If we obtain marketing approval for SPN-538 or Epliga, we will incur
significant sales,
marketing and outsourced manufacturing expenses. In addition, we expect to incur additional expenses to add operational, financial and information systems and personnel, including personnel to support
our planned product commercialization efforts. We also expect to incur significant costs to comply with corporate governance, internal controls and similar requirements applicable to us as a public
company following the closing of this offering.
Our
future use of operating cash and capital requirements will depend on many forward-looking factors, including the following:
•
The timing of our submission to the FDA, and outcome of the FDA's review, of the NDA for SPN-538;
•
The timing and outcome of Phase III data for Epliga, along with the timing of our submission to the FDA, and the
outcome of the FDA's review, of the NDA for Epliga;
•
The extent to which the FDA may require us to perform additional clinical trials for SPN-538 or Epliga;
•
The timing and success of this offering;
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•
The costs of our commercialization activities for SPN-538 and/or Epliga, if either is approved by the FDA;
•
The cost of purchasing manufacturing and other capital equipment for our potential products;
•
The scope, progress, results and costs of development for our other product candidates;
•
The cost, timing and outcome of regulatory review of our other product candidates;
•
The extent to which we acquire or invest in products, businesses and technologies;
•
The extent to which we choose to establish collaboration, co-promotion, distribution or other similar
agreements for product candidates; and
•
The costs of preparing, submitting and prosecuting patent applications and maintaining, enforcing and defending
intellectual property claims.
We
may need to obtain additional capital through equity offerings, debt financing and/or payments under new or existing licensing and research and development collaboration agreements.
We expect that our progress in the development of our product candidates may provide sufficient value inflection milestones, based on which we will be able to seek additional funding. The type,
timing, and terms of financing, if required, will depend upon our cash needs, the availability of financing sources and the prevailing conditions in the financial markets. There can be no assurance
that such financing will be available to us at any given time or available on favorable terms, if at all. If sufficient funds on acceptable terms are not available when needed, we could be required to
significantly reduce operating expenses and delay, reduce the scope of, or eliminate one or more of our development programs, which may have a material adverse effect on our business, results of
operations and financial condition. In addition, additional debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include covenants limiting
or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Any debt financing or additional equity that we raise may
contain terms, such as liquidation and other preferences, that are not favorable to us or our stockholders. If we raise additional funds through collaboration and licensing arrangements with third
parties, it may be necessary to relinquish valuable rights to our technologies, future revenue streams or product candidates or to grant licenses on terms that may not be favorable to us.
Cash Flows
The following table sets forth the major sources and uses of cash for the periods set forth below:
Year Ended
December 31,
Nine Months Ended
September 30,
2007
2008
2009
2009
2010
(unaudited)
(in thousands of dollars)
Net cash provided by (used in):
Operating activities
$
(13,980
)
$
(29,652
)
$
2,634
$
11,994
$
(20,840
)
Investing activities
14,854
15,481
(28,385
)
(19,618
)
14,278
Financing activities
5
64,462
4,280
2,546
412
Net increase (decrease) in cash and cash equivalents
$
879
$
50,291
$
(21,471
)
$
(5,078
)
$
(6,150
)
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Operating Activities
The decrease in cash of $32.8 million in net cash provided by operations for the nine months ended September 30, 2010
compared to the same period in 2009 was primarily because of the royalty revenues received in May 2009 as a one-time, lump-sum payment of approximately $36.9 million
from Shire plc as consideration for a royalty-free, fully paid-up license to Shire plc for Intuniv. This decrease in cash provided by operations was offset in the
2010 period by an increase of $5.6 million in the net changes in working capital relating to operations.
Net
cash provided by operations activities for the year ended December 31, 2009 compared to net cash used in operations for the same period in 2008 increased by
$32.3 million. This increase was primarily the result of a $33.8 million increase in the difference between the net income for the year ended December 31, 2009 compared to the net
loss for the same period in 2008 because of the receipt of the one-time payment of approximately $36.9 million from Shire plc for Intuniv. This was offset by a
$1.7 million decrease in the net changes in working capital relating to operations.
Net
cash used in operations for the year ended December 31, 2008 compared to the same period in 2007 increased by $15.7 million. This increase was primarily the result of a
$16.2 million increase in the net loss, offset by, among other things, a $0.4 million increase in non-cash items, such as depreciation, stock-based compensation expense and
amortization of deferred financing expenses associated with the Non-recourse Notes issued in 2008.
We
expect cash used in operating activities to increase for the year ending December 31, 2010 as compared to same period in 2009 due to the anticipated increase in our operating
losses associated with the clinical trials, particularly the Phase III trials for Epliga, costs associated with the preparing the NDA for SPN-538, which we expect to file in the
first quarter of 2011, and the expected acceleration of our development programs.
Investing Activities
The increase of $33.9 million in net cash provided by investing activities for the nine months ended September 30, 2010
compared to the same period in 2009 was primarily the result of a $71.9 million increase in cash used for the purchase of marketable securities, offset by a $38.2 million decrease in the
cash received from the sales and maturities of marketable securities and a $0.2 million decrease in cash used for the purchase of property and equipment.
Net
cash used in investing activities for the year ended December 31, 2009 compared to net cash provided by investing activities for the same period in 2008 decreased by
$43.9 million. This decrease was primarily a result of a $76.5 million decrease in cash received from the sales and maturities of marketable securities, offset by a $33.2 million
increase in the cash used for the purchase of marketable securities and $0.6 million increase in purchases of property and equipment primarily related to the leasehold improvements for our
facility and the purchase of laboratory equipment.
Net
cash used in investing activities increased by $0.6 million for the year ended December 31, 2008 compared to the same period in 2007. This increase in cash used for
investing activities was primarily a result of a $40.8 million increase in the cash received from the sales and maturities of marketable securities and a $0.9 million decrease in
purchases of property and equipment, offset by $41.1 million decrease in purchases of marketable securities.
Financing Activities
Net cash provided by financing activities decreased by $2.1 million for the nine months ended September 30, 2010 compared
to the same period in 2009. This decrease was primarily due to the drawdown in full by January 2010 of the remaining balance in the interest reserve account established to fund shortfalls in interest
payments for the Non-recourse Notes.
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Net
cash provided by financing activities decreased by $60.2 million for the year ended December 31, 2009 compared to the same period in 2008 and increased by
$64.5 million for the year ended December 31, 2008 compared to the same period in 2007. The increase for the year ended December 31,
2008 and the decrease for the year ended December 31, 2009 were primarily due to the issuance of the $75 million in Non-recourse Notes in April 2008, offset by the initial
funding of, and then subsequent interest payments from, the interest reserve account for the Non-recourse Notes and the deferred financing costs associated with the
Non-recourse Notes.
Contractual Obligations and Commitments
The following table summarizes our contractual obligations and commitments as of September 30, 2010 (except as noted below):
Contractual Obligations
Less than
1 Year
1 – 3
Years
3 – 5
Years
Greater than
5 Years
Total
(in thousands of dollars)
Non-recourse Notes
(1)
$
—
$
—
$
—
$
75,000
$
75,000
Interest on Non-recourse Notes
(1)
12,000
24,000
24,000
102,500
162,500
Operating leases
(2)
983
1,610
—
—
2,593
Purchase obligations
(3)
9,988
190
—
—
10,178
Total
(4)
$
22,971
$
25,800
$
24,000
$
177,500
$
250,271
(1)
Annual
interest expense is $12.0 million, based on a principal amount outstanding of $75.0 million as of September 30, 2010. For
purposes of this table, we have assumed that the repayment of principal will not be repaid before the legal final maturity date of April 15, 2024. The Non-recourse Notes and related
interest payments are non-recourse beyond Royalty Sub and non-convertible into any other of our securities.
(2)
Our
commitments for operating leases relate to our lease of office and laboratory space as of September 30, 2010.
(3)
Relates
primarily to agreements and purchase orders with contractors for the conduct of clinical trials and other research and development and marketing
activities.
(4)
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.
In November 2010, we amended the lease for our principal office and laboratory space. Under terms of the amended lease, we extended the term for
an additional five years to April 2018, obtained six months' rent abatement beginning in November 2010, with no future rent increase until November 2013 and thereafter only 2% annual rent increase per
year, as well as additional funds and reimbursements for certain tenant improvements.
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, 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 also 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. There are no future milestone payments owing to Rune
under this agreement. If we receive approval to
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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 other
contractually narrow or limited purposes. In addition, we do not engage in trading activities involving non-exchange traded contracts.
Critical Accounting Policies and Estimates
Our management's discussion and analysis of our financial condition and results of operations are based on our consolidated financial
statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we evaluate these estimates and judgments, including those described below. We base our estimates on
historical experience and on various other
assumptions that we believe to be reasonable under the circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities and
amounts recorded as revenues and expenses that are not readily apparent from other sources. Actual results and experiences may differ materially from these estimates.
While
a summary of significant accounting policies are more fully described in Note 2 to our consolidated financial statements appearing at the end of this prospectus, we believe
that the following accounting policies are the most critical to aid you in fully understanding and evaluating our reported financial results and affect the more significant judgments and estimates
that we use in the preparation of our consolidated financial statements.
Revenue Recognition
Our revenues have been generated through research and development agreements, which included fees for development services provided to
customers, payments for achievement of specified development, regulatory and sales milestones and royalties on product sales of licensed products. For multiple element arrangements, we evaluate the
components of each arrangement as separate elements based on certain criteria. Accordingly, revenues from collaboration agreements are recognized based on the performance requirements of the
agreements. We recognize revenues when persuasive evidence of an arrangement exists; delivery has occurred or services have been rendered; the fee is fixed and determinable; and collection is
reasonably assured.
We
recognize development revenues as the related costs are incurred. Milestone payments are recognized as revenues when the collaborative partner acknowledges completion of the milestone
and substantive effort was necessary to achieve the milestone.
We
record royalty revenues based on estimates of the sales that occurred during the relevant period. The relevant period estimates of sales are based on interim data provided by
licensees and analysis of historical royalties received (adjusted for any changes in facts and circumstances, as appropriate). We maintain regular communication with our licensees in order to obtain
information to develop reasonable estimates. Differences between actual royalty revenues and estimated royalty revenues are reconciled and adjusted for in the period which they become known, typically
the following quarter. Historically, adjustments have not been material based on actual amounts received from licensees. To the extent we do not have sufficient ability to accurately estimate
revenues; we record revenues on a cash basis.
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Accrued Expenses
As part of the process of preparing the consolidated financial statements, we may be required to estimate accrued expenses. This
process involves reviewing open contracts and purchase orders, communicating with applicable personnel to identify services that have been performed on our behalf and estimating the level of service
performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual cost. The majority of our service providers invoice us monthly in arrears
for services performed. We make estimates of our accrued expenses as of each consolidated balance sheet date in our consolidated financial statements based on facts and circumstances known to us. We
confirm the accuracy of our estimates with the service providers and make adjustments if necessary. Examples of estimated accrued expenses include:
•
fees paid to contract research organizations, or CROs, in connection with clinical trials;
•
fees paid to investigative sites in connection with clinical trials;
•
fees paid to contract manufacturers in connection with the production of clinical trial materials; and
•
professional service fees.
We
base our expenses related to clinical trials on our estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and CROs that
conduct and manage clinical trials on our behalf. The financial terms of these agreements are subject to negotiation, vary
from contract to contract and may result in uneven payment flows. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical
trial milestones. In accruing the related service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of
the performance of services or the level of effort varies from our estimate, we will adjust the accrual accordingly. If we do not identify costs that we have begun to incur or if we underestimate or
overestimate the level of services performed or the costs of these services, our actual expenses could differ from our estimates. We do not anticipate the future settlement of existing accruals to
differ materially from our estimates.
Stock-Based Compensation
We recognize as compensation expense the estimated fair value of stock options and non-vested stock awards issued to
employees over the requisite service periods, which are typically the vesting periods. Equity instruments issued to non-employees are recorded at their estimated fair value and are
remeasured each reporting period as the equity instruments vest and the related expense is recognized ratably over the related service period.
Stock-based
compensation expense includes stock options and non-vested stock granted to employees and non-employees and has been reported in our statements of
operations as follows:
Years Ended
December 31,
Nine Months Ended
September 30,
2007
2008
2009
2009
2010
(unaudited)
(in thousands of dollars)
Research and development
$
9
$
28
$
28
$
21
$
32
General and administrative
65
71
83
62
92
Total
$
74
$
99
$
111
$
83
$
124
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Historically,
stock-based compensation has not been material to our results of operations or financial position. Because the determination of the estimated fair value of share-based
payments inherently includes the use of subjective assumptions and the potential that the related expense may be material in the future, we have included stock-based compensation as a significant
accounting policy.
We
calculate the fair value of stock-based compensation awards using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model requires the input of subjective
assumptions, including stock price volatility, assumed dividend yield, the expected life of stock options and a risk-free interest rate. We calculate expected volatility based on reported
data for selected reasonably similar publicly traded companies, or guideline peer group, for which the historical information is available. We will continue to use the guideline peer group volatility
information until the historical volatility of our common stock is relevant to measure expected volatility for future option grants. The assumed dividend yield is based on our expectation of not
paying dividends in the foreseeable future. We determine the average expected life of stock options according to the "simplified method" as described in Staff Accounting Bulletin 110, which is the
mid-point between the vesting date and the end of the contractual term. We determine the risk-free interest rate by reference to implied yields available from U.S. Treasury
securities with a remaining term equal to the expected life assumed at the date of grant. The assumptions used in the Black-Scholes option-pricing model for the years ended December 31, 2007,
2008 and 2009 and the nine months ended September 30, 2009 and 2010 are set forth in our consolidated financial statements appearing at the end of this prospectus.
Forfeitures
are not an assumption that impacts the Black-Scholes option-pricing model, however, it is an estimate that impacts the amount of stock compensation expense recognized. We
estimate forfeiture rates based on our historical analysis of actual stock option forfeitures.
There
is a high degree of subjectivity involved when using option-pricing models to estimate stock-based compensation. There currently is no market-based mechanism or other practical
application to verify the reliability and accuracy of the estimates stemming from these valuation models, nor is there a means to compare and adjust the estimates to actual values. Although the
estimated fair value of employee stock-based awards is determined using an option-pricing model, that value may not be indicative of the fair value observed in a market transaction between a willing
buyer and willing seller. If factors change and we employ different assumptions when valuing our options, the compensation expense that we record in the future may differ significantly from what we
have historically reported.
Our
board of directors estimated the fair value for our common stock, with input from management. Given the absence of an active market for our common stock, our board of directors
contemporaneously estimated the fair value of our common stock with the assistance of a third-party valuation firm on the dates of grant. These contemporaneous valuations were performed in accordance
with applicable methodologies, approaches and assumptions of the technical practice aid issued by the American Institute of Certified Public Accountants Practice Aid entitled
Valuation of
Privately-Held Company Equity Securities Issued as Compensation,
considering numerous objective and subjective factors to determine common stock fair market value
at each option grant date, including but not limited to the following factors:
•
our stage of development and business strategy;
•
our financial condition, operating results and book value;
•
economic and competitive elements affecting us, our industry and our target markets;
•
our projected operating results;
•
a comparative analysis of our financial condition and operating results with those of publicly-owned companies engaged in
similar lines of business;
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•
the current and historical relationship between the reported stock prices and revenues and earning levels of selected
publicly traded companies engaged in similar lines of business;
•
important developments relating to the results of our clinical trials;
•
the likelihood of achieving a liquidity event for our outstanding shares of stock; and
•
the price per share at which our Series A convertible preferred stock was issued to investors including the rights,
preferences and privileges of the preferred stock relative to the common stock. In considering the rights and preferences of our Series A convertible preferred stock relative to our common
stock, we considered the following rights and preferences:
•
The holders of our Series A convertible preferred stock are entitled to receive a cumulative annual dividend of
$0.07 per share, when and if declared by the board of directors; and,
•
The holders of our Series A convertible preferred stock are entitled to a liquidation preference. The aggregate
amount of liquidation preferences, excluding any dividends, has increased from $6.8 million as of December 31, 2007 to $16.2 million as of September 30, 2010. In the event
of liquidation, dissolution or winding up of our company, the liquidation preference for each Series A convertible preferred share equals the original purchase price of $1.00 per share, plus
accumulated unpaid dividends.
The
following table represents stock option grant information from January 1, 2009 through the filing date, including the estimated fair value of the option grant as determined by
the Black-Scholes option-pricing model.
Grant Date
Number of
Options
Exercise
Price
Estimated
Fair Value
Intrinsic
Value
January 19, 2009
225,000
$
0.40
$
0.23
$
—
December 15, 2009
(1)
257,200
$
1.76
(1)
$
1.03
$
—
February 10, 2010
52,500
$
0.84
$
0.49
$
—
April 16, 2010
32,750
$
0.84
$
0.49
$
—
July 20, 2010
38,500
$
0.84
$
0.48
$
—
October 15, 2010
15,000
$
0.64
$
0.37
$
—
November 2, 2010
880,000
$
0.64
$
0.41
$
—
November 16, 2010
35,000
$
0.64
$
0.41
$
—
Total
1,535,950
(1)
On
November 2, 2010, 255,000 of these options were repriced from $1.76 to $0.64 per share.
Our
board of directors has made only one grant of non-vested stock. This grant was made in December 2005 for 3,500,000 shares of common stock. The estimated fair value of
those shares as of the date of grant was $0.10 per share.
On
November 2, 2010, our board of directors repriced 255,000 of the options granted on December 15, 2009 from a per share exercise price of $1.76 to $0.64. In addition, our
board approved the modification of the performance vesting requirements related to 157,697 employee stock options and 411,765 shares of non-vested stock awarded to our chief executive
officer. The vesting of these share-based awards were contingent upon the filing of our first NDA on or before December 22, 2010, and our board extended the deadline for the achievement of this
performance condition to March 31, 2011. As a result of these actions, there is no immediate charge related to the repriced and modified options, and we will recognize additional stock based
compensation of approximately $50,000 over the remaining vesting periods for these options.
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All
contemporaneous valuations were prepared consistent with the AICPA Practice Aid. At each valuation date, we considered the use of market, income and asset valuation approaches. We
lacked relevant financial metrics to utilize the market approach and the asset approach was not utilized because the majority of our assets are intangible, accordingly we used an income approach for
each valuation. The income approach values a business based upon the future benefits that will accrue to it with the value of the future economic benefits discounted back to a present value at some
appropriate discount rate. Implicit in the market price of all publicly traded securities is a consensus forecast of earnings and financial condition. The consensus forecast results from the
information made available to the investing public by us and from the numerous forecasts prepared by financial analysts. We have replicated this approach through the preparation of an operating
forecast and the use of discounted cash flow analysis. The discount rate reflects all the risk of ownership and the associated risks of realizing the prospective economic income stream. Given that we
have Series A convertible preferred stock outstanding, it was also necessary to allocate our company's value to the various classes of stock. As provided in the AICPA Practice Guide, there are
several approaches for allocating equity value of a privately-held company among the securities in a complex capital structure, including the current value method, the probability weighted
expected return method and the option pricing method. The current value method was not employed because a liquidity event, in the form of an acquisition or dissolution, was not imminent. The
probability weighted expected return method was not utilized because of the nature of drug development and our stage of development estimating the probability and value of various liquidity events is
highly speculative. We used the option-pricing method to allocate the estimated value of our equity to the classes of securities. The value of our common stock was then discounted for lack of
marketability, or the inability to readily sell shares, which increases the owner's exposure to changing market conditions and increases the risk of ownership. The discount for lack of marketability
was derived using a protective put calculation using the Black-Scholes option pricing model.
Stock Option Grants on January 19, 2009
Our board of directors granted stock options on January 19, 2009, with each having an exercise price of $0.40 per share. In
addition to considering the objective and subjective factors listed above, our board of directors considered the valuation as of December 31, 2007 provided by management in determining the fair
value of our common stock on January 19, 2009. We considered this valuation relevant in our determination of the estimated fair value of the common stock primarily because the deterioration of
the overall financial markets in the second half of 2008 overshadowed progress on our clinical pipeline and the financing from the Non-recourse Notes. Our board of directors considered
that in the face of the credit and liquidity crisis and the resulting uncertainties, the prospects for a liquidity event in the foreseeable future were significantly lower.
In
the December 31, 2007 valuation, we used the income approach, specifically a discounted cash flow analysis, to estimate our company's equity value. The first step in that
process was to calculate the present value of our discrete net cash flows for the periods projected. Next, the present value of our terminal net cash flow was calculated. The sum of these two present
values, utilizing a cost of capital discount rate of 21.2%, determined the total market value capitalization on a minority basis to approximate $59.5 million. We added free cash (cash remaining
after all investments and commitments that could potentially be available for debt service or shareholders dividends without impairing operations) in the amount of $25.9 million to estimate the
market value of the total equity on a minority interest basis to approximate $85.4 million. This estimated value was allocated between the Series A convertible preferred stock and common
stock using the option-pricing method. A discount of 25.0% was applied to account for the lack of marketability of our common stock. This analysis yielded an estimated fair value of our common stock
at December 31, 2007 of $0.40 per share. Our board determined this valuation analysis to be reasonable and, on the basis of the factors described above, that the estimated fair value of our
common stock on January 19, 2009 was $0.40 per share.
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Stock Option Grants on December 15, 2009
Our board of directors granted stock options on December 15, 2009, with each having an exercise price of $1.76 per share. In
addition to considering the objective and subjective factors listed above, our board of directors considered the valuation as of July 16, 2009 provided by management in determining the fair
value of our common stock on December 15, 2009. We utilized the income approach, specifically a discounted cash flow analysis, to estimate the equity value of our company. In addition, to the a
non-risk adjusted forecast we also considered a
risk-adjusted forecast using various probabilities to reflect the risks of achieving commercialization based on the products clinical stage of development. We utilized non-risk
adjusted and risk adjusted costs of capital of 25.0% and 18.9%, respectively. These discount rates were applied to our discrete net cash flows to determine the present value. This present value was
combined with the present value of our terminal cash flow to determine the total market value of capitalization for us on a minority interest basis of approximately $122.9 million. We added
free cash in the amount of $80.6 million to estimate the market value of the total equity, on a minority interest basis, of to be approximately $203.5 million. This estimated value was
allocated between the Series A convertible preferred stock and common stock using option-pricing method. A discount of 30.0% was applied to account for the lack of marketability of our common
stock. This analysis yielded an estimated fair value of our common stock at July 16, 2009 of $1.76 per share. Based on the foregoing, we concluded the fair value of our common stock as of
December 15, 2009 was $1.76 per share. No significant changes had come to our attention between July 16, 2009 and the December 15, 2009 grant date to warrant a revaluation of the
stock. We therefore concluded there was no basis for a change in the fair value during such period.
The
increase in the estimated fair value of the common stock relative to the December 31, 2007 valuation relates to several items. First, we had an additional $55.0 million
of free cash on hand as a result of the monetization of certain future royalty streams under our licenses for Oracea, Sanctura XR and Intuniv. In addition, we had completed in-depth market
research in mid-2009 that indicated a substantially greater commercial potential for our two epilepsy product candidates.
Stock Option Grants on February 10, April 16 and July 20, 2010
Our board of directors granted stock options on February 10, April 16 and July 20, 2010, with each having an
exercise price of $0.84 per share. In addition to considering the objective and subjective factors listed above, our board of directors considered the valuation as of December 31, 2009 provided
by management in determining the fair value of our common stock on each of February 10, April 16 and July 20, 2010. We utilized the income approach, specifically a discounted cash
flow analysis, to estimate the equity value of our company. We considered a non-risk adjusted forecast and risk-adjusted forecast using various probabilities to reflect the
risks of achieving commercialization based on our products clinical stage of development. We utilized non-risk adjusted and risk adjusted costs of capital of 25.0% and 15.7%, respectively.
These discount rates were applied to our discrete net cash flows to determine the present value. This present value was combined with the present value of our terminal cash flow to determine the total
market value of capitalization for us, on a minority interest basis, of approximately $53.0 million. We added free cash in the amount of $66.7 million to estimate the market value of the
total equity on a minority interest basis to be approximately $119.7 million. This estimated value was allocated between the Series A convertible preferred stock and common stock using
option-pricing method. A discount of 30.0% was applied to account for the lack of marketability of our common stock. This analysis yielded an estimated fair value of our common stock at
December 31, 2007 of $0.84 per share. Based on the foregoing, we concluded the fair value of our common stock as of February 10, 2010 was $0.84 per share. We further determined the fair
value of the common stock as of April 16 and July 20, 2010 to be $0.84 per share. No significant changes had come to our attention between
December 31, 2009 and each of the foregoing grants date to warrant a revaluation of the stock. We therefore concluded there was no basis for a change in the fair value during such period.
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The
decrease in the estimated fair value of the common stock as compared to the July 16, 2009 valuation principally relates to information regarding the announcement in December
2009 by a competitor of the initiation of a Phase III clinical trial for a once-a-day, extended-release topiramate product to treat epilepsy that could compete
head-to-head with SPN-538, and, if approved before SPN-538, would have three years of market exclusivity.
Stock Option Grants on October 15, November 2 and November 16, 2010
Our board of directors granted stock options on October 15, November 2 and November 16, 2010, with each having an
exercise price of $0.64 per share. In addition to considering the objective and subjective factors listed above, our board of directors considered the valuation as of October 1, 2010 provided
by management in determining the fair value of our common stock on each of October 15, November 2 and November 16, 2010. We utilized the income approach, specifically a discounted
cash flow analysis, to estimate the equity value of our company. We utilized a non-risk adjusted forecast and a risk-adjusted forecast using various probabilities to reflect
the risks of achieving commercialization based on our product candidates' clinical stage of development. We utilized non-risk adjusted and risk adjusted costs of capital of 22.0% and
14.2%, respectively. These discount rates were applied to our discrete net cash flows to determine the present value. This present value was combined with the present value of our terminal cash flow
to determine our total market value of capitalization on a minority interest basis of approximately $64.4 million. We added free cash in the amount of $45.8 million to estimate the
market value of the total equity on a minority interest basis to be approximately $110.2 million. This estimated value was allocated between the Series A convertible preferred stock and
common stock using option-pricing method. A discount of 20.0% was applied to account for the lack of marketability of our common stock. This analysis yielded an estimated fair value of our common
stock at October 1, 2010 of $0.64 per share. Based on the foregoing, we concluded the fair value of our common stock as of October 15, November 2 and November 16, 2010 was
$0.64 per share. No significant changes had come to our attention between October 1, 2010 and each of the foregoing grants date to warrant a revaluation of the stock. We therefore concluded
there was no basis for a change in the fair value during such period.
The
decrease in the estimated fair value of the common stock as compared to the December 31, 2009 valuation principally relates to a reduction of $20.8 million of free cash
and a further refinement in the
market estimates for our two epilepsy products based on additional market research on the dynamics of the market for epilepsy products and our expected product profiles upon approval.
Recent Accounting Pronouncements
In August 2009, the FASB issued ASU No. 2009-05,
Fair Value Measurements and Disclosures
(Topic 820)—Measuring Liabilities at Fair Value
("ASU 2009-05"). ASU 2009-05 provides guidance in measuring the fair value of a liability
when a quoted price in an active market does not exist for an identical liability or when a liability is subject to restrictions on its transfer. ASU 2009-15 was effective for us beginning
with the quarter ended December 31, 2009. The adoption of ASU 2009-05 had no impact on the fair value measurements of our liabilities.
In
October 2009, the FASB issued ASU No. 2009-13,
Revenue Recognition (Topic 605)—Multiple-Deliverable Revenue Arrangements: a
consensus of the FASB Emerging Issues Task Force
("ASU 2009-13"). ASU 2009-13 establishes a selling-price hierarchy for determining the selling price of
each element within a multiple-deliverable arrangement. Specifically, the selling price assigned to each deliverable is to be based on vendor-specific objective evidence (VSOE) if available,
third-party evidence, if VSOE is unavailable, and estimated selling prices if neither VSOE or third-party evidence is available. In addition, ASU 2009-13 eliminates the residual method of
allocating arrangement consideration and instead requires allocation using the relative selling price method. ASU 2009-13 will be effective prospectively for multiple-deliverable revenue
arrangements entered into, or materially modified, in
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fiscal
years beginning on or after June 15, 2010. Presently, we are assessing what impact, if any, the adoption of ASU 2009-13 may have on our consolidated financial statements.
In
January 2010, the FASB issued Accounting Standards Update (ASU) No. 2010-06,
Fair Value Measurements and Disclosures (Topic
820)—Improving Disclosures about Fair Value Measurements
("ASU No. 2010-06"). ASU No. 2010-06 requires: (1) fair value
disclosures of assets and liabilities by class; (2) disclosures about significant transfers in and out of Levels 1 and 2 on the fair value hierarchy, in addition to Level 3;
(3) purchases, sales, issuances, and settlements be disclosed on gross basis on the reconciliation of beginning and ending balances of Level 3 assets and liabilities; and
(4) disclosures about valuation methods and inputs used to measure the fair value of Level 2 assets and liabilities. ASU No. 2010-06 becomes effective for the first
financial reporting period beginning after December 15, 2009, except for disclosures about purchases, sales, issuances, and settlements of Level 3 assets and liabilities which will be
effective for fiscal years beginning after December 15, 2010. We are currently assessing what impact, if any, ASU No. 2010-06 will have on our fair value disclosures;
however, we do not expect the
adoption of the guidance provided in this codification update to have any material impact on our consolidated financial statements.
In
February 2010, the FASB issued amended guidance on subsequent events. Under this amended guidance, SEC filers are no longer required to disclose the date through which subsequent
events have been evaluated in originally issued and revised financial statements. This guidance was effective immediately and we adopted these new requirements upon issuance of this guidance.
In
April 2010, the FASB issued ASU No. 2010-17,
Revenue Recognition—Milestone Method
(ASU
2010-017). ASU 2010-017 provides guidance in applying the milestone method of revenue recognition to research or development arrangements. This guidance concludes that the
milestone method is a valid application of the proportional performance model when applied to research or development arrangements. Accordingly, an entity can make an accounting policy election to
recognize a payment that is contingent upon the achievement of a substantive milestone in its entirety in the period in which the milestone is achieved. The guidance is effective for fiscal years, and
interim periods within those years, beginning on or after June 15, 2010. The adoption of this accounting standard is not expected to impact our financial position or results of operations.
Quantitative and Qualitative Disclosure 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 and cash equivalents. As of September 30, 2010, we had unrestricted cash, cash equivalents
and marketable securities of $45.8 million. We do not engage in any hedging activities against changes in interest rates. Because of the short-term maturities of our cash and cash
equivalents, 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 foreign currency or other derivative
financial instruments.
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 currencies. 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 $139,000 for the year ended December 31, 2009. 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 $139,000 for the year ended December 31, 2009.
We
do not believe that inflation and changing prices over the years ended December 31, 2008 and 2009 and the nine months ended September 30, 2010 had a significant impact
on our results of operations.
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BUSINESS
Overview
We are a specialty pharmaceutical company focused on developing and commercializing products for the treatment of central nervous
system, or CNS, diseases. Our extensive expertise in product development has been built over the past 20 years: initially as a stand alone development organization, then as a U.S. subsidiary of
Shire plc and, upon our acquisition of substantially all the assets of Shire Laboratories Inc. in late 2005, as Supernus Pharmaceuticals. We are developing several product candidates in
neurology and psychiatry to address large market opportunities in epilepsy and attention deficit hyperactivity disorder, or ADHD. Our two epilepsy product candidates are SPN-538 (extended
release topiramate), for which we expect to file a new drug application, or NDA, in the first quarter of 2011, and Epliga (extended release oxcarbazepine), which is in Phase III clinical
trials. Our ADHD product candidates include SPN-810 (molindone hydrochloride), a novel treatment for impulsive aggression in patients with ADHD and SPN-812, a novel
non-stimulant treatment of ADHD. Both of these programs are in Phase II. In addition to these four lead product candidates, we have several additional product candidates in various
stages of development. We intend to market our product candidates in the United States through our own focused sales force targeting specialty physicians, including neurologists and psychiatrists. We
believe our diversified and broad portfolio of product candidates provides us with multiple opportunities to achieve our goal of becoming a leading specialty pharmaceutical company focused on CNS
diseases.
We
use our proprietary technologies to enhance the therapeutic benefits of approved anti-epileptic drugs, or AEDs through advanced extended release formulations. Our most advanced
product candidates, SPN-538 and Epliga, are novel oral once-daily extended release formulations of topiramate and oxcarbazepine, respectively; for the treatment of epilepsy. Immediate
release formulations of topiramate and oxcarbazepine, are available in generic form and are marketed by Johnson & Johnson and Novartis under the brand names of Topamax and Trileptal, respectively.
According to IMS Health, peak sales of Topamax and Trileptal represented an estimated 25.8% and 8.1% of the total seizure disorder market in 2008 and 2006, respectively. We are pursuing a
Section 505(b)(2) regulatory strategy for SPN-538 and Epliga, which would allow us to rely on the existing data from the NDAs of Topamax and Trileptal, respectively. The
once-per-day dosing of each of SPN-538 and Epliga is designed to improve patient compliance and to provide a better tolerability profile compared to the current
immediate release AEDs that are taken multiple times per day to maintain therapeutic drug concentrations over the dosing interval. We believe there is a significant unmet need for extended release
products, such as SPN-538 and Epliga, for the treatment of epilepsy. Extended release products have been shown to improve compliance, increase seizure control, reduce side effects and improve
tolerability as compared to immediate release products, which can lead to fewer side effects, better tolerability, increased seizure control and greater patient compliance.
We
are also developing treatments for new indications in diseases such as ADHD and its coexisting disorders. We are developing SPN-810, which is currently in Phase II,
as a novel treatment for impulsive aggression in patients with ADHD. If approved by the U.S. Food and Drug Administration, or FDA, SPN-810 could be the first product available to address
this serious, unmet medical need. SPN-810 is based on molindone hydrochloride, which was previously marketed in the United States as an anti-psychotic to treat schizophrenia
under the trade name Moban. In addition, SPN-812, which is currently in Phase II, is being developed as a novel non-stimulant treatment for ADHD. SPN-812 is
a selective norepinephrine reuptake inhibitor that we believe could be more effective and have a better side effect profile than other non-stimulant treatments for ADHD. In addition,
because the active ingredient of SPN-812 has demonstrated efficacy as an antidepressant in Europe, this product candidate may provide increased benefit to an estimated 40% of ADHD patients who suffer
from depression.
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In
addition to these four lead product candidates, we have a number of other product candidates in various stages of development such as SPN-809, which would represent a
novel mechanism of action for the U.S. antidepressant market.
The
table below summarizes our current pipeline of novel product candidates.
Product
Indication
Status
SPN-538
Epilepsy
NDA to be filed Q1 2011
Epliga
Epilepsy
Phase III
SPN-810
Impulsive Aggression in ADHD
Phase II
SPN-812
ADHD
Phase II
SPN-809
Depression
IND filed
We
have a long track record of developing novel products by applying proprietary technologies to known drugs to improve existing therapies and enable the treatment of new indications. We
have a broad portfolio of drug development technologies consisting of six platforms that include the following: Microtrol (multiparticulate delivery platform), Solutrol (matrix delivery platform) and
EnSoTrol
(osmotic delivery system). Our proprietary technologies have been used in the following approved products: Carbatrol (carbamazepine), Adderall XR (mixed amphetamine salts), and Intuniv (guanfacine),
marketed by Shire; Equetro (carbamazepine), marketed by Validus Pharmaceuticals Inc.; Sanctura XR (trospium chloride), marketed by Allergan; and Oracea (doxycycline), marketed by Galderma. We
are continuing to expand our intellectual property portfolio to provide additional protection for our technologies and our product candidates. Throughout our 20 year history, we have continued
our commitment to innovation with a focus for the past five years on successfully developing our own product candidates in neurology and psychiatry.
Our Strategy
Our goal is to be a leading specialty pharmaceutical company developing and commercializing new medicines in neurology and psychiatry.
Key elements of our strategy to achieve this goal are to:
•
Build in-house sales and marketing capabilities, focused on specialty markets in the
United States, to promote SPN-538 and Epliga
. We are currently focused on attaining regulatory approval for, and bringing our two late-stage epilepsy products,
SPN-538 and Epliga, to market. As SPN-538 and Epliga progress towards U.S. regulatory approval, we intend to build our own targeted, specialty sales force to promote, if
approved, SPN-538 and Epliga in the United States. We intend to direct our marketing efforts to high potential prescribers of both products.
•
Continue to advance our product candidates in our psychiatry portfolio, including
SPN-810 and SPN-812
. As part of our longer term strategy, we intend to further develop our product candidates in our psychiatry portfolio to enable
further diversification of our pipeline and future growth. For example, we are currently preparing to initiate a Phase IIb trial for SPN-810.
•
Develop differentiated products by applying our technologies to known drug
compounds
. We intend to continue to focus our development activities on known drug compounds and compounds with established mechanisms of action and thereby reduce the risks,
costs and time typically associated with pharmaceutical product development. We intend to leverage our proprietary and in-licensed technologies and expand our patent portfolio to further
develop and protect our diverse pipeline of product candidates.
•
Establish strategic partnerships to accelerate and maximize the potential of our product
candidates worldwide
. We intend to continue to seek strategic collaborations with other pharmaceutical companies to commercialize our product candidates outside the United
States. We believe that
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we
are an attractive collaborator for pharmaceutical companies due to our broad portfolio of proprietary technologies and our product development track record.
•
Leverage our management team's expertise to develop and commercialize our broad portfolio of
product candidates.
We intend to leverage the expertise of our executive management team in developing and commercializing innovative therapeutic products. We plan to continue
to evaluate and develop additional CNS product candidates that we believe have significant commercial potential through our internal research and development efforts or, if appropriate, external
collaborations.
Epilepsy
Overview
Epilepsy is a complex neurological disorder characterized by spontaneous recurrence of unprovoked seizures, which are sudden surges of
electrical activity in the brain that impair a person's mental or physical abilities. Epilepsy, which is typically diagnosed by a neurologist, is estimated to affect 50 million people
worldwide. According to IMS Health, U.S. sales of AEDs were approximately $5.3 billion in 2009. The annual cost of epilepsy is estimated to be $12.5 billion.
Epileptic
seizures can cause a person to experience severe muscle jerking, to lose consciousness and fall, or to suffer from distorted vision, all potentially leading to physical
injuries or hospitalization. Until reliable seizure control has been achieved, patients are forced to adjust their lifestyles to avoid activities that a seizure can significantly disrupt or render
life threatening. A breakthrough seizure is a sudden, unexpected seizure experienced by a patient who previously had achieved reliable seizure control. Even when no physical injury occurs,
breakthrough seizures often result in significant social, legal and
developmental consequences for patients such as loss of driver's license, loss of employment, disruption of school attendance, academic underachievement, and disruption of social networks. In
addition, a single breakthrough seizure can lead to permanent loss or reduction in overall seizure control. Data suggest that a significant proportion of patients who experience a breakthrough seizure
have a lower chance of achieving reliable seizure control. In certain cases, a single breakthrough seizure can develop into
status epilepticus
, a
prolonged seizure or series of repeated seizures, and eventually result in brain damage or death. Data indicate that the risk of sudden unexpected death in epilepsy was 23 times higher in patients who
had at least one breakthrough seizure compared to patients who had achieved seizure control.
Current Treatment Options
Once a patient is diagnosed with epilepsy, the goal of the neurologist is to find the particular drug or combination of drugs, and
appropriate dosing, that will lead the patient to reliable seizure control while minimizing side effects. There are currently over 15 approved AEDs marketed in the United States. Side effects play a
major role in altering treatment in epilepsy as they can limit the usefulness of AEDs. AEDs are generally associated with the incidence of numerous side effects that can adversely impact the quality
of life for epileptic patients. Such side effects may include dizziness, paresthesia, headaches, cognitive deficiencies such as memory loss and speech impediment, digestive problems, somnolence,
double vision, gingival enlargement, nausea, weight gain, and fatigue. To address these side effects and help patients tolerate their AEDs, neurologists typically initiate treatment with a single AED
as monotherapy at a low dose then increase the dose to a higher level until the patient reaches the most efficacious dose with an acceptable tolerance of side effects.
Many
patients develop refractory epilepsy, which refers to inadequate control of seizures despite treatment, thereby requiring treatment with multiple AEDs. Patients taking more than one
AED at a time are susceptible to side effects associated with each of the multiple drugs and with drug interactions. Despite the introduction of new AEDs in the past few years, drug therapy remains
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ineffective
for seizure control in up to 30% of patients with epilepsy. Many patients fail drug therapy either because the drugs do not control their seizures or because they cannot tolerate the side
effects.
Dynamics of the Epilepsy Market
There are several important dynamics that play a major role in the treatment of epilepsy and that differentiate epilepsy from many
other diseases:
•
Compliance is Critical to the Reduction in Breakthrough Seizures
Compliance
with drug treatment regimens is critically important to achieving effective therapy for patients with epilepsy where the consequences of non-compliance can be life
threatening. Patient non-compliance with AED therapy is a serious issue and remains one of the most common causes of breakthrough seizures. Not only is taking all prescribed doses critical
for epileptic patients, but the timing of when patients take their prescribed doses is also important. Typically, non-compliance is caused by frequent or multiple dosing, serious side
effects, or a lack of tolerability. A 2002 survey undertaken by neurologists in the United States revealed that at least once per month, 71% of patients with epilepsy forgot to take their AED, and it
was evident that the chances of a patient missing a dose increased with the number of tablets prescribed. Of patients that missed a dose, 45% reported a breakthrough seizure. Patients taking a larger
number of tablets/capsules further increased their odds of having a breakthrough seizure after a missed dose by 43%. In addition, other studies have shown reduced rates in breakthrough seizures as a
result of improved compliance with AED treatment regimens.
•
Immediate Release Products Have Serious Side Effects and Lack of
Tolerability
The
FDA has recognized AEDs as being "critical dose drugs," drugs in which a comparatively small difference in dose or concentration may lead to serious therapeutic failures and/or
serious side effects. Immediate release formulations of AEDs necessitate frequent administration to maintain appropriate drug concentrations. However, these immediate release formulations cause wide
fluctuations of blood levels of the active drug during the day, with peak concentrations when the drug is released and potentially sub-therapeutic concentrations thereafter. At least one
study has shown that complaints of side effects typically occur when blood levels exceed certain concentrations, particularly at high doses, and the risk of breakthrough seizures can occur when blood
levels are below certain minimum effective levels, as indicated in the chart below.
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Simulated Plasma Concentration-Time Curve at Steady State of Immediate Release
Anti-Epileptic Drug Administered Over Two Days
Source: Pellock, JM et al, Epilepsy & Behavior 5 (2004), 302
•
Generic Substitution Can Cause an Increase in Breakthrough Seizures
Patients
today are most typically switched from branded drugs to generics, or from one generic drug to another, mainly to reduce cost. In most states, unless a physician explicitly
writes "dispense as written" or "no substitution," pharmacists can switch a patient to a lower-cost generic drug without the consent of either the patient or the physician. Epilepsy
patients are particularly vulnerable to changes in their drugs. Slight variations in the blood concentrations of these drugs could lead to the occurrence of breakthrough seizures. Accordingly, despite
existing regulatory criteria to ensure the bioequivalence of generic drugs, the "switch-back" rates of AEDs (that is, the frequency of an individual being returned to his or her previous
branded product under a physician's guidance) is much higher than for many other drug products. For example, in a 2008 study, the rates of patients switching back from generics to branded drugs
because of adverse events were found to be 20.8% to 44.1% for AEDs compared to 7.7% to 9.1% for non-AEDs.
A
number of epilepsy advocacy groups such as the Epilepsy Foundation, the American Academy of Neurology, the Centers for Medicare and Medicaid Services and several regulatory agencies
around the world, including the UK National Institute for Health and Clinical Excellence (NICE), Sweden's Medical Products Agency (MPA) and other European agencies, have all acknowledged that AED
generic substitutions for non-therapeutic reasons can be harmful and should either be limited or not permitted, and have issued guidelines, recommendations or taken affirmative steps to
limit such substitutions. While we are not aware of any well-controlled studies conducted to establish unequivocal scientific evidence that generic substitutions cause increased incidence
of breakthrough seizures, the FDA is currently considering stricter standards of bioequivalence for generics and its Pharmaceutical Science and Clinical Pharmacology Advisory Committee voted
11-2 that the current bioequivalence standards are insufficient for critical dose drugs such as AEDs.
•
Physicians are Reluctant to Switch to New Chemical Entities
In
the epilepsy market, new chemical entities, or NCEs, generally lack the same appeal that would typically be associated with a new drug for other indications. Based on prescription
data from 1994 to 2005 for NCE launches for seizure disorders, such NCEs, on average, experienced slow market
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penetration
characterized by a 0.58 to 1.1 market share point gain on an annual basis. We believe this is because physicians are often reluctant to change a stable patient's existing therapy and risk
a breakthrough seizure in the patient. Despite the introduction of several NCEs over the past decade, a significant number of epileptic patients continue to lack reliable seizure control. Many NCEs
continue to be associated with several side effects. Therefore, many older and existing drugs continue to be prescribed and their prescription levels have either been maintained since their peak or
declined very slowly.
Benefits of Extended Release Products in the Epilepsy Market
•
Extended Release Products Improve Compliance and Reduce Breakthrough
Seizures
Achieving
reliable seizure control for patients and avoiding the serious health and life dangers that can be associated with breakthrough seizures depends on patients being compliant and
diligent in taking their medications. Frequent and multiple dosing, side effects and lack of tolerability of the immediate release products can significantly contribute to patients forgetting doses or
skipping them. Even taking a second or third dose later than the scheduled time may place a patient at an increased risk of a breakthrough seizure because the drug level in the patient's blood could
drop below the minimum effective therapeutic level that prevents such seizures. We believe increased patient compliance can be achieved with extended release products that offer once-daily
dosing, reduced side effects and improved tolerability. We believe physicians understand that the release profiles of extended release products can produce more consistent and steadier blood levels as
compared to immediate release products, resulting in fewer side effects and better tolerability that further help patients to be compliant, have fewer breakthrough seizures and, correspondingly, enjoy
a better quality of life.
•
Extended Release Products Reduce Side Effects and Improve Tolerability
When
extended release formulations are used appropriately, drug levels remain within the patient's therapeutic zone, thereby reducing patient exposure to fluctuating drug levels, which
may exacerbate side effects or induce breakthrough seizures. Because extended release formulations can reduce peak concentrations, it may also be possible to adjust doses upward to a more efficacious
level without exacerbating side effects associated with peak concentrations. Extended release formulations can also reduce the frequency and the extent of the troughs, or lower concentrations of the
drug in the blood, thereby avoiding concentrations below the minimum effective concentrations that can increase the risk of breakthrough seizures.
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Simulated Plasma Concentration-Time Curve at Steady State of Immediate Release and
Extended Release Anti-Epileptic Drug Administered Over Two Days
Source: Pellock, JM et al, Epilepsy & Behavior 5 (2004), 302
The enhanced safety profile of extended release products as compared to similar immediate release products has been supported by several studies.
For example, in a 2004 published trial conducted by physicians at Johns Hopkins, Carbatrol, an anti-epileptic extended release carbamazepine product that uses our Microtrol technology, and
Tegretol XR, another extended release carbamazepine product, demonstrated better tolerability and side effect profiles than comparable immediate release products. The trial reported that 49% of
patients had side effects during treatment with immediate release carbamazepine such as sedation, double-vision, confusion, ataxia, dizziness or poor coordination, whereas with extended release
carbamazepine treatments, only 20% of patients reported these side effects.
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Reduction in CNS Side Effects Following Conversion to Carbamazepine Extended Release
from Immediate Release Preparation
Source: Miller AD et al., Acta Neurol. Scand 2004: 109: 374-377
Equally as important, the patients in the trial tolerated high doses of extended release carbamazepine significantly better than high doses of
immediate release carbamazepine. Specifically, 63% of patients treated with 1200 mg or more per day of immediate release carbamazepine developed side effects, yet only 12% of patients experienced side
effects while taking similar doses of extended release carbamazepine. The investigators surmised that the improved tolerability of extended release carbamazepine at high doses may provide a treatment
option for patients previously discontinuing immediate release carbamazepine because of dose-limiting side effects.
Other
products where reductions in side effects were reported by patients when switching from immediate release to extended release formulations include Depakote ER (divalproex sodium
extended release) and Keppra XR (levetiracetam extended release).
•
Managed Care Does Not Limit Success of Extended Release Products
Given
the serious nature of epilepsy and the key dynamics in the epilepsy market, we believe managed care plans acknowledge the important benefits of extended release AED products and,
therefore, have not limited the success of such products even when lower cost generic immediate release products are available. For example, according to industry data, the recent launches of extended
release products Keppra XR and Lamictal XL have enjoyed acceptance rates by managed care plans that are similar to those of the corresponding immediate release products. Most managed care plans also
acknowledge the position of several patient advocacy groups and the American Academy of Neurology regarding the risks of generic substitution of AEDs, including potential for breakthrough seizures.
Although switching to a low-cost generic AED may initially offer some cost savings, we believe they also recognize that the risk and cost of one breakthrough seizure outweighs the
potential savings from generics. For example, the healthcare costs associated with the treatment of patients who experience breakthrough seizures, which may run in excess of $26,000 per patient on an
annual basis, is significantly greater than any cost savings per patient that may be achieved through switching to a low-cost generic AED. According to a 2009 survey, the total healthcare
costs for patients using branded topiramate products were approximately 20% lower than for patients using multiple generic topiramate products.
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•
Extended Release Products Perform Well in the Market
Extended
release products have performed well in the epilepsy market, even in the face of immediate release generic products. Moreover, prescription data for seizure disorder drugs from
1994 to 2005 shows that extended release products perform better than NCEs during the first five years of their launch. Currently, there are five extended release AEDs on the market (Tegretol XR,
Carbatrol, Depakote ER, Lamictal XL, Keppra XR), and each of these products has gained significant market penetration as measured by the total prescriptions written for each specific molecule. For
example, as reflected in the chart below, Depakote ER gained almost 40% of all divalproex prescriptions, including immediate release versions of Depakote and generic divalproex, in its fifth year
after launch.
Comparison of Molecule Conversion of Extended Release Anti-Epilepsy Drugs
(measured as percentage of total prescriptions for each individual molecule)
Source: IMS Health
Our Late-Stage Neurology Portfolio
We are developing a promising epilepsy product portfolio consisting of SPN-538 and Epliga that utilize our proprietary
technologies, Microtrol and Solutrol, respectively, each of which has been proven and validated through use in products that are currently on the market. Among them is Carbatrol, an AED that has been
shown to reduce side effects compared to immediate release carbamazepine products. We believe that our 20 years of history and portfolio of technologies have enabled us to develop
highly-customized product candidates that overcome challenges with the molecules' pharmacokinetic profiles. Our differentiated approach to product development and the strength of our technologies have
allowed us to develop SPN-538 with what we believe to be a unique pharmacokinetic profile and to develop a once-daily formulation of oxcarbazepine with Epliga where others have failed.
SPN-538
and Epliga are novel extended release formulations of two well known and approved AEDs, topiramate and oxcarbazepine, respectively. Both product candidates are
designed to offer epilepsy patients effective therapy, reduced side effects and improved compliance with once-per-day dosing. We believe that by delivering more consistent and
steady maintenance of blood level concentrations of topiramate and oxcarbazepine, our product candidates can reduce adverse side effects
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and
improve tolerability of the drugs, which can improve compliance and enable patients to benefit from better seizure control and fewer breakthrough seizures as compared to similar immediate release
products. Given that SPN-538 and Epliga are based on different drug compounds and different mechanisms of action, they would target different market segments and patient populations within
the epilepsy market.
We
currently expect to file the NDA for SPN-538 in the first quarter of 2011 and the NDA for Epliga in the second half of 2011. The development and regulatory strategy for
both products follows a Section 505(b)(2) pathway, which allows us to rely upon FDA's previous findings of safety and efficacy for two known and approved products, Topamax and Trileptal.
Therefore, our NDAs are not required to have the same amount of safety or efficacy data as would be required in the case of an NCE, and each NDA could contain different types of clinical trials and
clinical data.
SPN-538 (extended release topiramate)
Our most advanced product candidate is SPN-538, a novel oral once-daily extended release topiramate product for the
treatment of epilepsy. We expect to file the NDA for this product candidate in the first quarter of 2011. We have completed ten clinical trials in support of our NDA. SPN-538 delivers
topiramate, one of the most effective AEDs, which is marketed by Johnson & Johnson under the brand name Topamax and is also available in a generic form. Topiramate is currently available only in
immediate release form and is indicated for monotherapy and adjunctive therapy of epilepsy and for the treatment of migraine. Topamax reached peak worldwide sales of $2.7 billion in 2008,
before generic products entered the U.S. market in March 2009. With approximately 9.1 million total topiramate prescriptions in 2009, topiramate continues to represent a significant portion of
prescriptions with approximately 8.7% of total prescriptions. Topiramate is believed to work in epilepsy through various mechanisms. It enhances the inhibitory effect of the GABA (Gamma-Aminobutyric
Acid) neurotransmitter that regulates neuronal excitability throughout the nervous system, blocks the excitatory effect of the glutamate neurotransmitter, blocks the sodium channel and inhibits the
carbonic anhydrase enzyme. The side effects associated with taking topiramate, which have tended to limit its use, include, among others, dizziness, fatigue, somnolence and slowing of certain
cognitive functions. We believe that this creates an opportunity for us to offer patients SPN-538 as an alternative therapy to immediate release topiramate with an improved
once-per-day profile.
SPN-538
is designed to improve patient compliance and to have a better tolerability profile compared to the current immediate release products that are taken multiple times
per day. SPN-538's pharmacokinetic profile delivers lower peak plasma concentrations and lower input rate over an extended time period resulting in smoother and more consistent blood
levels of topiramate during the day compared to immediate release Topamax. We believe such a profile avoids blood level fluctuations that are typically associated with many of the side effects or
breakthrough seizures that patients can suffer when taking immediate release products. These side effects can lead patients to skipping doses, and such non-compliance, which could place
them at higher risk for breakthrough seizures.
SPN-538 Development Program
We have completed ten clinical trials, including bioequivalence trials, in support of our NDA for SPN-538, which we expect
to file in the first quarter of 2011. We are pursuing a Section 505(b)(2) regulatory strategy, which would allow us to rely in our filing on the existing data and knowledge the FDA has from the NDA of
Topamax. The various clinical trials conducted on SPN-538 were designed to select the best extended release once-per-day formulation that delivers equivalent levels
of topiramate compared to the immediate release twice-per-day Topamax product, as well as to test the robustness and consistency of our technology in delivering the
once-per-day formulation across a full range of product strengths. We also have scaled up production of the product candidate at our commercial contract manufacturing facility
and have conducted studies that confirm that the
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commercial
scale product is bio-equivalent to the clinical product that was initially developed at our research laboratories.
Commercialization Strategy
If we are successful in obtaining regulatory approval, we believe that SPN-538 will be the first once-daily
topiramate product approved for the monotherapy and adjunct therapy of epilepsy. We believe that SPN-538 could, over time, capture a significant share of the topiramate prescriptions,
consistent with the performance of similar extended release products that have been introduced in the U.S. epilepsy market over the past 15 years. Upon the launch of SPN-538, we
plan to build a small specialty sales force primarily targeting neurologists to promote the use of SPN-538 in epilepsy in the United States.
This physician group is responsible for a substantial portion of the prescriptions for the treatment of epilepsy and, accordingly, provides an attractive, focused market opportunity for us.
Epliga (extended release oxcarbazepine)
Our second late-stage product candidate, Epliga, is a novel oral once-daily extended release formulation of
oxcarbazepine and is currently in a Phase III clinical trial for the treatment of epilepsy. We currently anticipate having data from the Phase III trial available early in 2011, and
expect to file an NDA in the second half of 2011. To date, we have conducted eight clinical trials to support the filing of an NDA.
Epliga
delivers oxcarbazepine, another effective AED, which is marketed by Novartis under the brand name Trileptal and is available in a generic form. Trileptal was initially developed
and approved in the United States in 2000. Trileptal is indicated for monotherapy and adjunctive therapy of epilepsy. It reached peak worldwide sales of $721 million in 2006, before generic
products entered the U.S. market in October 2007. With approximately 3.3 million total oxcarbazepine prescriptions in 2009, oxcarbazepine represents a portion of prescription of prescriptions
with approximately 3.2% of total prescriptions. Oxcarbazepine is an active voltage-dependent sodium channel blocker that, despite its effectiveness in treating epilepsy, is associated with many side
effects that tend to limit its use. The side effects associated with taking oxcarbazepine include, among others, dizziness, double vision, somnolence, nausea and vomiting. Epliga has been designed to
reduce side effects, resulting in improved patient compliance and tolerability.
With
its novel pharmacokinetic profile that delivers lower peak plasma concentrations, slower rate of input and smoother and more consistent blood levels compared to immediate release
products such as Trileptal, we believe Epliga has the potential of improving the tolerability of oxcarbazepine by reducing the side effects experienced by patients. This could enable more patients to
effectively tolerate higher doses of oxcarbazepine, which would permit them to benefit from the resulting efficacy and greater seizure control that have been previously reported in patients at higher
doses. In addition, Epliga's once-per-day dosing is designed to improve patient compliance compared to the current immediate release products that are taken multiple times per
day.
Epliga Development Program
We have completed eight clinical trials, including bioequivalence trials, to support filing the NDA in the second half of 2011. We are
pursuing a Section 505(b)(2) regulatory strategy, which would allow us to rely in our filing on the existing data and knowledge the FDA has from the NDA of Trileptal. The various clinical
trials conducted on Epliga were designed to select the
best extended release once-per-day formulation that delivers equivalent levels of oxcarbazepine compared to immediate release twice-per-day Trileptal,
as well as to test the robustness and consistency of our technology in delivering the once-per-day formulation across a full range of product strengths. We also have scaled up
our production of the product candidate at our commercial contract manufacturing facility, which has produced clinical supplies to conduct our Phase III trial.
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In
our pilot clinical trial in 32 healthy subjects, Epliga demonstrated a superior adverse event profile when compared to the immediate release oxcarbazepine therapy Trileptal. In this
trial, a single center, open-label, randomized, two-way crossover, two-sequence trial, we compared multiple dose administration of Epliga tablets and Trileptal
tablets in 32 healthy adult volunteers under fasting conditions. While the steady-state crossover comparison trial was designed to evaluate the steady-state bioavailability of the different
formulations of oral oxcarbazepine at 1200 mg doses, the trial also assessed the safety and tolerability of repeat oral dosing of Epliga tablets in healthy subjects at 1200 mg in comparison to
Trileptal.
In
this trial, the adverse events in the trial were observed in 30 healthy subjects using a total daily dose of 1200 mg of each of Trileptal and Epliga. There were 190 total adverse
events reported for Trileptal, while Epliga generated a total of only 120 adverse events, a reduction of 37%. Of these, a total of 197 adverse events were considered by the principal investigator to
be possibly drug related: 131 for Trileptal and 66 for Epliga. More specifically, Trileptal demonstrated a 36.7% occurrence rate of dizziness as compared to Epliga which demonstrated a 0.0% occurrence
rate in our trial. In other trials, Epliga demonstrated higher occurrence rates of dizziness. The results from these trials and the pilot clinical trial are preliminary and based on small populations,
and may not be predictive of the results in the pivotal Phase III trial.
In
the pivotal Phase III trial for Trileptal, refractory patients had increasing reductions in seizures as dose levels increased, including 50% median reduction in seizures at the
highest dose of 2400 mg. Of those subjects at 2400 mg, 22% of the subjects were seizure free at the highest dose of 2400 mg. However, Trileptal is not without a host of side effects at the highest
doses, which result in many subjects discontinuing treatment. Accordingly, while 22% of subjects were seizure-free during the pivotal trial for Trileptal at the highest dose of 2400 mg,
approximately three-quarters of subjects at the highest dose discontinued their participation in the trial, largely because of the adverse events associated with the drug.
We
have discussed our Phase III trial for Epliga with the FDA in the form of a Special Protocol Assessment, or SPA. The Phase III protocol will assess the safety and
effectiveness of Epliga as an adjunctive therapy in patients with a diagnosis of simple partial seizures and complex partial seizures with or without secondarily generalized seizures as confirmed by
the 1981 and 1989 International
League Against Epilepsy Classifications. Epilepsy can be broadly characterized into partial and generalized seizures. Partial seizures occur in a specific location of the brain, affecting the physical
or mental activity controlled by that particular area of the brain, whereas generalized seizures occur throughout both hemispheres of the brain at once. Partial seizures may be further subdivided into
both simple and complex seizures. This refers to the effect of such a seizure on consciousness; simple seizures cause no interruption to consciousness (although they may cause sensory distortions or
other sensations), whereas complex seizures interrupt consciousness to varying degrees.
The
Phase III trial is a multi-center, multiple-dose, randomized (1:1:1 ratio), double-blind, placebo-controlled, three-arm, parallel group trial in male
and female subjects (18 to 65 years of age, inclusive) with refractory partial epilepsy on at least one and up to three concomitant AEDs. Enrollment in the trial has been completed with a total
of 369 patients enrolled across 103 sites and 8 different countries in North America and Europe. Patients will be randomized to one of three treatment groups and will take Epliga (1200 mg/day or 2400
mg/day) or placebo.
The
primary objective of the trial is to evaluate the efficacy of Epliga as an adjunctive therapy in the treatment of seizures of partial origin in adults with refractory epilepsy on at
least one and up to three other AEDs. The secondary objectives are:
•
To assess the safety and tolerability of adjunctive Epliga in the treatment of seizures of partial origin in subjects with
refractory epilepsy on at least one and up to three other AEDs;
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•
To assess the effect of Epliga on the subject's global impression of change in his/her epilepsy status;
•
To assess the effect of Epliga on quality of life as assessed by the Quality of Life in Epilepsy Inventory-31,
which is a measurement tool of the overall impact of an AED on a patient; and
•
To assess secondarily generalized seizures for each treatment group.
We
expect top-line data from this trial to be available in the first quarter of 2011 and, based on such data, to file the NDA in the second half of 2011.
Commercialization Strategy
If we are successful in obtaining regulatory approval, we expect Epliga to be the only once-daily oxcarbazepine product
indicated for the treatment of epilepsy and to compete against the existing immediate release oxcarbazepine products on the market. We believe that Epliga could, over time, capture a significant share
of the oxcarbazepine prescription market, consistent with the performance of similar extended release products that have been introduced in the U.S. epilepsy market over the past 15 years. To
support the commercial launch of Epliga, we plan to further expand our U.S. specialty sales force in epilepsy to promote both SPN-538 and Epliga.
ADHD
Overview
ADHD is a common CNS disorder characterized by developmentally inappropriate levels of inattention, hyperactivity, and impulsivity.
ADHD affects an estimated 6.9% of all school-age children and 4.4% of adults in the United States. An estimated 60% to 80% of children with ADHD continue to meet criteria for ADHD into
adolescence. In 2008, the U.S. market for ADHD prescription drugs was more than $4 billion.
Diagnosis
of ADHD requires a comprehensive clinical evaluation based on identifying patients who exhibit the core symptoms of inattention, hyperactivity, and impulsivity. Generally,
behavior is sufficiently severe and persistent to cause functional impairment. Although many children may be
inattentive, hyperactive or impulsive, the level of severity and degree of functional impairment, as well as considerations of what may be behind the underlying symptoms, determine which children meet
the diagnosis and are treated for ADHD. It is estimated that the annual societal cost of illness for ADHD is more than $36 billion.
Current Treatment Options
Since Ritalin was introduced, stimulant therapies have grown to become the most common form of treatment for ADHD. Studies indicate
that approximately 80% of ADHD patients respond to stimulants. A key difference between older and newer oral stimulants is the duration of action. Most of the older stimulants, representing
approximately 35% of total oral stimulant prescriptions, are immediate release products that last approximately four hours, requiring multiple administrations throughout the day. In contrast, most of
the recently launched products, representing approximately 65% of total oral stimulant prescriptions, are extended release formulations that last up to twelve hours or more.
While
stimulant treatments calm and improve the concentration of ADHD patients, these drugs have been shown to have various side effects including loss of appetite, insomnia and, to a
lesser degree, cardiovascular effects. Stimulant treatments are controlled substances and can be associated with social stigma and the potential for abuse. Approximately 30% of patients with ADHD are
non-responsive to or non-tolerant of treatment with stimulants. Non-stimulants offer physicians an alternative ADHD therapy, including for patients who have
coexisting conditions, such as conduct disorder, major depressive disorder, or bipolar disorder, that are contraindicated for stimulant use based on the risk for stimulant abuse.
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Coexisting Conditions
Studies show that as many as 67% of children who have ADHD may have coexisting conditions such as oppositional defiant disorder,
conduct disorder, anxiety disorder and depression. Approximately 25% of children with ADHD also exhibit persistent conduct problems, such as impulsive aggression. Untreated, these serious conduct
problems can place patients at risk of persistent aggressive and anti-social behavior, such as knowingly destroying property, physically attacking people and bullying. These patients also
face an increased risk of suicidal behavior, and are at high risk of entering the juvenile justice system and developing substance abuse problems later in adulthood.
Aggression
is usually divided into two subtypes: predatory (i.e., "cold") aggression, which can be described as goal-oriented, controlled and/or planned, and impulsive
or affective ("hot") aggression, which can be described as reactive, unplanned and/or uncontrolled. Patients with ADHD who exhibit aggression commonly demonstrate the "hot," or impulsive, type of
aggression. For these patients, this "hot" aggression is generally recurrent, occurs outside of a justifiable social context, has intensity, frequency, duration or severity that is disproportionate to
its triggers and causes distress and impairment to the patient. Impulsive aggression represents a broad category of maladaptive, aggressive behaviors that can complicate the management of ADHD,
autism, bipolar disorder, post-traumatic stress disorder and other psychiatric disorders.
Current Treatments for Impulsive Aggression in Patients with ADHD
Currently, there are no approved medications for treating impulsive aggression in patients with ADHD. The current treatment options for
impulsive aggression in patients with ADHD include psychosocial interventions, such as school- or family-based behavioral therapies, which are usually not wholly effective. In a seminal clinical trial
designed by experts from key stakeholder communities such as the National Institute of Mental Health, researchers observed that after 14 months of either ADHD medication-only or a
regimen that combined ADHD medication with behavioral interventions, 44% of those children with ADHD (or 26% of the total sample size in the trial) who exhibited initial aggression still had what can
be described as impulsive aggression at the end of the trial, demonstrating that psychosocial interventions may not work for a large percentage of children with ADHD who exhibit aggressive behaviors.
In
response, doctors have also tried to address this group with off-label use of prescription medicines, such as mood stabilizers, stimulants and anti-psychotic
drugs. Results have varied, but anti-psychotic drugs appear to have the best therapeutic potential. Unfortunately, many of these agents are associated with adverse effects including
obesity, lipid abnormalities, and diabetes, which is of particular concern when treating pediatric populations.
Our Psychiatry Portfolio
Our psychiatry portfolio includes three product candidates for the treatment of ADHD or its coexisting conditions and one product
candidate for depression, each of which is designed to bring important advancements in therapy.
SPN-810 (molindone hydrochloride)
We are developing SPN-810, which is currently in Phase II, as a novel treatment for impulsive aggression in patients
with ADHD. If approved by the FDA, SPN-810 could be the first product available to address this serious, unmet medical need.
We
are studying SPN-810, which contains molindone hydrochloride, as a treatment of impulsive aggression in patients with ADHD. Molindone hydrochloride was previously marketed
in the United States as an anti-psychotic to treat schizophrenia under the trade name Moban. Molindone
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hydrochloride
is unusual among anti-psychotics in that it is not associated with weight gain. In addition, we believe the lower doses tested for the proposed indication of impulsive
aggression should be more easily tolerated than the higher doses approved to treat schizophrenia. SPN-810's low potential to cause weight gain leads us to believe that SPN-810
could be an attractive candidate among the anti-psychotic drugs for the effective treatment of impulsive aggression in patients with ADHD. Although initially we are developing
SPN-810 as a treatment of impulsive aggression, if we are successful in demonstrating the effectiveness of SPN-810 for the treatment of impulsive aggresion in patients with
ADHD, we may then look to develop the product candidate for the treatment of other patient populations that have impulsive aggression, such as autism and bipolar disorder.
SPN-810 Development Program
We have completed four clinical trials for SPN-810, including a Phase IIa trial in which we tested the safety and
tolerability of SPN-810, immediate release molindone hydrochloride, in patients with ADHD who suffer from serious persistent conduct problems. This open-label,
dose-ranging trial randomized 78 children, 6-12 years of age, into one of four treatment groups, which were given four different doses of immediate release molindone
hydrochloride, between 10 mg and 40 mg per day, depending on weight, three times a day over a six-week treatment period, after 2-5 weeks of titration.
SPN-810 was well tolerated in the trial, with no clinically meaningful changes in standard hematology, clinical chemistry values, vital signs or electrocardiogram (ECG) results.
Besides
safety and tolerability assessments, the primary outcome measure was the change in the Nisonger Child Behavior Rating Form-Typical Intelligence Quotient
(NCBRF-TIQ) conduct problem subscale scores from baseline to endpoint in the intent-to-treat (ITT) population. NCBRF-TIQ is a known instrument that has
been used for assessing child and adolescent behavior. Scores improved after baseline in all treatment groups. By visit 12, after 6 weeks of treatment, the mean reduction from baseline for each
treatment group was 7.0, 8.7, 8.2 and 14.3, in groups 1, 2, 3, and 4, respectively, representing decreases of 34%, 34%, 32% and 55%, respectively. In addition, the difference between group 1 and group
4 was statistically significant (p
£
0.041) at all time points except visit 2 and the greatest improvement in scores on the NCBRF-TIQ conduct
problem subscale was seen in group 4, which was the highest-dose group (14.8 mean reduction). The
below chart summarizes the mean change in NCBRF-TIQ conduct problem subscale observed in our Phase IIa trial.
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NCBRF-TIQ Conduct Problem Subscale:
Mean Change from Baseline in ITT Population
Secondary outcomes included changes in other ADHD and conduct problem scales, as described in the table below. SPN-810 demonstrated improved scores
over time in all treatment groups, with more marked improvements in higher-dose groups than in lower-dose groups as set out in greater detail in the table below.
% Improvement from Baseline to Last Visit,
Secondary Outcome Measures (ITT Population)
Treatment Groups
Outcome Measure
Group 1
n=20
Group 2
n=19
Group 3
n=19
Group 4
n=20
CGI-S
% Improvement
23%
21%
27%
36%
SNAP-IV Subscales
ADHD Inattention
% Improvement
24%
31%
34%
39%
ADHD Hyperactivity/Impulsivity
% Improvement
28%
27%
28%
41%
ADHD-Combined
% Improvement
26%
29%
31%
40%
ODD
% Improvement
34%
33%
28%
51%
CGI-S=Clinical Global Impression-Severity Scale, an assessment tool to rate the severity of the condition; ODD=Oppositional Defiant Disorder, a
coexisting condition of ADHD; SNAP-IV=Swanson, Nolan and Pelham Questionnaire, a commonly used scale to measure ADHD.
We expect to test SPN-810 in another Phase II trial in 2011. The design and protocol of the trial have not been finalized but
we expect to conduct a multicenter, randomized, double-blind, placebo-controlled trial in pediatric subjects 6 to 12 years of age with impulsive aggression in ADHD. The primary objective
will be to assess the effectiveness of SPN-810 in reducing impulsive aggression after at least three weeks of treatment. Secondary objectives are likely to include measurement of the
effectiveness of SPN-810 on Clinical Global Impression and ADHD scales as well as evaluation of the safety and tolerability of the drug. In addition, we will be exploring the potential
added advantages of an extended-release formulation, such as greater compliance and, therefore, effectiveness in school-age children and lower unwanted side effects or interpatient
variability.
SPN-812
We are developing SPN-812, which is currently in Phase II, as a novel non-stimulant treatment for ADHD.
SPN-812 is a selective norepinephrine reuptake inhibitor that we believe could be more effective and have a better side effect profile than other non-stimulant treatments for
ADHD. The active ingredient in SPN-812 has an extensive safety record in Europe, where it was previously marketed for many years as an antidepressant. SPN-812 has not been
developed and marketed in the
United States and, therefore, it would be considered and reviewed by the FDA as a new chemical entity.
SPN-812
would provide an additional option to the few non-stimulant therapies currently available. We believe that SPN-812 could be more effective
than other non-stimulant therapies due to its
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different
pharmacological profile. Due to its demonstrated efficacy as an antidepressant, SPN-812 may exhibit increased benefit in up to an estimated 40% of ADHD patients who also suffer
from major depression. We are developing an intellectual property position around the novel synthesis process for this product candidate, its novel use in ADHD and its novel delivery with extended
release.
SPN-812 Development Program
We initiated a proof-of-concept Phase IIa trial in mid-2010, and we expect to get the results of this
trial in the first quarter of 2011. The trial is a randomized, double-blind, placebo-controlled trial in approximately 50 adults with a current diagnosis of ADHD (approximately 25 subjects per
treatment group). The subjects in the active arm will be administered SPN-812 at a single dose level three times a day over five weeks, after a one-week titration phase. The
primary endpoint is the safety of SPN-812 and the secondary endpoints include, among others, the efficacy of SPN-812 as measured by Total ADHD Symptom Score on the Conners'
Adult ADHD Rating Scale, a commonly-used measurement for ADHD in adults, as rated by each of the investigators and the subjects, and the effectiveness of SPN-812 when compared
to placebo as determined by changes in the Clinical Global Impressions—Improvement score. Depending on the results of this Phase IIa trial, we expect to focus on potentially
developing an extended release formulation and to commence a Phase IIb trial.
SPN-809
We are developing SPN-809 as a novel once-daily product candidate for the treatment of depression.
SPN-809 is based on the same active ingredient as our SPN-812 product candidate. We currently have an open investigational new drug application, or IND, for SPN-809
as a treatment of depression, the indication for which the active ingredient in SPN-809 was approved
and marketed in Europe for many years. Depression is a serious and common disease affecting approximately 121 million people worldwide. The worldwide market for antidepressants is approximately
$12 billion.
SPN-809
is a norepinepherine reuptake inhibitor that represents an opportunity to offer a differentiated treatment option for patients suffering from depression in the United
States. Initial market research suggests that psychiatrists would like to have such a once-daily option at their disposal to treat various patients. Because SPN-809 contains
the same active ingredient as SPN-812, we expect that many of our activities related to the development of SPN-812 will also benefit the development of SPN-809.
Other Product Candidates
We have additional product candidates in various stages of early development that cover a range of CNS disorders.
Our Proprietary Technology Platforms
We have a long track record of developing novel products by applying proprietary technologies to known drugs to improve existing
therapies and enable the treatment of new indications. Our key proprietary technology platforms include: Microtrol, Solutrol and EnSoTrol. These technologies create customized product profiles
designed to meet efficacy needs, more convenient and less frequent dosing, enhanced patient compliance, and improved tolerability in certain specific applications. Our broad portfolio of technologies
and extensive expertise in this area, which have been built over the past 20 years, enable us to develop products that are technically difficult to formulate or by design are made harder to be
copied by others. We have employed our technologies in the development of our legacy products, as well as our current product portfolio.
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Microtrol (multiparticulate delivery platform)
Microtrol is based on the use of coated and uncoated multi-particulates that can be filled into capsules, administered as a sprinkle,
or compressed into tablets as varying ratios to achieve customized release profiles. The following approved and marketed products incorporate our Microtrol technology:
•
Sanctura XR (trospium chloride), a treatment for overactive bladder;
•
Oracea (doxycycline), a treatment for inflammatory lesions of rosacea;
•
Carbatrol (carbamazepine), an anti-epilepsy treatment;
•
Equetro (carbamazepine), a treatment for bipolar disorder; and
•
Adderall XR (mixed amphetamine salts), a stimulant ADHD treatment.
We
do not expect the above products to contribute to our future cash. Carbatrol, Equetro and Adderall XR are legacy products that were developed by us when we were formerly Shire
Laboratories. In addition, in April 2008, we monetized the revenues underlying the future royalty streams relating to Sanctura XR and Oracea by transferring certain of our royalty payment rights and
other license rights for such products to TCD Royalty Sub LLC, our wholly-owned subsidiary, in exchange for $63 million. We primarily reinvested the proceeds from this transaction into
our research and development activities.
Solutrol (matrix delivery platform)
Solutrol is a matrix delivery system that can deliver poorly soluble, highly soluble, and pH dependent compounds in a reproducible and
complete manner. Solutrol has been incorporated into Intuniv (guanfacine), a nonstimulant ADHD treatment, which is currently licensed to and marketed by Shire plc. In April 2009, this license
became fully paid up when we sold to Shire the right to receive royalties and milestone payments owed to us for $36.9 million, which we primarily reinvested into our research and development
activities.
EnSoTrol (osmotic delivery system)
EnSoTrol is comprised of a solubility enabled core and other agents surrounded by a semi-permeable membrane with a
laser-drilled hole. When EnSoTrol is introduced to the contents of the gastrointestinal tract, it will induce solubilization of the core contents via fluid intake across the membrane coating. The
solubilized core contents are then released through the laser-drilled hole along the osmotic gradient, thus yielding a surface-area controlled constant release profile. EnSoTrol has been
tested in several clinical trials, including a Phase III trial currently being conducted by United Therapeutics Corporation, or United Therapeutics for an oral formulation of treprostinil
diethanolamine, or treprostinil.
In
June 2006, we entered into a license agreement with United Therapeutics for the worldwide development and commercialization of an oral formulation of treprostinil, which utilizes
EnSoTrol for the treatment of pulmonary arterial hypertension, or PAH, as well as for other indications. Under the terms of the license agreement, we have received pre-commercial milestone
payments of $750,000. Remaining milestone payments to us could total up to $6.8 million, which includes pre-commercial milestone payments of up to approximately $2.8 million for the
satisfaction of development milestones relating to the treatment of PAH and up to $4.0 million for the development of each additional product that combines a form of oral treprostinil that
utilizes our technologies with another drug compound. If United Therapeutics receives approval to market and sell an oral formulation of treprostinil, we will be entitled to receive royalties based on
worldwide net sales.
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Other Technologies
We also have proprietary techniques for identifying lead molecules and optimizing their oral delivery consisting of ProScreen, ProPhile
and OptiScreen technologies. ProScreen is a predictive screen for lead candidates that warrant oral delivery. ProPhile is a suite of in silico modeling tools that enables multivariate analysis and
pharmacokinetic prediction. OptiScreen is a technology for formulation optimization including solubility or permeability enhancement leading to oral bioavailability improvement. We believe that this
suite of technologies enables us to optimize the delivery and the development of existing chemical entities and marketed products.
Sales and Marketing
We are preparing the build-out of our commercial infrastructure to launch both SPN-538 and Epliga in the United States.
Upon approval of SPN-538, we would hire a small specialty sales force, initially consisting of a limited number of field sales representatives to support the launch of the product. We
would then seek to expand our sales force in connection with an approval and commercial launch of Epliga. Having two epilepsy products that can be promoted to the same physician audience would allow
us to leverage our commercial infrastructure with these prescribers. Once we have obtained approval for any of our product candidates in our psychiatry portfolio, we anticipate adding additional sales
force members who will be dedicated towards marketing our psychiatry products.
Manufacturing
We do not own or operate manufacturing facilities for the production of any of our product candidates, nor do we have plans to develop
our own manufacturing operations in the foreseeable future. We currently depend on third-party contract manufacturing organizations, or CMOs, for all of our required raw materials, active ingredients
and finished product for our preclinical research and clinical trials. We do not have any current contractual relationships for the commercial manufacture of any of our product candidates. In parallel
to seeking marketing approval for our product candidates, we intend to enter into agreements with third-party contract manufacturers for the commercial production of those products. We currently
employ internal resources and as needed third-party consultants to manage our manufacturing contractors.
Manufacturing
partnerships for our two most advanced product candidates, SPN-538 and Epliga, have been secured with leading CMOs headquartered in North America. These CMOs
offer a comprehensive range of contract manufacturing and packaging services and have successfully handled the scale up of the two product candidates to a commercial production scale in preparation
for the commercialization of both product candidates.
Competition
The biotechnology and pharmaceutical industries are highly competitive. A number of multinational pharmaceutical companies as well as
large biotechnology companies are pursuing the development or are currently marketing pharmaceutical products in the anti-epilepsy and ADHD markets on which we are focusing.
Epilepsy
There are currently over 15 branded products, as well as their generic counterparts, on the U.S. market indicated to treat some form of
epilepsy. Several NCEs are expected to enter the epilepsy market in the next few years. Based on prescription data from 1994 to 2005 for NCE launches for seizure disorders, such NCEs, on average,
experienced slow market penetration characterized by a 0.58 to 1.1 market share point gain on an annual basis. We believe this is because physicians are often reluctant to change a stable patient's
existing therapy and risk a breakthrough seizure in their patients.
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If
approved, SPN-538 (extended release topiramate) will compete with all immediate release topiramate products including Topamax and related generic products. We are aware that
Upsher-Smith Laboratories announced the initiation of a Phase III clinical trial for an extended release topiramate product, which it has described as an internally developed program for the
management of epilepsy in adults using its proprietary formulation technology. If this product candidate is approved by the FDA before SPN-538, then Upsher-Smith could obtain three years
of marketing exclusivity, which would significantly delay our entry into the U.S. market. If approved, Epliga (extended release oxcarbazepine) will compete with all immediate release oxcarbazepine
products including Trileptal and related generic products. We are not aware of any other company that is currently developing an extended release oxcarbazepine product in the United States. In
addition, we believe that Epliga's once-daily formulation solves a drug delivery challenge specific to oxcarbazepine that must be overcome by all potential competitors. We are aware of
companies who have modified-release oxcarbazepine products that are marketed outside of the United States but, to our knowledge, such products are not being pursued for the U.S. market. These
modified-release oxcarbazepine products include Apydan, which is developed by Desitin Arzneimittel GmbH and requires twice-daily administration.
ADHD
Competition in the U.S. ADHD market has increased with the launch of several products in recent years, including the launch of generic
versions of branded drugs, such as Adderall XR. Shire plc is one of the leaders in the U.S. ADHD market with three products: Adderall XR, an extended release stimulant treatment designed to
provide once-daily dosing; Vyvanse, a stimulant prodrug product launched in 2007; and Intuniv, a non-stimulant treatment launched in November 2009. Other stimulant products for
the treatment of ADHD in the U.S. market include the following once-daily formulations: Concerta; Metadate CD; Ritalin LA; Focalin XR; and Daytrana. Other non-stimulants are
Strattera and Clonicel. We are also aware of clinical development efforts by several large pharmaceutical companies including Shire plc, GlaxoSmithKline plc, Eisai Inc., AstraZeneca plc
and Abbott Laboratories to develop additional treatment options for ADHD.
Intellectual Property and Exclusivity
Overview
We have been building and continue to build our intellectual property portfolio relating to our product candidates, including
SPN-538 and Epliga. We seek patent protection, where appropriate, in the United States and internationally for our product candidates. Our policy is to actively seek to protect our
proprietary position by, among other things, filing patent applications in the United States and abroad (including Europe, Canada and certain other countries when appropriate) relating to proprietary
technologies that are important to the development of our business. We also rely on trade secrets, know-how, continuing technological innovation and in-licensing opportunities
to develop and maintain our proprietary position. We cannot be sure that patents will be granted with respect to any of our pending patent applications or with respect to any patent applications filed
by us in the future, nor can we be sure that any of our existing patents or any patents that may be granted to us in the future will be commercially useful in protecting our technology.
Our
success will depend significantly on our ability to obtain and maintain patent and other proprietary protection for the technologies and products we consider important to our
business, defend our patents,
preserve the confidentiality of our trade secrets and operate our business without infringing the patents and proprietary rights of third parties.
We
have established and continue to build proprietary positions for Epliga, SPN-538, our pipeline product candidates and technologies in the United States and abroad.
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Patent Portfolio
Our Epliga patent portfolio currently includes one issued U.S. Patent, two pending U.S. continuation patent applications, and certain
pending foreign patent applications that relate to the issued U.S. patent or pending U.S. non-provisional patent applications. The issued U.S. patent will expire in 2027. We own the issued
patent and all of the pending applications.
In
addition to the patents and patent applications relating to Epliga, we currently have one pending U.S. non-provisional patent application, two pending U.S. continuation
patent applications and certain pending foreign counterpart patent applications in Europe, Canada and other countries, which are directed to SPN-538. The U.S. patent application, if
issued, could expire in 2027. We own all of these pending applications.
Our
patent portfolio also contains patent applications relating to our other pipeline products. We have a pending U.S. non-provisional patent application and a pending
international patent application relating to our SPN-810 product candidate. Patents, if issued, from the applications could have terms expiring in 2029. With regard to our
SPN-812 product
candidate we have a pending U.S. non-provisional patent application and a pending international patent application. The U.S. patent application, if issued as a patent, would expire in 2029.
The
U.S. patent system permits the filing of provisional and non-provisional patent applications. A non-provisional patent application is examined by the U.S.
Patent and Trademark Office, or USPTO, and can mature into a patent once the USPTO determines that the claimed invention meets the standards for patentability. A provisional patent application is not
examined for patentability, and automatically expires 12 months after its filing date. As a result, a provisional patent application cannot mature into a patent. The requirements for filing a
provisional patent application are not as strict as those for filing a non-provisional patent application. Provisional applications are often used, among other things, to establish an
early filing date for a subsequent non-provisional patent application. The term of individual patents depends upon the legal term of the patents in the countries in which they are
obtained. In most countries in which we file, the patent term is 20 years from the earliest date of filing a non-provisional patent application. In the United States, a patent's
term may be lengthened by patent term adjustment, or PTA, which compensates a patentee for administrative delays by the USPTO in granting a patent. In view of a recent court decision, the USPTO is
under greater scrutiny regarding its calculations where the USPTO erred in calculating the patent term adjustment for the patents in question denying the patentee a portion of the patent term to which
it was entitled. Alternatively, a patent's term may be shortened if a patent is terminally disclaimed over another patent.
The
filing date of a non-provisional patent application is used by the USPTO to determine what information is prior art when it considers the patentability of a claimed
invention. If certain requirements are satisfied, a non-provisional patent application can claim the benefit of the filing date of an earlier filed provisional patent application. As a
result, the filing date accorded by the provisional patent application may supersede information that otherwise could preclude the patentability of an invention.
The
term of a patent that covers an FDA-approved drug may also be eligible for patent term extension, or PTE, which permits patent term restoration as compensation for the
patent term lost during the FDA regulatory review process. The Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Amendments, permits a PTE of up to five years beyond
the expiration of the patent. The length of the PTE is related to the length of time the drug is under regulatory review. Patent extension cannot extend the remaining term of a patent beyond a total
of 14 years from the date of product approval and only one patent applicable to an approved drug may be extended. Similar provisions are available in Europe and other foreign jurisdictions to
extend the term of a patent that covers an approved drug. In the future, if and when our pharmaceutical products receive FDA or other regulatory approval, we may be able to apply for PTEs on patents
covering those
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products.
Depending upon the timing, duration and specifics of FDA approval of Epliga, SPN-538 and our other product candidates, one or more of our U.S. patents may be eligible for limited
patent term restoration.
Other Intellectual Property Rights
We seek trademark protection in the United States and internationally where available and when appropriate. We have filed for trademark
protection for several marks, which we use in connection with our pharmaceutical research and development collaborations as well as products. We are the owner of various U.S. federal trademark
registrations (®) and registration applications (TM), including the following marks referred to in this prospectus pursuant to applicable U.S. intellectual property laws:
"Supernus®," "Epliga®," "Microtrol®," "Solutrol®," "ProScreen®," "OptiScreen®," "ProPhile®" and the registered
Supernus Pharmaceuticals logo.
From
time to time, we may find it necessary or prudent to obtain licenses from third party intellectual property holders. Where licenses are readily available at reasonable cost, such
licenses are considered a normal cost of doing business. In other instances, however, we may use the results of freedom-to-operate inquiries and internal analyses to guide our
early-stage research away from areas where we are likely to encounter obstacles in the form of third party intellectual property. For example, where a third party holds relevant intellectual property
and is a direct competitor, a license might not be available on commercially reasonable terms or available at all. We strive to identify potential third party intellectual property issues in the early
stages of research of our research programs, in order to minimize the cost and disruption of resolving such issues.
To
protect our competitive position, it may be necessary to enforce our patent rights through litigation against infringing third parties. Litigation to enforce our own patent rights is
subject to uncertainties that cannot be quantified in advance. In the case of an adverse outcome in litigation, we could be prevented from commercializing a product or using certain aspects of our
technology platforms as a result of patent infringement claims asserted against us. This could have a material adverse effect on our business. In addition, litigation involving our patents carries the
risk that one or more of our patents will be held invalid (in whole or in part, on a claim-by-claim basis) or held unenforceable. Such an adverse court ruling could allow third
parties to commercialize products or use technologies that are similar to ours, and then compete directly with us, without payment to us. See "Risk Factors—If we are sued for infringing
intellectual property rights of third parties, it will be costly and time consuming, and an unfavorable outcome in that litigation would have a material adverse effect on our business."
In-Licensing Arrangements
Afecta Pharmaceuticals, Inc.
We have entered into two license agreements with Afecta Pharmaceuticals, Inc., or Afecta, pursuant to which we obtained 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. Under the terms of the license
agreements, we have paid Afecta $400,000 in license fees and milestone payments. If a product candidate is successfully developed and commercialized, we will be obligated to pay royalties to Afecta
based on net sales worldwide in the low-single digits. Unless terminated by us or Afecta for material breach or bankruptcy, by Afecta for our discontinuation of development and
commercialization activities, or by us for convenience, the license agreements will continue in full force and effect on a country-by-country basis until six months from the
discontinuation of the commercial sale and collection of revenues for the Afecta product.
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Rune Healthcare Limited
In June 2006, we entered into a purchase and sale agreement with Rune Healthcare Limited, or Rune, where we obtained the exclusive
worldwide rights to a product concept from Rune for SPN-809. Under the terms of the agreement, we have paid Rune a £25,000 up-front fee. If we receive approval to market and
sell any products based on the Rune product concept, we will be obligated to pay royalties to Rune based on net sales worldwide in the low-single digits. Unless terminated by us or Rune
for material breach, by Rune for our discontinuation of development or commercialization activities relating to a product based on the Rune product concept, we will be obligated to pay royalties to
Rune on a country-by-country basis until the earlier of (a) ten years from the date of first commercial sale of a product based on the Rune product concept or
(b) the market entry in such country of any product utilizing the Rune product by any entity other than us, our affiliates or our licensees.
Confidential Information and Inventions Assignment Agreements
We require our employees, temporary employees, consultants to execute confidentiality agreements upon the commencement of employment,
consulting or collaborative relationships with us. These agreements provide that all confidential information developed or made known during the course of the relationship with us be kept confidential
and not disclosed to third parties except in specific circumstances. The agreements provide that all inventions resulting from work performed for us or relating to our business and conceived or
completed by the individual during employment or assignment, as applicable, shall be our exclusive property to the extent permitted by applicable law.
We
seek to protect our product candidates and our technologies through a combination of patents, trade secrets, proprietary know-how, FDA exclusivity and contractual
restrictions on disclosure.
Government Regulation
Product Approval
Government authorities in the United States at the federal, state and local level, and other countries, extensively regulate, among
other things, the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, marketing, export and
import of products such as those we are developing. Our product candidates, including SPN-538 and Epliga, must be approved by the FDA before they may legally be marketed in the United
States.
U.S. Drug Development Process
In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act, or FDCA, and implementing regulations.
The process of obtaining regulatory approvals and ensuring compliance with appropriate federal, state, local and foreign statutes and regulations require the expenditure of substantial time and
financial resources. Failure to comply with the applicable U.S. requirements at any time during the product development process, approval process, or after approval, may subject an applicant to
administrative or judicial sanctions. These sanctions could include the FDA's refusal to approve pending applications, withdrawal of an approval, a clinical hold, warning letters, product recalls,
product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement or civil or criminal penalties. The process
required by the FDA before a drug may be marketed in the United States generally involves the following:
•
completion of preclinical laboratory tests, animal studies and formulation studies according to Good Laboratory Practices
regulations;
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•
submission to the FDA of an IND, which must become effective before human clinical trials may begin;
•
performance of adequate and well-controlled human clinical trials according to Good Clinical Practices, or
GCP, to establish the safety and efficacy of the proposed drug for its intended use;
•
submission to the FDA of an NDA for a new drug;
•
satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the drug is produced to
assess compliance with current Good Manufacturing Practices, or cGMP; and
•
FDA review and approval of the NDA.
The
testing and approval process require substantial time, effort and financial resources and we cannot be certain that any approvals for our product candidates will be granted on a
timely basis, if at all.
Once
a pharmaceutical product candidate is identified for development, it enters the preclinical testing stage. Preclinical tests include laboratory evaluations of product chemistry,
toxicity, formulation and stability, as well as animal studies. An IND sponsor must submit the results of the preclinical tests, together with manufacturing information, analytical data and any
available clinical data or literature, to the FDA as part of the IND. The sponsor must also include a protocol detailing, among other things, the objectives of the initial clinical trial, the
parameters to be used in monitoring safety and the effectiveness criteria to be evaluated if the initial clinical trial lends itself to an efficacy evaluation. Some preclinical testing may continue
even after the IND is submitted. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA places the clinical trial on a clinical hold within that
30-day time period. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. Clinical holds also may be imposed by the FDA at
any time before or during trials due to safety concerns or non-compliance.
All
clinical trials must be conducted under the supervision of one or more qualified investigators in accordance with GCP regulations. These regulations include the requirement that all
research subjects provide informed consent. Further, an institutional review board, or IRB, must review and approve the plan for any clinical trial before it commences at any institution. An IRB
considers, among other things, whether the risks to individuals participating in the trials are minimized and are reasonable in relation to anticipated benefits. The IRB also approves the information
regarding the clinical trial and the consent form that must be provided to each clinical trial subject or his or her legal representative and must monitor the clinical trial until completed.
Once
an IND is in effect, each new clinical protocol and any amendments to the protocol must be submitted to the IND for FDA review, and to the IRBs for approval. Protocols detail, among
other things, the objectives of the clinical trial, dosing procedures, subject selection and exclusion criteria, and the parameters to be used to monitor subject safety.
Human
clinical trials are typically conducted in three sequential phases that may overlap or be combined:
•
Phase I.
The product is initially introduced into
healthy human subjects and tested for safety, dosage tolerance, absorption, metabolism, distribution and excretion. In the case of some products for severe or life-threatening diseases,
especially when the product may be too inherently toxic to ethically administer to healthy volunteers, the initial human testing may be conducted in patients.
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•
Phase II.
Phase II trials involve
investigations in a limited patient population to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to
determine dosage tolerance and optimal dosage and schedule.
•
Phase III.
Clinical trials are undertaken to
further evaluate dosage, clinical efficacy and safety in an expanded patient population at geographically dispersed clinical trial sites. These trials are intended to establish the overall
risk/benefit ratio of the product and provide an adequate basis for regulatory approval and product labeling.
Progress
reports detailing the results of the clinical trials must be submitted at least annually to the FDA and safety reports must be submitted to the FDA and the investigators for
serious and unexpected side effects. Phase I, Phase II and Phase III testing may not be completed successfully within any specified period, if at all. The FDA or the sponsor may
suspend or terminate a clinical trial at any time on various grounds, including a finding that the research subjects or patients are being exposed to an unacceptable health risk. Similarly, an IRB can
suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB's requirements or if the drug has been associated with
unexpected serious harm to patients.
Concurrent
with clinical trials, companies usually complete additional animal studies and must also develop additional information about the chemistry and physical characteristics of the
product and finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality
batches of the product candidate and, among other things, the manufacturer must develop methods for testing the identity, strength, quality and purity of the final product. Additionally, appropriate
packaging must be selected and tested and stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration over its shelf life.
U.S. Review and Approval Processes
The results of product development, preclinical studies and clinical trials, along with descriptions of the manufacturing process,
analytical tests conducted on the drug, proposed labeling and other relevant information, are submitted to the FDA as part of an NDA for a new drug, requesting approval to market the product.
As
an alternate path to FDA approval, particularly for modifications to drug products previously approved by the FDA, an applicant may submit an NDA under Section 505(b)(2) of the
FDCA. Section 505(b)(2) was enacted as part of the Drug Price Competition and Patent Term Restoration Act of 1984, commonly referred to as the Hatch-Waxman Amendments, and permits the
submission of an NDA where at least some of the information required for approval comes from clinical trials not conducted by or for the applicant and for which the applicant has not obtained a right
of reference. The FDA interprets Section 505(b)(2) of the FDCA to permit the applicant to rely upon the FDA's previous findings of safety and effectiveness for an approved product. The FDA
requires submission of information needed to support any changes to a previously approved drug, such as published data or new studies conducted by the applicant, including bioavailability or
bioequivalence studies, or clinical trials demonstrating safety and effectiveness. The FDA may then approve the new product candidate for all or some of the label indications for which the referenced
product has been approved, as well as for any new indication sought by the Section 505(b)(2) applicant.
The
submission of an NDA is subject to the payment of a substantial user fee; a waiver of such fee may be obtained under certain limited circumstances. For example, the agency will waive
the application fee for the first human drug application that a small business or its affiliate submits for review.
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In
addition, under the Pediatric Research Equity Act of 2003, or PREA, which was reauthorized under the Food and Drug Administration Amendments Act of 2007, an NDA or supplement to an
NDA must contain data to assess the safety and effectiveness of the drug for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each
pediatric subpopulation for which the product is safe and effective. The FDA may grant deferrals for submission of data or full or partial waivers. Unless otherwise required by regulation, PREA does
not apply to any drug for an indication for which orphan designation has been granted.
Section 505(b)(2) New Drug Applications.
To the extent that a Section 505(b)(2) NDA relies on clinical trials
conducted for a
previously approved drug product or the FDA's prior findings of safety and effectiveness for a previously approved drug product, the Section 505(b)(2) applicant must submit patent
certifications in its 505(b)(2) application with respect to any patents for the approved product on which the application relies that are listed in the FDA's publication, Approved Drug Products with
Therapeutic Equivalence Evaluations, commonly referred to as the Orange Book. Specifically, the applicant must certify for each listed patent that (1) the required patent information has not
been filed; (2) the listed patent has expired; (3) the listed patent has not expired, but will expire on a particular date and approval is not sought until after patent expiration; or
(4) the listed patent is invalid, unenforceable or will not be infringed by the proposed new product. A certification that the new product will not infringe the previously approved product's
listed patent or that such patent is invalid or unenforceable is known as a Paragraph IV certification. If the applicant does not challenge one or more listed patents through a
Paragraph IV certification, the FDA will not approve the Section 505(b)(2) NDA application until all the listed patents claiming the referenced product have expired. Further, the FDA
will also not approve, as applicable, a Section 505(b)(2) NDA application until any non-patent exclusivity, such as, for example, five-year exclusivity for obtaining
approval of a new chemical entity, three year exclusivity for an approval based on new clinical trials, or pediatric exclusivity, listed in the Orange Book for the referenced product, has expired.
If
the Section 505(b)(2) NDA applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to
the owner of the referenced NDA for the previously approved product and relevant patent holders within 20 days after the Section 505(b)(2) NDA has been accepted for filing by the FDA.
The NDA and patent holders may then initiate a patent infringement suit against the Section 505(b)(2) applicant. Under the FDCA, the filing of a patent infringement lawsuit within
45 days of receipt of the notification regarding a Paragraph IV certification automatically prevents the FDA from approving the Section 505(b)(2) NDA for 30 months
beginning on the date the patent holder receives notice, or until a court deems the patent unenforceable, invalid or not infringed, whichever is earlier. Moreover, in cases where a
Section 505(b)(2) application containing a Paragraph IV certification is submitted after the fourth year of a previously approved drug's five year exclusivity period and the patent
holder brings suit within 45 days of notice of certification, the 30-month period is automatically extended to prevent approval of the Section 505(b)(2) application until the date that
is seven and one-half years after approval of the previously approved reference product. The court also has the ability to shorten or lengthen either the 30 month or the seven and
one-half year period if either party is found not to be reasonably cooperating in expediting the litigation. Thus, the Section 505(b)(2) applicant may invest a significant amount of
time and expense in the development of its product only to be subject to significant delay and patent litigation before its product may be commercialized. Alternatively, if the NDA applicant or
relevant patent holder does not file a patent infringement lawsuit within the specified 45 day period, the FDA may approve the Section 505(b)(2) application at any time.
Notwithstanding
the approval of many products by the FDA pursuant to Section 505(b)(2), over the last few years, some pharmaceutical companies and others have objected to the
FDA's interpretation of Section 505(b)(2). If the FDA changes its interpretation of Section 505(b)(2), or if the
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FDA's
interpretation is successfully challenged in court, this could delay or even prevent the FDA from approving any Section 505(b)(2) NDA that we submit.
In
the NDA submissions for our product candidates, we intend to follow the development and approval pathway permitted under the FDCA that we believe will maximize the commercial
opportunities for these product candidates.
FDA Review of New Drug Applications.
The FDA reviews all NDAs submitted to ensure that they are sufficiently complete for
substantive review before
it accepts them for filing. The FDA may request additional information rather than accept an NDA for filing. In this event, the NDA must be re-submitted with the additional information.
The re-submitted application also is subject to review before the FDA accepts it for filing. Once the submission is accepted for filing, the FDA begins an in-depth substantive
review. The FDA reviews an NDA to determine, among other things, whether a product is safe and effective for its intended use and whether its manufacturing is cGMP-compliant to assure and
preserve the product's identity, strength, quality and purity. Before approving an NDA, the FDA will inspect the facility or facilities where the product is manufactured. The FDA will not approve an
application unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required
specifications. The FDA may refer the NDA to an advisory committee for review, evaluation and recommendation as to whether the application should be approved and under what conditions. An advisory
committee is a panel of independent experts who provide advice and recommendations when requested by the FDA on matters of importance that come before the agency. The FDA is not bound by the
recommendation of an advisory committee.
The
approval process is lengthy and difficult and the FDA may refuse to approve an NDA if the applicable regulatory criteria are not satisfied or may require additional clinical data or
other data and information. Even if such data and information is submitted, the FDA may ultimately decide that the NDA does not satisfy the criteria for approval. Data obtained from clinical trials
are not always conclusive and the FDA may interpret data differently than we interpret the same data. The FDA will issue a complete response letter if the agency decides not to approve the NDA in its
present form. The complete response letter usually describes all of the specific deficiencies that the FDA identified in the NDA. The deficiencies identified may be minor, for example, requiring
labeling changes, or major, for example, requiring additional clinical trials. Additionally, the complete response letter may include recommended actions that the applicant might take to place the
application in a condition for approval. If a complete response letter is issued, the applicant may either resubmit the NDA, addressing all of the deficiencies identified in the letter, withdraw the
application, or request an opportunity for a hearing.
If
a product receives regulatory approval, the approval may be significantly limited to specific diseases and dosages or the indications for use may otherwise be limited, which could
restrict the commercial value of the product. Further, the FDA may require that certain contraindications, warnings or precautions be included in the product labeling. In addition, the FDA may require
Phase 4 testing which involves clinical trials designed to further assess a drug's safety and effectiveness after NDA approval and may require testing and surveillance programs to monitor the
safety of approved products that have been commercialized.
Patent Term Restoration and Marketing Exclusivity
Depending upon the timing, duration and specifics of FDA marketing approval of our product candidates, some of our U.S. patents may be
eligible for limited patent term extension under the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent restoration term of up to five years as compensation for patent term lost
during product development and the FDA regulatory review process. However, patent term restoration cannot extend the remaining term of a patent beyond
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a
total of 14 years from the product's approval date. The patent term restoration period is generally one-half the time between the effective date of an IND and the submission date
of an NDA plus the time between the submission date of an NDA and the approval of that application. Only one patent applicable to an approved drug is eligible for the extension and the application for
the extension must be submitted prior to the expiration of the patent and within sixty days of approval of the drug. The U.S. Patent and Trademark Office, in consultation with the FDA, reviews and
approves the application for any patent term extension or restoration. In the future, we intend to apply for restorations of patent term for some of our currently owned or licensed patents to add
patent life beyond their current expiration dates, depending on the expected length of the clinical trials and other factors involved in the filing of the relevant NDA.
Market
exclusivity provisions under the FDCA can also delay the submission or the approval of certain applications. The FDCA provides a five-year period of
non-patent marketing exclusivity within the United States to the first applicant to gain approval of an NDA for a new chemical entity. A drug is a new chemical entity if the FDA has not
previously approved any other new drug containing the same active moiety, which is the molecule or ion responsible for the action of the drug substance. During the exclusivity period, the FDA may not
accept for review an abbreviated new drug application, or ANDA, or a Section 505(b)(2) NDA submitted by another company for another version of such drug where the applicant does not own or have
a legal right of reference to all the data required for approval. However, an application may be submitted after four years if it contains a Paragraph IV certification. The FDCA also provides
three years of marketing exclusivity for an NDA, Section 505(b)(2) NDA or supplement to an existing NDA if new clinical investigations, other than bioavailability studies, that were conducted
or sponsored by the applicant are deemed by the FDA to
be essential to the approval of the application. Such clinical trials may, for example, support new indications, dosages or strengths of an existing drug. This three-year exclusivity
covers only the conditions of use associated with the new clinical investigations and does not prohibit the FDA from approving ANDAs for drugs containing the original active agent.
Five-year and three-year exclusivity will not delay the submission or approval of a full NDA. However, an applicant submitting a full NDA would be required to conduct its own
preclinical studies and clinical trials or obtain a right of reference to such studies or trials.
Pediatric
exclusivity is another type of exclusivity in the United States. Pediatric exclusivity, if granted, provides an additional six months of exclusivity to be attached to any
existing exclusivity (e.g., three or five year exclusivity) or patent protection for a drug. This six month exclusivity, which runs from the end of other exclusivity protection or patent delay,
may be granted based on the voluntary completion of a pediatric trial in accordance with an FDA-issued "Written Request" for such a trial. The current pediatric exclusivity provision was
reauthorized in September 2007.
Post-Approval Requirements
Any drugs for which we receive FDA approval are subject to continuing regulation by the FDA, including, among other things,
record-keeping requirements, reporting of adverse experiences with the product, providing the FDA with updated safety and efficacy information, product sampling and distribution requirements,
complying with certain electronic records and signature requirements and complying with FDA promotion and advertising requirements. The FDA strictly regulates labeling, advertising, promotion and
other types of information on products that are placed on the market. Drugs may be promoted only for the approved indications and in accordance with the provisions of the approved label. Further,
manufacturers of drugs must continue to comply with cGMP requirements, which are extensive and require considerable time, resources and ongoing investment to ensure compliance. In addition, changes to
the manufacturing process generally require prior FDA approval before being implemented and other types of changes to the approved product, such as adding new indications and additional labeling
claims, are also subject to further FDA review and approval.
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Drug
manufacturers and other entities involved in the manufacturing and distribution of approved drugs are required to register their establishments with the FDA and certain state
agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP and other laws. The cGMP requirements apply to all stages of the
manufacturing process, including the production, processing, sterilization, packaging, labeling, storage and shipment of the drug. Manufacturers must establish validated systems to ensure that
products meet specifications and regulatory standards, and test each product batch or lot prior to its release. We rely, and expect to
continue to rely, on third parties for the production of clinical quantities of our product candidates. Future FDA and state inspections may identify compliance issues at the facilities of our
contract manufacturers that may disrupt production or distribution or may require substantial resources to correct.
The
FDA may withdraw a product approval if compliance with regulatory standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously
unknown problems with a product may result in restrictions on the product or even complete withdrawal of the product from the market. Further, the failure to maintain compliance with regulatory
requirements may result in administrative or judicial actions, such as fines, warning letters, holds on clinical trials, product recalls or seizures, product detention or refusal to permit the import
or export of products, refusal to approve pending applications or supplements, restrictions on marketing or manufacturing, injunctions or civil or criminal penalties.
From
time to time, legislation is drafted, introduced and passed in Congress that could significantly change the statutory provisions governing the approval, manufacturing and marketing
of products regulated by the FDA. In addition to new legislation, the FDA regulations and policies are often revised or reinterpreted by the agency in ways that may significantly affect our business
and our product candidates. It is impossible to predict whether further legislative or FDA regulation or policy changes will be enacted or implemented and what the impact of such changes, if any, may
be.
Foreign Regulation
In addition to regulations in the United States, we will be subject to a variety of foreign regulations governing clinical trials and
commercial sales and distribution of our product candidates to the extent we choose to clinically evaluate or sell any products outside of the United States. Whether or not we obtain FDA approval for
a product, we must obtain approval of a product by the comparable regulatory authorities of foreign countries before we can commence clinical trials or marketing of the product in those countries. The
approval process varies from country to country and the time may be longer or shorter than that required for FDA approval. The requirements governing the conduct of clinical trials, product licensing,
pricing and reimbursement vary greatly from country to country. As in the United States, post-approval regulatory requirements, such as those regarding product manufacture, marketing, or
distribution would apply to any product that is approved outside the Untied States.
Third Party Payor Coverage and Reimbursement
In both the United States and foreign markets, our ability to commercialize our product candidates successfully, and to attract
commercialization partners for our product candidates, depends in significant part on the availability of adequate financial coverage and reimbursement from third party payors, including, in the
United States, governmental payors such as the Medicare and Medicaid programs, managed care organizations, and private health insurers. Medicare is a federally funded program managed by the Centers
for Medicare and Medicaid Services, or CMS, through local fiscal intermediaries and carriers that administer coverage and reimbursement for certain healthcare items and services furnished to the
elderly and disabled. Medicaid is an insurance program for certain categories of patients whose income and assets fall below state defined levels and who are otherwise uninsured that is both federally
and state funded and managed by each state. The federal government
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sets
general guidelines for Medicaid and each state creates specific regulations that govern its individual program. Each payor has its own process and standards for determining whether it will cover
and reimburse a procedure or particular product. Private payors often rely on the lead of the governmental payors in rendering coverage and reimbursement determinations. Therefore, achieving favorable
CMS coverage and reimbursement is usually a significant gating issue for successful introduction of a new product. The competitive position of some of our products will depend, in part, upon the
extent of coverage and adequate reimbursement for such products and for the procedures in which such products are used. Prices at which we or our customers seek reimbursement for our product
candidates can be subject to challenge, reduction or denial by the government and other payors.
The
United States Congress and state legislatures may, from time to time, propose and adopt initiatives aimed at cost containment, which could impact our ability to sell our product
candidates profitably. For example, in March 2010, President Obama signed into law the Patient Protection and Affordable Care Act and the associated reconciliation bill, which we refer to collectively
as the Health Care Reform Law, a sweeping law intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new
transparency requirements for healthcare and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms. Effective October 1,
2010, the Health Care Reform Law revises the definition of "average manufacturer price" for reporting purposes, which could increase the amount of Medicaid drug rebates to states once the provision is
effective. Further, beginning in 2011, the new law imposes a significant annual fee on companies that manufacture or import branded prescription drug products. Substantial new provisions affecting
compliance have also been enacted, which may require us to modify our business practices with healthcare practitioners. We will not know the full effects of the Health Care Reform Law until applicable
federal and state agencies issue regulations or guidance under the new law. Although it is too early to determine the effect of the Health Care Reform Law, the new law appears likely to continue the
pressure on pharmaceutical pricing, especially under the Medicare program, and may also increase our regulatory burdens and operating costs. Moreover, in the coming years, additional changes could be
made to governmental healthcare programs that could significantly impact the success of our product candidates.
The
cost of pharmaceuticals continues to generate substantial governmental and third party payor interest. We expect that the pharmaceutical industry will experience pricing pressures
due to the trend toward managed healthcare, the increasing influence of managed care organizations and additional legislative proposals. Our results of operations could be adversely affected by
current and future healthcare reforms.
Some
third party payors also require pre-approval of coverage for new or innovative devices or drug therapies before they will reimburse healthcare providers that use such
therapies. While we cannot predict whether any proposed cost-containment measures will be adopted or otherwise implemented in the future, the announcement or adoption of these proposals
could have a material adverse effect on our ability to obtain adequate prices for our product candidates and operate profitably.
Legal Proceedings
From time to time and in the ordinary course of business, we are subject to various claims, charges and litigation. For example, we may
be required to file infringement claims against third parties for the infringement of our patents. For additional information regarding the patent litigation matters in which we are involved, please
see "Risk Factors—We may become involved in lawsuits to protect or enforce our patents, which could be expensive, time consuming and unsuccessful." Although the outcome of litigation
cannot be predicted with certainty and some lawsuits, claims or proceedings may be disposed of unfavorably to us, we do not believe the outcome of any such litigation, individually or in the
aggregate, will have a material adverse effect on our financial condition, results of operations or cash flows.
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Employees
As of September 30, 2010, we employed 69 full-time employees, of which 59 were engaged in research and development,
clinical trials and quality assurance and 10 were engaged in administration, finance, marketing and business development. None of our employees are represented by a labor union.
Facilities
Our principal executive offices are located at 1550 East Gude Drive, Rockville, Maryland 20850, where we occupy approximately 44,500
square feet of laboratory and office space. Our lease term expires in April 30, 2018 with an option for a five year extension. We believe that our existing facilities are sufficient for our
present and future operations, and we currently have no plans to lease additional space.
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MANAGEMENT
Executive Officers, Directors And Key Employees
The following table sets forth the names and ages of our executive officers, directors and key employees as of September 30,
2010.
Name
Age
Position(s)
Jack A. Khattar
49
President & Chief Executive Officer, Director
Russell P. Wilson
50
Vice President, Chief Financial Officer
Jones W. Bryan, Ph.D.
46
Vice President of Business Development
Padmanabh P. Bhatt, Ph.D.
53
Vice President of Pharmaceutical Sciences
Paolo Baroldi, M.D., Ph.D.
59
Senior Vice President of Clinical Development & Chief Medical Officer
Tami T. Martin, R.N., Esq.
55
Vice President of Regulatory Affairs
M. James Barrett, Ph.D.
67
Director
Michael Bigham
53
Director
Frederick M. Hudson
65
Director
Charles W. Newhall, III
65
Director
William A. Nuerge
58
Director
Michael B. Sheffery, Ph.D.
59
Director
Jack A. Khattar
is the founder of our company and has served as our President and Chief Executive Officer and Director since 2005. From
1999 to 2005, Mr. Khattar served in various positions during that time as a Board member, President and CEO of Shire Laboratories Inc., the drug delivery subsidiary of Shire plc.
From 1999 to 2004, he also served as a member of Shire plc's Executive Committee. Prior to that, Mr. Khattar served as an Executive Officer and the Chairman of the Management Committee
at CIMA, a drug delivery company that is currently a division of Cephalon. At CIMA, he was also responsible for business development, including the licensing of CIMA's technologies, corporate
alliances and strategic planning. Prior to joining CIMA in 1995, Mr. Khattar held several marketing and business development positions at Merck & Co., Novartis, Playtex and Kodak
in various locations, including the United States, Europe and the Middle East. Mr. Khattar earned his degrees in Marketing with a BBA from American University of Beirut and an MBA from the
Wharton School of the University of Pennsylvania. He is currently a director of Rockville Economic Development Inc. Mr. Khattar's leadership, executive, managerial, business and
pharmaceutical company experience, along with his more than 20 years of industry experience in the development and commercialization of pharmaceutical products and drug delivery technologies,
qualify him to be a director.
Russell P. Wilson
has served as our Vice President, Chief Financial Officer since 2009. From 2000 to 2008, Mr. Wilson served at
Iomai Corporation, which was sold to Intercell AG in August 2008, in various positions. While at Iomai Corporation, Mr. Wilson was responsible at different times for finance, legal, business
development, regulatory affairs and quality systems, and served as Senior Vice President (from May 2005 to 2008), Chief Financial Officer (from June 2002 to 2008), General Counsel (from March 2000 to
2008) and Secretary (from May 2000 to 2008), and Vice President, Business Development (from March 2000 to June 2002). Mr. Wilson earned his B.A. from Princeton University and holds a joint
M.B.A./ J.D. degree from the University of Virginia.
Jones W. Bryan, Ph.D.,
has served as our Vice President of Business Development since 2005. From 2000 to 2005, he served as Vice President
Business Development for Shire Laboratories Inc. Prior to that, Dr. Bryan was Director of Business Development for Pharmaceutics and Clinical Supply Manufacturing for AAI. He began his
career with Schering Plough in Pharmaceutics and Formulation Development. Dr. Bryan earned his B.S. degree in Zoology from Clemson University, Ph.D. degree in
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from the Medical University of South Carolina and Executive Management Certificate from the University of North Carolina Kenan-Flagler Business School. He is a member of the Licensing
Executives Society and serves on Clemson University's Spiro Institute Entrepreneurship Advisory Board.
Padmanabh P. Bhatt, Ph.D.,
has served as our Vice President of Pharmaceutical Sciences since 2005. From 2003 to 2005, Dr. Bhatt was
Vice President of Advanced Drug Delivery at Shire Laboratories Inc.
From 2001 to 2003, Dr. Bhatt served as Vice President of Research and Development and Chief Technology Officer at Point Biomedical Corporation. From 1996 to 2001, he served at ALZA Corporation
(now a Johnson & Johnson company) in various positions from Product Development Manager to Director of Technical Development. Prior to that time, Dr. Bhatt has held positions as Research
Specialist and Group Leader of Novel Drug Delivery at Dow Corning Corporation (from 1992 to 1996) and Senior Scientist at Hercon Laboratories (from 1989 to 1992). Dr. Bhatt earned his B.Pharm.
and M.Pharm. degrees from the University of Bombay, India. He also holds M.S. and Ph.D. degrees in Pharmaceutical Chemistry from the University of Kansas.
Paolo Baroldi, M.D., Ph.D.,
has served as our Senior Vice President of Clinical Development & Chief Medical Officer since 2009.
From 2006 to 2009, he served as a Senior Vice President and Chief Medical Officer at Vanda. From 2003 to 2006, Dr. Baroldi served as Vice President-Corporate Drug Development and Chairman of
the R&D Board at Chiesi Farmaceutici SpA, where he led a research and development organization of 350 people across 3 sites in the United States, Italy and France. From 1998 to 2002,
Dr. Baroldi was the Global Head of Clinical Pharmacology at Novartis AG, responsible for a staff of 140 people across five different sites, including France, the United Kingdom, Japan and the
United States. Dr. Baroldi holds degrees in Medicine and Surgery and a Ph.D. in Clinical Pharmacology from the University of Milan and an Executive MBA from Harvard University.
Tami T. Martin, R.N., Esq.
,
has served as our Vice President of Regulatory Affairs since 2008. She has previously
held positions as Vice President of Regulatory Affairs at Shire Pharmaceuticals (6 years), and Manager to Sr. Director of Regulatory Affairs at Otsuka America Pharmaceuticals (7 years).
Ms. Martin has also consulted privately for domestic and international clients as President and CEO of Pyramid Regulatory Consulting. Earlier in her career, Ms. Martin held legal
positions at Hogan & Hartson as a member of the Food and Drug Practice Group, and with the Department of Health and Human Services as a staff attorney. Ms. Martin previously served as an
instructor for the Johns Hopkins University Masters of Biotechnology and Regulatory Affairs Graduate Degree program, and teaches a portion of the United States Regulatory Module for TOPRA (The
Organization for Professionals in Regulatory Affairs) leading to a MSc in Regulatory Affairs through the University of Wales. Ms. Martin earned her Bachelor of Science in Nursing from Albright
College and a Juris Doctorate degree from Suffolk University. Ms. Martin is a member of the Pennsylvania Bar.
M. James Barrett, Ph.D.,
has served as a member of our Board since 2005. Since September 2001, Dr. Barrett has been a general
partner of New Enterprise Associates, or NEA, which is a venture capital firm that focuses on the medical and life sciences and information technology industries. He is currently a member of the board
of directors of each of the publicly-traded companies Amicus Therapeutics, Inc., Inhibitex, Inc. and Targacept, Inc., within the past five years, he served on the board of
directors of each of the publicly-traded companies Iomai Corporation (acquired by Intercell AG), MedImmune, LLC (acquired by AstraZeneca), Pharmion Corporation (acquired by Celgene Corporation)
and YM Biosciences, Inc. As a result of Dr. Barrett's tenure as a general partner of New Enterprise Associates, he has served on numerous boards of directors of both public and private
companies in the healthcare sector and brings to the Board significant first-hand experience in shaping strategic direction as a pharmaceutical company matures from a private
venture-backed company to a development-stage public company and then to a product revenue-generating company. Dr. Barrett's substantial experience with public and private companies in the
healthcare sector and his venture capital, financial and business experience qualify him to serve as a director.
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Michael Bigham
has served as a member of our Board since 2006. Since 2002, Mr. Bigham has been a general partner of Abingworth
Management, a leading international venture capital firm concentrating in life sciences. From December 2002 to March 2004, he served as Vice Chairman of Corixa Corporation, and was President and Chief
Executive of Coulter Pharmaceuticals from July 1996 until it merged into Corixa in December 2000. Previously, he was an early employee at Gilead Sciences where he spent eight years serving in various
capacities, including Executive Vice President of Operations and Chief Financial Officer. Before joining Gilead, Mr. Bigham was a partner at Hambrecht & Quist where he became
Co-Head of Healthcare Investment Banking. Mr. Bigham earned his B.S. Degree with distinction from the University of Virginia and holds an MBA from Stanford University Graduate
School of Business. Mr. Bigham is also a Certified Public Accountant. Mr. Bigham's significant operational and investment banking experience in life science companies qualify him to
serve as a director.
Frederick M. Hudson
has served as a member of our Board since 2010. Mr. Hudson retired as a partner in charge of the health care
audit practice for the Washington—Baltimore business unit of the accounting firm of KPMG, LLP on January 1, 2006 after a 37-year career with the firm. He is a
graduate of Loyola University Maryland and currently serves in a board capacity with the Board of Financial Administration of the Catholic Archdiocese of Baltimore and the Board of Trustees of the
Maryland Historical Society. He chairs the audit committees of each of the boards of directors of Paradigm Management Services LLC (a provider of catastrophic care services), Woodhaven Holding
Corporation, d/b/a Remedi Senior Care (an institutional pharmacy service provider), GBMC Healthcare, Inc. and its affiliate, the Greater Baltimore Medical Center, and Vicor
Technologies, Inc. He is also a director of Maxim Health Care Services, Inc. Mr. Hudson's extensive accounting and health care audit experience qualify him to serve as a director.
Charles W. Newhall, III
has served as a member of our Board since 2005. In 1977, Mr. Newhall co-founded NEA, a venture
capital firm that focuses on the medical and life sciences and information technology industries. To date, Mr. Newhall has served as a director of over 40 venture-backed companies. He also
started several healthcare information technology companies like PatientKeeper, TargetRx and LifeMetrix. Some of his current board memberships include Vitae Pharmaceuticals, TargetRx, Sensors for
Medicine and Science, and BrainCells Inc. In 1986, he founded the Mid-Atlantic Venture Capital Association, or MAVA, which now has over 80 venture capital firms that are members,
and is one of the most active regional venture associations in the country. He is Chairman Emeritus of MAVA. Before NEA, Mr. Newhall was a Vice President of T. Rowe Price. He served in Vietnam
commanding an independent platoon including an initial reconnaissance of Hamburger Hill. His decorations include the Silver Star and Bronze Star V (1st OLC). He earned an Honors Degree in
English from the University of Pennsylvania and an MBA from Harvard Business School. Mr. Newhall's substantial experience with companies in the healthcare sector and his venture capital,
financial and business experience qualify him to serve as a director.
William A. Nuerge
has served as a member of our Board since 2006. Since 2007, Mr. Nuerge has been a managing partner of Fortress
Pharms Advisors, LLC. From 2004 to 2007, Mr. Nuerge served as a director and President and CEO of Xanodyne Pharmaceuticals. From 1997 to 2004, he served as President and CEO of Shire
US, Inc. Prior to that, Mr. Nuerge served as Chief Operating Officer of Richwood Pharmaceuticals Company, Inc., which subsequently merged with Shire plc in 1997.
Mr. Nuerge earned his Bachelor of Science degree from Purdue University and his MBA from Wesleyan University. He has also previously served as a director of Cutanogen Corporation.
Mr. Nuerge's significant operational and business experience with life science companies qualify him to serve as a director.
Michael B. Sheffery, Ph.D.,
has served as a member of our Board since 2005. Dr. Sheffery is a founding General Partner of OrbiMed
Advisors, LLC, a healthcare investment firm, and Co-Head of Private Equity at Orbimed. Dr. Sheffery was formerly Head of the Laboratory of Gene Structure and
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at Memorial Sloan-Kettering Cancer Center. Dr. Sheffery joined Mehta and Isaly, an investment firm, in 1996 as a Senior Analyst covering the biotechnology industry. He earned both
his Ph.D. in Molecular Biology and his B.A. in Biology from Princeton University. He is currently a Director of Affimed Therapeutics AG and Pieris AG. Dr. Sheffery's background and expertise in
private equity and investment banking, combined with his scientific experience, qualify him to serve as a director.
Composition of Our Board of Directors
Our board of directors currently consists of seven members. All of our directors were elected pursuant to the board composition
provisions of our stockholders voting agreement. Our nominating and corporate governance committee and board of directors may consider a broad range of factors relating to the qualifications and
background of nominees, which may include diversity, which is not limited to race, gender or national origin. We have no formal policy regarding board diversity. Our nominating and corporate
governance committee's and board of directors' priority in selecting board members is identification of persons who will further the interests of our stockholders through their established records of
professional accomplishment, the ability to contribute positively to the collaborative culture among board members, and professional and personal experiences and expertise relevant to our growth
strategy.
Director Independence
We intend to apply to have our common stock listed on the Nasdaq Global Market. Under Rules 5605 and 5615 of the Nasdaq
Marketplace Rules, a majority of a listed company's board of directors must be comprised of independent directors within one year of listing. In addition, the Nasdaq Marketplace Rules require that,
subject to specified exceptions, each member of a listed company's audit, compensation and nominating and corporate governance committees be independent and that audit committee members also satisfy
independence criteria set forth in Rule 10A-3 under the Securities Exchange Act of 1934, as amended, or the Exchange Act. Under Rule 5605(a)(2) of the Nasdaq Marketplace
Rules, a director will only qualify as an "independent director" if, in the opinion of that company's board of directors, that person does not have a relationship that would interfere with the
exercise of independent judgment in carrying out the responsibilities of a director. Upon the completion of this offering, we expect that the composition and functioning of our board of directors and
each of our board committees will comply with all applicable rules and regulations of the Securities and Exchange Commission, or the SEC, and the Nasdaq Global Market. There are no family
relationships among any of our directors or executive officers.
Committees Of Our Board Of Directors
Our board of directors has established a compensation committee, audit committee and governance committee.
Compensation Committee
The current members of our compensation committee
are                                    , who is the chair of the
committee,                                    and
                                    . We expect that upon completion
of this offering, each of the members of our compensation committee will be independent under the applicable rules and regulations of the SEC, the
Nasdaq Global Market and the Internal Revenue Service. Our compensation committee reviews and recommends policies relating to compensation and benefits of our officers and employees. The compensation
committee's responsibilities will include:
•
reviewing and approving corporate goals and objectives relevant to the compensation of our chief executive officer and
other executive officers;
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•
evaluating the performance of these officers in light of those goals and objectives;
•
setting the compensation of these officers based on such evaluations;
•
reviewing and approving the terms of any employment agreements with our chief executive officer and other executive
officers;
•
administering the issuance of stock options and other awards under our stock plans; and
•
reviewing and evaluating, at least annually, the performance of the compensation committee and its members, including
compliance of the compensation committee with its charter.
Audit Committee
The current members of our audit committee
are                                    , who is the chair of the
committee                                    and   
                                 .
We expect that upon completion of this offering, all members of our audit committee will meet the requirements for financial literacy under the applicable rules and regulations of the SEC and the
Nasdaq Global Market. Our board has determined
that                                    is an audit committee
financial expert as defined under the applicable rules of the SEC and has the requisite financial
sophistication as defined under the applicable rules and regulations of the Nasdaq Global
Market.                                    ,
                                    and     
                               are independent directors as defined under the
applicable rules and regulations of the SEC and the Nasdaq
Global Market. The audit committee will operate under a written charter that satisfies the applicable standards of the SEC and the Nasdaq Global Market. Our audit committee's responsibilities will
include:
•
overseeing our corporate accounting and financial reporting process;
•
evaluating the independent auditors' qualifications, independence and performance;
•
determining the engagement of the independent auditors;
•
reviewing and approving the scope of the annual audit and the audit fee;
•
discussing with management and the independent auditors the results of the annual audit and the review of our quarterly
financial statements;
•
approving the retention of the independent auditors to perform any proposed permissible non-audit services;
•
monitoring the rotation of partners of the independent auditors on our engagement team as required by law;
•
reviewing our critical accounting policies and estimates;
•
overseeing our internal audit function; and
•
annually reviewing the audit committee charter and the audit committee's performance.
Governance Committee
The current members of our governance committee
are                                    , who is the chair of the
committee,                                    and
                                    . We expect that upon completion
of this offering, each of the members of our governance committee will be independent under the applicable rules and regulations of the SEC and the
Nasdaq Global Market. The governance committee's responsibilities will include:
•
making recommendations to our board of directors regarding candidates for directorships and the size and composition of
our board;
•
overseeing our corporate governance guidelines; and
•
reporting and making recommendations to our board concerning governance matters.
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Other Committees
Our board of directors may establish other committees as it deems necessary or appropriate from time to time.
Compensation Committee Interlocks and Insider Participation
None of the members of our compensation committee has at any time been one of our officers or employees. None of our executive officers
currently serves, or in the past fiscal year has served, as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our board of
directors or compensation committee.
Code of Business Conduct and Ethics
We have adopted a code of business conduct and ethics that applies to all of our employees, officers and directors, including those
officers responsible for financial reporting.
Executive Compensation
Compensation Discussion and Analysis
Introduction.
This section discusses our executive compensation policies and arrangements as they relate to our named
executive officers who are listed in the compensation tables set forth below. The following discussion should be read together with the compensation tables and related disclosure set forth
below.
Our
named executive officers, or NEOs, for the year ended December 31, 2009 are listed in the table below.
Name
Title
Jack A. Khattar
Chief Executive Officer, President
Russell P. Wilson
Vice President, Chief Financial Officer
Paolo Baroldi, M.D, Ph.D.
Senior Vice President, Chief Medical Officer
Padmanabh Bhatt, Ph.D.
Vice President, Pharmaceutical Sciences
Jones W. Bryan, Ph.D.
Vice President, Business Development
With
respect to these NEOs, our board of directors determined initial compensation for these persons based primarily on negotiations between our board and our NEOs prior to their being
hired and our board's past practices and experiences with companies such as ours.
We
expect that following the completion of this offering, our Compensation Committee will undertake a substantial review of our existing compensation programs, objectives and philosophy
and determine whether such programs, objectives, and philosophy are appropriate after we have become a public company. In addition, as we gain experience as a public company, we expect that the
specific direction, emphasis and components of our executive compensation program will continue to evolve.
Executive Compensation Objectives and Philosophy
The key objectives of our executive compensation programs are (1) to attract, motivate, reward and retain superior executive
officers with the skills necessary to successfully lead and manage our business; (2) to achieve accountability for performance by linking annual cash incentive compensation to the achievement
of measurable performance objectives; and (3) to align the interests of our executive officers and our equity holders through short- and long-term incentive compensation programs.
For our NEOs, these short- and long-term compensation are designed to accomplish these objectives by providing a significant correlation between our results of operations and total
compensation.
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We
expect to provide our NEOs with a significant portion of their compensation through cash incentive compensation contingent upon the achievement of operational and personal performance
metrics, as well as through equity compensation. These two elements of executive compensation are aligned with the interests of our stockholders because the amount of compensation ultimately received
will vary with our company's financial and operational performance. Equity compensation derives its value from our equity value, which in the future is likely to fluctuate based on our financial and
operational performance.
We
seek to apply a consistent philosophy to compensation for all executive officers. Our compensation philosophy is based on the following core principles.
To Pay for Performance
Individuals in leadership roles are compensated based on a combination of total company and individual performance factors. Total
company performance is evaluated primarily on the degree to which pre-established operational objectives are met. Individual performance is evaluated based upon several individualized
leadership factors, including:
•
individual contribution to attaining specific operational objectives;
•
building and developing individual skills and a strong leadership team; and
•
developing an effective infrastructure to support business development and growth.
To Pay Competitively
We are committed to providing a total compensation program designed to retain our highest performing employees and attract strong
leaders to our company. We have established compensation levels that we believe are competitive based on our board's experience with pay practices and compensation levels for companies such as ours.
To Pay Equitably
We believe that it is important to apply generally consistent guidelines for all executive officer compensation programs. In order to
deliver equitable pay levels, our board considers depth and scope of accountability, complexity of responsibility, qualifications and executive performance, both individually and collectively as a
team.
In
addition to short- and long-term compensation, we have found it important to provide certain of our executive officers with competitive post-employment
compensation. Post-employment compensation consists primarily of severance pay and benefits continuation. We believe that these benefits are important considerations for our executive
officer compensation package, as they afford a measure of financial security in the event of certain terminations of their employment and also enable us to secure their cooperation following
termination. We have sought to ensure that each combined compensation package is competitive at the time the package is negotiated with the executive officer. We elect to provide
post-employment compensation to our executive officers on a case-by-case basis as the employment market, the qualifications of potential employees and our hiring
needs dictate.
Compensation Committee Review of Compensation
We expect that following this offering, our Compensation Committee will review compensation elements and amounts for NEOs on an annual
basis and at the time of a promotion or other change in level of responsibilities, as well as when competitive circumstances or business needs may require. We may, but do not currently, use a third
party consultant to assist us with determining compensation levels. We expect that each year our management will compile a report of benchmark data for
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executive
positions for similar companies, including summaries of base salary, annual cash incentive plan opportunities and awards and long-term incentive award values. We have not yet
determined the companies that we will benchmark our compensation packages against, but we expect that the Compensation Committee will determine this list after completion of this offering and that it
will compare our pay practices and overall pay levels with other leading industry organizations and, where appropriate, with non-industry organizations when establishing our pay
guidelines.
We
expect that the CEO will provide compensation recommendations to the Compensation Committee for executives other than himself based on this data and the other considerations mentioned
in this Compensation Discussion and Analysis. We expect that the Compensation Committee will recommend a compensation package that is consistent with our compensation philosophy, strategically
positioned at the median of the peer group and competitive with other organizations similar to ours. The Compensation Committee will then discuss these recommendations with the CEO and will make a
recommendation to the board, which the board will consider and approve, if appropriate.
We
expect that the Compensation Committee will consider input from our CEO and CFO when setting performance objectives for our incentive plans. We also expect that the Compensation
Committee will consider input from our CEO and CFO, regarding benchmarking and recommendations for base salary, annual incentive targets and other compensation awards. The Compensation Committee will
likely give significant weight to our CEO's and CFO's judgment when assessing performance and determining appropriate compensation levels and incentive awards for our other NEOs.
Elements of Compensation
As discussed throughout this Compensation Discussion and Analysis, the compensation policies applicable to our NEOs are reflective of
our pay-for-performance philosophy and encourage executive officers to enhance equity holder value over the long term.
The
elements of our compensation program are:
•
base salary;
•
performance-based cash incentives;
•
equity incentives; and
•
certain additional employee benefits.
Base
salary, performance-based cash incentives and long-term equity-based incentives are the most significant elements of our executive compensation program and, on an
aggregate basis, they are intended to substantially satisfy our program's overall objectives. Historically, our board of directors has, and following the offering, the Compensation Committee will seek
to, set each of these elements of compensation at the same time to enable it to simultaneously consider all of these elements collectively and their impact on compensation as a whole. Taking this
comprehensive view of all compensation components allows us also to make compensation determinations that will reflect the principles of our compensation philosophy with respect to allocation of
compensation among certain of these elements and total compensation. We strive to achieve an appropriate mix between the various elements of our compensation program to meet our compensation
objectives and philosophy; however, we do not apply any rigid allocation formula in setting our executive compensation, and we may make adjustments to this approach for various positions after giving
due consideration to prevailing circumstances, the individuals involved and their responsibilities and performance.
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Base Salary
We provide a base salary to our executive officers to compensate them for their services during the year and to provide them with a
stable source of income. The base salaries for our NEOs in 2009 were established by our board of directors, based in large part on the recommendation of our management and our board's review of other
factors, including:
•
the individual's performance, results, qualifications and tenure;
•
the responsibilities associated with the position;
•
pay mix (base salary, annual cash incentives, equity incentives and employee benefits);
•
prevailing market conditions; and
•
our financial position.
The
annual base salaries in effect for each of our NEOs employed by us as of December 31, 2009 and December 31, 2010, are as follows.
Base Salary ($)
Name
2009
2010
Jack A. Khattar
396,060
407,942
Russell P. Wilson (1)
260,000
265,172
Paolo Baroldi, M.D., Ph.D. (2)
285,000
293,292
Padmanabh Bhatt, Ph.D.
258,448
266,200
Jones W. Bryan, Ph.D.
204,410
210,542
(1)
Mr. Wilson
joined us as our Vice President, Chief Financial Officer on May 4, 2009, and, as a result, his raise in 2010 has been prorated.
(2)
Dr. Baroldi
joined us as our Senior Vice President, Chief Medical Officer on January 12, 2009, and, as a result, his raise in 2010 has been
prorated.
In
setting base salaries for 2009, our board considered the prevailing market conditions and our financial position, including our need to raise additional funds, and decided to increase
the base salary of our then-current NEOs by only 2.0% over their 2008 base salaries. In early 2010, in connection with setting the 2010 base salaries for our NEOs, our Compensation
Committee considered the prevailing market conditions and our financial position, including our need to raise additional funds, and decided to increase the base salary of each of our NEOs by 3.0% over
their 2009 base salaries.
In
the future, we expect that salaries for executive officers will be reviewed annually, as well as at the time of a promotion or other change in level of responsibilities, or when
competitive circumstances or business needs may require. As noted above, we expect that following completion of the offering, our Compensation Committee will recommend a compensation package that is
consistent with our compensation philosophy, strategically positioned at market median of our to-be-determined peer group.
Performance-Based Cash Incentives
We pay annual performance-based cash incentives or bonuses in order to align the compensation of our NEOs with our
short-term operational and performance goals and to provide near-term rewards for our NEOs to meet these goals. From time to time, our board has exercised its discretion in
determining cash incentive amounts and making individual awards, but generally our performance-based cash incentives are made under our annual cash incentive plan. Our annual cash incentive plan for
our CEO is based on the attainment by our company of objective operational goals and for all
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other
NEOs is based on two components: the attainment by our company of non-financial operational goals and the achievement by each NEO of personal and often subjective performance goals.
The final evaluation made by our board combines often subjective assessments of each of our company's operational goals and each NEO's personal goals and does not necessarily involve a mathematical
analysis or pre-established weighting of each goal. Each of these components allows us to establish appropriately aggressive performance expectations and incentives that align business
performance expectations to the prevailing market and economic conditions.
Currently,
our board has determined that the target bonus for our CEO under our annual cash incentive plan is based 100% on the achievement of our company objectives. The annual
performance bonuses for the other NEOs are currently based 60% on the achievement of company objectives and 40% on the achievement of individual performance objectives. Our board establishes our
company objectives for each fiscal year prior to the end of the first quarter of the year and determines a separate weighting for each of our company objectives.
We
do not disclose our company operational goals component of our annual cash incentive plan. We believe that such disclosure would result in serious competitive harm and be detrimental
to our operating performance because the components of our performance goals for 2009 contain highly sensitive data, such as regulatory, strategic partnering and other non-financial
operational goals. These goals are intended to be realistic and reasonable, but challenging, in order to drive performance by our NEOs.
The
personal performance goals vary for each NEO whose bonus is based in part on personal performance goals and are based on specific priorities in the NEO's area of responsibility,
which may include, among others, regulatory and operating performance measures, as well as more subjective goals such as achievement of operational goals or implementation of specific plans,
publications or projects in each NEO's area of management. Each year, our CEO and each NEO jointly determine what the NEO's performance priorities will be for the year, and our CEO makes a
recommendation to our Compensation Committee. Our Compensation Committee reviews these recommendations, may have further discussions with our CEO or the NEO and then makes a final determination as to
the personal performance goals.
After
our fiscal year 2009 ended, our board reviewed the company goals that were attained and were not attained and determined that the company performance component of our annual cash
incentive plan was 100% achieved. This decision was primarily due to the continued progress of SPN-538 and Epliga in the clinic and the non-dilutive financing achieved through
payment of $36.9 million as consideration for a royalty-free, fully paid-up license for Intuniv. Concurrently, each of our NEOs prepared an assessment of his or her
performance against his or her personal performance goals and discussed them with our CEO, who then made a recommendation to our board. Our board reviewed these recommendations, undertook a similar
process with our CEO regarding his personal performance goals and made a determination of overall performance against these goals for each NEO. Taking into account the relative weighting of the
corporate and personal performance objectives, with
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60%
for corporate objectives and 40% for individual performance objectives for each NEO, other than our CEO, we paid each NEO the following 2009 annual performance bonus in 2010:
2009 Annual Performance Bonus
Name
Target
Bonus
Percent
Target
Bonus
Amount ($)
Actual
Bonus
Payout ($)
Jack A. Khattar
40
%
$
158,424
$
158,424
Russell P. Wilson(1)
25
65,000
41,600
Paolo Baroldi, M.D., Ph.D.(2)
25
71,250
69,825
Padmanabh Bhatt, Ph.D.
25
64,612
64,353
Jones W. Bryan, Ph.D.
25
51,103
49,876
(1)
The
bonus payment for Mr. Wilson, who joined us as our Vice President, Chief Financial Officer on May 4, 2009, was prorated for time worked.
(2)
The
bonus payment for Dr. Baroldi, who joined us as our Senior Vice President, Chief Medical Officer on January 12, 2009, was prorated for
time worked.
For
2010, our board has set the following target annual performance bonus amounts:
2010 Annual
Performance Bonus
Name
Target
Bonus
Percent
Target
Bonus
Amount ($)
Jack A. Khattar
40
%
$
163,177
Russell P. Wilson
25
66,293
Paolo Baroldi, M.D., Ph.D.
25
73,323
Padmanabh Bhatt, Ph.D.
25
66,550
Jones W. Bryan, Ph.D.
25
52,636
We
expect that following this offering, our Compensation Committee will more directly assess the performance of our NEOs. Many of the personal performance goals either are qualitative in
nature or have a single value or accomplishment as the determinant. Accordingly, the final evaluation made by our board often combines subjective assessments of each of the NEO's goals and does not
necessarily involve a mathematical analysis or pre-established weighting of each goal. Our board ultimately determines a single percentage representing overall performance against each
NEO's personal goals in the aggregate.
The
target bonus percentages for our NEOs under our annual cash incentive plan for 2010 are the same as under the annual cash incentive plan for 2009. Because the components of our
performance goals for 2010 contain highly sensitive data, such as regulatory, strategic partnering and other non-financial operational goals, we believe that such disclosure would result in serious
competitive harm and be detrimental to our operating performance. Our performance goals are intended to be realistic and reasonable, but challenging, in order to drive performance by our NEOs.
Equity Incentives
All of our NEOs have received equity incentive grants under our 2005 Stock Plan, which is described below, in the form of restricted
stock and stock options. To date, we have used restricted stock and/or stock option grants as our principal form of equity incentives because we believe they are an effective means to align the
long-term interests of our executive officers with those of our stockholders. The offer of restricted stock and/or options attempts to achieve this alignment by
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providing
our NEOs with equity incentives that vest over time or upon the occurrence of certain events. The restricted stock and options serve also to reward our NEOs for performance.
Prior
to this offering, we have used stock options and, to a very limited degree, restricted stock, as the primary long-term equity incentive vehicle. In 2005, we made our
only grant of restricted stock when the fair value of our stock was lower and the awards had less income tax consequence to the executive upon vesting. Since then, we have made option grants to
executive officers who are newly hired, and generally made stock option grants to existing executives at times when the board deemed appropriate in accordance with the compensation principles outlined
above.
The
value of an option is at risk for the NEO and is entirely dependent on the value of a share of our stock above the option's strike price. The value of our stock is dependent in many
ways on management's success in achieving our goals. If the price of our common stock drops, for any reason, over the option's vesting period, the value of the option to the executive will drop and
could become worthless if the price of the underlying stock remains below the option's strike price. In determining the number of stock options to be granted to executives, we take into account the
individual's position, scope of responsibility, ability to affect profits and shareholder value, the individual's historic and recent performance and the value of stock options in relation to other
elements of the individual executive's total compensation.
We
may in the future grant other forms of equity incentives, such as restricted stock or performance shares (shares that vest only upon achievement of performance goals established at
the time of grant), subject to the Compensation Committee's discretion, to ensure that our executives are focused on long-term stockholder value. We expect that following completion of the
offering, the Compensation Committee will periodically review the equity awards previously awarded to management, the performance of our business and the performance of our stock. We expect that the
Compensation Committee will establish levels of equity incentive holdings for our NEOs such that the portion of overall compensation that is variable is consistent with our
pay-for-performance philosophy and competitive within our industry. The
Compensation Committee is expected to determine appropriate levels of equity awards based on these factors and may make additional grants.
Stock
options granted by us to date have an exercise price equal to or greater than the fair market value of our common stock on the date of grant and generally expire ten years after
the date of grant. Stock options are subject to vesting, and most of our options vest over time at a rate of 25% of the total grant on the each of the first four anniversaries of the vesting start
date, although we have granted some performance options that vest upon attaining certain predetermined company objectives.
The
amount of each of these awards was designed to establish a desired percentage ownership level for each of our NEOs that our board believed was commensurate with their respective
roles and responsibilities and based on similarly situated employees of other companies that members of our board had experience with.
Additional Employee Benefits
We provide our executive officers with employee benefits that the board believes are reasonable and in the best interests of the
company and its stockholders, which consist of the following benefits:
•
health insurance;
•
vacation and sick days;
•
long-term disability; and
•
a 401(k) plan.
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We
have no structured perquisite benefits, such as club memberships or company vehicles, for any executive officer, including our NEOs. We believe the benefits we provide are generally
equivalent to the benefits provided by comparable companies.
Accounting and Tax Considerations
In determining which elements of compensation are to be paid, and how they are weighted, we will take into account whether a particular
form of compensation will be deductible under Section 162(m) of the Code. Section 162(m) generally limits the deductibility of compensation paid to our NEOs to $1 million during
any fiscal year unless such compensation is "performance-based" under Section 162(m). However, under a Section 162(m) transition rule for compensation plans or agreements of corporations
which are privately held and which become publicly held in an initial public offering, compensation paid under a plan or agreement that existed prior to the initial public offering will not be subject
to Section 162(m) until the earliest of (1) the expiration of the plan or agreement; (2) a material modification of the plan or agreement; (3) the issuance of all employer
stock and other compensation that has been allocated under the plan; or (4) the first meeting of stockholders at which directors are to be elected that occurs after the close of the third
calendar year following the year of the initial public offering. We refer to the earliest of these events to occur as the "Transition Date." After the Transition Date, rights or awards granted under
the plan will not qualify as "performance-based compensation" for purposes of Section 162(m) unless such rights or awards are granted or vest upon pre-established objective
performance goals, the material terms of which are disclosed to and approved by our stockholders.
Our
compensation program is intended to maximize the deductibility of the compensation paid to our NEOs to the extent that we determine it is in our best interests. Consequently, we may
rely on the exemption from Section 162(m) afforded to us by the transition rule described above for compensation paid pursuant to our pre-existing plans.
Many
other Code provisions, SEC regulations and accounting rules affect the payment of executive compensation and are generally taken into consideration as we develop our compensation
programs. Our goal is to create and maintain plans that are efficient, effective and in full compliance with these requirements.
When
determining our compensation policies and practices, our board considered various matters relative to the development of a reasonable and prudent compensation program, including
whether the policies and practices were reasonably likely to have a material adverse effect on us. We believe that the mix and design of our executive compensation plans and policies do not encourage
management to assume excessive risks and are not reasonably likely to have a material adverse effect on us for the following reasons: we offer an appropriate balance of short and long-term incentives
and fixed and variable amounts; our variable compensation is based on a balanced mix of criteria; and our Compensation Committee has the authority to adjust variable compensation as appropriate.
Compensation Tables
The following tables provide information regarding the compensation earned during our most recently completed fiscal year by our NEOs.
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Summary compensation table
The following table shows the compensation earned by our NEOs during the fiscal year ended December 31, 2009.
Name and Principal Position
Year
Base
Salary
($)
Non-Equity
Incentive Plan
Compensation
Bonus
($)(3)
Option
Awards
($)(4)
All Other
Compensation
($)(5)
Total
($)
Jack A. Khattar
2009
$
395,737
$
158,424
—
$
11,931
$
566,092
Chief Executive Officer, President
Russell P. Wilson(1)
2009
161,667
41,600
262,650
7,225
473,142
Vice President, Chief Financial Officer
Paolo Baroldi, M.D., Ph.D.(2)
2009
265,635
69,825
51,750
15,001
402,211
Senior Vice President, Chief Medical Officer
Padmanabh Bhatt, Ph.D.
2009
258,237
64,353
—
13,334
335,924
Vice President, Pharmaceutical Sciences
Jones W. Bryan, Ph.D.
2009
204,243
49,876
—
11,195
265,314
Vice President, Business Development
(1)
The
compensation for Mr. Wilson, who joined us on May 4, 2009, has been prorated for time worked.
(2)
The
compensation for Dr. Baroldi, who joined us on January 12, 2009, has been prorated for time worked.
(3)
Amounts
represent annual performance bonus compensation earned for the year ended December 31, 2009 based on pre-established performance
objectives. Annual performance bonus compensation for 2009 was paid in 2010. Our annual performance bonus program is described in more detail under "—Compensation Discussion and
Analysis—Performance-Based Cash Incentives."
(4)
In
accordance with ASC Topic 718, or ASC 718, formerly Statement of Financial Accounting Standards No. 123R, our NEOs will only realize compensation
to the extent the market price of our common stock is greater than the exercise price of such stock options. For information regarding assumptions underlying the valuation of equity awards, see
note 8 to our financial statements appearing at the end of this prospectus.
(5)
Amounts
include the premium amounts paid by us for life insurance and long-term disability insurance coverage for each NEO, plus the employer
matching contributions made on behalf of each NEO to our 401(k) plan.
Grants of Plan-Based Awards
During fiscal year ended December 31, 2009, each of our NEOs participated in our performance-based cash incentive plan in which
each officer was eligible for the awards set forth in the following table. For a detailed discussion of our performance-based cash incentive plan, refer to "—Compensation Discussion and
Analysis—Performance-Based Cash Incentives." The following table also sets forth information regarding equity awards granted to our NEOs during the year ended December 31, 2009.
Equity awards made to our NEOs are described in more detail under "—Compensation Discussion and Analysis—Equity Incentives" and non-equity incentive plan awards
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made
to our NEOs are described in more detail under "—Compensation Discussion and Analysis—Performance-Based Cash Incentives."
All Other Options Awards:
Estimated Future Payouts
Under Non-Equity
Incentive Plan Awards
Grant Date
Fair Value
of Stock
and Options
Awards(2) ($)
Number of
Securities
Underlying
Options(#)
Exercise or
Base Price
of Option
Awards(1) ($/sh)
Name
Grant Date
Target
($)
Maximum
($)
Jack A. Khattar
—
$
158,424
$
158,424
—
—
—
Russell P. Wilson
12/15/2009
—
—
230,000
$
1.76
(3)
$
236,900
12/15/2009
—
—
25,000
1.76
(3)
25,750
—
65,000
65,000
—
—
—
Paolo Baroldi, M.D., Ph.D.
1/20/2009
—
—
200,000
0.40
46,000
1/20/2009
—
—
25,000
0.40
5,750
—
71,250
71,250
—
—
—
Padmanabh Bhatt, Ph.D.
—
64,612
64,612
—
—
—
Jones W. Bryan, Ph.D.
—
51,103
51,103
—
—
—
(1)
Amounts
represent the fair value of our common stock as determined in good faith by our board on the date of the grant.
(2)
Amounts
reflect the aggregate grant date fair value of the awards calculated in accordance with ASC 718.
(3)
Stock
option was repriced by our board on November 2, 2010. The new exercise price is $0.64 per share.
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Outstanding Equity Awards at Fiscal Year-End
The table below sets forth certain information regarding the outstanding equity awards held by our NEOs as of December 31, 2009.
Option Awards
Stock Awards
Name
Number of
Securities
Underlying the
Unexercised
Options (#)
Exercisable
Number of
Securities
Underlying the
Unexercised
Options (#)
Unexercisable
Equity
Incentive Plan
Awards: Number
of Security
Underlying
Unexercisable
Unearned
Options (#)
Option
Exercise
Price
($)(6)
Option
Expiration
Date
Equity
Incentive Plan
Awards: Number
of Unearned
Shares That
Have Not
Vested (#)
Equity
Incentive Plan
Awards: Market
or Payout
Value of
Unearned Shares
That Have
Not Vested (#)
Jack A. Khattar
(1)(7)
—
—
—
—
—
411,765
Russell P. Wilson
(2)(3)
—
230,000
$
1.76
12/15/2019
—
—
(1)(3)
—
—
25,000
$
1.76
12/15/2019
—
—
Paolo Baroldi, M.D., Ph.D.
(2)
—
200,000
—
$
0.40
1/19/2019
—
—
(1)
—
25,000
$
0.40
1/19/2019
—
—
Padmanabh Bhatt, Ph.D.
(2)
200,000
—
—
$
0.10
1/17/2016
—
—
(4)
25,000
—
—
$
0.10
1/17/2016
—
—
(1)
—
—
25,000
$
0.10
1/17/2016
—
—
(5)
25,000
—
—
$
0.10
1/17/2016
—
—
(2)
6,000
6,000
—
$
0.10
2/13/2017
—
—
Jones W. Bryan, Ph.D.
(2)
200,000
—
—
$
0.10
1/17/2016
—
—
(4)
25,000
—
—
$
0.10
1/17/2016
—
—
(1)
—
—
25,000
$
0.10
1/17/2016
—
—
(5)
25,000
—
—
$
0.10
1/17/2016
—
—
(2)
6,000
6,000
—
$
0.10
2/13/2017
—
—
(1)
All
of these vested equity awards originally vested based on the achievement of our filing our first NDA prior to December 22, 2010. On
November 2, 2010, the performance condition for vesting of these non-vested awards was modified by our board to extend the performance date from December 22, 2010 to March 31,
2011.
(2)
These
stock options vest over four years in four equal installments of 25% each on the first four anniversaries from the date of grant.
(3)
On
November 2, 2010, this option was repriced from $1.76 to $0.64 per share.
(4)
These
stock options vested upon the completion of our first clinical trial in humans and was satisfied in 2006.
(5)
These
stock options vested upon the launch of a partnered product and was satisfied in 2006.
(6)
The
market value of each equity award is based on the fair value of per share of our common stock as of the date of grant, as determined in good faith by
our board.
(7)
There
was no public market for our common stock at December 31, 2009. Accordingly, the value of unvested equity awards has been estimated based on an
assumed initial public offering price of $            per share, the midpoint of the range set forth on the cover page of this prospectus.
Option Exercises and Stock Vested
There were no option awards exercised by any of our NEOs during fiscal year ended December 31, 2009. Our CEO had 617,647 shares
of restricted stock vest during fiscal year ended December 31, 2009.
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Pension Benefits
Our NEOs did not participate in or have account balances in any qualified or nonqualified defined benefit plans sponsored by us. Our
board of directors or Compensation Committee may elect to adopt qualified or nonqualified benefit plans in the future if it determines that doing so is in our best interest.
Deferred Compensation
We do not currently provide any deferred compensation program or benefits but may elect to do so in the future.
Employment Agreement and Severance Benefits
Jack A. Khattar
On December 22, 2005, we entered into an Employment Agreement with Mr. Khattar, our President and Chief Executive
Officer, providing for his continued employment, effective as of the signing date. This employment agreement provides that Mr. Khattar's employment is at-will and may be terminated
by either us or him at any time for any or no reason. Mr. Khattar's base salary was originally set at $359,000 per year, subject to review and increases from time to time by our board based on
Mr. Khattar's and the company's performance. Mr. Khattar is also eligible to receive an annual bonus payment of up to 40% of his annual base salary, based on achievement of certain
performance milestones identified by our board in consultation with Mr. Khattar. Furthermore, he is eligible to participate in our group benefits programs, including but not limited to, medical
insurance, vacation and retirement plans, and will be provided with life insurance and the ability to participate in a 401(k) plan.
In
the event Mr. Khattar is terminated by us without cause, as defined in the employment agreement, or he resigns with good reason, as defined in the employment agreement to
include, among other things, any material reduction in base compensation or material diminution in title, duties or responsibilities as President and Chief Executive Officer, Mr. Khattar will
be entitled to receive (i) continued payment of his base salary for 18 months, (ii) the most recent annual bonus paid to him, and (iii) continuation of his taxable and
non-taxable benefits for 18 months, subject to the limits under applicable law. In the event that Mr. Khattar is terminated for cause or he terminates his employment without
good reason, Mr. Khattar will not be entitled to the payments and benefits described above unless mutually agreed upon in writing. Mr. Khattar's employment agreement also includes a
non-solicitation covenant and a non-compete covenant for at least one year following the termination of Mr. Khattar's employment.
In
addition, the grant agreements for Mr. Khattar's restricted stock provided for 100% acceleration of unvested restricted stock in connection with a change in control because our
board of directors believes that this accelerated vesting provides Mr. Khattar with additional incentive to assist in the successful completion of a change of control transaction.
Other NEOs
Pursuant to the terms of the offer letters with Dr. Bryan and Dr. Bhatt, they are each entitled to receive six months of
severance pay in connection with a restructuring of Supernus that results in the elimination of their respective positions.
Potential Payments Upon Termination and Change in Control
Assuming Mr. Khattar's employment is terminated without cause or he resigns for good reason, or he resigns for good reason after
a change of control, each such term as defined in Mr. Khattar's
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employment
agreement, on December 31, 2009, the estimated values of payments and benefits to Mr. Khattar are set forth in the following table. See "—Employment Agreement and
Severance Benefits." In addition, the following table also sets forth (i) the amounts payable upon a change of control in connection with the acceleration of vesting of Mr. Khattar's
restricted stock assuming the change of control occurred on December 31, 2009, and (ii) the amounts payable upon a restructuring of Supernus that results in the elimination of
Dr. Bryan's or Dr. Bhatt's respective positions assuming the restructuring occurred on December 31, 2009.
Benefit
Termination
Upon a
Restructuring
Termination
Without
Cause or
Resignation for
Good Reason
Resignation for
Good Reason
After a
Change of
Control
Acceleration
Upon a
Change of
Control
Jack A. Khattar
Base salary continuation
$
594,090
$
594,090
—
Bonus(1)
158,424
158,424
—
Continuation of benefits(2)
16,947
16,947
—
Vesting of restricted stock(3)
—
$
Total
$
769,461
$
$
Padmanabh Bhatt, Ph.D.
Severance
$
129,224
—
—
—
James W. Bryan, Ph.D.
Severance
$
102,205
—
—
—
(1)
Amount
shown for bonus in connection with a change in control represents the bonus payment Mr. Khattar would have earned based on the assumption that
his employment terminated as of the last day of fiscal 2009, in accordance with his employment agreement. The amount set forth in the table reflects the most recent bonus paid to Mr. Khattar
(which was the 2009 bonus paid in early 2010) because this table assumes that he was terminated as of the last day of the fiscal year and we had not yet determined the amount of the bonuses payable to
him under our annual cash incentive plan for fiscal 2010.
(2)
Amounts
shown for continuation of benefits represent estimates for the continuation of health, medical, life and group life insurance benefits afforded to
Mr. Khattar and eligible family members in accordance with his employment agreement.
(3)
There
was no public market for our common stock at December 31, 2009. Accordingly, the value of accelerated equity awards has been estimated based on
an assumed initial public offering price of $         per share, the midpoint of the range set forth on the cover page of this prospectus.
Director Compensation
Upon election to our board, each of our non-employee directors who are not affiliated with any 5% or greater stockholder
was granted options to purchase shares of our common stock, subject to an annual vesting over a four-year period from the date of grant. The exercise price of the options was greater than
or equal to the fair market value of a share of our common stock at the time of grant. In addition, our non-employee directors who are not affiliated with any 5% or greater stockholder
receive $20,000 annually. All directors have received and will continue to receive reimbursement for reasonable out-of-pocket expenses incurred in connection with attendance at
meetings of the board.
The
following table sets forth a summary of the compensation we paid to Mr. Nuerge in 2009. None of the other members of our board received any compensation from us for their
service on our board, other than reimbursement for reasonable out-of-pocket expenses as described above.
Name
Fees Earned
or Paid
in Cash
($)
Total
($)
William A. Nuerge
20,000
20,000
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Benefit Plans
Our officers, employees, non-employee directors and other key persons (including consultants and prospective employees) are
entitled to participate in various benefit plans as described below, subject to the discretion of the administrators of the plans. Our equity awards are granted under our 2005 Stock Plan. There are an
aggregate of 8,000,000 shares of common stock authorized under this plan. This number is subject to adjustment in the event of a stock split, stock dividend or other change in our capitalization.
Generally, shares that are forfeited or canceled from awards under the 2005 Stock Plan also will be available for future awards.
2005 Stock Plan
Introduction.
Our 2005 Stock Plan was adopted by our board and approved by our stockholders on December 21, 2005. The 2005
Stock Plan permits
us to make grants of stock options (both incentive stock options and non-qualified stock options), purchase rights of common stock and awards of common stock to our executives, employees,
directors, consultants and advisors.
Share Reserve.
8,000,000 shares of common stock are reserved for the issuance of awards under our 2005 Stock Plan. This number
is subject to
adjustment in the event of a stock split, stock dividend or other change in our capitalization. Generally, shares that expire or terminate for any reason without having been exercised in full shall be
available for subsequent grants under our 2005 Stock Plan.
Administration.
Our 2005 Stock Plan is administered by either our board or a committee of our board. The administrator has full
power and authority
to select the participants to whom awards will be granted, to make any combination of awards to participants, to accelerate the exercisability or vesting of any award and to determine the specific
terms and conditions of each award, subject to the provisions of the 2005 Stock Plan.
Eligibility.
All officers, employees, directors and other key persons (including consultants and advisors) are eligible to
participate in the 2005
Stock Plan, subject to the discretion of the administrator.
Types of Awards.
The types of awards that are available for grant under the 2005 Stock Plan are:
•
incentive stock options;
•
non-qualified stock options;
•
purchase rights; and
•
common stock awards.
The
exercise price of stock options awarded under the 2005 Stock Plan may not be less than either (i) 100% of the fair market value of our common stock on the date of the option
grant, with the term of each option not exceeding ten years from the date of grant, or (ii) for any employee who is the owner, at the time of the grant of such options, of more than 10% of the
total combined voting power of all classes of stock of the Company (after taking into account the attribution of stock ownership rules of Section 424(d) of the Code), 110% of fair market value
of our common stock on the date of the option grant, with the term of each option not exceeding five years from the date of grant. The administrator will determine at what time or times each option
may be exercised and, subject to the provisions of the 2005 Stock Plan, the period of time, if any, after retirement, death, disability or other termination of employment during which options may be
exercised. To qualify as incentive stock options, stock options must meet additional federal tax requirements, including a $100,000 limit on the value of shares subject to incentive options which
first become exercisable in any one calendar year, and a shorter term and higher minimum exercise price in the case of certain large stockholders.
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Purchase
rights allow the recipient the opportunity to make direct purchases of the Company's common stock in accordance with terms and conditions established by the administrator.
Awards of common stock are awards entitling the grantee to receive shares of the Company's common stock in accordance with terms and conditions established by the administrator.
Transferability.
Our 2005 Stock Plan does not allow for the transfer of incentive stock options and all other options granted to
Reporting Persons,
and may be exercisable only by the grant holder during his or her lifetime, except that non-qualified options may be transferred pursuant to a qualified domestic relations order (as
defined in the Code).
Change in Control.
Except as otherwise provided by the administrator and evidenced in a particular award, in the event of a
consolidation or merger
or sale of all or substantially all of the assets of the Company in which outstanding shares of common stock are exchanged for securities, cash or other property of any other corporation or business
entity, or in the event of a liquidation of the Company, the administrator may, in its discretion, terminate all stock options granted under the 2005 Stock Plan
unless the successor entity agrees to assume the awards. In the event the awards are to be terminated, the administrator may provide for payment in exchange for the termination of the awards.
Furthermore, at any time the administrator may provide for the acceleration of exercisability and/or vesting of an award.
Term.
Unless earlier terminated by our board of directors, the 2005 Stock Plan will terminate, with respect to incentive stock
options only, upon the
earlier of (A) the close of business on the day next preceding the tenth anniversary of the date the Board of Directors approved the 2005 Stock Plan, or (B) the date on which all shares
available for issuance under the 2005 Stock Plan shall have been issued. Unless sooner terminated, the 2005 Stock Plan will terminate with respect to options, purchase rights and awards of common
stock which are not incentive stock options on the date specified in (B) above.
Amendment or Termination.
Our board of directors may amend, suspend, or terminate the 2005 Stock Plan in any respect at any time,
 subject to
stockholder approval where such approval is required by applicable law or stock exchange rules. Further, any material amendments to the 2005 Stock Plan will be subject to approval by our stockholders,
including any amendment that increases the number of shares available for issuance under the 2005 Stock Plan or expands the types of awards available under, the eligibility to participate in, or the
duration of, the plan. No amendment to the 2005 Stock Plan may materially impair any of the rights of a participant under any awards previously granted without his or her consent.
Limitation of Liability and Indemnification Arrangements
As permitted by the Delaware General Corporation Law, we intend to adopt provisions in our amended and restated certificate of
incorporation and amended and restated bylaws, which will be effective upon the completion of this offering, that limit or eliminate the personal liability of our directors. Consequently, a director
will not be personally liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director, except for liability for:
•
any breach of the director's duty of loyalty to us or our stockholders;
•
any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;
•
any unlawful payments related to dividends or unlawful stock repurchases, redemptions or other distributions; or
•
any transaction from which the director derived an improper personal benefit.
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These
limitations of liability do not alter director liability under the federal securities laws and do not affect the availability of equitable remedies such as an injunction or
rescission.
In
addition, our amended and restated bylaws, which will be effective upon the completion of this offering, provide that:
•
we will indemnify our directors, officers and, at the discretion of our board, certain employees to the fullest extent
permitted by the Delaware General Corporation Law; and
•
advance expenses, including attorneys' fees, to our directors and, at the discretion of our board, to our officers and
certain employees, in connection with legal proceedings, subject to limited exceptions.
We
also intend to enter into indemnification agreements with each of our executive officers and directors. These agreements will provide that we will indemnify each of our directors to
the fullest extent permitted by the Delaware General Corporation Law and advance expenses to each indemnitee in connection with any proceeding in which indemnification is available.
We
also maintain management liability insurance to provide insurance coverage to our directors and officers for losses arising out of claims based on acts or omissions in their
capacities as directors or officers, including liabilities under the Securities Act of 1933, as amended, or the Securities Act. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, or persons controlling the registrant pursuant to the foregoing provisions, we have been informed that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
These
provisions may discourage stockholders from bringing a lawsuit against our directors in the future for any breach of their fiduciary duty. These provisions may also have the effect
of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us and our stockholders. Furthermore, a
stockholder's investment may be adversely affected to the extent we pay the costs of settlement and damage awards against directors, officers and certain employees pursuant to these indemnification
provisions. We believe that these provisions, the indemnification agreements and the insurance are necessary to attract and retain talented and experienced directors and officers.
At
present, there is no pending litigation or proceeding involving any of our directors, officers or employees in which indemnification will be required or permitted. We are not aware of
any threatened litigation or proceeding that might result in a claim for such indemnification.
Rule 10b5-1 Sales Plans
Our directors and executive officers may adopt written plans, known as Rule 10b5-1 plans, in which they will
contract with a broker to buy or sell shares of our common stock on a periodic basis. Under a Rule 10b5-1 plan, a broker executes trades pursuant to parameters established by the
director or officer when entering into the plan, without further direction from them. The director or officer may amend or terminate the plan in some circumstances. Our directors and executive
officers may also buy or sell additional shares outside of a Rule 10b5-1 plan when they are not in possession of material, nonpublic information. However, pursuant to the terms of
the lock-up agreements described under "Underwriting," no Rule 10b5-1 plan may provide for the transfer of common stock during the restricted period ending 180 days after the
date of this prospectus (as such period may be extended under certain circumstances).
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Other than the compensation agreements and other arrangements described under "Compensation Discussion and Analysis" in this prospectus
and the transaction set forth below, since January 1, 2007, there has not been any transaction or series of transactions to which we were or are a party in which the amount involved exceeded or
exceeds $120,000 and in which any director, executive officer, holder of more than 5% of any class of our voting securities or any member of the immediate family of any of the foregoing persons had or
will have a direct or indirect material interest. We believe the transaction set forth below was executed on terms no less favorable to us than we could have obtained from unaffiliated third parties.
In
May 2009, we entered into an amendment to a license agreement with Shire LLC, a holder of Series A convertible preferred stock, whereby Shire LLC and its
affiliates paid us a one-time, lump-sum payment of $36.9 million in return for a fully paid-up license for one of its products that utilizes our proprietary
technologies. All four criteria necessary to recognize revenue in accordance with ASC 605-10-S25,
Revenue
Recognition—Overall—Recognition
, were met during 2009 related to this transaction. Accordingly, the entire amount was recorded as royalty revenue in the
consolidated statement of operations.
Transactions with Our Executive Officers, Directors and 5% Stockholders
Indemnification Agreements
We intend to enter into indemnification agreements with each of our directors and certain of our executive officers. These agreements
will require us to indemnify these individuals and, in certain cases, affiliates of such individuals, to the fullest extent permitted under Delaware law against liabilities that may arise by reason of
their service to us, and to advance expenses incurred as a result of any proceeding against them as to which they could be indemnified.
Registration Rights
After the expiration of the 180-day period following the completion of this offering (as may be extended under certain
circumstances), certain of our directors and 5% stockholders are party to an investor rights agreement providing for rights to register under the Securities Act certain shares of our capital stock.
For more information regarding the registration rights granted pursuant to this agreement, see the section entitled "Description of Capital Stock—Registration Rights."
Employment Agreement and Offer Letters
We have entered into an employment agreement with our chief executive officer and offer letters with certain of our named executive
officers, or NEOs, each of which provides for certain severance benefits, among other things. For more information regarding this agreement and the offer letters with certain of our NEOs, see the
section entitled "Executive Compensation—Employment Agreement and Severance Benefits."
Stock Option Awards
Our 2005 Stock Plan permits us to make grants of stock options, purchase rights of common stock and awards of common stock to our
executives, employees, directors, consultants and advisors. For more information regarding stock option awards and restricted stock granted to our named executive officers and directors, see the
sections entitled "Executive Compensation—Outstanding Equity Awards at Fiscal Year End" and "Director Compensation."
Procedures for Related Party Transactions
Prior to the effectiveness of the registration statement of which this prospectus forms a part, we plan to adopt formal policies or
procedures for the review, approval, or ratification of certain related party transactions that may be required to be reported under the SEC disclosure rules. Currently, such transactions are reviewed
by management on a case-by-case basis.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial ownership of our common stock as of September 30, 2010,
before and after the completion of this offering, and gives effect to the automatic conversion of all outstanding shares of our preferred stock into 49,000,000 shares of common stock upon the closing
of this offering, by: (i) our named executive officers and our directors individually, (ii) all of our executive officers and directors, as a group, and (iii) any person who, to
our knowledge, owns 5% or more of the common stock on an as-converted basis. Unless otherwise indicated, the address for each of the stockholders listed in the table below is c/o Supernus
Pharmaceuticals, Inc., 1550 East Gude Drive, Rockville, Maryland 20850.
Beneficial
ownership is determined in accordance with the rules and regulations of the United States Securities and Exchange Commission. In computing the number of shares beneficially
owned by a person and the percentage ownership of that person, shares of common stock subject to options held by that person that are currently exercisable or exercisable within sixty (60) days
of September 30, 2010 are deemed outstanding. These shares, however, are not deemed outstanding for the purposes of computing the percentage ownership of any other person. Except as indicated
in the footnotes to this table and pursuant to applicable community property laws, we believe each stockholder named in the table has sole voting and investment power with respect to the shares set
forth opposite that stockholders' name.
Percentage of Shares Beneficially Owned
Number of
Shares
Beneficially
Owned
Name and Address of Beneficial Owner
Before
Offering
After
Offering
5% Stockholders:
New Enterprise Associates 11, Limited Partnership and its affiliates(1)
c/o New Enterprise Associates
1954 Greenspring Drive Suite 600
Timonium, MD 21093
25,000,000
44.8
%
OrbiMed Private Investments II, LP and its affiliates(2)
c/o OrbiMed Advisors LLC
767 Third Avenue, 30th Floor
New York, NY 10017
10,000,000
17.9
%
Abingworth Bioventures IV LP and its affiliates(3)
c/o Abingworth Management Inc
890 Winter Street, Suite 150
Waltham, MA 02451
10,000,000
17.9
%
Shire LLC(4)
9200 Brookfield Court
Suites 105 & 108
Florence, KY 41042
4,000,000
7.2
%
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Percentage of Shares Beneficially Owned
Number of
Shares
Beneficially
Owned
Name and Address of Beneficial Owner
Before
Offering
After
Offering
Executive Officers and Directors:
Jack A. Khattar(5)
6,088,235
10.9
%
Russell P. Wilson
—
*
Paolo Baroldi, M.D., Ph.D(6)
50,000
*
Padmanabh P. Bhatt, Ph.D.(7)
259,000
*
Jones W. Bryan, Ph.D.(8)
259,000
*
M. James Barrett, Ph.D.(9)
25,000,000
45.1
%
Michael Bigham(10)
10,000,000
18.1
%
Frederick M. Hudson(11)
—
*
Charles W. Newhall, III(12)
25,000,000
45.1
%
William A. Nuerge
35,000
*
Michael B. Sheffery, Ph.D.(13)
10,000,000
18.1
%
All executive officers and directors as a group (12 persons)(14)
51,766,235
92.4
%
*
Less
than one percent.
(1)
Includes
24,965,000 shares of common stock issuable upon the automatic conversion of 24,965,000 shares of Series A convertible preferred stock held
by New Enterprise Associates 11, Limited Partnership; and 35,000 shares of common stock issuable upon the automatic conversion of 35,000 shares of Series A convertible preferred stock held by
NEA Ventures 2005, L.P.
(2)
Includes
6,673,891 shares of common stock issuable upon the automatic conversion of 6,673,891 shares of Series A convertible preferred stock held by
OrbiMed Private Investments II, LP; 2,498,842 shares of common stock issuable upon the automatic conversion of 2,498,842 shares of Series A convertible preferred stock held by OrbiMed
Private Investments II (QP), LP; and 827,267 shares of common stock issuable upon the automatic conversion of 827,267 shares of Series A convertible preferred stock held by UBS Juniper
Crossover Fund, LLC.
(3)
Includes
9,915,000 shares of common stock issuable upon the automatic conversion of 9,915,000 shares of Series A convertible preferred stock held by
Abingworth Bioventures IV LP, or ABV IV; and 85,000 shares of common stock issuable upon the automatic conversion of 85,000 shares of Series A convertible preferred stock held by
Abingworth Bioventures IV Executives LP, or ABV IV Executives.
(4)
Includes
4,000,000 shares of common stock issuable upon the automatic conversion of 4,000,000 shares of Series A convertible preferred stock held by
Shire LLC.
(5)
Excludes
411,765 shares of non-vested restricted stock held by Mr. Khattar, which are subject to vesting based on the achievement of certain
performance measures.
(6)
Consists
of 50,000 shares of common stock issuable to Dr. Baroldi upon the exercise of options within 60 days of September 30, 2010.
(7)
Consists
of 259,000 shares of common stock issuable to Dr. Bhatt upon the exercise of options within 60 days of September 30, 2010.
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(8)
Consists
of 259,000 shares of common stock issuable to Dr. Bryan upon the exercise of options within 60 days of September 30, 2010.
(9)
Includes
25,000,000 shares of common stock issuable upon the automatic conversion of 25,000,000 shares of Series A convertible preferred stock held
by New Enterprise Associates 11, Limited Partnership and its affiliates. Dr. Barrett, a member of our board, is a partner of New Enterprise Associates, or NEA, and disclaims beneficial
ownership of the shares of capital stock held by NEA, except to the extent of his pecuniary interest therein.
(10)
Includes
10,000,000 shares of common stock issuable upon the automatic conversion of 10,000,000 shares of Series A convertible preferred stock held
by ABV IV and ABV IV Executives. Abingworth Management Limited, or AML, serves as investment manager of each of ABV IV and ABV Executives and may be deemed to share voting and
dispositive power with respect to the securities owned by ABV IV and ABV IV Executives. Michael Bigham is a director of AML, and in such capacity may be deemed to beneficially own the
securities owned of record by ABV IV and ABV IV Executives, but disclaims beneficial ownership of such securities except to the extent of his pecuniary interest therein.
(11)
Mr. Hudson
was appointed to our board on November 16, 2010.
(12)
Includes
25,000,000 shares of common stock issuable upon the automatic conversion of 25,000,000 shares of Series A convertible preferred stock held
by New Enterprise Associates 11, Limited Partnership and its affiliates. Mr. Newhall, a member of our board, is a partner of NEA and disclaims beneficial ownership of the shares of capital
stock held by NEA, except to the extent of his pecuniary interest therein.
(13)
Includes
10,000,000 shares of common stock issuable upon the automatic conversion of 10,000,000 shares of Series A convertible preferred stock held
by OrbiMed Private Investments II, LP and its affiliates. Dr. Sheffery, a member of our board, is a member of OrbiMed Advisors LLC, or OrbiMed, and disclaims beneficial ownership
of the shares of capital stock held OrbiMed, except to the extent of his pecuniary interest therein.
(14)
Includes
49,000,000 shares of common stock issuable upon the automatic conversion of 49,000,000 shares of Series A convertible preferred stock, and
includes 643,000 shares of common stock issuance to our of directors and executive officers upon the exercise of options within 60 days of September 30, 2010.
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DESCRIPTION OF CAPITAL STOCK
General
Our Amended and Restated Certificate of Incorporation, which will become effective upon the closing of this offering, authorizes the
issuance of up to            shares of common stock, par value $0.001 per share, and            shares of preferred stock, par
value $0.01 per share. As of September 30, 2010, there
were            shares of common stock outstanding (after giving effect to the automatic conversion of all outstanding shares of preferred stock into shares of common stock and
the    
for    reverse stock split). As of September 30, 2010, we had approximately            record holders of our capital stock. All of our outstanding shares of
preferred stock
will automatically convert into shares of common stock upon the closing of this offering. After the closing of this offering and after giving effect to the conversion of our preferred stock and the
    for    reverse stock split, we will have            shares of common stock and no shares of preferred stock outstanding. In addition, as of
September 30, 2010,
            
shares of our common stock were reserved for future grants under our 2005 Stock Plans, and options to purchase            shares of our common stock were outstanding.
The
description below gives effect to the adoption of our Amended and Restated Bylaws and is qualified in its entirety by reference to these documents, copies of which are filed as
exhibits to the registration statement of which this prospectus is a part.
Common Stock
Upon the completion of this offering, we will be authorized to issue one class of common stock. Holders of our common stock are
entitled to one vote for each share of common stock held of record for the election of directors and on all matters submitted to a vote of stockholders. Holders of our common stock are entitled to
receive dividends ratably, if any, as may be declared by our board of directors out of legally available funds, subject to any preferential dividend rights of any preferred stock then outstanding.
Upon our dissolution, liquidation or winding up, holders of our common stock are entitled to share ratably in our net assets legally available after the payment of all our debts and other liabilities,
subject to the preferential rights of any preferred stock then outstanding. Holders of our common stock have no preemptive, subscription, redemption or conversion rights. The rights, preferences and
privileges of holders of common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock that we may designate and issue in the
future. Except as described under "—Antitakeover Effects of Delaware Law and Provisions of Our Certificate of Incorporation and Bylaws" below, a majority vote of the holders of common
stock is generally required to take action under our amended and restated certificate of incorporation and amended and restated bylaws.
Preferred Stock
Upon the completion of this offering, our board of directors will be authorized, without action by the stockholders, to designate and
issue up to an aggregate of                                    shares
of preferred stock in one or more series. Our board of directors can designate the rights, preferences and privileges of the shares of each series
and any of its qualifications, limitations or restrictions. Our board of directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting
power or other rights of the holders of common stock. The issuance of preferred stock, while providing flexibility in connection with possible future financings and acquisitions and other corporate
purposes, could, under certain circumstances, have the effect of restricting dividends on our common stock, diluting the voting power of our common stock, impairing the liquidation rights of our
common stock, or delaying, deferring or preventing a change in control of our company, which might harm the market price of our common stock.
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Our
board of directors will make any determination to issue such shares based on its judgment as to our company's best interests and the best interests of our stockholders. Any shares of
our Series A convertible preferred stock outstanding immediately prior to this offering will automatically convert into shares of our common stock on a one-for-one basis
in connection with this offering. Upon the completion of this offering, we will have no shares of preferred stock outstanding and we have no current plans to issue any shares of preferred stock.
Registration Rights
Demand Registration Rights
After the expiration of the 180-day period following the completion of this offering (as may be extended under certain
circumstances), the holders of approximately                        shares of our common stock will be entitled to certain demand
registration rights. If holders of registrable securities then outstanding
request a registration having a reasonably anticipated aggregate offering price to the public of at least $            , we may be required to register their shares. After the expiration of
the
180-day period following the completion of this offering (as may be extended under certain circumstances), certain holders have the right to make two requests that we register all or a
portion of their shares of our common stock.
Piggyback Registration Rights
After expiration of the 180-day period following the completion of this offering (as may be extended under certain
circumstances), in the event that we propose to register any of our securities under the Securities Act, either for our own account or for the account of other stockholders, the holders of
approximately                        shares of our common stock will be entitled to certain "piggyback" registration rights
allowing the holders to include their shares in such
registration, subject to certain marketing and other limitations. As a result, whenever we propose to file a registration statement under the Securities Act, other than with respect to a
registration related to the shares issuable upon conversion of debt securities or employee benefit plans, the holders of these shares of our common stock are entitled to notice of the registration and
have the right, subject to limitations that the underwriters may impose on the number of shares included in the registration, to include their shares in the registration.
Form S-3 Registration Rights
After the expiration of a 180-day period following the completion of this offering (as may be extended under certain circumstances),
the holders of approximately            shares will be entitled to certain Form S-3 registration rights if we are eligible to file a registration statement on Form S-3. As a result,
these
holders will have the right to demand that we file a registration statement on Form S-3 so long as the aggregate value of the securities to be sold under the registration statement on
Form S-3 is at least $500,000, subject to specified exceptions.
Antitakeover Effects Of Delaware Law And Provisions Of Our Certificate Of Incorporation And Bylaws
Delaware Takeover Statute
We are subject to Section 203 of the Delaware General Corporation Law. This statute regulating corporate takeovers prohibits a
Delaware corporation from engaging in any business combination with
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any
interested stockholder for three years following the date that the stockholder became an interested stockholder, unless:
•
prior to the date of the transaction, the board of directors of the corporation approved either the business combination
or the transaction which resulted in the stockholder becoming an interested stockholder;
•
upon completion of the transaction that resulted in the interested stockholder becoming an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares
outstanding (a) shares owned by persons who are directors and also officers, and (b) shares owned by employee stock plans in which employee participants do not have the right to
determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or
•
on or subsequent to the date of the transaction, the business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66
2
/
3
% of the outstanding voting stock which is not owned by
the interested stockholder.
Generally,
a business combination includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. An interested stockholder
is any person who, together with such person's affiliates and associates (i) owns 15% or more of a corporation's voting securities or (ii) is an affiliate or associate of a corporation
and was the owner of 15% or more of the corporation's voting securities at any time within the three year period immediately preceding a business combination of the corporation governed by
Section 203. We expect the existence of this provision to have an anti-takeover effect with respect to transactions our board does not approve in advance. We also anticipate that
Section 203 may discourage takeover attempts that might result in a premium over the market price for the shares of common stock held by our stockholders.
Certificate Of Incorporation And Bylaw Provisions
Provisions of our certificate of incorporation and bylaws, which will be effective upon the closing of this offering, may have the
effect of making it more difficult for a third party to acquire, or discourage a third party from attempting to acquire, control of our company by means of a tender offer, a proxy contest or
otherwise. These provisions may also make the removal of incumbent officers and directors more difficult. These provisions are intended to discourage certain types of coercive takeover practices and
inadequate takeover bids and to encourage persons seeking to acquire control of our company to first negotiate with us. These provisions could also limit the price that investors might be willing to
pay in the future for shares of our common stock. These provisions may make it more difficult for stockholders to take specific corporate actions and could have the effect of delaying or preventing a
change in control.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock
is                        .
Listing
We intend to apply to list our shares of common stock for quotation on The NASDAQ Global Market under the symbol "SUPN."
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common stock, and there can be no assurance that a significant public
market for our common stock will develop or be sustained after this offering. Future sales of substantial amounts of our common stock, including shares issued upon exercise of outstanding options, in
the public market following this offering could adversely affect market prices prevailing from time to time and could impair our ability to raise capital through the sale of our equity securities.
Upon
completion of this offering, we will have            shares of common stock outstanding, assuming (1) the conversion of all outstanding shares of preferred stock,
(2) no exercise of any options outstanding as of September 30, 2010 and (3) no exercise of the underwriters' option to purchase additional shares from us. All shares sold in this
offering, plus any shares issued upon exercise of the underwriters' option to purchase additional shares from us, will be freely tradable without restriction under the Securities Act, unless purchased
by our "affiliates" as that term is defined in Rule 144 under the Securities Act. The remaining            shares of common stock outstanding are "restricted securities" within the
meaning
of Rule 144 under the Securities Act. Restricted securities may be sold in the public market only if
registered or if they qualify for an exemption from registration under Rule 701 or meet the safe harbor qualifications under Rule 144 under the Securities Act as summarized below.
The
holders of            shares of outstanding common stock as of the closing of this offering and the holders of            shares
of common stock underlying options as of
the closing of this offering, including all of our officers and directors, have entered into lock-up agreements with the underwriters pursuant to which they have generally agreed, subject
to certain exceptions, not to offer or sell any shares of common stock or securities convertible into or exchangeable or exercisable for shares of common stock for a period of 180 days from the
date of this prospectus without the prior written consent of Citigroup Global Markets Inc. and Barclays Capital Inc. At any time and without public notice, Citigroup Global
Markets Inc. and Barclays Capital Inc. may, in their sole discretion, release some or all of the securities from these lock-up agreements. In general, if (i) during
the last 17 days of the 180-day restricted period, we issue an earnings release or material news or a material event relating to our company occurs; or (ii) prior to the
expiration of the 180-day restricted period, we announce that we will release earnings results during the 16-day period beginning on the last day of the 180-day
restricted period, the restrictions described above shall continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of
the material news or material event. See "Underwriting."
Rule 144
In general, under Rule 144 under the Securities Act, as in effect on the date of this prospectus, a person who is one of our
affiliates and has beneficially owned shares of our common stock for at least six months would be entitled to sell within any three month period a number of shares that does not exceed the greater
of:
•
one percent of the number of shares of common stock then outstanding, which will equal
approximately                        
shares immediately after the completion of this offering; or
•
the average weekly trading volume of our common stock on the NASDAQ Global Market during the four calendar weeks preceding
the filing of a notice on Form 144 with respect to the sale.
Sales
under Rule 144 by our affiliates or persons selling shares on behalf of our affiliates are also subject to manner of sale provisions and notice requirements and to the
availability of current public information about us.
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In
general, under Rule 144 under the Securities Act, as in effect on the date of this prospectus, a person who is not deemed to have been one of our affiliates at any time during
the 90 days preceding a sale, and who has beneficially owned the shares proposed to be sold for at least six months, including the holding period of any prior owner other than an affiliate, is
entitled to sell the shares without complying with the manner of sale, volume limitation or notice provisions of Rule 144, and will be subject only to the public information requirements of
Rule 144. If such a person has beneficially owned the shares proposed to be sold for at least one year, including the holding period of any prior owner other than our affiliates, then such
person is entitled to sell such shares without complying with any of the requirements of Rule 144.
Shares
of our common stock will qualify for resale under Rule 144 within 180 days of the date of this prospectus, subject to the lock-up
agreements as described herein and under "Underwriting" in this prospectus, and to the extent such shares have been released from any repurchase option that we may hold.
Rule 701
Any of our employees, officers, directors or consultants who purchased shares under a written compensatory plan or contract may be
entitled to rely on the resale provisions of Rule 701. Rule 701 permits affiliates to sell their Rule 701 shares under Rule 144 without complying with the holding period
requirements of Rule 144. Rule 701 further provides that non-affiliates may sell such shares in reliance on Rule 144 without having to comply with the holding period,
public information, volume limitation or notice provisions of Rule 144.
Neither
Rule 144 nor Rule 701 supersedes the contractual obligations of our security holders set forth in the lock-up agreements described above.
Lock-up Agreements
We,
our officers and directors, and our other stockholders have agreed that, for a period of 180 days from the date of this prospectus, we and they will not, without the prior
written consent of Citigroup Global Markets Inc. and Barclays Capital Inc., dispose of or hedge any shares or any securities convertible into or exchangeable for our common stock.
Citigroup Global Markets Inc. and Barclays Capital Inc. in their sole discretion may release any of the securities subject to these lock-up agreements at any time without
notice. Notwithstanding the foregoing, if (i) during the last 17 days of the 180-day restricted period, we issue an earnings release or material news or a material event
relating to our company occurs; or (ii) prior to the expiration of the 180-day restricted period, we announce that we will release earnings results during the 16-day
period beginning on the last day of the 180-day restricted period, the restrictions described above shall continue to apply until the expiration of the 18-day period beginning
on the issuance of the earnings release or the occurrence of the material news or material event.
Registration Rights
After the expiration of the 180-day period following the completion of this offering (as may be extended under certain circumstances),
holders of our preferred stock convertible into 49,000,000 shares of our common stock have demand and piggyback registration rights with respect to the shares of common stock to be issued upon
conversion of their preferred stock. By exercising their registration rights and causing a large number of shares to be registered and sold in the public market, these holders could cause the price of
our common stock to fall. In addition, any demand to include such shares in our registration statements could have a material adverse effect on our ability to raise needed capital. For more
information about these registration rights, see "Description of Capital Stock—Registration Rights."
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Stock Options
As of September 30, 2010, under our 2005 Stock Plan, we had outstanding options to purchase            shares of common
stock.
As
soon as practicable after completion of this offering, we intend to register the shares of our common stock subject to the options outstanding or reserved for issuance under this plan
on a registration statement on Form S-8 under the Securities Act. Subject to the lock-up agreements and the restrictions imposed under the 2005 Stock Plan, shares of
common stock issued pursuant to this plan after the effective date of the registration statement on Form S-8 will be available for sale in the public market without restriction to
the extent that they are held by persons who are not our affiliates.
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MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS OF COMMON STOCK
The following is a summary of certain material U.S. federal income tax considerations relating to the purchase, ownership and
disposition of our common stock by Non-U.S. Holders, but does not purport to be a complete analysis of all the potential tax considerations. For purposes of this summary, a
"Non-U.S. Holder" means a beneficial owner of common stock that for U.S. federal income tax purposes is:
•
a non-resident alien individual;
•
a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized under
the laws of a jurisdiction other than the U.S., any state thereof, or the District of Columbia;
•
an estate, other than an estate the income of which is subject to U.S. federal income tax regardless of its source; or
•
a trust, other than a trust (a) the administration of which is subject to the primary supervision of a court within
the United States and which has one or more U.S. persons have the authority to control all substantial decisions of the trust, or (b) that has a valid election to be treated as a U.S. person.
If
a partnership (or an entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds our common stock, the tax treatment of a partner will generally depend
upon the status of the partners and the activities of the partnership. Accordingly, we urge partnerships that hold our common stock and partners in such partnerships to consult their tax advisors.
This
summary assumes that a Non-U.S. Holder will hold our common stock issued by this offering as a capital asset. This summary is general in nature and thus does not purport
to deal with all aspects of U.S. federal income taxation that might be relevant to a particular Non-U.S. Holder in light of their particular investment circumstances or status, nor does it
address specific tax considerations that may be relevant to particular persons (including, for example, financial institutions, broker-dealers, insurance companies, partnerships or other
pass-through entities, regulated investment companies, real estate investment trusts, grantor trusts, certain U.S. expatriates, pension plans, tax-exempt organizations,
"controlled foreign corporations," "passive foreign investment companies," corporations that accumulate earnings to avoid U.S. federal income tax, persons that receive shares of our common stock in
connection with services provided, or persons in special situations, such as those who have elected to mark securities to market or those who hold common stock as part of a straddle, hedge, conversion
transaction or other integrated investment). In addition, this summary does not address U.S. federal alternative minimum, estate and gift tax considerations (except to the extent discussed below) or
considerations under the tax laws of any state, local or non-U.S. jurisdiction.
This
summary is based on the Internal Revenue Code of 1986, as amended (the "Code"), the Treasury regulations promulgated or proposed thereunder and administrative and judicial
interpretations thereof, all as of the date hereof and all of which are subject to change at any time, possibly on a retroactive basis. Any change could alter the tax consequences to
Non-U.S. Holders described in this prospectus. In addition, the Internal Revenue Service, or the IRS, could challenge one or more of the tax consequences described in this prospectus.
This summary is for general information only. Non-U.S. Holders are urged to consult their tax advisors concerning the U.S. federal, state, local and
non-U.S. taxation and other tax consequences to them of the purchase, ownership and disposition of our common stock, as
well as the application of U.S. federal, state, local and non-U.S. income and other tax laws.
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Distributions
In the event that we do make a distribution of cash or property with respect to our common stock, any such distributions will be
treated as a dividend for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). Any
distribution not treated as a dividend will be treated first as a tax-free return of capital to the extent of the Non-U.S. Holder's tax basis in our common stock and thereafter
as capital gain from the sale or exchange of such stock as described in the next section. Dividends paid to a Non-U.S. Holder generally will be subject to a 30% U.S. federal withholding
tax unless such Non-U.S. Holder provides us, or our agent, as the case may be, with a properly executed:
1.     IRS
Form W-8BEN (or successor form) claiming, under penalties of perjury, a reduction in withholding under an applicable income tax treaty, or
2.     IRS
Form W-8ECI (or successor form) stating that a dividend paid on common stock is not subject to withholding tax because it is effectively connected
with a U.S. trade or business of the Non-U.S. Holder (in which case such dividend generally will be subject to regular graduated U.S. tax rates as described below).
The
certification requirement described above also may require a Non-U.S. Holder to obtain a U.S. taxpayer identification number. If a Non-U.S. Holder holds stock
through a financial institution or other agent acting on the Non-U.S. Holder's behalf, the Non-U.S. Holder will be required to provide appropriate documentation to such agent.
The agent will then be required to provide certification to us, or our paying agent, as the case may be, either directly or through other intermediaries.
Each
Non-U.S. Holder is urged to consult its own tax advisor about the specific methods for satisfying these requirements. A claim for exemption will not be valid if the
person receiving the applicable form has actual knowledge or reason to know that the statements on the form are false.
If
a Non-U.S. Holder is eligible for a reduced rate of U.S. federal withholding tax pursuant to an income tax treaty, such holder may obtain a refund or credit of any excess
amount withheld by timely filing an appropriate claim for refund with the IRS.
If
dividends are effectively connected with a U.S. trade or business of the Non-U.S. Holder (and, if required by an applicable income tax treaty, attributable to a U.S.
permanent establishment), the Non-U.S. Holder, although exempt from the withholding tax described above (provided that the certifications described above are satisfied), will be subject to
U.S. federal income tax on such dividends on a net income basis in the same manner as if it were a resident of the United States. In addition, if such Non-U.S. Holder is a
non-U.S. corporation and dividends are effectively connected with its U.S. trade or business (and, if required by an applicable income tax treaty, attributable to a U.S. permanent
establishment), such Non-U.S. Holder may be subject to an additional "branch profits tax" equal to 30% (unless reduced by an applicable income treaty) in respect of such
effectively-connected income.
Taxable Disposition of Our Common Stock
A Non-U.S. Holder generally will not be subject to U.S. federal income tax on gain recognized on a sale, exchange or other
taxable disposition of a share of our common stock, unless:
•
the gain is effectively connected with a trade or business of the Non-U.S. Holder in the United States (and,
if required by an applicable income tax treaty, attributable to a U.S. permanent establishment);
•
the Non-U.S. Holder is a nonresident alien who is present in the United States for 183 days or more in
the taxable year of the disposition and meets certain other conditions; or
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•
we are or have been a "United States real property holding corporation," as defined in the Code (a "USRPHC"), at any time
within the shorter of the five-year period preceding the disposition and the Non-U.S. Holder's holding period the share our common stock.
If
a Non-U.S. Holder is engaged in a trade or business in the U.S. and gain recognized by the Non-U.S. Holder on a sale or other disposition of our common stock
is effectively connected with the conduct of such trade or business, the Non-U.S. Holder will generally be subject to regular U.S. income tax as if the Non-U.S. Holder were a
U.S. person, subject to an applicable income tax treaty providing otherwise. Additionally, a non-U.S. corporation may also, under certain circumstances, be subject to an additional "branch
profits tax" imposed at a rate of 30% (or, if applicable, a lower income tax treaty rate). Non-U.S. Holders whose gain from dispositions of our common stock may be effectively connected
with the conduct of a trade or business in the United States are urged to consult their own tax advisors with respect to the U.S. tax consequences of the purchase, ownership and disposition of our
common stock.
A
nonresident alien who is subject to U.S. federal income tax because such individual was present in the United States for 183 days or more in the taxable year of the taxable
disposition of our common stock will be subject to a flat 30% tax on the gain derived from such disposition, which may be offset by U.S. source capital loss.
We
believe that we are not, and do not anticipate becoming, a USRPHC. However, because the determination of whether we are a USRPHC depends on the fair market value of our U.S. real
property relative to the fair market value of other business assets, there can be no assurance that we will not become a USRPHC in the future. Even if we become a USRPHC, a Non-U.S. Holder
would not be subject to U.S. federal income tax on a sale, exchange or other taxable disposition of our common stock so long as our common stock continues to be regularly traded on an established
securities market and such Non-U.S. Holder does not own and is not deemed to own (directly, indirectly or constructively) more than 5% of our common stock at any time during the shorter of
the five year period ending on the date of disposition and the holder's holding period. There can be no assurance that our common stock will qualify as regularly traded on an established market.
Information Reporting and Backup Withholding
Generally, we must report annually to the IRS and to each Non-U.S. Holder certain information including the
Non-U.S. Holder's name, address and taxpayer identification number, the aggregate amount of distributions on our common stock paid to that Non-U.S. Holder during the calendar
year and the amount
of tax withheld, if any. Pursuant to tax treaties and certain other agreements, the IRS may make its reports available to tax authorities in the recipient's country of residence.
Backup
withholding tax is imposed on dividends and certain other types of payments to certain U.S. persons. Backup withholding tax will not apply to payments of dividends on common stock
or proceeds from the sale of common stock payable to a Non-U.S. Holder if the certification described above in "Distributions" is duly provided by such Non-U.S. Holder or the
Non-U.S. Holder otherwise establishes an exemption, provided that the payor does not have actual knowledge or reason to know that the Holder is a U.S. person or that the conditions of any
claimed exemption are not satisfied. Certain information reporting may still apply to distributions even if an exemption from backup withholding is established.
Backup
withholding is not an additional tax and any amounts withheld under the backup withholding tax rules from a payment to a Non-U.S. Holder will be allowed as a refund or
a credit against such Non-U.S. Holder's U.S. federal income tax liability, provided that the requisite procedures are followed.
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Non-U.S.
Holders are urged to consult their own tax advisors regarding their particular circumstances and the availability of and procedure for obtaining an exemption from
backup withholding.
Recently enacted legislation affecting taxation of our common stock held by or through foreign entities
Recently enacted legislation generally will impose a U.S. federal withholding tax of 30% on dividends and the gross proceeds of a
disposition of our common stock paid after December 31, 2012 to (a) a foreign financial institution unless such institution enters into an agreement with the U.S. government to withhold
on certain payments and to collect and provide to the U.S. tax authorities substantial information regarding U.S. account holders of such institution (which includes certain equity and debt holders of
such institution, as well as certain account holders that are foreign entities with U.S. owners), or (b) a non-financial foreign entity unless such entity provides the withholding
agent with either a certification that it does not have any substantial direct or indirect U.S. owners or provides information regarding direct and indirect U.S. owners of the entity. Under certain
circumstances, a Non-U.S. Holder might be eligible for refunds or credits
of such taxes. Holders are encouraged to consult with their own tax advisors regarding the possible implications of the legislation on their investment in our common stock.
U.S. Federal Estate Tax
Common stock owned or treated as owned by an individual who is a Non-U.S. Holder at the time of death generally will be
included in the individual's gross estate for U.S. federal estate tax purposes and may be subject to U.S. federal estate tax unless an applicable estate tax treaty provides otherwise.
THE PRECEDING DISCUSSION OF U.S. FEDERAL INCOME TAX CONSIDERATIONS IS FOR GENERAL INFORMATION ONLY. IT IS NOT TAX ADVICE. EACH PROSPECTIVE INVESTOR SHOULD CONSULT
ITS OWN TAX ADVISOR REGARDING THE TAX CONSEQUENCES OF PURCHASING, HOLDING AND DISPOSING OF OUR COMMON STOCK, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLE
LAW.
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UNDERWRITING
Citigroup Global Markets Inc. and Barclays Capital Inc. are acting as joint book-running managers of the
offering and as representatives of the underwriters named below. Subject to the terms and conditions stated in the underwriting agreement dated the date of this prospectus, each underwriter named
below has severally agreed to purchase, and we have agreed to sell to that underwriter, the number of shares set forth opposite the underwriter's name.
Underwriter
Number
of Shares
Citigroup Global Markets Inc.
Barclays Capital Inc.
Cowen and Company, LLC
Stifel, Nicolaus & Company, Incorporated
Total
The
underwriting agreement provides that the obligations of the underwriters to purchase the shares included in this offering are subject to approval of legal matters by counsel and to
other conditions. The underwriters are obligated to purchase all the shares (other than those covered by the over-allotment option described below) if they purchase any of the shares.
Shares
sold by the underwriters to the public will initially be offered at the initial public offering price set forth on the cover of this prospectus. Any shares sold by the
underwriters to securities dealers may be sold at a discount from the initial public offering price not to exceed $           per share. If all the shares are not sold at the initial
offering price, the underwriters may change the offering price and the other selling terms. The representatives have advised us that the underwriters do not intend to make sales to discretionary
accounts.
If
the underwriters sell more shares than the total number set forth in the table above, we have granted to the underwriters an option, exercisable for 30 days from the date of
this prospectus, to purchase up to                  additional shares at the public offering price less the underwriting discount. The underwriters may exercise
the option solely for the purpose of
covering over-allotments, if any, in connection with this offering. To the extent the option is exercised, each underwriter must purchase a number of additional shares approximately
proportionate to that underwriter's initial purchase commitment. Any shares issued or sold under the option will be issued and sold on the same terms and conditions as the other shares that are the
subject of this offering.
We,
our officers and directors, and our other stockholders have agreed that, for a period of 180 days from the date of this prospectus, we and they will not, without the prior
written consent of Citigroup
Global Markets Inc. and Barclays Capital Inc., dispose of or hedge any shares or any securities convertible into or exchangeable for our common stock. Citigroup Global
Markets Inc. and Barclays Capital Inc. in their sole discretion may release any of the securities subject to these lock-up agreements at any time without notice.
Notwithstanding the foregoing, if (i) during the last 17 days of the 180-day restricted period, we issue an earnings release or material news or a material event relating to
our company occurs; or (ii) prior to the expiration of the 180-day restricted period, we announce that we will release earnings results during the 16-day period
beginning on the last day of the 180-day restricted period, the restrictions described above shall continue to apply until the expiration of the 18-day period beginning on the
issuance of the earnings release or the occurrence of the material news or material event.
Prior
to this offering, there has been no public market for our shares. Consequently, the initial public offering price for the shares will be determined by negotiations between us and
the representatives. Among the factors considered in determining the initial public offering price will be our results of operations, our current financial condition, our future prospects, our
markets, the
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economic
conditions in and future prospects for the industry in which we compete, our management, and currently prevailing general conditions in the equity securities markets, including current market
valuations of publicly traded companies considered comparable to our company. We cannot assure you, however, that the price at which the shares will sell in the public market after this offering will
not be lower than the initial public offering price or that an active trading market in our shares will develop and continue after this offering.
We
intend to apply to have our shares listed on the Nasdaq Global Market under the symbol "SUPN."
The
following table shows the underwriting discounts and commissions that we are to pay to the underwriters in connection with this offering. These amounts are shown assuming both no
exercise and full exercise of the underwriters' over-allotment option.
Paid by Supernus Pharmaceuticals, Inc.
No Exercise
Full Exercise
Per share
$
$
Total
$
$
In
connection with the offering, the underwriters may purchase and sell shares in the open market. Purchases and sales in the open market may include short sales, purchases to cover
short positions, which may include purchases pursuant to the over-allotment option, and stabilizing purchases.
•
Short sales involve secondary market sales by the underwriters of a greater number of shares than they are required to
purchase in the offering.
•
"Covered" short sales are sales of shares in an amount up to the number of shares represented by the underwriters'
over-allotment option.
•
"Naked" short sales are sales of shares in an amount in excess of the number of shares represented by the underwriters'
over-allotment option.
•
Covering transactions involve purchases of shares either pursuant to the over-allotment option or in the open
market after the distribution has been completed in order to cover short positions.
•
To close a naked short position, the underwriters must purchase shares in the open market after the distribution has been
completed. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the shares in the open market after pricing that
could adversely affect investors who purchase in the offering.
•
To close a covered short position, the underwriters must purchase shares in the open market after the distribution has
been completed or must exercise the over-allotment option. In determining the source of shares to close the covered short position, the underwriters will consider, among other things, the
price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option.
•
Stabilizing transactions involve bids to purchase shares so long as the stabilizing bids do not exceed a specified
maximum.
Purchases
to cover short positions and stabilizing purchases, as well as other purchases by the underwriters for their own accounts, may have the effect of preventing or retarding a
decline in the market price of the shares. They may also cause the price of the shares to be higher than the price that would otherwise exist in the open market in the absence of these transactions.
The underwriters may
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conduct
these transactions on the Nasdaq Global Market, in the over-the-counter market or otherwise. If the underwriters commence any of these transactions, they may
discontinue them at any time.
Certain
of the underwriters have performed commercial banking, investment banking and advisory services for us from time to time for which they have received customary fees and
reimbursement of expenses. The underwriters may, from time to time, engage in transactions with and perform services for us in the ordinary course of their business for which they may receive
customary fees and reimbursement of expenses. Cowen Healthcare Royalty Partners (CHRP), an affiliate of Cowen and Company, LLC, holds certain of the Non-recourse Notes issued by our
subsidiary, TCD Royalty Sub LLC.
We
have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the underwriters may be required to
make because of any of those liabilities.
Notice to Prospective Investors in the European Economic Area
In relation to each member state of the European Economic Area that has implemented the Prospectus Directive (each, a relevant member
state), with effect from and including the date on which the Prospectus Directive is implemented in that relevant member state (the relevant implementation date), an offer of shares described in this
prospectus may not be made to the public in that relevant member state prior to the publication of a prospectus in relation to the shares that has been approved by the competent authority in that
relevant member state or, where appropriate, approved in another relevant member state and notified to the competent authority in that relevant member state, all in accordance with the Prospectus
Directive, except that, with effect from and including the relevant implementation date, an offer of securities may be offered to the public in that relevant member state at any
time:
•
to any legal entity that is authorized or regulated to operate in the financial markets or, if not so authorized or
regulated, whose corporate purpose is solely to invest in securities;
•
to any legal entity that has two or more of (1) an average of at least 250 employees during the last financial
year; (2) a total balance sheet of more than €43,000,000 and (3) an annual net turnover of more than €50,000,000, as shown in its last annual or
consolidated accounts;
•
to fewer than 100 natural or legal persons (other than qualified investors as defined below) subject to obtaining the
prior consent of the representatives for any such offer; or
•
in any other circumstances that do not require the publication of a prospectus pursuant to Article 3 of the
Prospectus Directive.
Each
purchaser of shares described in this prospectus located within a relevant member state will be deemed to have represented, acknowledged and agreed that it is a "qualified investor"
within the meaning of Article 2(1)(e) of the Prospectus Directive.
For
purposes of this provision, the expression an "offer to the public" in any relevant member state means the communication in any form and by any means of sufficient information on the
terms of the offer and the securities to be offered so as to enable an investor to decide to purchase or subscribe the securities, as the expression may be varied in that member state by any measure
implementing the Prospectus Directive in that member state, and the expression "Prospectus Directive" means Directive 2003/71/EC and includes any relevant implementing measure in each relevant member
state.
The
sellers of the shares have not authorized and do not authorize the making of any offer of shares through any financial intermediary on their behalf, other than offers made by the
underwriters with a view to the final placement of the shares as contemplated in this prospectus. Accordingly, no
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purchaser
of the shares, other than the underwriters, is authorized to make any further offer of the shares on behalf of the sellers or the underwriters.
Notice to Prospective Investors in the United Kingdom
This prospectus is only being distributed to, and is only directed at, persons in the United Kingdom that are qualified investors
within the meaning of Article 2(1)(e) of the Prospectus Directive that are also (i) investment professionals falling within Article 19(5) of the Financial Services and Markets Act
2000 (Financial Promotion) Order 2005 (the "Order") or (ii) high net worth entities, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to
(d) of the Order (each such person being referred to as a "relevant person"). This prospectus and its contents are confidential and should not be distributed, published or reproduced (in whole
or in part) or disclosed by recipients to any other persons in the United Kingdom. Any person in the United Kingdom that is not a relevant person should not act or rely on this document or any of its
contents.
Notice to Prospective Investors in France
Neither this prospectus nor any other offering material relating to the shares described in this prospectus has been submitted to the
clearance procedures of the
Autorité des Marchés Financiers
or of the competent authority of another member state of the
European Economic Area and notified to the
Autorité des Marchés Financiers.
The shares have not been offered or sold and
will not be offered or sold, directly or indirectly, to the public in France. Neither this prospectus nor any other offering material relating to the shares has been or will
be:
•
released, issued, distributed or caused to be released, issued or distributed to the public in France; or
•
used in connection with any offer for subscription or sale of the shares to the public in France.
Such
offers, sales and distributions will be made in France only:
•
to qualified investors (
investisseurs qualifiés
) and/or to
a restricted circle of investors (
cercle restreint d'investisseurs
), in each case investing for their own account, all as defined in, and in accordance
with articles L.411-2, D.411-1, D.411-2, D.734-1, D.744-1, D.754-1 and D.764-1 of the French
Code monétaire et financier
;
•
to investment services providers authorized to engage in portfolio management on behalf of third parties; or
•
in a transaction that, in accordance with
article L.411-2-II-1°-or-2°-or 3° of the French
Code
monétaire et financier
and article 211-2 of the General Regulations (
Règlement
Général
) of the
Autorité des Marchés Financiers
, does not constitute
a public offer (
appel public à l'épargne
).
The
shares may be resold directly or indirectly, only in compliance with articles L.411-1, L.411-2, L.412-1 and L.621-8 through
L.621-8-3 of the French
Code monétaire et financier
.
Notice to Prospective Investors in Hong Kong
The shares may not be offered or sold in Hong Kong by means of any document other than (i) in circumstances which do not
constitute an offer to the public within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong), or (ii) to "professional investors" within the meaning of the Securities and
Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a "prospectus" within the meaning of the
Companies Ordinance (Cap. 32, Laws of Hong Kong) and no advertisement, invitation or document relating to the shares may be issued or may be in the possession of any person for the purpose of issue
(in each case whether in Hong Kong or elsewhere), which is directed at, or the
143
Table of Contents
contents
of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to shares which are or are intended
to be disposed of only to persons outside Hong Kong or only to "professional investors" within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made
thereunder.
Notice to Prospective Investors in Japan
The shares offered in this prospectus have not been registered under the Securities and Exchange Law of Japan. The shares have not been
offered or sold and will not be offered or sold, directly or indirectly, in Japan or to or for the account of any resident of Japan, except (i) pursuant to an exemption from the registration
requirements of the Securities and Exchange Law and (ii) in compliance with any other applicable requirements of Japanese law.
Notice to Prospective Investors in Singapore
This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any
other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the shares may not be circulated or distributed, nor may the shares be offered or sold,
or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under
Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the "SFA"), (ii) to a relevant person pursuant to Section 275(1), or any person pursuant to
Section 275(1A), and in accordance with the conditions specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other
applicable provision of the SFA, in each case subject to compliance with conditions set forth in the SFA.
Where
the shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is:
•
a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of
which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or
•
a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary
of the trust is an individual who is an accredited investor,
shares,
debentures and units of shares and debentures of that corporation or the beneficiaries' rights and interest (howsoever described) in that trust shall not be transferred within six months after
that corporation or that trust has acquired the shares pursuant to an offer made under Section 275 of the SFA except:
•
to an institutional investor (for corporations, under Section 274 of the SFA) or to a relevant person defined in
Section 275(2) of the SFA, or to any person pursuant to an offer that is made on terms that such shares, debentures and units of shares and debentures of that corporation or such rights and
interest in that trust are acquired at a consideration of not less than S$200,000 (or its equivalent in a foreign currency) for each transaction, whether such amount is to be paid for in cash or by
exchange of securities or other assets, and further for corporations, in accordance with the conditions specified in Section 275 of the SFA;
•
where no consideration is or will be given for the transfer; or
•
where the transfer is by operation of law.
144
Table of Contents
LEGAL MATTERS
Our counsel, Ropes & Gray LLP, Boston, Massachusetts, will pass on the validity of the shares of common stock offered by
this prospectus. Goodwin Procter LLP, Boston, Massachusetts, has acted as counsel for the underwriters in connection with certain legal matters related to this offering.
EXPERTS
The consolidated financial statements of Supernus Pharmaceuticals, Inc. at December 31, 2009 and 2008, and for each of
the three years in the period ended December 31, 2009, appearing in this prospectus and Registration Statement have been audited by Ernst & Young LLP, independent registered
public accounting firm, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and
auditing.
MARKET AND INDUSTRY DATA
Market data and certain industry data and forecasts included in this prospectus were obtained from internal company surveys, market
research, consultant surveys, publicly available information and industry publications and surveys. While we believe that each of these studies and publications is reliable, we have not independently
verified market and industry data from third-party sources. While we believe our internal company research is reliable and the market definitions we use are appropriate, neither such research nor
these definitions have been verified by any independent source. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those
described in "Risk Factors."
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission, or SEC, a registration statement on Form S-1 under the
Securities Act that registers the shares of our common stock to be sold in this offering. This prospectus does not contain all of the information set forth in the registration statement and the
exhibits filed as part of the registration statement. For further information with respect to us and our common stock, we refer you to the registration statement and the exhibits filed as a part of
the registration statement. Statements contained in this prospectus concerning the contents of any contract or any other document are not necessarily complete. If a contract or document has been filed
as an exhibit to the registration statement, we refer you to the copy of the contract or document that has been filed. Each statement in this prospectus relating to a contract or document filed as an
exhibit is qualified in all respects by the filed exhibit. The reports and other information we file with the SEC can be read and copied at the SEC's Public Reference Room at 100 F Street,
N.E., Washington D.C. 20549. Copies of these materials can be obtained at prescribed rates from the SEC's Public Reference Room at such address. You may obtain information regarding the operation of
the public reference room by calling 1-800-SEC-0330. The SEC also maintains a web site (http://www.sec.gov) that contains reports, proxy and information statements
and other information regarding issuers that file electronically with the SEC.
Upon
completion of this offering, we will become subject to the reporting and information requirements of the Exchange Act and, as a result, will file periodic reports, proxy statements
and other information with the SEC. These periodic reports, proxy statements and other information will be available for inspection and copying at the SEC's public reference room and the web site of
the SEC referred to above.
145
Table of Contents
Supernus Pharmaceuticals, Inc.
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
F-2
Consolidated Balance Sheets as of December 31, 2008 and 2009 and September 30, 2010 (unaudited)
F-3
Consolidated Statements of Operations for the Years Ended December 31, 2007, 2008 and 2009, and the Nine Months Ended September 30, 2009 (unaudited) and 2010
(unaudited)
F-4
Consolidated Statements of Changes in Stockholders' Equity (Deficit) for the Years Ended December 31, 2007, 2008 and 2009 and the Nine Months Ended September 30, 2010
(unaudited)
F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 2007, 2008 and 2009, and the Nine Months Ended September 30, 2009 (unaudited) and 2010
(unaudited)
F-6
Notes to Consolidated Financial Statements
F-7
F-1
Table of Contents
Report of Independent Registered Public Accounting Firm
The
Board of Directors
Supernus Pharmaceuticals, Inc.
We
have audited the accompanying consolidated balance sheets of Supernus Pharmaceuticals, Inc. as of December 31, 2008 and 2009, and the related consolidated statements of
operations, changes in stockholders' equity (deficit), and cash flows for each of the three years in the period ended December 31, 2009. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial
reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In
our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Supernus Pharmaceuticals, Inc. and
subsidiaries as of December 31, 2008 and 2009, and the consolidated results of their operations and their cash flows for the three years in the period ended December 31, 2009, in
conformity with U.S. generally accepted accounting principles.
/s/
Ernst & Young LLP
McLean,
Virginia
April 28, 2010
F-2
Table of Contents
Supernus Pharmaceuticals, Inc.
Consolidated Balance Sheets
Pro Forma
Stockholders'
Deficit at
September 30,
2010
December 31,
September 30,
2010
2008
2009
(unaudited)
(unaudited)
Assets
Current assets:
Cash and cash equivalents
$
52,876,864
$
31,405,680
$
25,255,918
Cash and cash equivalents—restricted
6,110,718
1,850,912
1,442,101
Marketable securities
7,502,636
35,118,047
20,566,385
Marketable securities—restricted
169,621
224,861
237,656
Accounts receivable
2,276,420
3,407,770
3,033,067
Interest receivable
—
334,417
85,802
Prepaid expenses
252,511
266,924
351,086
Deferred financing costs
268,560
270,934
270,934
Total current assets
69,457,330
72,879,545
51,242,949
Property and equipment, net
1,987,578
1,859,186
1,469,005
Purchased patents, net
1,599,950
1,370,725
1,198,806
Other assets
108,822
82,150
63,845
Deferred financing costs, long-term
3,980,073
3,707,375
3,527,616
Total assets
$
77,133,753
$
79,898,981
$
57,502,221
Liabilities and stockholders' deficit
Current liabilities:
Accounts payable and accrued expenses
$
4,468,426
$
6,244,516
$
14,092,113
Accrued compensation
1,305,572
1,287,620
815,598
Interest payable
2,500,000
2,500,000
2,500,000
Total current liabilities
8,273,998
10,032,136
17,407,711
Deferred rent
437,439
797,145
773,664
Supplemental executive retirement plan
169,621
224,861
237,656
Non-recourse notes payable
75,000,000
75,000,000
75,000,000
Total liabilities
83,881,058
86,054,142
93,419,031
Stockholders' deficit:
Series A convertible preferred stock, $0.001 par value—49,000,000 shares authorized, issued and outstanding at December 31, 2008 and 2009
and September 30, 2010; aggregate liquidation preference of $59,230,260, $62,660,260 and $65,232,760 at December 31, 2008, 2009, and September 30, 2010, respectively
49,000
49,000
49,000
—
Common stock, $0.001 par value—62,000,000 shares authorized, 5,520,591 and 6,336,061 shares issued and outstanding at December 31, 2008 and 2009,
respecively and 6,371,061 shares issued and outstanding at September 30, 2010
5,521
6,337
6,372
55,372
Additional paid-in capital
48,980,411
49,110,087
49,237,544
49,237,544
Accumulated deficit
(55,782,237
)
(55,320,585
)
(85,209,726
)
(85,209,726
)
Total stockholders' deficit
(6,747,305
)
(6,155,161
)
(35,916,810
)
(35,916,810
)
Total liabilities and stockholders' deficit
$
77,133,753
$
79,898,981
$
57,502,221
See accompanying notes.
F-3
Table of Contents
Supernus Pharmaceuticals, Inc.
Consolidated Statements of Operations
Year Ended December 31,
Nine Months Ended
September 30,
2007
2008
2009
2009
2010
(unaudited)
Revenues:
Development and milestone revenue
$
1,405,098
$
2,697,048
$
1,549,886
$
1,181,058
$
97,174
Royalty revenue
2,828,313
6,191,616
44,963,260
41,883,532
8,634,848
Total revenues
4,233,411
8,888,664
46,513,146
43,064,590
8,732,022
Costs and expenses:
Research and development
19,268,757
30,462,808
29,260,067
21,804,118
26,079,702
General and administrative
4,011,693
4,286,501
4,648,906
3,502,539
3,388,768
Total costs and expenses
23,280,450
34,749,309
33,908,973
25,306,657
29,468,470
Income (loss) from operations
(19,047,039
)
(25,860,645
)
12,604,173
17,757,933
(20,736,448
)
Other income (expense):
Interest income
1,772,999
1,057,462
514,327
100,640
622,854
Interest expense
—
(8,678,508
)
(12,658,262
)
(9,209,699
)
(9,830,537
)
Other
—
—
—
—
53,576
Total other income (expense)
1,772,999
(7,621,046
)
(12,143,935
)
(9,109,059
)
(9,154,107
)
Net income (loss)
$
(17,274,040
)
$
(33,481,691
)
$
460,238
$
8,648,874
$
(29,890,555
)
Cumulative dividends on preferred Series A convertible preferred stock
$
(3,430,000
)
$
(3,430,000
)
$
(3,430,000
)
$
(2,572,500
)
$
(2,572,500
)
Net income (loss) attributable to common stockholders
$
(20,704,040
)
$
(36,911,691
)
$
(2,969,762
)
$
6,076,374
$
(32,463,055
)
Net income (loss) per common share:
Basic
$
(4.21
)
$
(6.61
)
$
(0.53
)
$
1.08
$
(5.12
)
Diluted
$
(4.21
)
$
(6.61
)
$
0.01
$
0.15
$
(5.12
)
Weighted average number of common shares:
Basic
4,921,376
5,587,467
5,653,506
5,610,047
6,345,420
Diluted
4,921,376
5,587,467
56,324,761
56,282,411
6,345,420
Net income (loss) used to compute pro forma net income (loss) per common share — basic and diluted (unaudited)(Note 2)
$
460,238
$
(29,890,555
)
Weighted-average number of shares used in calculating pro forma net income (loss) per share basic and diluted (unaudited)(Note 2)
56,324,761
55,345,420
Pro forma net income (loss) per share—basic and diluted (unaudited)(Note 2)
$
0.01
$
(0.54
)
See accompanying notes.
F-4
Table of Contents
Supernus Pharmaceuticals, Inc.
Consolidated Statements of Changes in Stockholders' Equity (Deficit)
Series A
Convertible
Preferred Stock
Common Stock
Total
Stockholders'
Equity
(Deficit)
Additional
Paid-in
Capital
Accumulated
Deficit
Shares
Amount
Shares
Amount
Balance, December 31, 2006
49,000,000
$
49,000
4,235,303
$
4,235
$
48,803,670
$
(5,026,506
)
$
43,830,399
Vesting of unvested stock issued to officer
—
—
617,644
618
61,146
—
61,764
Exercise of stock options
—
—
50,000
50
4,950
—
5,000
Stock-based compensation
—
—
—
—
12,336
—
12,336
Net loss
—
—
—
—
—
(17,274,040
)
(17,274,040
)
Balance, December 31, 2007
49,000,000
49,000
4,902,947
4,903
48,882,102
(22,300,546
)
26,635,459
Vesting of unvested stock issued to officer
—
—
617,644
618
61,146
—
61,764
Stock-based compensation
—
—
—
—
37,163
—
37,163
Net loss
—
—
—
—
—
(33,481,691
)
(33,481,691
)
Balance, December 31, 2008
49,000,000
49,000
5,520,591
5,521
48,980,411
(55,782,237
)
(6,747,305
)
Vesting of unvested stock issued to officer
—
—
617,644
618
61,146
—
61,764
Exercise of stock options
—
—
197,826
198
19,585
—
19,783
Stock-based compensation
—
—
—
—
48,945
—
48,945
Net income
—
—
—
—
—
460,238
460,238
Other comprehensive income
—
—
—
—
—
1,414
1,414
Balance, December 31, 2009
49,000,000
49,000
6,336,061
6,337
49,110,087
(55,320,585
)
(6,155,161
)
Exercise of stock options (unaudited)
—
—
35,000
35
3,465
—
3,500
Stock-based compensation (unaudited)
—
—
—
—
123,992
—
123,992
Net loss (unaudited)
—
—
—
—
—
(29,890,555
)
(29,890,555
)
Other comprehensive income (unaudited)
—
—
—
—
—
1,414
1,414
Balance, September 30, 2010 (unaudited)
49,000,000
$
49,000
6,371,061
$
6,372
$
49,237,544
$
(85,209,726
)
$
(35,916,810
)
See accompanying notes
F-5
Table of Contents
Supernus Pharmaceuticals, Inc.
Consolidated Statements of Cash Flows
Year Ended December 31,
Nine Months Ended
September 30,
2007
2008
2009
2009
2010
(unaudited)
Operating activities
Net income (loss)
$
(17,274,040
)
$
(33,481,691
)
$
460,238
$
8,648,874
$
(29,890,555
)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Other
—
—
—
—
(53,576
)
Unrealized gain (loss) on marketable securities
—
—
1,414
(2,778
)
1,414
Depreciation and amortization
932,211
1,115,853
1,072,102
789,597
889,648
Amortization of deferred financing costs
—
178,508
270,324
202,742
179,759
Stock-based compensation expense
74,100
98,927
110,709
83,031
123,992
Changes in operating assets and liabilities:
Accounts receivable
(413,853
)
(1,163,482
)
(1,131,350
)
857,110
374,703
Interest receivable
—
—
(334,417
)
(314,296
)
248,615
Notes receivable from employee
(63,250
)
63,250
—
—
—
Prepaid expenses and other assets
88,602
(72,217
)
12,259
(183,741
)
(65,858
)
Accounts payable, accrued expenses, and supplemental executive retirement plan
2,448,174
1,088,129
1,813,378
1,505,631
7,375,575
Interest payable
—
2,500,000
—
—
—
Deferred rent
227,638
21,157
359,706
408,054
(23,481
)
Net cash provided by (used in) operating activities
(13,980,418
)
(29,651,566
)
2,634,363
11,994,224
(20,839,764
)
Cash flows from investing activities
Purchases of marketable securities
(48,380,712
)
(89,513,351
)
(56,288,673
)
(26,616,159
)
45,297,692
Sales and maturities of marketable securities
64,297,060
105,128,173
28,618,022
7,510,559
(30,746,029
)
Other
—
—
—
—
55,000
Purchases of property and equipment
(1,062,374
)
(134,381
)
(714,485
)
(512,441
)
(328,972
)
Net cash provided by (used in) investing activities
14,853,974
15,480,441
(28,385,136
)
(19,618,041
)
14,277,691
Cash flows from financing activities
Change in restricted cash and cash equivalents
—
(6,110,718
)
4,259,806
2,526,002
408,811
Proceeds from issuance of common stock
5,000
—
19,783
19,383
3,500
Proceeds from issuance of note payable
—
75,000,000
—
—
—
Deferred financing costs
—
(4,427,141
)
—
—
—
Net cash provided by financing activities
5,000
64,462,141
4,279,589
2,545,385
412,311
Net change in cash and cash equivalents
878,556
50,291,016
(21,471,184
)
(5,078,432
)
(6,149,762
)
Cash and cash equivalents at beginning of period
1,707,292
2,585,848
52,876,864
52,876,864
31,405,680
Cash and cash equivalents at end of period
$
2,585,848
$
52,876,864
$
31,405,680
$
47,798,431
$
25,255,918
Supplemental cash flow information:
Cash paid for interest
$
—
$
6,000,000
$
12,000,000
$
9,000,000
$
9,090,378
See accompanying notes.
F-6
Table of Contents
Supernus Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements
December 31, 2007, 2008 and 2009 and the unaudited
nine month
periods ended
September 30, 2009 and 2010
1. Organization and Nature of Operations
Supernus Pharmaceuticals, Inc. (the Company) was incorporated in Delaware on March 30, 2005, and commenced operations on December 22, 2005. The Company is a
specialty pharmaceutical company focused on developing and commercializing products for the treatment of central nervous system diseases, including neurological and psychiatric disorders. The Company
has several proprietary product candidates in clinical development that address large market opportunities in epilepsy and attention deficit hyperactivity disorder.
The
Company is currently focused on attaining regulatory approval and bringing its two late-stage epilepsy product candidates, SPN-538 and Epliga, to market.
Except for a one time profit in 2009, the Company has incurred net losses from operations since its inception. The Company had net income of approximately $0.5 million during the year ended
December 31, 2009 and a net loss of $29.9 million during the nine months ended September 30, 2010. The Company has financed its operations primarily through the sale of equity
securities, non-recourse debt arrangements, and payments received under its royalty and development agreements. To date, none of the Company's product candidates have been approved for
sale and therefore the Company has not generated any revenues from product sales. Management
expects operating losses to continue for the foreseeable future. The Company may need to obtain additional capital through equity offerings, debt financings and/or payments under new or existing
licensing and research and development collaboration agreements. The Company expects its progress in the development of its pipeline to provide sufficient value inflection milestones, based on which
the Company can continue to seek additional funding. The type, timing, and terms of financing, if required, selected by the Company will be dependent upon the Company's cash needs, the availability of
financing sources, and the prevailing conditions in the financial markets. There can be no assurance that such financing will be available to the Company at any given time or available on favorable
terms. If sufficient funds on acceptable terms are not available when needed, the Company could be required to significantly reduce operating expenses and delay, reduce the scope of, or eliminate one
or more of its development programs, which may have a material adverse effect on the Company's business, results of operations and financial condition.
The
Company's operations are subject to certain risks and uncertainties. The risks include negative outcome of clinical trials, inability or delay in completing clinical trials or
obtaining regulatory approvals, changing market conditions for products being developed by the Company, more stringent regulatory environment, the need to retain key personnel and protect intellectual
property, product liability, and the availability of additional capital financing on terms acceptable to the Company.
2. Summary of Significant Accounting Policies
Basis of Presentation
The Company's consolidated financial statements include the accounts of Supernus Pharmaceuticals, Inc. and its wholly-owned
subsidiary, TCD Royalty Sub LLC, collectively referred to herein as "Supernus" or "the Company". All significant intercompany transactions and balances have been eliminated in consolidation.
The Company's consolidated financial statements have
been prepared in accordance with generally accepted accounting principles in the United States. The Company currently operates in one business segment.
F-7
Table of Contents
Supernus Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements (Continued)
December 31, 2007, 2008 and 2009 and the unaudited
nine month periods ended
September 30, 2009 and 2010
2. Summary of Significant Accounting Policies (Continued)
Use of Estimates
The preparation of the financial statements in accordance with U.S. generally accepted accounting principles requires the Company to
make estimates and judgments in certain circumstances that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. In
preparing these consolidated financial statements, management has made its best estimates and judgments of certain amounts included in the financial statements, giving due consideration to
materiality. On an ongoing basis, the Company evaluates its estimates, including those related to revenue recognition, fair values of assets, convertible preferred stock and common stock, income
taxes, preclinical study and clinical trial accruals and other contingencies. Management bases its estimates on historical experience or on various other assumptions that it believes to be reasonable
under the circumstances. Actual results could differ from these estimates.
Unaudited Interim Financial Information
The accompanying unaudited interim consolidated balance sheet as of September 30, 2010, the consolidated statements of
operations and cash flows for the nine months ended September 30, 2010 and 2009, the consolidated statement of changes in stockholders' equity (deficit) for the nine months ended
September 30, 2010, and the related interim information contained within the notes to the consolidated financial statements have been prepared in accordance with the rules and regulations of
the Securities and Exchange Commission (SEC) for interim financial information. Accordingly, they do not include all of the information and the notes required by U.S. generally accepted accounting
principles for complete financial statements. In the opinion of management, the unaudited interim consolidated financial statements reflect all adjustments, consisting of normal and recurring
adjustments, necessary for the fair presentation of the Company's financial position at September 30, 2010 and results of its operations and its cash flows for the nine months ended
September 30, 2010 and 2009. The results for the nine months ended September 30, 2010 are not necessarily indicative of future results. All references to September 30, 2010 or to
the nine months ended September 30, 2010 and 2009 in the notes to the consolidated financial statements are unaudited.
Unaudited Pro Forma Balance Sheet Presentation
The unaudited pro forma balance sheet as of September 30, 2010, reflects the expected automatic conversion of the outstanding
shares of Series A convertible preferred stock into 49,000,000 shares of common stock as though the completion of the Company's initial public offering (IPO) had occurred on
September 30, 2010. The shares of common stock issued in the IPO and any related estimated net proceeds are excluded from such pro forma information.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, TCD Royalty
Sub LLC (TCD). TCD was formed for the purpose of issuing non-recourse notes payable secured by certain royalty payment and license rights (see Note 6). All intercompany
balances and transactions have been eliminated in consolidation.
F-8
Table of Contents
Supernus Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements (Continued)
December 31, 2007, 2008 and 2009 and the unaudited
nine month periods ended
September 30, 2009 and 2010
2. Summary of Significant Accounting Policies (Continued)
Cash and Cash Equivalents and Restricted Cash
The Company considers all investments in highly liquid financial instruments with an original maturity of three months or less to be
cash equivalents.
Under
the terms of a non-recourse note agreement, TCD is required to maintain a cash account to cover interest payments (see Note 6). These cash and cash equivalents
are restricted as to their withdrawal or use and, therefore, are segregated and presented as restricted cash and cash equivalents.
Marketable Securities
Marketable securities consist of investments in U.S. Treasuries and various government agency debt securities, which mature in one year
or less. At December 31, 2008, the Company held approximately $7.5 million of auction rate securities which were sold at par value on January 2, 2009. Management classifies the
Company's short-term investments as available-for-sale. Such securities are carried at estimated fair value, with any material unrealized holding gains or losses
reported, net of any tax effects, as accumulated other comprehensive income (loss), which is a separate component of stockholders' equity (deficit). Realized gains and losses and declines in value
judged to be other-than-temporary, if any, are included in results of operations. A decline in the market value of any available-for-sale security below
cost that is deemed to be other-than-temporary results in a reduction in fair value, which is charged to earnings in that period, and a new cost basis for the security is
established. Dividend and interest income is recognized as interest income when earned. The cost of securities sold is calculated using the specific identification method. The Company places all
investments with highly rated financial institutions.
Marketable Securities—Restricted
On January 21, 2006, the Company established the Supernus Supplemental Executive Retirement Plan (SERP) for the sole purpose of
receiving funds for two executives from the Shire Laboratories, Inc. SERP and providing a continuing deferral program under the Supernus SERP. As of December 31, 2008 and 2009, the
estimated fair value of the mutual fund investment securities within the SERP have been recorded as restricted marketable securities. A corresponding non-current liability is also included
in the consolidated balance sheet to reflect the Company's obligation for the SERP. The Company has not made, and has no plans to make, contributions to the SERP. The securities can only be used for
purposes of paying benefits under the SERP.
Accounts Receivable
Accounts receivable are reported in the balance sheets at outstanding amounts, less an allowance for doubtful accounts. 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
F-9
Table of Contents
Supernus Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements (Continued)
December 31, 2007, 2008 and 2009 and the unaudited
nine month periods ended
September 30, 2009 and 2010
2. Summary of Significant Accounting Policies (Continued)
collections
experience on other accounts, and economic factors or events expected to affect future collections experience. No allowance was recorded as of December 31, 2008 and 2009.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, accounts
receivable and marketable securities. The counterparties are various corporations and financial institutions of high credit standing.
Substantially
all of the Company's cash and cash equivalents are maintained with major financial institutions in the United States. Deposits held with banks may exceed the amount of
insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and, therefore, management believes they bear minimal risk. The Company has not experienced any losses on its
deposits of cash, cash equivalents, short-term investments and restricted investments and management believes that its guidelines for investment of its excess cash maintain safety and
liquidity through diversification and investment maturity.
Fair Value of Financial Instruments
The carrying amounts of financial instruments, including cash and cash equivalents, accounts receivable, and accounts payable and
accrued expenses approximate fair value due to their short-term maturities. The carrying value and the estimated fair value of the non-recourse notes payable, was approximately
$75.0 million and $66.0 million,
respectively, at December 31 2008, December 31, 2009, and September 30, 2010. The fair value was estimated based on actual trade information as well as quoted prices provided by
bond traders.
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 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for
the asset or liability in an orderly transaction between market participants at the measurement date. 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.
F-10
Table of Contents
Supernus Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements (Continued)
December 31, 2007, 2008 and 2009 and the unaudited
nine month periods ended
September 30, 2009 and 2010
2. Summary of Significant Accounting Policies (Continued)
•
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:
Fair Value Measurements at
December 31, 2008
Total Carrying
Value at
December 31,
2008
Quoted Prices
in Active
Markets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Cash and cash equivalents
$
52,876,864
$
52,876,864
$
—
$
—
Cash equivalents—restricted
6,110,718
6,110,718
—
—
Marketable securities
7,502,636
7,502,636
Marketable securities—restricted
169,621
—
169,621
—
Total assets at fair value
$
66,659,839
$
58,987,582
$
7,672,257
$
—
Fair Value Measurements at
December 31, 2009
Total Carrying
Value at
December 31,
2009
Quoted Prices
in Active
Markets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Cash and cash equivalents
$
31,405,680
$
31,405,680
$
—
$
—
Cash equivalents—restricted
1,850,912
1,850,912
—
—
Marketable securities
35,118,047
35,118,047
—
—
Marketable securities—restricted
224,861
—
224,861
—
Total assets at fair value
$
68,599,500
$
68,374,639
$
224,861
$
—
F-11
Table of Contents
Supernus Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements (Continued)
December 31, 2007, 2008 and 2009 and the unaudited
nine month periods ended
September 30, 2009 and 2010
2. Summary of Significant Accounting Policies (Continued)
Fair Value Measurements at
September 30, 2010
Total Carrying
Value at
September 30,
2010
Quoted Prices
in Active
Markets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Cash and cash equivalents
$
25,255,918
$
25,255,918
$
—
$
—
Cash equivalents—restricted
1,442,101
1,442,101
—
—
Marketable securities
20,566,385
20,566,385
—
—
Marketable securities—restricted
237,656
—
237,656
—
Total assets at fair value
$
47,502,060
$
47,264,404
$
237,656
$
—
The
Company's Level 1 assets include money market funds and U.S. Treasuries and government agency debt securities with quoted prices in active markets. At December 31,
2008, Level 2 assets include auction rate securities and mutual funds the SERP assets are invested in. At December 31, 2009 and September 30, 2010, Level 2 assets include
mutual funds the SERP assets are invested in. Mutual funds and auction rate securities are valued using third-party pricing sources that apply applicable inputs and other relevant data into their
models to estimate fair value.
Property and Equipment
Property and equipment are stated at cost. Upon retirement or sale, the cost of assets disposed of and the related accumulated
depreciation are removed from the accounts and any resulting gain or loss is credited or charged to operations. Repairs and maintenance costs are expensed as incurred. Depreciation and amortization
are computed using the straight-line method over the following average useful lives:
Computer equipment
3 years
Software
3 years
Furniture
7 years
Lab and office equipment
5 years
Leasehold improvements
Shorter of lease term or useful life
Intangible Assets
Intangible assets consist primarily of patents. Patents are carried at cost less accumulated amortization which is calculated on a
straight-line basis over the estimated useful lives of the patents, estimated to be 10 years. The carrying value of the patents is assessed for impairment annually during the fourth quarter of
each year, or more frequently if impairment indicators exist.
F-12
Table of Contents
Supernus Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements (Continued)
December 31, 2007, 2008 and 2009 and the unaudited
nine month periods ended
September 30, 2009 and 2010
2. Summary of Significant Accounting Policies (Continued)
Impairment of Long-Lived Assets
Long-lived assets consist primarily of patents and property and equipment. The Company assesses the recoverability of its
long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If indications of impairment exist, projected future
undiscounted cash flows associated with the asset are compared to the carrying amount to determine whether the asset's value is recoverable. Evaluating for impairment requires judgment, including the
estimation of future cash flows, future growth rates and profitability and the expected life over which cash flows will occur. Changes in the Company's business strategy or adverse changes in market
conditions could impact impairment analyses and require the recognition of an impairment charge equal to the excess of the carrying value of the intangible asset over its estimated fair value. For the
years ended December 31, 2007, 2008 and 2009, the Company determined that there was no impairment of the Company's intangible assets. Assets to be disposed of are reported at the lower of the
carrying amount or fair value, less costs to sell. As of December 31, 2008 and 2009, and September 30, 2010, the Company determined that there were no impaired assets and had no assets
intended for disposal.
Preclinical Study and Clinical Trial Accruals and Deferred Advance Payments
The Company estimates preclinical study and clinical trial expenses based on the services performed pursuant to contracts with research
institutions and clinical research organizations that conduct these activities on its behalf. In recording service fees, the Company estimates the time period over which the related services will be
performed and compares the level of effort expended through the end of each period to the cumulative expenses recorded and payments made for such services and, as appropriate, accrues additional
service fees or defers any non-refundable advance payments until the related services are performed. If the actual timing of the performance of services or the level of effort varies from
the estimate, the Company will adjust its accrual or deferred advance payment accordingly. If the Company later determines that it no longer expects the services associated with a deferred
non-refundable advance payment to be rendered, the deferred advance payment will be charged to expense in the period that such determination is made.
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 when necessary to reduce deferred tax assets to the amounts expected to be realized.
The
Company accounts for uncertain tax positions in the 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 adoption had no impact on the Company's
F-13
Table of Contents
Supernus Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements (Continued)
December 31, 2007, 2008 and 2009 and the unaudited
nine month periods ended
September 30, 2009 and 2010
2. Summary of Significant Accounting Policies (Continued)
results
of operations, financial position or cash flows. The Company's policy is to recognize any interest and penalties related to income taxes in income tax expense.
Revenues
The Company's revenues have been generated through research and development agreements. These agreements included fees for development
services provided to customers and payments for achievement of specified development, regulatory and sales milestones, which comprise our development and milestone revenues, as well as royalties on
product sales of licensed products, Oracea®, SancturaXR®, and Intuniv®, which comprise our royalty revenues. For multiple element arrangements, the Company
evaluates the components of each arrangement as separate elements based on certain criteria. Accordingly, revenues from collaboration agreements are recognized based on the performance requirements of
the agreements. The Company recognizes revenue when persuasive evidence of an arrangement exists; delivery has occurred or services have been rendered; the fee is fixed and determinable; and
collection is reasonably assured.
The
Company recognizes development revenue as the related costs are incurred. Milestone payments are recognized as revenue when the collaborative partner acknowledges completion of the
milestone and substantive effort was necessary to achieve the milestone.
The
Company records royalty revenues based on estimates of the sales that occurred during the relevant period. The relevant period estimates of sales are based on interim data provided
by licensees and analysis of historical royalties received (adjusted for any changes in facts and circumstances, as appropriate). Supernus maintains regular communication with licensees in order to
obtain information to develop reasonable estimates. Differences between actual royalty revenues and estimated royalty revenues are reconciled and adjusted for in the period which they are collected,
typically the following quarter. Historically, adjustments have not been material based on actual amounts received from licensees. To the extent the Company does not have sufficient ability to
accurately estimate revenue, it records revenue on a cash basis.
Research and Development Costs
Research and development expenditures are expensed as incurred. Research and development costs primarily consist of employee related
expenses, including salaries and benefits, expenses incurred under agreements with contract research organizations, investigative sites and consultants that conduct the Company's clinical trials, the
cost of acquiring and manufacturing clinical trial materials, facilities 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, stock-based compensation expense, and costs associated with non-clinical activities and regulatory approvals.
Stock-Based Compensation
Employee stock-based compensation is measured based on the estimated fair value on the grant date. The grant date fair value of options
granted is calculated using the Black-Scholes option-pricing model, which requires the use of subjective assumptions including volatility, expected term, and the fair
F-14
Table of Contents
Supernus Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements (Continued)
December 31, 2007, 2008 and 2009 and the unaudited
nine month periods ended
September 30, 2009 and 2010
2. Summary of Significant Accounting Policies (Continued)
value
of the underlying common stock. For awards that vest based on service conditions, the Company recognizes expense using the straight-line method less estimated forfeitures.
The
Company has awarded non-vested stock. The estimated fair value of these awards is determined at the date of grant based upon the estimated fair value of the Company's
common stock. The Company recognizes the estimated fair value on a straight-line basis over the requisite service period as the awards vest.
The
Company records the expense for stock option grants and non-vested stock subject to performance-based milestone vesting over the remaining service period when management
determines that achievement of the milestone is probable. Management evaluates when the achievement of a performance-based milestone is probable based on the relative satisfaction of the performance
conditions as of the applicable reporting date.
The
Company records the expense of services rendered by non-employees based on the estimated fair value of the stock option using the Black-Scholes option-pricing model. The
fair value of non-employee awards are remeasured at each reporting period. As a result, stock compensation expense for non-employee awards with vesting is affected by changes
in the fair value of the Company's common stock.
Net Earnings (Loss) Per Share
Basic net income (loss) per common share is determined by dividing the net 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 net income (loss) per share is computed by dividing the net 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 and the if-converted method is used to determine the dilutive effect of the Company's Series A convertible preferred stock. With the exception of
the year ended December 31, 2009 and the nine month period ended September 30, 2009, the weighted-average shares used to calculate both basic and diluted loss per share are the same. The
following common stock equivalents were excluded in the calculation of diluted net income (loss) per share because their effect would be anti-dilutive:
December 31,
September 30,
2007
2008
2009
2009
2010
Series A convertible preferred stock
49,000,000
49,000,000
—
—
49,000,000
Stock options and non-vested stock
2,382,389
2,183,152
—
—
1,791,290
The
pro forma net income (loss) per share is computed using the weighted-average number of common shares outstanding and assumes the conversion of all outstanding shares of the Company's
Series A convertible preferred stock into an aggregate of 49,000,000 shares of common stock upon completion of the Company's planned IPO, as if they had converted at the beginning of the
period. The Company believes the unaudited pro forma net income (loss) per share provides material information to investors, as the conversion of the Company's Series A convertible preferred
stock to
F-15
Table of Contents
Supernus Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements (Continued)
December 31, 2007, 2008 and 2009 and the unaudited
nine month periods ended
September 30, 2009 and 2010
2. Summary of Significant Accounting Policies (Continued)
common
stock is expected to occur upon the closing of an IPO, and the disclosure of pro forma net income (loss) per share thus provides an indication of net income (loss) per share that is comparable
to what will be reported by the Company as a public company.
December 31,
2009
September 30,
2010
(unaudited)
Pro forma net income (loss) per common share
Numerator:
Net income (loss) used to compute pro forma net income (loss) per common share:
Basic
$
460,238
$
(29,890,555
)
Diluted
$
460,238
$
(29,890,555
)
Denominator:
Weighted-average number of common shares, used to calculate net income (loss) per common share:
Basic
5,653,506
6,345,420
Diluted
*56,324,761
6,345,420
Add: Pro forma adjustments to reflect assumed weighted-average effect of conversion of Series A convertible preferred stock
49,000,000
49,000,000
Weighted-average number of common shares used in calculating pro forma net income (loss) per common share:
Basic
56,324,761
55,345,420
Diluted
56,324,761
55,345,420
Pro forma net income (loss) per common share:
Basic
$
0.01
$
(0.54
)
Diluted
$
0.01
$
(0.54
)
*
The
weighted-average number of common shares used to calculate diluted income (loss) per share at December 31, 2009 includes the following common stock
equivalents, which were not included in the calculation of basic net income (loss) per share because their effect would be anti-dilutive:
Series A convertible preferred stock
49,000,000
Stock options and non-vested stock
1,671,255
Recently Issued Accounting Pronouncements
In April 2010, the FASB issued ASU No. 2010-17,
Revenue Recognition—Milestone
Method
(ASU 2010-017). ASU 2010-017 provides guidance in applying the milestone method of revenue recognition to research or development arrangements.
This guidance concludes that the milestone method is a valid application of the proportional performance model when applied to research or development arrangements. Accordingly, an entity can make an
accounting policy election to recognize a payment that is contingent upon the achievement of a substantive milestone in its entirety in the period in which the milestone is achieved. The guidance is
effective for fiscal years, and interim periods within those years, beginning on or after June 15, 2010. The adoption of this accounting standard is not expected to impact the Company's
financial position or results of operations.
F-16
Table of Contents
Supernus Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements (Continued)
December 31, 2007, 2008 and 2009 and the unaudited
nine month periods ended
September 30, 2009 and 2010
2. Summary of Significant Accounting Policies (Continued)
In February 2010, the FASB issued amended guidance on subsequent events. Under this amended guidance, SEC filers are no longer required to disclose the date through which subsequent
events have been evaluated in originally issued and revised financial statements. This guidance was effective immediately and the Company adopted these new requirements upon issuance of this guidance.
In
January 2010, the FASB issued Accounting Standards Update (ASU) No. 2010-06,
Fair Value Measurements and Disclosures (Topic
820)—Improving Disclosures about Fair Value Measurements
(ASU No. 2010-06). ASU No. 2010-06 requires: (1) fair value
disclosures of assets and liabilities by class; (2) disclosures about significant transfers in and out of Levels 1 and 2 on the fair value hierarchy, in addition to Level 3;
(3) purchases, sales, issuances, and settlements be disclosed on gross basis on the reconciliation of beginning and ending balances of Level 3 assets and liabilities; and
(4) disclosures about valuation methods and inputs used to measure the fair value of Level 2 assets and liabilities. ASU No. 2010-06 becomes effective for the first
financial reporting period beginning after December 15, 2009, except for disclosures about purchases, sales, issuances, and settlements of Level 3 assets and liabilities which will be
effective for fiscal years beginning after December 15, 2010. The Company is currently assessing what impact, if any, ASU No. 2010-06 will have on its fair value disclosures.
However, the Company does not expect the adoption of the guidance provided in this codification update to have any material impact on its consolidated financial statements.
In
October 2009, the FASB issued ASU No. 2009-13,
Revenue Recognition (Topic 605)—Multiple-Deliverable Revenue Arrangements: a
consensus of the FASB Emerging Issues Task Force
(ASU 2009-13). ASU 2009-13 establishes a selling-price hierarchy for determining the selling price of
each element within a multiple-deliverable arrangement. Specifically, the selling price assigned to each deliverable is to be based on vendor-specific objective evidence (VSOE) if available,
third-party evidence, if VSOE is unavailable, and estimated selling prices if neither VSOE or third-party evidence is available. In addition, ASU 2009-13 eliminates the residual method of
allocating arrangement consideration and instead requires allocation using the relative selling price method. ASU 2009-13 will be effective prospectively for multiple-deliverable revenue
arrangements entered into, or materially modified, in fiscal years beginning on or after June 15, 2010. Presently, the Company is assessing what impact, if any, the adoption of ASU
2009-13 may have on its consolidated financial statements.
In
August 2009, the FASB issued ASU No. 2009-05,
Fair Value Measurements and Disclosures (Topic 820)—Measuring Liabilities at Fair
Value
(ASU 2009-05). ASU 2009-05 provides guidance in measuring the fair value of a liability when a quoted price in an active market does not exist for
an identical liability or when a liability is subject to restrictions on its transfer. ASU 2009-15 was effective for the Company beginning with the quarter ended December 31, 2009.
The adoption of ASU 2009-05 had no impact on the fair value measurements of the Company's liabilities.
F-17
Table of Contents
Supernus Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements (Continued)
December 31, 2007, 2008 and 2009 and the unaudited
nine month periods ended
September 30, 2009 and 2010
3. Marketable Securities
Marketable securities held by the Company were as follows:
At
December 31, 2008:
Available-for-Sale
Amortized
Cost
Unrealized
Gains/(Losses)
Fair
Value
Auction rate securities
$
7,502,636
$
—
$
7,502,636
Mutual funds for SERP
169,621
—
169,621
$
7,672,257
$
—
$
7,672,257
At
December 31, 2009:
Available-for-Sale
Amortized
Cost
Unrealized
Gains/(Losses)
Fair
Value
U.S. Treasuries and agencies
$
35,116,363
$
1,414
$
35,118,047
Mutual funds for SERP
224,861
—
224,861
$
35,341,224
$
1,414
$
35,342,908
At
September 30, 2010:
Available-for-Sale
Amortized
Cost
Unrealized
Gains/(Losses)
Fair
Value
U.S. Treasuries and agencies
$
20,564,971
$
1,414
$
20,566,385
Mutual funds for SERP
237,656
237,656
$
20,802,627
$
1,414
$
20,804,041
Gross
realized gains (losses) that were included in earnings as a result of sales of securities are $0, $(10,265) and $0 for the years ended December 31, 2007, 2008, and 2009, and
$0 for each of the nine-month periods ended September 30, 2009 and 2010, respectively.
F-18
Table of Contents
Supernus Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements (Continued)
December 31, 2007, 2008 and 2009 and the unaudited
nine month periods ended
September 30, 2009 and 2010
4. Property and Equipment
Property and equipment consists of the following:
December 31,
September 30,
2010
2008
2009
(unaudited)
Computer equipment
$
511,483
$
531,757
$
548,060
Software
148,305
174,078
174,078
Lab equipment and furniture
3,149,977
3,327,632
3,471,465
Leasehold improvements
324,377
815,160
973,314
4,134,142
4,848,627
5,166,917
Less accumulated depreciation and amortization
(2,146,564
)
(2,989,441
)
(3,697,912
)
$
1,987,578
$
1,859,186
$
1,469,005
Depreciation
expense on property and equipment for the years ended December 31, 2007, 2008 and 2009 was $702,985, $886,629 and $842,877, respectively, and $789,597 and $889,648
for the nine months ended September 30, 2009 and 2010, respectively.
5. Purchased Patents
In connection with a purchase agreement with Shire Laboratories, Inc., the Company acquired certain patents in 2005. The following sets forth the gross carrying amount and related
accumulated amortization of the patents:
December 31, 2008
December 31, 2009
September 30, 2010
Weighted-
Average Life
Gross Carrying
Amount
Accumulated
Amortization
Gross Carrying Amount
Accumulated
Amortization
Gross Carrying
Amount
Accumulated
Amortization
(unaudited)
Purchased patents
10.0
$
2,292,253
$
692,303
$
2,292,253
$
921,528
$
2,292,253
$
1,093,447
Amortization expense for the years ended December 31, 2007, 2008 and 2009 was $229,225 each year as is the estimated annual aggregate
amortization expense through December 31, 2015. The net book value of intangible assets as of December 31, 2008 and 2009 and September 30, 2010 was approximately
$1.6 million, $1.4 million and $1.2 million, respectively.
6. Non-Recourse Notes Payable
In April 2008, certain royalty payment rights and other license rights of the Company that it had under license agreements with two unrelated companies were transferred to TCD, a
100%-owned subsidiary in exchange for approximately $63.3 million. TCD raised funds for the transaction from a completed private placement of $75.0 million in Secured 16% Notes; due
April 15, 2024 (the Notes). The Notes are non-recourse to the Company and are secured by TCD's assets including the royalty payment rights and other related rights of the
transferred license agreements. While the Notes are outstanding, all royalty payments under these license agreements go to the payment of interest.
F-19
Table of Contents
Supernus Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements (Continued)
December 31, 2007, 2008 and 2009 and the unaudited
nine month periods ended
September 30, 2009 and 2010
6. Non-Recourse Notes Payable (Continued)
Royalties
earned in excess of the stated interest rate will be applied to the principal on such Notes. Interest expense related to the Notes for the years ended December 31, 2007, 2008 and 2009
was $0.0 million, $8.5 million, $12.0 million, respectively, and $9.0 million and $9.1 million for the nine months ended September 30, 2009 and 2010,
respectively. As of December 31, 2008, 2009 and September 30, 2010 TCD had interest payable of $2.5 million.
In
conjunction with the issuance of the Notes, TCD initially placed $8.0 million into a restricted cash interest reserve account to cover payments required when the initial
royalties are not sufficient to meet the interest payments due. At December 31, 2008 and 2009 and September 30, 2010, the remaining interest reserve balance was approximately
$6.1 million, $1.9 million and $1.4 million, respectively, and is recorded as restricted cash and cash equivalents on the consolidated balance sheets. Any excess in the interest
reserve account will be used as additional principal payments. The syndication costs to complete the transaction were approximately $4.4 million for investment banking, legal, consulting,
accounting, and printing fees. These costs were capitalized as deferred financing costs and are being amortized over the term of the related debt using the effective interest method. Amortization of
deferred financing costs for the years ended December 31, 2007, 2008 and 2009 approximated $0, $179,000 $270,000, respectively, and $203,000 and $202,000 for the nine month periods ended
September 30, 2009 and 2010, respectively.
In
the first quarter of 2010, the $8.0 million interest reserve was exhausted. As of September 30, 2010, TCD had approximately $1.4 million available for the
quarterly interest payment of $3.0 million due on October 15, 2010. In December 2010, TCD has paid the interest shortfall of $1.6 million and had $0.8 million available for
future interest payments. Under the terms of the Notes, TCD is not in default for payment of interest unless it fails to make payment in full on the interest payment by the next succeeding payment
date. To date, TCD has been able to make payment in full of all interest payments before the next succeeding payment date. In the event of a default for failure to pay interest timely, the noteholders
do not have recourse to the Company as the Notes are non-recourse beyond TCD and non-convertible into any other securities of the Company, and have not been guaranteed by the
Company. The Company has pledged all equity interests of TCD to the noteholders so, upon an event of default, the noteholders could elect to exercise their rights to acquire those equity interests in
TCD.
7. Stockholders' Equity (Deficit)
In 2005 and 2006, the Company issued an aggregate of 49,000,000 shares of its Series A convertible preferred stock (Series A Preferred Stock), which includes
4.0 million shares issued in connection with the purchase of certain assets from Shire Laboratories, Inc. The offering price per share was $1.00, resulting in aggregate gross cash
proceeds of $45.0 million. The Company incurred approximately $286,000 in expenses directly related to these offerings, and these expenses were charged to additional paid-in
capital.
Dividends
are cumulative and accrue at a rate per annum of $0.07 per share, subject to adjustment for certain dilutive events. The Company is not obligated to pay the dividends unless it
declares or pays dividends on any other shares of capital stock or in the event of a liquidation, dissolution or winding up
F-20
Table of Contents
Supernus Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements (Continued)
December 31, 2007, 2008 and 2009 and the unaudited
nine month periods ended
September 30, 2009 and 2010
7. Stockholders' Equity (Deficit) (Continued)
of
the Company. As of December 31, 2007, 2008 and 2009 dividends of approximately $6.8 million, $10.2 million and $13.7 million, respectively, have been accumulated. In
liquidation, the holders of Series A Preferred Stock are entitled to receive $1.00 per share plus an amount equal to all accrued
unpaid dividends plus any dividends declared but unpaid before any distribution to the holders of any shares of common stock or any other class or series of stock ranking on liquidation junior to the
Series A Preferred Stock. A merger or consolidation in which the Company is a constituent party is deemed to be a liquidation.
The
holders of the Series A Preferred Stock are entitled to cast the number of votes equal to the number of whole shares of common stock into which the shares of Series A
Preferred Stock held are convertible as of the specified record date. The holders of the Series A Preferred Stock are entitled to elect four directors of the Company. Without the affirmative
vote of two-thirds of then outstanding shares of Series A Preferred Stock, the Company shall not, among other things, change the number of directors from nine; create any additional
shares of preferred stock; liquidate or dissolve the business affairs of the Company; create or issue any security or obligation that is convertible or exchangeable into securities of the Company; pay
dividends or distributions on any shares of stock; or incur any liability for indebtedness that exceeds $500,000.
At
any time, the Series A Preferred Stockholders may convert their Series A shares into shares of common stock. The initial conversion is
one-for-one. The conversion ratio is subject to adjustment should specified dilutive events occur. The Company has reserved 49,000,000 shares of common stock for the potential
conversion of its Series A Preferred Stock. Each share of Series A Preferred Stock automatically converts into shares of the Company's common stock upon closing of a firm commitment
underwritten public offering of common stock registered under the Securities Act of 1933 at a price of at least $3.00 per share (adjusted to reflect stock splits, stock dividends, stock combinations,
recapitalizations, and like occurrences), and which generates gross proceeds to the Company of at least $35.0 million. The holders of the Series A Preferred Stock have the right to elect
to convert all outstanding shares of their stock into shares of common stock upon a two-thirds vote. The Series A Preferred Stock is not redeemable or contingently redeemable.
Common Stock
The holders of the common stock are entitled to one vote for each share of common stock held. Except for certain matters specified in
the Company's amended and restated certificate of incorporation, the holders of common stock shall vote together as a single class on all matters with the holders of the Series A Preferred
Stock.
8. Share-Based Payments
As of September 30, 2010, the Company had one share-based compensation plan. The Supernus Pharmaceuticals, Inc. 2005 Stock Plan (the Plan), which is stockholder-approved,
permits the grant of options, purchase rights, and awards to its employees, officers, directors, consultants, or advisors for up to 8.0 million shares of common stock. The Company believes that
such awards better align the interest of its employees with those of its stockholders. Option awards are generally granted with an exercise
F-21
Table of Contents
Supernus Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements (Continued)
December 31, 2007, 2008 and 2009 and the unaudited
nine month periods ended
September 30, 2009 and 2010
8. Share-Based Payments (Continued)
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. The Plan provides for the issuance of common stock of the Company upon the exercise of stock options. A portion of the grants to certain
employees vests upon the achievement of specified Company milestones.
If
an optionee is terminated for cause, the Company has the right and option to purchase, for a period of 180 days from the termination date, the shares of common stock the
optionee obtained through the exercise of a stock option. The purchase price will equal the estimated fair market value of the common stock determined by mutual agreement between the Company and the
optionee. There were no shares subject to repurchase at December 31, 2008, December 31, 2009, or September 30, 2010.
Stock-based
compensation recognized related to the grant of employee and non-employee stock options, and non-vested stock was as follows:
December 31,
September 30,
2007
2008
2009
2009
2010
(unaudited)
Research and development
$
9,252
$
27,872
$
28,059
$
21,044
$
32,213
General and administrative
64,848
71,055
82,650
61,987
91,779
Total
$
74,100
$
98,927
$
110,709
$
83,031
$
123,992
The
fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model using the assumptions in the following table:
Year Ended December 31,
September 30,
2010
2007
2008
2009
(unaudited)
Fair value of common stock
$0.10 – $0.40
$0.40
$0.40 – $1.76
$0.84
Expected volatility
60%
60%
60.3% – 61.5%
59.1% – 60.70%
Expected dividends
0%
0%
0%
0%
Expected term
6.25 years
6.25 years
6.25 years
6.25 years
Risk-free rate
3.81% – 5.25%
3.70% – 3.94%
1.65% – 2.72%
1.78% – 2.93%
Expected forfeiture rate
5%
5%
5%
5%
Fair Value of Common Stock
—For all option grants the fair value of the Common Stock underlying the option grants was determined by the Company's Board
of Directors (Board), with the assistance of management, which intended all options granted to be exercisable at a price per share not less than the per share fair value of the Company's Common Stock
underlying those options on the date of grant. The Company utilized methodologies, approaches and assumptions as set forth by the American Institute of Certified Public Accountants, or the AICPA, in
the AICPA Technical Practice
F-22
Table of Contents
Supernus Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements (Continued)
December 31, 2007, 2008 and 2009 and the unaudited
nine month periods ended
September 30, 2009 and 2010
8. Share-Based Payments (Continued)
Aid,
"
Valuation of Privately-Held-Company Equity Securities Issued as Compensation,"
referred to herein as the AICPA Practice
Aid, when estimating the fair value of common stock at each grant date.
Given
the lack of an active public market for the common stock, the Board employed a third-party valuation firm to assist in the determination of fair value by completing contemporaneous
valuations. In the absence of a public market, and as a clinical stage company with no significant revenues from product sales, the Company considered a range of factors to determine the fair market
value of the common stock at each grant date. The factors include: (1) the achievement of clinical and operational milestones by the Company, (2) the status of strategic relationships
with collaborators, (3) the significant risks associated with the Company's stage of development, (4) capital market conditions for life science companies, particularly similarly
situated privately held, early-stage life science companies, (5) the Company's available cash, financial condition, and results of operations, (6) the most recent sales of the Company's
preferred stock, and (7) the preferential rights of the outstanding preferred stock.
Expected Volatility
—Volatility is a measure of the amount by which a financial variable such as a share price has fluctuated (historical volatility)
or is expected to fluctuate (expected volatility) during a period. The Company does not maintain an internal market for its shares and its shares are not traded privately. The Company has identified
several public entities of similar size, complexity, and stage of development and, accordingly, historical volatility has been calculated using the volatility of these companies.
Dividend Yield
—The Company has never declared or paid dividends and has no plans to do so in the foreseeable future.
Expected Term
—This is the period of time that the options granted are expected to remain unexercised. Options granted have a maximum term of ten
years. The Company determines the average expected life of stock options according the "simplified method" ad described in Staff Accounting Bulletin 110, which is the mid-point between the
vesting date and the end of the contractual term. The Company estimates the expected life of the option term to be 6.25 years. Over time, management will track estimates of the expected life of
the option term so that estimates will approximate actual behavior for similar options.
Risk-Free Interest Rate
—This is the U.S. Treasury rate for the week of each option grant during the year, having a term that most closely
resembles the expected life of the option.
Expected Forfeiture Rate
—The forfeiture rate is the estimated percentage of options granted that are expected to be forfeited or canceled on an annual
basis before becoming fully vested. The Company estimates the forfeiture rate based on turnover data with further consideration given to the class of employees to whom the options were granted.
F-23
Table of Contents
Supernus Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements (Continued)
December 31, 2007, 2008 and 2009 and the unaudited
nine month periods ended
September 30, 2009 and 2010
8. Share-Based Payments (Continued)
Information with respect to stock options granted to employees and nonemployees from January 1, 2009 through September 30, 2010 was as follows:
Grant Date
Number of
Options Granted
Exercise
Price
Estimated
Fair Value
Intrinsic
Value
01/19/2009
225,000
$
0.40
$
0.23
$
—
12/15/2009
257,200
$
1.76
$
1.03
$
—
02/10/2010
52,500
$
0.84
$
0.49
$
—
04/16/2010
32,750
$
0.84
$
0.49
$
—
07/20/2010
38,500
$
0.84
$
0.48
$
—
The
following table summarizes stock option activity under the Plan during the year then ended:
Number of
Options
Weighted-
Average
Exercise Price
Weighted-Average
Remaining
Contractual Term
Outstanding, December 31, 2008
1,737,219
$
0.14
7.62
Granted
482,200
$
1.13
9.53
Exercised
(197,826
)
$
0.10
6.11
Forfeited or expired
(372,485
)
$
0.11
Outstanding, December 31, 2009
1,649,108
$
0.44
7.53
Granted
123,750
$
0.84
9.55
Exercised
(35,000
)
$
0.10
5.73
Forfeited or expired
(8,400
)
$
0.37
Outstanding, September 30, 2010
1,729,458
$
0.48
7.00
December 31, 2009:
Vested and expected to vest
1,598,334
$
0.44
7.51
Exercisable
709,061
$
0.13
6.38
September 30, 2010:
Vested and expected to vest
1,686,232
$
0.47
6.97
Exercisable
940,324
$
0.15
5.86
The
aggregate intrinsic value of options outstanding and exercisable as of September 30, 2010 is approximately $857,000 and $646,000 respectively.
The
weighted-average, grant-date fair value of options granted for the years ended December 31, 2007, 2008 and 2009, was $0.08, $0.24 and $0.66 per share,
respectively. The total fair value of the underlying common stock related to shares that vested during the years ended December 31, 2007, 2008 and 2009, was $12,336, $37,163 and $48,945,
respectively. As of December 31, 2009, the total unrecognized compensation expense, net of related forfeiture estimates, was $318,747 which the Company expects to recognize over a
weighted-average period of approximately 2.27 years. As of September 30, 2010, the total unrecognized compensation expense, net of related forfeiture estimates,
F-24
Table of Contents
Supernus Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements (Continued)
December 31, 2007, 2008 and 2009 and the unaudited
nine month periods ended
September 30, 2009 and 2010
8. Share-Based Payments (Continued)
was
$283,095 which the Company expects to recognize over a weighted-average period of approximately 2.19 years (see Note 13).
On
December 22, 2005, the Company granted an officer a restricted award for 3.5 million shares of common stock. Approximately 2.5 million shares of the award vested
on a quarterly basis over a four-year period through 2009. The remaining 1.0 million shares of the award vest upon the achievement of specified clinical and regulatory milestones,
of which there are 411,765 shares remaining to vest as of September 30, 2010, pending successful completion of one last milestone. Failure to achieve this milestone will result in cancellation
of that portion of the award. As of December 31, 2008 and 2009, 1,029,409 and 411,765 shares, respectively, related to this award remained unvested. On the grant date, the Company estimated the
fair value of unrestricted common stock to be $0.10. The total estimated fair value of $350,000 is being attributed a) to the requisite service period ratably over four years and b) the
portion subject to the achievement of the specified performance conditions is being recognized when achievement of those conditions is considered probable. For the years ended December 31,
2007, 2008 and 2009 the Company recognized $61,764, $61,764 and $61,764, respectively, in stock compensation related to this arrangement. The following table summarizes activity related to these
non-vested shares:
Number of
Shares
Weighted-
Average
Fair Value
Non-vested shares, January 1, 2009
1,029,409
$
0.10
Granted
—
Vested
(617,644
)
$
0.10
Forfeited
—
Non-vested shares, December 31, 2009
411,765
$
0.10
Granted
—
Vested
—
Forfeited
—
Non-vested shares, December 31, 2010
411,765
$
0.10
As
of September 30, 2010, total stock compensation expense for non-vested awards not yet recognized is approximately $10,000. The remaining stock compensation expense
related to non-vested awards will be recorded during 2010.
9. Income Taxes
For the years ended December 31, 2007, 2008 and 2009 there was no current provision or benefit for federal or state income taxes.
F-25
Table of Contents
Supernus Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements (Continued)
December 31, 2007, 2008 and 2009 and the unaudited
nine month periods ended
September 30, 2009 and 2010
9. Income Taxes (Continued)
A
reconciliation of the expected income tax benefit computed using the federal statutory income tax rate to the Company's effective income tax rate is as follows:
Year Ended December 31,
2007
2008
2009
Income tax (benefit) computed at federal statutory tax rate
$
(5,873,173
)
$
(11,383,775
)
$
156,481
Permanent items
9,402
25,665
37,845
State taxes
(939,066
)
(1,818,968
)
33,135
Change in valuation allowance
8,054,810
15,233,582
(666,690
)
Other
(84,254
)
414,166
1,424,790
Research and development credits
(1,167,719
)
(2,470,670
)
(985,561
)
Total
$
—
$
—
$
—
The
deferred tax benefit has been entirely offset by valuation allowances. The significant components of the Company's estimated deferred tax assets (liabilities) were as follows:
December 31,
2007
2008
2009
Deferred tax assets:
Net operating loss carryforward
$
8,794,582
$
21,900,173
$
21,334,641
Deferred rent credit
164,202
172,547
314,434
Accrued compensation and nonqualified stock options
—
—
26,638
Deferred financing costs
—
—
(6,303
)
Depreciation and amortization
(286,679
)
(227,863
)
(93,724
)
Research and development credits
1,491,310
3,552,102
3,138,434
Other
395
434
16,583
Net deferred tax asset before valuation allowance
10,163,810
25,397,393
24,730,703
Valuation allowance
(10,163,810
)
(25,397,393
)
(24,730,703
)
Net deferred tax asset
$
—
$
—
$
—
The
Company has reported losses, except for a small, one-time gain in 2009, since inception and expects to continue to incur losses in the near term. These losses have not
resulted in reported tax benefits because of increases in the valuation allowance for deferred tax assets that result from the inability to determine the realizability of the net operating loss
carryforwards.
At
December 31, 2009, the Company had net operating loss carryforwards of approximately $54.1 million, which begin to expire in 2025 if not utilized. The Company also had
research and development tax credit carryforwards of approximately $3.1 million, which expire in 2025 if not utilized. The research and development tax credit reduces the Company's tax
liability based on the amount spent on research and development activities on a new product or to improve existing products. Internal Revenue Code Section 382 places a limitation (the
Section 382 Limitation) on the amount of
F-26
Table of Contents
Supernus Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements (Continued)
December 31, 2007, 2008 and 2009 and the unaudited
nine month periods ended
September 30, 2009 and 2010
9. Income Taxes (Continued)
taxable
income, that can be offset by net operating loss carryforwards after a change in control (generally, a greater than 50% change in ownership). Typically, after a control change, a company
cannot deduct operating loss carryforwards in excess of the Section 382 Limitation. Due to these changes in ownership provisions, utilization of the net operating loss and tax credit
carryforwards may be subject to an annual limitation regarding their utilization against taxable income in future periods.
If
applicable, the Company would classify interest and penalties related to uncertain tax positions in income tax expense. The tax years 2005 through 2009 remain open to examination by
one or more major taxing jurisdictions to which the Company is subject. There are no income tax examinations currently in progress.
10. Commitments and Contingencies
The Company leases office and lab space over periods extending through April 2013. The lease contains provisions for operating expense reimbursement as well as an annual 3% rent
escalation. The lease also contains tenant and capital improvement allowances in the aggregate of $1.1 million. Through December 31, 2009, $774,464 of the allowance has been utilized and
included in fixed assets and deferred rent. Rent expense for each of the years ended December 31, 2007, 2008 and 2009, was $921,000. The Company incurred $690,750 and $690,750 of rent expense
for the nine month periods ending September 30, 2009 and 2010, respectively. Future minimum lease payments under noncancelable operating leases at December 31, 2009, are as follows:
Operating
Leases
Year ending December 31:
2010
$
953,000
2011
982,000
2012
1,011,000
2013
340,000
Thereafter
—
$
3,286,000
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 and earlier stage product candidates of the Company. The Company does not owe any future milestone payments for SPN-810. However if
the other product candidate is successfully developed and commercialized, the Company could be required to pay up $350,000 in total in potential future milestone payments through product approval and
issuance of the U.S. patent for this product. The Company will also be 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
F-27
Table of Contents
Supernus Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements (Continued)
December 31, 2007, 2008 and 2009 and the unaudited
nine month periods ended
September 30, 2009 and 2010
10. Commitments and Contingencies (Continued)
worldwide
rights to a product concept from Rune. There are no future milestone payments owing 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 will be obligated to pay royalties to Rune based on net sales worldwide in the low single digits.
11. Employee Benefit Plan
On January 2, 2006, the Company established the Supernus Pharmaceuticals, Inc. 401(k) Profit Sharing Plan (the Plan) for its employees under Section 401(k) of the
Internal Revenue Code (Code). Under this Plan, all full-time employees who are at least 21 years old are eligible to participate in the Plan. Employees may participate starting on
the first day of each month following their employment. Employees may contribute up to the lesser of 90% of eligible compensation or the applicable limit established by the Code.
Employees
are 100% vested in their contributions to the Plan. The Company matches 100% of a participant's contribution for the first 3% of their salary deferral and matches 50% of the
next 2% of their salary deferral. As determined by the Board, the Company may elect to make a discretionary contribution not exceeding 60% of the annual compensation paid to all participating
employees. The Company's contributions to the Plan approximated $205,000 and $204,000 for the nine months ended September 30, 2009 and 2010, respectively, and $210,000, $273,000 and $255,000
for the years ended December 31, 2007, 2008 and 2009, respectively.
12. Related-Party Transactions
In May 2009, the Company entered into an amendment to a license agreement with Shire LLC, a holder of Series A convertible preferred stock, whereby Shire LLC and its
affiliates paid the Company a one-time, lump-sum payment of $36.9 million in return for a fully paid-up license for one of its products that utilizes the Company's
proprietary technologies. All four criteria necessary to recognize revenue in accordance with ASC 605-10-S25,
Revenue
Recognition—Overall—Recognition
, were met during 2009 related to this transaction. Accordingly, the entire amount was recorded as royalty revenue in the
consolidated statement of operations.
13. Subsequent Events
In December 2010, the Company amended its lease arrangement for its office and lab space in order to extend the expiration of the term from April 2013 to April 2018. Commencing in
November 2013, the basic annual rent will be increased 2% per annum for the remaining term. The Company may elect to extend the term of the lease for an additional five year period on the same terms
and conditions. In addition, the lease amendment provides for a tenant improvement allowance of $1,250,000.
In
November 2010, the Board repriced 255,000 of the options granted on December 15, 2009 from a per share exercise price of $1.76 to $0.64. In addition, the Board approved the
modification of the performance vesting requirements related to 157,697 employee stock options and 411,765 shares of
F-28
Table of Contents
Supernus Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements (Continued)
December 31, 2007, 2008 and 2009 and the unaudited
nine month periods ended
September 30, 2009 and 2010
13. Subsequent Events (Continued)
non-vested
stock awarded to the Company's chief executive officer. The vesting of these share-based awards were contingent upon the filing of the Company's first new drug application on or
before December 22, 2010, and the Board extended the deadline for the achievement of this performance condition to March 31, 2011. As a result of these actions, there is no immediate
charge related to the repriced and modified options, and the Company will recognize additional stock based compensation of approximately $50,000 over the remaining vesting periods for these options.
F-29
Table of Contents
Shares
SUPERNUS PHARMACEUTICALS, INC.
Common Stock
PRELIMINARY PROSPECTUS
, 2011
Citi
Barclays Capital
Cowen and Company
Stifel Nicolaus Weisel
Until                        , 2011 (25 days after the date
of this prospectus), all dealers that buy, sell or trade shares of our common stock,
whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with
respect to their unsold allotments or subscriptions.
Table of Contents
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13.
Other Expenses of Issuance and Distribution.
The following table sets forth the costs and expenses, other than underwriting discounts and commissions, payable by us in connection
with the sale of the common stock being registered hereby. All amounts are estimates except the SEC Registration Fee, the FINRA filing fee and NASDAQ Global Market listing fee.
Amount to be Paid
SEC registration fee
$
7,130
FINRA filing fee
$
10,500
NASDAQ Global Market initial listing fee
$
*
Blue Sky fees and expenses
$
*
Printing and engraving expenses
$
*
Legal fees and expenses
$
*
Accounting fees and expenses
$
*
Transfer agent and registrar fees
$
*
Miscellaneous
$
*
Total
$
*
*
To
be completed by amendment.
ITEM 14.
Indemnification of Directors and Officers.
On completion of this offering, our amended and restated certificate of incorporation will contain provisions that eliminate, to the
maximum extent permitted by the General Corporation Law of the State of Delaware, the personal liability of directors and executive officers for monetary damages for breach of their fiduciary duties
as a director or officer. Our amended and restated certificate of incorporation and bylaws will provide that we shall indemnify our directors and executive officers and may indemnify our employees and
other agents to the fullest extent permitted by the General Corporation Law of the State of Delaware.
Sections 145
and 102(b)(7) of the General Corporation Law of the State of Delaware provide that a corporation may indemnify any person made a party to an action by reason of the
fact that he or she was a director, executive officer, employee or agent of the corporation or is or was serving at the request of the corporation against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action if he or she acted in good faith and in a manner he or she reasonably
believed to be in, or not opposed to, the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful,
except that, in the case of an action by or in right of the corporation, no indemnification may generally be made in respect of any claim as to which such person is adjudged to be liable to the
corporation.
We
are entering into indemnification agreements with each of our directors and executive officers, in addition to the indemnification provided for in our amended and restated certificate
of incorporation and bylaws, and intend to enter into indemnification agreements with any new directors and executive officers in the future.
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We
intend to purchase and maintain insurance on behalf of any person who is or was a director or officer of our company against any loss arising from any claim asserted against him or
her and incurred by him or her in any such capacity, subject to certain exclusions.
The
Underwriting Agreement (to be filed as Exhibit 1.1 hereto) provides for indemnification by the underwriters of us and our executive officers and directors, and by us of the
underwriters, for certain liabilities, including liabilities arising under the Securities Act.
See
also the undertakings set out in response to Item 17 herein.
ITEM 15.
Recent Sales of Unregistered Securities.
The following sets forth information regarding all unregistered securities sold during the last three fiscal
years:
(a)
Within
the last three years, we have issued and sold the following securities:
(1)
From
December 21, 2007 to July 20, 2010, we issued 282,826 shares of common stock upon the exercise of options to purchase shares of our
common stock under the 2005 Stock Plan, all at $0.10 per share.
The
sales and issuances of restricted securities in the transactions described in the paragraph above were deemed to be exempt from registration under the Securities Act in reliance upon the following
exemptions: Rule 701 promulgated under Section 3(b) of the Securities Act, as transactions pursuant to a written compensation benefit plan and contracts relating to compensation as
provided under Rule 701.
(b)
From
April 16, 2008 to November 16, 2010, we granted to our employees and consultants options to purchase an aggregate of 1,748,050 shares of
our common stock under the 2005 Stock Plan at prices ranging from $0.40 to $1.76 per share.
The
sales and issuances of securities in the transactions described in the above paragraph (b) were deemed to be exempt from registration under the Securities Act in reliance upon
Rule 701 promulgated under Section 3(b) of the Securities Act, as transactions pursuant to a written compensation benefit plan and contracts relating to compensation as provided under
Rule 701.
(c)
There
were no underwritten offerings employed in connection with any of the transactions set forth in Item 15.
ITEM 16.
Exhibits and Financial Statement Schedules.
(a)
Exhibits—The
exhibits to the registration statement are listed in the Exhibit Index to this Registration Statement beginning on
page E-1 and are incorporated herein by reference.
(b)
Financial
Statements Schedules—All schedules are omitted because they are not applicable or the required information is shown in the
consolidated financial statements or notes thereto.
ITEM 17.
Undertakings.
The undersigned Registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement
certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
Insofar
as indemnification by the Registrant for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant
to the provisions described in Item 14 or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities
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Act
and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
The
undersigned Registrant hereby undertakes that:
(1)
For
purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4), or 497(h) under the Securities Act of
1933, shall be deemed to be part of this Registration Statement as of the time it was declared effective.
(2)
For
the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities offered therein, and this offering of such securities at that time shall be deemed to be the initial
bona fide
offering
thereof.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Registration Statement on
Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Rockville, State of Maryland, on the 22
nd
day of December, 2010.
SUPERNUS PHARMACEUTICALS, INC.
By:
/s/ JACK A. KHATTAR
Name:  Jack A. Khattar
Title:    President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Jack Khattar and
Russell Wilson, and each of them acting individually, as such person's true and lawful attorneys-in-fact and agents, with full power of each to act alone, with full powers of
substitution and resubstitution, for such person and in such person's name, place and stead, in any and all capacities, to sign the Registration Statement filed herewith and any and all amendments to
said Registration Statement (including post-effective amendments and any related registration statements thereto filed pursuant to Rule 462 and otherwise), and file the same, with
all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, with full power
of each to act alone, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully for all intents and purposes as such
person might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or such person's or their substitutes, may lawfully do or cause
to be done by virtue hereof.
Pursuant
to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated
below:
Signature
Title
Date
/s/ JACK A. KHATTAR
Jack A. Khattar
President and Chief Executive Officer and Director
(Principal Executive Officer)
December 22, 2010
/s/ RUSSELL P. WILSON
Russell P. Wilson
Vice President, Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
December 22, 2010
/s/ M. JAMES BARRETT, PH.D.
M. James Barrett, Ph.D.
Director
December 22, 2010
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Signature
Title
Date
/s/ MICHAEL F. BIGHAM
Michael F. Bigham
Director
December 22, 2010
/s/ FREDERICK M. HUDSON
Frederick M. Hudson
Director
December 22, 2010
/s/ CHARLES W. NEWHALL, III
Charles W. Newhall, III
Director
December 22, 2010
/s/ WILLIAM A. NUERGE
William A. Nuerge
Director
December 22, 2010
/s/ MICHAEL B. SHEFFERY, PH.D.
Michael B. Sheffery, Ph.D.
Director
December 22, 2010
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EXHIBIT INDEX
Exhibit
Number
Description
1.1*
Form of Underwriting Agreement
3.1
Amended and Restated Certificate of Incorporation of the Registrant (as currently in effect)
3.2*
Form of Second Amended and Restated Certificate of Incorporation (to be effective upon the closing of this offering)
3.3
By-laws of the Registrant (as currently in effect)
3.4*
Form of Amended and Restated By-laws of the Registrant (to be effective upon the closing of this offering)
4.1*
Specimen Stock Certificate evidencing the shares of common stock
5.1*
Opinion of Ropes & Gray LLP
10.1
2005 Stock Plan and form agreements thereunder
10.2
Supplemental Executive Retirement Plan
10.3
Employment Agreement, dated as of December 22, 2005, by and between the Registrant and Jack Khattar
10.4
Stock Restriction Agreement, dated December 22, 2005, by and between the Registrant and Jack Khattar
10.5
Lease, dated as of April 19, 1999, by and between ARE Acquisitions, LLC and Shire Laboratories Inc.
10.6
First Amendment to Lease, dated as of November 1, 2002, by and between ARE Acquisitions, LLC and Shire Laboratories Inc.
10.7
Second Amendment to Lease, dated as of December 22, 2005, by and among ARE-East Gude Lease, LLC, Shire Laboratories Inc. and Supernus Pharmaceuticals, Inc.
10.8
Third Amendment to Lease, dated as of November 24, 2010, by and between ARE-East Gude Lease, LLC and the Registrant (successor-in-interest to Shire Laboratories Inc.)
10.9
Investor Rights Agreement, dated as of December 22, 2005, by and among the Registrant and the holders of shares of Series A convertible preferred stock identified therein, as amended
10.10*
Asset Purchase and Contribution Agreement, dated as of December 22, 2005, among the Registrant, Shire Laboratories Inc. and Shire plc
10.11*
Exclusive License Agreement, dated as of June 6, 2006, by and between the Registrant and United Therapeutics Corporation
10.12*
Purchase and Sale Agreement, dated as of June 9, 2006, by and between the Registrant and Rune Healthcare Limited
10.13*
Exclusive License Agreement, dated as of November 2, 2007, by and between the Registrant and Afecta Pharmaceuticals, Inc.
10.14*
Offer Letter, dated June 7, 2005, to Dr. Jones W. Bryan from the Registrant
10.15*
Offer Letter, dated June 10, 2005, to Dr. Padmanabh P. Bhatt from the Registrant
21.1
Subsidiaries of the Registrant
23.1
Consent of Ernst & Young LLP
23.2*
Consent of Ropes & Gray LLP (included in 5.1)
24.1
Power of Attorney (included on signature page)
*
To
be filed by amendment.
E-1